3 Diagnostic Stocks That May See Sales Soar Because of Obamacare


Although it may not seem like it, given the innumerable glitches that have plagued the federally run health-insurance exchange and a handful of state exchanges, the Patient Protection and Affordable Care Act, known better by the public as Obamacare, is going to change the entire health industry landscape.

Among the opportunities being created by this transformative law is a chance for medical diagnostic companies to shine. The thought here would be that if more people are insured through the Medicaid expansion or by signing up on the individual exchanges, then they'll be more likely to go to the doctor for preventative care checkups. These checkups, in turn, would probably involve an increased use of diagnostic tests to presumably catch common and unchecked chronic diseases early such as hepatitis-C and diabetes.

Of course, this won't be a slam dunk for diagnostic companies, either. Some of the odd repercussions we've observed leading up to the opening of the Obamacare health exchanges is that insurers and hospitals have been stingier with their approvals and spending habits. Hospitals especially have been trying to scale back costs just in case enrollment figures turn out to be disappointing and their doubtful account provision (i.e., the amount of revenue that goes uncollected from uninsured and underinsured patients they treat) doesn't drop as they expect.

This has been particularly troublesome news for higher-priced medical device makers such as Intuitive Surgical , which has developed soft tissue robotic surgical devices. Intuitive Surgical's machines cost in excess of $1.5 million, making them a pricey acquisition during a time when hospitals are paring back their spending. Molecular diagnostic companies could face the same fate if their tests aren't priced appropriately to meet market demand.

However, where there could weakness for Intuitive Surgical over the near term, there's a moat of opportunity for three small-cap diagnostic companies over the long term. Here are three names I think you should have your eyes on that could possibly see sales soar as Obamacare enrollment jumps.

OraSure Technologies
Perhaps no company stands out to me as a bigger possible beneficiary of Obamacare's health industry overhaul than OraSure Technologies.

Source: OraSure Technologies.

OraSure already has a pretty extensive lineup of hospital, clinical, and in-home-based diagnostic kits. These include rapid tests that will identify antibodies for the HIV and hepatitis-C viruses, as well as immunoassay tests used to test people for drug or alcohol abuse. Obviously, having a diverse pipeline is already one gigantic step toward a healthy future cash flow.

But, what I really find intriguing here is the potential boost OraSure could see from its OraQuick HCV Rapid Antibody Test for hepatitis-C. There are an estimated 3.2 million people in the U.S. with hepatitis-C according to the Centers for Disease Control and Prevention, and about three-quarters of those people have no clue they have the disease. Over the long term, the chronic form of hep-C, which is far and away more common than acute hep-C, can lead to liver cirrhosis or even liver cancer.

Treatments for hepatitis-C are improving at a breakneck pace, but awareness of the disease and testing is severely lacking. OraQuick could easily change that as it's a point-of-care 20 minute test that could greatly improve hep-C awareness and early detection. Not to mention that a new law recently passed in New York state that will go into effect on Jan. 1 and requires health service providers to offer a one-time hepatitis-C test to baby boomers born between 1945 and 1965 could set a precedent for other states to follow. This is important because, as OraSure notes, baby boomers are up to five times more likely to have hepatitis-C than any other current generation.

If everything works out well with enrollments into Obamacare, OraSure could easily clean up.

Talk about a genetic analysis company down on its luck and needing something good to happen!

Sequenom has been burning cash on a regular basis since its inception. Like numerous other genetic analysis companies, it makes a lot of sense on paper, offers plenty of hope for personalized medical care down the road, but can't seem to find a lot of takers at the moment, with hospital and clinical settings paring back their spending before the individual mandate goes into effect on Jan. 1. But that could be about to change.

One of the important aspects about Obamacare is that it's greatly broadening the scope of minimum coverage to include factors that weren't automatically included in health insurance plans previously, including no maximum out-of-pocket costs for maternal and prenatal care. This is important, because Sequenom is the company behind the MaterniT21 PLUS test, which allows physicians to test for Down syndrome. The test isn't exactly cheap, with out-of-pocket costs still varying wildly for patients, but coverage (given that the test is still relatively new, not all insurers are covering it yet) and recommendations from physicians to get Sequenom's Down syndrome test should only increase as more people sign up for health insurance.

I've pegged my own peak sales "guesstimate" of MaterniT21 PLUS sales at $300 million, which would make Sequenom, with its current market value of $270 million, potentially an attractive buy candidate.

Navidea Biopharmaceuticals
Another diagnostics company I think it would be wise to keep your eyes on is Navidea Biopharmaceuticals.

This small-cap diagnostics company had its lead product, Lymphoseek, approved by the Food and Drug Administration in mid-March. Lymphoseek is an injectable agent used in external lymph-node imaging and intra-operative lymphatic mapping. In other, clearer words, it helps to stage cancer for physicians with regard to breast cancer and melanoma.

It's one of those FDA approvals that can easily get lost among a series of high profile approvals, but as we saw earlier this year, breast cancer is among one of the most misdiagnosed diseases out there. This means more accurate staging is needed to assist physicians with personalizing treatment plans and options for their patients. Lymphoseek could do just that, and the Affordable Care Act could make it a lot easier for insured patients to more quickly get to the staging aspect of their breast cancer or melanoma.

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The article 3 Diagnostic Stocks That May See Sales Soar Because of Obamacare originally appeared on Fool.com.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of, and recommends Intuitive Surgical. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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