• No Christmas cheer for ASX health stocks, down more than 8% as 2022 comes to end
  • Power said there “were few places to hide in sector” which sustsained a tough year
  • Optimistic for 2023 Power has a basket of six stocks he thinks could do well next year

Healthcare and life sciences expert Scott Power, who has been a senior analyst with Morgans Financial for 24 years, looks back on 2022 for ASX healthcare and what may lie ahead next year.

At the end of each week Power breaks down for Stockhead readers the ASX health sector. He unpacks news which impacted individual companies and economic metrics impacting the sector as a whole. 

For most of 2022 amidst global economic and geopolitical turbulence  including rising inflation and interest rate hike, which have impacted the sector and markets as a whole, Power’s remained somewhat optimistic and a calming, reassuring voice.

ASX health stocks are tired at the end of a tough year with the S&P/ASX 200 healthcare index (ASX:XHJ) down 8.2% year to date, while the S&P/ASX 200 (ASX:XJO) has fallen 3.7% for the same period.

“There were very few places to hide in healthcare in 2022 and we felt that the market from October 2021 was not looking real good in small caps so basically we’ve had 15 months where things have been pretty ordinary,” Power said.

 

ASX Healthcare rockstars 2022

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Medicinal cannabis play Cronos Australia (ASX:CAU) led the winners for 2022 after Power said it generated positive sales growth.

Neuren Pharmaceuticals (ASX:NEU) made headlines this year with positive results for its Phase 3 trial of trofinetide for the treatment of Rett syndrome.

Neuren’s North American Partner Acadia Pharma (Nasdaq: ACAD) has now submitted a New Drug Application (NDA) for trofinetide (NEU’s lead compound)  with the  US Food and Drug Administration (FDA).

If approved, it will be the first drug for the treatment of the rare neurological disorder.

Heart specialist Anteris Technologies (ASX:AVR) has also rallied this year. The FDA recently conditionally approved its DurAVR Transcatheter Heart Valve (THV) System for an investigational device exemption (IDE) application to commence an Early Feasibility Study (EFS).

The FDA concluded that Anteris has provided adequate data to support the initiation of this clinical study in the United States.

But Power said it was worth noting that not all of the top 2022 performing companies this year actually made money, showing what such a volatile year it had been for the sector.

“Of the top 20 for 2022, the 20th company so Monash (ASX:MVF) lost money and then if you look at the bottom dwellers they are down significantly,” Power said.

 

ASX Healthcare bottom dwellers 2022

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Lumos Diagnostics Holdings (ASX:LDX) topped the losers in the healthcare sector for 2022 after its POC diagnostic test FebriDx for detecting and differentiating viral and bacterial respiratory infections failed to get clearance for marketing in the US.

Following completion of an appeal requested by Lumos, the FDA in October upheld its decision that FebriDx has not demonstrated substantial equivalence to the predicate device identified in its 510(k) application.

The FebriDx test is a rapid, point-of-care (POC) test that uses a fingerstick blood sample to identify patients with a pathogen.

Following this decision, Lumos says it intends to direct its efforts now to commercialising FebriDx in markets where it has been already been granted clearance – such as in the EU, Canada, Saudi Arabia and Singapore.

It hasn’t been a good year for Hexima (ASX:HXL) which was developing a drug to treat fungal nail infections but saw its share lose ~84% of its value on June 24 upon news its Phase 2 trial results were inconclusive.

Hexima said it intended to conduct a detailed review of the complete clinical trial data set and study conduct and expects to report its findings when complete but its CEO has also since resigned.

If you’re looking for some summer reading on just what is involved in clinical trials then we’ve got you covered.

 

Power’s basket of six stocks for 2023

Power is approaching 2023 with optimism and has a basket of six stocks he thinks are showing signs for a solid performance next yer. Apart from Neuren Pharmaceuticals, each of these companies have seen their share price fall this year and have not felt much love in the current climate.

“Those bad times do come to an end and can change pretty quickly so what the message is going into 2023 is there are a lot of companies doing very some very good things that are looking attractively priced,” he said.

1.Neuren Pharmaceuticals

Remains a top pick of Mogans for 2023 with its pending US FDA approval.

Power said Acadia has exclusive rights to develop and commercialise trofinetide in North America.

“If the NDA is approved by the FDA, which we think a high probability, the next potential milestone payment to NEU would be US$40 million, payable following the first commercial sale of trofinetide in the US,” Power said.

“Subsequently, Neuren is eligible to receive double-digit percentage royalties on net sales of trofinetide in North America, plus milestone payments of up to US$350m.

Another potential catalyst is the licensing of rest of world rights for trofinetide.

2.Proteomics International (ASX:PIQ)

PIQ is a global leader in proteomics, which is the industrial scale study of the structure and function of proteins. The company has a core analytical services business, which provides specialist contract research, a commercial ready diagnostic for diabetic kidney disease, and another two tests in the pipeline with clinical readout over the next 12 months.

PIQ is expecting to also announce a major deal with Sonic.

3. Pro Medicus (ASX:PME)

Power said the health imaging company has been one of the best growth stories on the ASX over the last decade.

“If you look at its history Pro Medicus has just been extraordinary and there’s no reason why that’s going to stop,” Power said

He said although its last formal rating is a Hold Morgans are always looking to be on the front foot and are buyers closer to $50.

“Outside of new contract announcements, we see confirmation on several banner customers as key to cementing the view its offering as best-in-class,” he said

“Winning these initial contracts is hard, but re-contracting for the better part of a decade is a clear sign the product is valued.”

PME has five-year forward contracted revenue of $450m with many of its customers being tier one hospitals and integrated health delivery networks.

4.Volpara Health Technologies (ASX:VHT)

Health imaging company Volpara, which specialises in the early detection of breast cancer is another pick of Morgans for 2023 with growing sales and approaching profitability.

“Volpara has had a terrible 18 months in terms of share price performance but what we’re seeing is every quarter getting better and at some point it will shoot the lights out,” Power said.

“VHT continues to advance on its new strategic direction, focusing on the most profitable products and markets as well as targeting larger value customers.

“We are confident VHT will achieve breakeven by Q4 FY24 as guided to by management.”

5.Nanosonics (ASX:NAN)

Nanosonics has developed and commercialised the trophon EPR device, a unique automated disinfection technology, which was the first major innovation in disinfection for ultrasound probes in more than 20 years.

The trademarked CORIS device is attempting to solve a complex disinfection problem in removing the biofilm from the flexible endoscope.

“Management remains confident of a commercial launch into selected regions subject to regulatory approvals in CY23,” he said.

Since its AGM on November 18, the NAN share price has fallen ~20% and is now trading ~23% below its target price and providing Morgan with an opportunity to upgrade its recommendation to Add from Hold.

“We have been unable to come up with any valid reason for the share price fall given the positive four month trading update provided at the AGM,” he said.

“The company noted revenue up 42% and 36% in cc for the four months, which if this figure is annualised puts revenue comfortably ahead of consensus at $150.6 million.”

6.Mach 7 (ASX:M7T)

The health imaging company provided a positive FY23 guidance to investors for investors at its November AGM.

M7T is targeting FY23 sales orders of at least $36 million, up 8% on FY22 with revenue guidance up 20% on FY22 of $27.1 million.

“We maintain our Add recommendation as M7T has been unloved fro 12 months but we recommend investors build positions to take advantage of what should be a solid year ahead,” Power said.

The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse, or otherwise assume responsibility for any financial product advice contained in this article.

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