ScoPo's health powerplays: Cap raises goin' crazy

Healthcare and life sciences expert Scott Power, who has been a senior analyst with Morgans Financial for 24 years, explains what the movers and shakers have been doing in health and gives his ASX powerplays.

This week’s big themes

The capital raising game continues and given the enthusiastic responses from investors, now could be a good time to buy your favourite health stocks, Scott Power says.

About $15bn was raised on the ASX in April alone and Power says another $20bn is expected to be raised before the end of the financial year.

That’ll bring total funds raised for fiscal 2020 to just over $70bn.

ASX data shows 2019 only managed just under $49bn.

“The point is the markets are liquid and open, particularly for the stronger companies, those that have a decent track record,” Power told Stockhead.

Few health companies have struggled to raise money, either because they’ve been popular or massively discounted.

“Once these companies have been recapitalised their share prices are moving higher,” he said.

“Historically that’s been a bit of a trend. If we look back to the global financial crisis a lot of the recapitalisations resulted in pretty solid share price moves 12-18 months later.”

“So this is a good time to pick your favourite life sciences stock.”

Ramsay Healthcare (ASX:RHC) and Cochlear (ASX:COH) were the big raisers last week and this week it was IVF provider Monash IVF (ASX:MVF) with an $80m bake sale.

A slew of small caps have either gone into halts or already raised cash, including Impedimed (ASX:IPD), Oventus (ASX:OVN), Immutep (ASX:IMM), and Oncosil (ASX:OSL).

“The other side of the coin is the emergency raise, such as Visioneering (ASX:VTI), which are being done at substantial discounts,” Power said.

He says while Visioneering has a good product — a contact lens which can fix shortsightedness rather than deal only with the symptoms — building sales momentum has been difficult and it has a high cost base.

What’s in and what’s out

Companies on information tours get Power’s tick of approval this week, while comments about COVID-19 “super profits” at companies which have managed to mobilise global and local supply chains do not.

There are lots of virtual conferences being set up as companies frantically try to get their stories out to investors before the June pre-results season blackout period starts.

Power says now is the time to start investigating new companies because they’re only too willing to talk.

There have been a few comments bandied about the media about health companies making super profits from the pandemic, but Power is pooh-poohing the idea.

“Super profits is not a concept I would be running with. Things have happened too quickly and literally every company is either downgrading or pulling guidance,” he said.

For example, where pathology companies are seeing COVID-19 testing rise, it’s being evened out as volumes of all other tests fall as people stay away from doctors’ clinics.

Furthermore, he believes there’s going to be a surplus of the most in-demand products, with ventilators topping that list.

“Companies like Resmed (ASX:RMD) and Fisher & Paykel (ASX:FPH) in particular have been the primary beneficiaries of the increase in ventilator sales but as we’re seeing now the epidemiology is suggesting that things are probably not going to be as bad as the original expectations, so the demand will probably slow.”

Hot picks

Impedimed completed an $18m capital raising this week and combined with its existing cash reserves, that extra gives it $24m in the bank.

The company has taken a long time to commercialise its body fluid measurement machine, which targets the lymphedema, heart failure and end-stage renal failure, all conditions where medical staff need to know where and how much fluid is collecting in the body.

Power says the quarterly reports are beginning to show some traction.

Revenue is rising, as are the number of tests done on its machines which stand at over 110,000.

“It’s another case of a company transitioning to software-as-a-service (SaaS). They’re placing devices across a lot of breast and oncology clinics and now have over 500 devices placed, on which they’ve performed over 110,000 tests,” Power says.

“The company has turned the corner.”

Also “pregnant with news” is Antisense (ASX:ANP), a company which is developing orphan drugs for Duchenne Muscular Dystrophy (DMD) which affects little boys, and Multiple Sclerosis.

It was due to release the full results from its DMD phase two trial by the end of April (and had not done so at the time of writing). But given the early results from nine patients at the Royal Children’s Hospital in Melbourne were very positive, Power is expecting the full set to be a share price mover.

Orphan drug companies are highly sought after by investors because the incentives offered to companies in the rare disease game offer a high level of market protection.

There aren’t many on the ASX, Power says. Neuren (ASX:NEU) is one of the few alongside Antisense.