Scopo’s health powerplays: Get ready for the pullback
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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.
The market is confusing everyone right now.
For most of this week the big media outlets were publishing interviews with experts saying the rally was riding for a fall, only to switch gears on Thursday with mea culpas and admissions that perhaps the good times will continue.
Scott Power is still suspicious.
“I’m surprised markets have rallied so hard. I’m in the camp of expecting a pullback and think we will get that in the third quarter around August, when companies start reporting their full-year results and come out with guidance for 2021,” he said.
“I think that guidance will be fairly subdued.”
But he wonders whether the mantra of “sell in May (or June) and go away” will hold up this year in the face of momentous optimism after a period of fear.
“I’m looking forward to an opportunity to buy good quality companies at lower prices.”
He really wants to buy CSL (ASX:CSL) at $270, but wasn’t opposed to topping up at $275 when it ducked down there this week.
Power has been hard at work all week raising money for Mach7 (ASX:M7T), as it needed about $41m to buy a reseller partner called Client Outlook.
Power can’t talk about the Mach7 deal yet but can talk about how they did it: Zoom calls.
There are likely to be few people left on Earth who aren’t familiar with Zoom calls or their equivalent, but brokers’ experience with the technology could change the way companies raise money in future.
“Virtual roadshows are very efficient. The Mach7 CEO, Steve Rankin, sat in his office for three days over in the US and one by one people dialed in and had a conversation,” Power said.
“Usually what I would be doing is on the road with these companies, taking them from city to city over three days, and we would have achieved half the meetings and be knackered at the end.”
The face-to-face meetings and investor lunches will still have a place to make introductions between people and companies who don’t know each other at all, but Power says they’ve been able to achieve much more from home, than on the road.
One company managed to be both up and down this week: Opthea (ASX:OPT).
Opthea released phase two clinical trial results for OPT-302 in a diabetic macular edema (DME) trial that met primary and secondary endpoints, but didn’t have a statistically significant difference to the standard of care.
The stock, which has run hard from a March 19 low of $1.25 partly in anticipation of the results and partly due to the market rally, fell back by 25 per cent as of Thursday following the results announcement.
Power says the result wasn’t crystal clear but it wasn’t an indication that was ever going to give an absolute result, unlike the wet-age related macular degeneration (wet-AMD) phase two trial last year.
“The top line is that they’ve got a set of results that enable them to continue to move the project forward. Now they have something in DME and in wet-AMD. They can either move the research ahead or advance any licensing talks, that is the key takeaway,” he said.
“CEO Megan Baldwin has done a fantastic job, getting it to a point where they have some really interesting data that gives them options. Overall, I think the company is in a good position.”
The mean change in Best Corrected Visual Acuity (BCVA), measured by letters a patient can see on a chart of letters used during an eye exam, after 12 weeks for patients receiving OPT-302 in combination with the standard of care, Elyea, was 5.9 letters and 52 per cent gained more than five letters.
However, the mean gain in patients receiving Eylea alone was slightly higher at 6.1 letters.
But 12 per cent of patients receiving the OPT-302 combination were able to see over 10 letters and 15 letters, compared to 7.5 per cent of those in the control.
The Opthea drug also helped patients lose less vision, with 2.7 per cent of patients who lost vision despite treatment losing five or more letters compared with 5 per cent of those in the Eylea control.
“The broad results were not crystal clear, but when broken down into subsets Opthea was able to determine that there were improvements in the number of lines people could read,” Power said.
“It was always going to be difficult because this is a difficult disease and they were treating people in combination with a standard of care whose effectiveness deteriorates over time.”
Power — like the rest of the biotech sector — is still waiting on Dimerix’s (ASX:DXB) fibrosis results.
The company has said it will release the results of two phase two studies by the middle of the year, which would likely mean June but Power reckons could be July or August.