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.


Themes of the week

Markets be crazy.

This is the gut feel among prominent investors in Australia and around the world this week, after a 26 per cent rally by the ASX200 from the March 23 low.

“We think equity markets are likely to be volatile in the months ahead,” Scott Power told Stockhead.

“Some of the volatility-inducing catalysts include the potential for a second wave of COVID-19 outbreaks, a failed therapeutic or vaccine, rising corporate defaults, and growing tensions between the US and China.”

Indeed, a pullback happened this week in healthcare as investors rolled out of that sector and into beaten up banks and cyclical stocks.

“That’s good because particularly at the larger end of town we were struggling for compelling buy ideas, but literally in the 24 hours from Wednesday some things started to come off the boil,” Power said.

CSL (ASX:CSL), down 6 per cent to $288 a share on Wednesday, is the stock he’s hoping to pick up around $270 with a very specific price target of $299.69.

Other favourites Sonic Healthcare (ASX:SHL) and Resmed (ASX:RMD) hadn’t pulled back to the same extent.

“Healthcare and tech have had such a strong run so it was literally, OK the banks now look so cheap in comparison,” he said.

“But we’re still very confident about the prospects of healthcare as we’ve determined over the last 10 years that it’s one of the top performing sectors, driven by an ageing population, medical innovation, a fair amount of government funding, and companies that are just good.”

Power believes history tells us that a 5 per cent pullback is likely sometime in the next three to four months, which he plans to use as a buying opportunity before an end-of-year rebound.

Aged care surprised everyone this week, with two companies saying things are actually OK despite the ongoing publicity around deaths in care homes from COVID-19.

Estia Health (ASX:EHE) and Japara (ASX:JHC) both came out this week acknowledging challenges but at the same time saying the underlying businesses are stable.

“Occupancies were down a little, especially since Easter, but they’ve been receiving some government assistance to counteract some of that decrease,” Power said.

And there hasn’t been much change in RADs, or refundable accommodation deposits, the one-off payments that people make to come into a facility that is refundable to a person’s estate when they die.

“The expectation was that these would slow down because people usually have to sell their home to raise the deposit and the slowing housing market might affect that, but so far that hasn’t happened.”


What’s up and what’s down

Once again, it was a very good week for a sector that is renowned for delivering sucker-punches of bad news.

Neuren (ASX:NEU) got a new CEO, elevating CFO Jon Pilcher to the top job and former EBOS chief Patrick Davies to the chair. The stock rallied significantly off the back of that.

Analysts resumed coverage of Impedimed (ASX:IPD) after a blackout period following a capital raise but there was no other reason why its share price jumped.

“The catalysts for this are still to come. It’s well capitalised, it has cash for 12 months, and it’s up to them now to deliver on a couple of key catalysts,” Power said.

“The most near-term milestone might be the most important, and it’s the two year PREVENT trial data which is due at any point. It’s the two-year milestone in a five-year trial for lymphedema.

“It’s not something they have control of as the data is being analysed by independent people and they will publish.”

Impedimed’s Sozo product measures minor changes in fluid levels in muscle and fat. Measuring those have implications for lymphedema, heart failure, and end-stage renal disease as treatments can be tweaked.

It has 540 machines installed mostly in the US and each device can generate potentially $10,000 in annual software-as-a-service (SaaS) revenue.

Cyclopharm (ASX:CYC) was up 10 per cent on Wednesday as it took another step toward US Food and Drug Administration (FDA) approval for its Technegas device.

It expects full approval by the June quarter next year.


Hot picks

Serious countdowns start next week for two companies to release clinical trial data, as both have set deadlines of the end of June.

Investors have expectations for both sets of data.

Opthea (ASX:OPT) has phase 2a results due out for its diabetic macular edema (DME) treatment.

The last news came at the end of March when Opthea sad it had completed patient dosing and all follow-up week 12 patient visits. The treatment has already been proved to successfully work in wet age-related macular degeneration (AMD) in a phase 2b trial last year.

Dimerix (ASX:DXB) is also due to release results by the end of June for a phase two trial on diabetic kidney disease and a phase 2a study looking at the rare kidney disease focal segmental glomerulosclerosis (FSGS).

Dimerix said in March that doctors with patients in the trials had approval from the health regulator for patients in both the FSGS and diabetic kidney disease trials to remain on DMX-200 if they choose once the study had finished.


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