ScoPo’s health powerplays: Ramp ups and turnaround favs
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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.
Cochlear’s (ASX:COH) results announcement this week revealed more than just how badly they’d been hit by the COVID-19 downturn.
The hearing aid implant company said unit sales dropped 80 per cent in April but there were early signs of elective surgeries coming back.
“But they couldn’t say how quickly things would ramp up. That’s a theme we’re hearing across the hospitals and radiology and so on. Companies are starting to see signs but they have no idea how quickly it will all ramp,” Power said.
“Once companies have more confidence about the ramp up, some of these names will start picking up steam.”
Capital raises continue to be the theme of the week in healthcare.
Stem cell favourite Mesoblast (ASX:MSB) raised $138m to bolster manufacturing of its potential COVID-19 medicine.
“At $138m this was big raise even in good times and it goes to show there is money out there still backing credible stories,” Power said.
“These guys have raised a lot of money over the years, and even though the stem cell technology is still to commercialise, it’s an area that makes sense into the future.”
Mesoblast is running in the US a phase 2/3 trial in up to 300 patients to see whether its treatment remestemcel-L can reduce deaths in COVID-19 patients with moderate/severe respiratory syndrome, following positive results in a 12-patient compassionate trial.
The cap raise surge began about eight weeks ago but there are some companies that still haven’t pushed the fundraising button.
“Telehealth company Medadvisor (ASX:MDR) have a strong shareholder in EBOS, which owns almost 14 per cent. This is a really neat story in making the handover from pharmacists to the customer more efficient,” Power said.
“Neuren (ASX:NEU) has indicated they want to keep funding their phase 3 trials in orphan drug applications, so they’ll need more money.
“Anatara Life Sciences (ASX:ANR) is also a neat story in that they have some clear clinical milestones. It’s all about gut health and they have an animal product which they’re in talks about re-licensing, which they say will happen by the end of the second quarter this year.
“It’s an easy story to understand and has sensible people running it.
“Adalta (ASX:1AD) will need money, but that’s been well flagged to the market. They want to get their fibrosis treatment into humans, get some data and then licence it, so they need money for the clinical trials.”
If you own a company that is promoting hand sanitiser and the share price is still running, Power would be taking money off the table.
Hand sanitiser is highly commoditised now and everyone is doing it, from ASX companies to gin distilleries, and there’s not much distinction between how effective each one is because they’re all making the same recipe.
“The flip side is that we’re washing, or sanitising, our hands over and over so what damage is that doing to our skin? And do we need a level of germs on our hands to help with immunity?,” he said.
That could mean companies selling dermatology and skin care products see-saw up as hand sanitiser heads down.
COVID-19 turnarounds are this week’s picks.
Swift Media (ASX:SW1), a provider of closed loop entertainment systems to companies, has just moved into aged care.
Power says the new CEO, former Nine Entertainment executive Pipp Leary, has refocused the company to its core mining sector vertical, a more “vanilla” offer for GP clinics rather than the Netflix-style content play it was attempting, and now aged care.
“And the share price isn’t reflecting that yet,” he said.
ResApp has been something of a perennial disappointment, from *that* study in 2018 which failed because US clinicians weren’t using it to spec to failing to to get Food and Drug Administration (FDA) approval for use in the US earlier this year.
But Power says the COVID-19 crisis has made its proposition, software that can remotely diagnose a cough signature, much more interesting.
The company has regulatory approval in Australia and Europe so it can and has started doing deals in both regions.
Mach 7 (ASX:M7T) is another management change-plus-cap raise turnaround that is benefiting from the rapid switch to remote operations.
The company does teleradiology and Power says it’s a Pro Medicus (ASX:PME) lookalike but a tenth of the size.
“Management changed about 12 months ago, a decent chunk of money at $20m was raised before Christmas, they’ve done some cost cutting and refocused, and we like that teleradiology space, anyway,” he said.
And there’s Micro-X (ASX:MX1), a Power favourite.
It’s an Australian manufacturing story out of Adelaide which saw sales start disappointingly slowly about 12 months ago but thanks to the COVID-19 health crisis, the order books are filling up.
The company is selling to hospitals in Asia and Australia, and with a $15m cap raise in the bag they’ve got 12-18 months of runway to get to cashflow break even.