Scopo's health powerplays: The cash caboose keeps rolling on

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

The life sciences sector raised over half a billion dollars in the June quarter, and the raises are still coming.

Scott Power added up who raised how much in the last three months and came to a total of 38 deals done raising $614m.

Stem cell biotech Mesoblast (ASX:MSB) raised the most at $138m, followed by New Zealand company AFT Pharmaceuticals (ASX:AFP) with $69m, Volpara (ASX:VHT) with $37m and Mach7 (ASX:M7T) with $53m.

“Thirty-eight deals is a lot for the sector,” he said.

“I’d expect half that raised for a good quarter with a quarter of the number of deals.”

That appetite for cash is being matched by an appetite for sparky small health companies by day traders.

Synthetic bone maker Allegra Orthopaedics (ASX:AMT), Biotron (ASX:BIT) and Recce Pharmaceuticals (ASX:RCE) all jumped this week; on the back of finally taking ownership of IP, new HIV research, and a tie-up with CSIRO and the Doherty Institute respectively.

“People are just looking for the next 10 bagger, or even just anything that goes up 50 per cent. The key reasons are that people’s appetite for risk has increased and there are more retail investors in the market,” Power said.

“They are circulating from one to another, usually on the back of some news.”

And just as Victoria has locked up over 5 million people in an effort to stop COVID-19 spreading through the city, Power says not everything is as it seems with the virus as it is spreading now.

“We have an interesting situation at the moment that isn’t widely reported, where the US has rapidly rising cases but the death rate is falling,” he said.

Many experts predicted a spike in deaths in July, an assumption based on the 1918 Spanish Flu, but instead they’re coming down.

“A major difference between Spanish Flu and COVID-19 is the age distribution of fatalities, with deaths from COVID-19 having a much larger skew by age compared to pneumonia and influenza deaths in 1918 at the time of the Spanish Flu.

“This observation has some ‘experts’ concluding that the virus is probably spreading amongst a part of the population that is not as sensitive, or that it is a result of increased testing or that the virus has become less deadly.”

What’s up and what’s down

Once again there was little bad news causing investors to run for the exits in life sciences companies, and a range of news inviting them in.

Some had real news and others simply caught the eye of day traders.

“Universal Biosensors (ASX:UBI) is a cashbox and it had a price spike. I think it just caught people’s eye,” Power said.

“Whereas Cogstate (ASX:CGS), which does cognition measurement for large pharmaceutical companies testing treatments for Alzheimer’s and dementia, had a good story to tell about contracts won in FY20.

“It did $US8.4m of clinical trials sales contracts during the June quarter and $US46m in the year, which after several years in the dark when dementia and Alzheimer’s trials were being shut down, is a really good sign.”

Mesoblast continued a run as did Duchenne’s muscular dystrophy biotech Antisense (ASX:ANP), a company that has been on a “real tear” for a while as it draws closer to what looks to be its final clinical trial before drug approval.

Power pointed to Orthocell (ASX:OCC), which had its annual patient data review published in the American Journal of Sports Journalism, and another Adelaide company, LBT Innovations (ASX:LBT) which signed a major distribution partner for Europe, as companies with rising share prices backed by real news.

Power’s picks

Reporting season is upon us and Power’s picks for the week are Volpara and Adelaide mini-xray maker Micro-X (ASX:MX1).

“The key pick for us is Volpara. I’m expecting to see some solid quarterly cash receipts for the June period,” he said.

“Micro-X is a favourite because they’re in the thick of COVID-19 with their lightweight xray machine that’s in demand for diagnostic imaging. Hopefully we see more orders coming through.”

The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.

Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.