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

As markets continue to defy gravity in the face of recession, inevitably lower profits and possible defaults, and the very high risk that a COVID-19 vaccine will not be found, there is one sector that might be making a comeback: pot.

Scott Power says they are getting a few calls — for the first time in a long time — over the last week from people wanting to know where to position themselves in marijuana.

For a healthcare analyst the only options are Zelira (ASX:ZLD) and Medlab (ASX:MDC), two pot stocks on the ASX  generating credible evidence for in-house formulated drugs.

“We’re looking for companies that have clinically validated, or are moving towards clinically validated, data,” Power told Stockhead.

“It’s alright to be suggesting a product might be helpful for particular indications, but to get it through approvals and get GPs and medical professionals to use it, you need data.”

Medlab met primary and secondary endpoints for its Phase 2 trial for cancer pain and has in motion studies for non-cancer pain and anxiety. It also recently received the first three batches of NanaBis, the trialed drug, from manufacturer Tasmanian Alkaloids.

Zelira also scored highly for its insomnia formulation in a Phase 2 study as well, but it has a foot in the door to the US market: medicinal cannabis can’t be imported into the US, because it’s federally illegal, but Zelira’s local operation can make the trialled formulation there and sell it in country.

The big unanswered question for the industry in Australia is whether companies running trials are overcapitalising on a drug that is easily copied, or whether they will be able to erode the early market share wins of companies that are simply importing products which aren’t backed by evidence.

Power believes the latter argument.

“The key to the medicinal industry is convincing primary physicians that the drug has a clear medical benefit (indication by indication) which we see as only possible through clinical studies,” he said.

“We view this as the key to unlocking the medicinal space as a viable area of investment.”

In saying that, it’s a difficult space. It’s crowded and there is very little differentiation between products.

The winners will be those with the best marketing, the best key opinion leader partners to help with promotion and distribution, and evidence-backed claims.

“I think the health benefits of properly formulated medical cannabis has significant benefits for certain indications. That will quite possibly displace some of the more traditional pharmaceutical products,” Power said.

“For example, in insomnia there could be a big shift from the traditional pharmaceutical products which come with big side effects and short use periods.”

 

The other big idea for the week is IVF, a sector that has been under pressure from Healius (ASX:HLS) low-cost clinics and which Power thinks may be due for a comeback — with caveats.

More couples are using IVF. Women are having babies later in life, same-sex couples want children, and testing can now pick up around 500 different generic conditions. While couples delay having babies in times of economic stress, women can only delay for so long so these periods often just mean pent up demand for later.

But the introduction of low-cost IVF by Healius, then Primary Health Care, ate into margins of the top listed companies Virtus (ASX:VRT) and Monash IVF (ASX: MVF).

“Healius’ low cost offering had taken market share and that took a lot of the pent up demand following economic downturns in the last couple of years, but we’re seeing now Healius’ low cost operations are increasing their prices, so it’s not as compelling an option as it once was,” Power said.

“I don’t think we will see as much pent up demand this time, as a lot of people have lost jobs or seen their incomes cut, but more and more people are also turning to IVF to eliminate genetic diseases.”

 

What’s up and what’s down

Once again it was a great week for healthcare, much like the rest of the market.

Somnomed (ASX:SOM) withdrew guidance and said a 61 per cent drop in sales wasn’t nearly as bad as they thought things would be. Power believes the company is in good hands and it will recover “reasonably well” from the COVID-19 dropoff in sales, particularly since dental clinics are beginning to open again..

Bionomics (ASX:BNO), which disappointed investors with a failed PTSD study in 2018, got a $20m investment from a European daily office this week.

The company only has a $35m market cap.

Power says the size of recapitalisation is interesting but so is the donor: Apeiron Investment Group has made other investments in European and US based biotechs specialising in mental health conditions over the last few years, and Power wonders whether this could be part of a trend.

Impedimed (ASX:IPD) released its two year data from the PREVENT study into bioimpedance spectroscopy (BIS) measurement of fluids in the body: it showed the company’s machine was “significantly” better that the standard of care — a tape measure.

The data shows the machine can detect fluid at a subclinical level which a tape measure can’t, and earlier detection prevents the onset of lymphedema.

“Is that sufficient to encourage doctors to stop using tape measures? Increasingly, yes, but not at a point where there’s a critical mass,” Power said.

“They will need more data, they need private payers to come on board, and they need the machine to get into national guidelines as a standard of care. It’s heading this way, though.”

 

What’s hot

Power is a big fan of Virtus’ new CEO Kate Munnings, who is a former nurse, a former lawyer, and former COO of private hospital Ramsay Health (ASX:RHC).

Now that he’s watching the IVF market again, he believes Virtus is one to watch.

Opthea (ASX:OPT) and Dimerix (ASX:DXB) are still on the watchlist for this coming week.

Both are still due to release highly-anticipated Phase 2 results for three studies, one of Opthea and two for Dimerix.

Dimerix did light up investors’ hearts this week, however, with unexpected news that the drug it’s been trialing for kidney diseases has been chosen for a global study into treatments for COVID-19.

DMX-200 has anti-inflammatory properties and researchers will be testing it on Acute respiratory distress syndrome (ARDS), a nasty side effect of COVID-19.