• While markets fell Friday it has generally been a good week for health stocks up on strong quarterly results
  • Health imaging company Mach7 rallies 24% on strong quarterly results as it trends to SaaS-style contracts
  • Volpara Health Technoligies up ~34% ahead of next week’s quarterly results and strategic review findings

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 ASX health stocks.

Planning a trip to space but worried you might get sick far, far away from home? Researchers have conducted an experiment at the International Space Station which could lead to rapid detection of diseases and pathogens leading to better outcomes in zero-gravity environments.

The study was led by Dr Dudu Burstein from the Shmunis TAU’s School of Biomedicine and Cancer Research and Dr Gur Pines from the Volcani Institute.

Israeli astronaut Eytan Stibbe conducted the experiment which found that CRISPR-Cas can be used to identify viruses and bacteria infecting crew members on space missions.

First the DNA is amplified, with each targeted DNA molecule repeatedly duplicated many times.

“Then the CRISPR-Cas goes into action; if it identifies the target DNA, it activates a fluorescent molecular marker,” Burstein said.

“The fluorescence lets us know whether the bacteria or viruses of interest are indeed present in the sample.”

The researchers hypothesised that genetic diagnostics using this method, which requires minimal and easily operated equipment, could be suitable for long space missions, which can be extremely problematic.

“Treatment methods are limited, so it is essential to identify pathogens, a microorganism that can cause disease, in a rapid, reliable, and straightforward method,” Burstein said.

He said the method stands in contrast to tests like PCR, which we’re now all familiar with due to Covid-19, requiring trained personnel and relatively complex equipment.

“This is the first step towards the simple and rapid diagnosis of diseases and pathogens on space missions,” Burstein said.

To markets…..

Back down on the earth where ASX health sector has been in lift off mode in July for the start of FY23, helping bruised stocks recover. The S&P/ASX 200 healthcare index (ASX:XHJ) is up ~11.70% for the past month, passing the S&P/ASX 200 (ASX:XJO) index up 4.35%.

After a good week where healthcare stocks were up, markets were topsy turvy on Friday on the back of broad decline and moves to tighten interest rates in Europe. By 2.30pm (AEST) on Friday the healthcare index had fallen 0.024% in the past five days, while the ASX 200 is up 0.13%.

“There’s been a rotation back into the more growth health stocks and a good example of that is Nanosonics (ASX:NAN) which was being sold down relentlessly for a number of months,” Power said.

“On June 30 it was $3.36 but now it’s just shy of $5 so that’s a 40% turnaround in 22 days.

“The smaller end of the market, growth riskier stocks were being tumbled but there is life coming back into them.”

Mach7 rallies 24% after strong Q4 results

Health imaging company Mach7 (ASX:M7T) was up ~24% to 76 cents on close of trade Thursday afternoon after releasing positive Q4 FY22 results along with it FY22 12-month cash flow.

Sales orders were up 30% to $33.2m and ARR up 8% to $14.4m. M7T reported net operating cashflow of $6.7m and cash on hand of $25.8m.

But Power said the most interesting aspect of M7T is the business mix is trending to more SaaS-style contracts, rather than capital, resulting in a 60:40 split compared with 50:50 in FY21.

“We view this as positive for the longer-term value of the business, although it can make the short-term revenue lumpier,” he said.

Another highlight of the quarter was dismissal of a patent infringement case which is a positive with little financial or operational impact.

But it wasn’t all good news for M7T. Management has forecast revenue of $26.5m to $27.5m for FY22, slightly below previous guidance of $28m.

Morgans also increased its administration and marketing costs for M7T by $500k and $200k respectively, reflecting a higher cost base and increasing net loss to $4.5m from $3.1m for FY22.

Morgans has reduced its 12-month share price for M7T from $1.55 to $1.34 but maintained an Add recommendation.

“We have a positive view on Mach7 and the release of its 12-month cash flow gives us confidence that it is continuing to grow its business with an increasing sales order book which will generate higher profits into the future,” Power said.


Audeara’s Q4 FY22 results worth hearing

Audeara (ASX:AUA) released strong Q4 H22 cashflow results. Audeara makes headphones designed to complement hearing aids, helping people with entertainment experiences.

“The highlights showing a record sales kicker post the flood and Covid-19 affected Q3 FY22 result,” Power said.

Audeara recorded unaudited revenues of >$900k for the period to close FY22 with ~$2.2m in sales.

“The result represents a 175% growth in the pcp, albeit off a low base,” Power said.

“Perhaps more reasonable to highlight is the strong sequential half-on-half growth, including impacted Q3 sales, continue to be strong with +26% growth.”

Power said the result once confirmed in the FY22 results comfortably beats Morgans’ sales expectations of $1.8m, which at this stage is the key focus pending sufficient cash runway.

Audeara’s cash balance is comfortable with $2.9m as of June 30 with no debt.

Power said given its major sales occur in brick-and-mortar clinics, foot-traffic and access remains critical particularly in Australia which represents almost all its business.

“It remains susceptible to ongoing COVID disruptions and potentially impact of further flooding events in NSW which occurred late in Q4,” Power said.

“This result has shown there appears to be clear demand, both pent up and new, for these products which we view will continue to grow as clinics reach sales maturity.

“As such, we would expect any major ongoing disruption to be temporary.”

Audeara recently signed a global supply deal with the world’s largest audiology retailer Amplifon.

“Outside of the minimum order quantity of ~$1m product in H1 FY23, a major benefit outside the obvious 7-fold increase in potential points of sale, is jurisdictional spreading of risks both in terms of natural, geo-political and Covid,” Power said.

The Audeara share price has rallied 8% in the past five days to 14 cents.


Neuren’s new drug application to FDA

Neurological disorders specialist Neuren Pharmaceuticals (ASX:NEU) has seen its share price up ~9.23% this week to $4.38 after a new drug application (NDA) was submitted to the US FDA for its Rett syndrome treatment through its partner, Acadia Pharmaceuticals.

The company’s trofinetide investigational drug is aimed at treating the syndrome in adults and pediatric patients two years of age and older.

If the NDA is approved by the FDA, Neuren expects to earn revenue over 2022 and 2023 for Rett syndrome in the US alone of $118 million plus double-digit percentage royalties on net sales.

The submission has triggered a milestone payment of US$10 million following acceptance of the NDA for review by the FDA.


Telix’s prostate imaging agent a winner

Telix Pharmaceuticals (ASX:TLX) jumped ~21% on Thursday to $6.72 off the back of strong global sales of its lead prostate cancer imaging agent Illuccix in its first commercial quarter.

Telix reported $22.5 million from global sales of Illuccix, more than a 10-fold increase on the previous quarter.

Illuccix generated US$13.6 million ($19.3 million) in sales in the US in the 10 weeks following first commercial sales.

As of June 30, the company held cash reserves of $122.6 million.

“That’s a terrific start for Telix,” Power said.


ScoPo’s Powerplay – Volpara Health Technologies up ~34%

Health imaging company Volpara Health Technologies (ASX:VHT), which specialises in the early detection of breast cancer, is Power’s stock of the week.

Volpara’s new CEO Teri Thomas, who took over from founder Ralph Highnam, has been undertaking a full strategic review of the company. Highnam has become the chief science and innovation officer.

Results of the review along with its quarterly cash flow are due to be released next week.

Volpara recently signed a deal with RadNet, the largest provider of outpatient imaging services in the US.

The volume-based contract, which will run for an initial period of 42 months, sees RadNet implementing Volpara Analytics and Volpara Risk Pathways software throughout its organisation.

The company has said it’s now focused on larger enterprise deals like with Radnet.

“The two things we are interested in is one a deeper explanation of their focus on larger customers,” Power said.

“The second thing we’re interested in is how they plan to get to break even with their existing cash reserve.

“On both fronts we are assuming the commentary will be positive and the market will reward.”

The Volpara share price is up 33.96% in the past five days to 71 cents.


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