Scopo’s powerplays: Hemp hippies and wellness wonderlands
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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.
With quarterly reports coming in thick and fast and COVID-19 cases rising again, it’s time to slow down, breathe in the early Spring air (through a mask, if you’re in Victoria), and take a moment for some Goop-like wellness.
Because as Gwyneth discovered in 2008, there is money in wellness.
Scott Power says his clients began cottoning on to this idea four months ago, about the time when wellness Insta memes and social media self-help were peaking in response to the first wave of COVID-19 in the US.
It sent the Morgans Financial life sciences team down an “interesting” rabbit hole.
“There is a growing appetite for the alternative healthcare space because it is perceived to be, or it is natural, organic, not processed,” he said.
“Just look at the massive runs in A2 Milk (ASX:A2M) and others selling healthy lifestyle themes. There’s growing investor interest in those sorts of areas.”
Power says Clover Corp (ASX:CLV) which makes healthy food additives and “medical” food fits into this category, but the reason why it popped up this week was hemp play Ecofibre (ASX:EOF) making a strategic acquisition in the US.
Ecofibre, which is the most successful marijuana or hemp play to emerge on the ASX thus far, bought a portfolio of businesses and assets from its key manufacturing partner in North Carolina, including five businesses with technical expertise in high-performance textiles.
Power says the acquisition is significant but Ecofibre is also a company that “ticks all the boxes”: it is profitable, well funded, and operating in an interesting space that lends itself to a structural shift in society toward wellness, which COVID-19 is accelerating.
Telehealth is another of Power’s pet plays and data from Medicare shows remote consults still make up almost a third of all “visits” in the three months to June.
“What will be interesting is what happens when everything opens back up. Fast forward six months when we’re back to normal and a vaccine is on the horizon, and then we’ll see how sticky it is,” he said.
Companies such as ResApp (ASX:RAP), which is developing a cough diagnostic app, are Power favourites.
People who are not relaxing with a Jade Egg or matcha latte — professional investors with money to spend and those who’ve taken that $27bn worth out of super — are buying market dips and continuing to support the multitudes of cap raises coming out of the health sector.
“There are plenty of people with money still on the sidelines and with capital raises still ramping up, there is plenty of water left in the well,” Power said.
“$75m was raised by about 10 companies in the March quarter; $580m was raised in the June quarter by 35 companies, and I’d say there’s been a new cap raise every working day in July, so that’s another 20 just in the health and life sciences sector.”
And that still only accounts for 40 per cent of companies in the sector so far.
Power’s own feeling is that with companies which dare to offer guidance during the August reporting season will be rewarded (provided it’s positive) and those, such as Monash IVF (ASX:MVF) and Virtus (ASX:VRT), which are paying out deferred dividends with yields of 3.5-4 per cent will also be in demand.
This week it received Australian regulatory approval for its insomnia mouth spray, which wasn’t expected until the December quarter. Cue stock surge, complimentary HotCopper posts, etcetera.
“Suda is one of those companies which had the right elements for something to keep an eye on: they’d raised money and have new management taking a fresh look at the portfolio,” Power said.
Fibrosis biotech Dimerix (ASX:DXB) is similar, turning out positive results for the first of two phase-two studies on its anti-fibrotic drug DMX-200.
“The most important thing is the primary endpoints were met and the numbers were good. This is what we always look for. The next results are for diabetic kidney disease within the next six weeks,” he said.
“Both of these companies are well funded, the news to date has been positive, and there’s more news flow to come. They tick all the boxes.”
It’s not so much bad news per se, but Paradigm Biopharmaceuticals (ASX:PAR) is a rare sell order from Power.
Paradigm released results from its ex-NFL drug trial in Texas for pain-related osteoarthritis and bone marrow edema lesions. Pain was reduced by 65 per cent and the share price went on a tear above $3.20.
Power’s price target is $1.74 and he thinks it’s run well ahead of its fundamental valuation, so this is a good time to sell into a strong rally.
“We continue to hold a number of concerns heading into its expensive phase-three trial early next year, including weak IP, increasing risks around recruitment and trial protocols, potential management instability after the chairman recently resigned, and founder sell-downs,” he said.
“The latest study only focused on the pain reduction and not the treatment of the underlying condition, it was open label with no sham arm with the same dosing schedule as expected in its phase-three trial, and ex-NHL footballers are far from representative of the average addressable population, so we see little scientific value in the results.”
The call of the week is stem cell play Regeneus (ASX:RGS).
“What’s attracted us is the fact they’ve recently updated their negotiating status for its osteoarthritis treatment Progenza for a deal with Japanese company Kyocera,” Power said.
Under the terms of an MOU signed in March, Kyocera has exclusive rights to negotiate a commercial licence for Progenza in Japan. It was supposed to end in July but with talks moving ahead well, they agreed to extend the exclusivity period to the end of August.
“The reason we like this company is the management,” Power said.
“They’re very committed to this and have put a lot of their own cash in. CEO Leo Lee has put serious money in. If they’re successful negotiating this licensing deal, it will be one of those companies that have a big share price run.”
Universal Biosensor (ASX:UBI) is also worth keeping an eye on, Power says.
The first page of the half year results wasn’t great reading — a 29 per cent worse loss and revenue down 75 per cent.
But Power says UBI is a cash box with $32m on a market cap of $42m, with a new CEO in John Sharman, formerly of Medical Developments International (ASX:MVP).
“Sharman has a very good reputation and I think he’s very solid,” he said. “On the surface, UBI looks a bit like Suda: it’s had a change of management, a change of focus, and it has cash.”
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.
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