Scopo's powerplays: Investors love an ice queen

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

With reporting season heating up, this week’s theme is ‘which company loves a result’, or to put it another way, which companies treat ’em mean and keep ’em keen.

Scott Power says EBOS (ASX:EBO), Virtus Health (ASX:VRT) and ProMedicus (ASX:PME) are the companies likely to bounce after they reveal how 2020 treated them.

“We’re looking for companies that will do well on a result. Historically, EBOS and ProMedicus always seem to rally on the back of posting results, while we expect Virtus to deliver a strong result this year,” he said.

“This idea is not necessarily around companies always producing good results, even though EBOS has delivered excellent 10.3 per cent compound earnings growth over the last 16 years, but companies investors tend to reward after they’ve announced.

“It’s usually because they’ve either built up a reputation of being super conservative and then over deliver, or like ProMedicus they don’t say much during the year so the distance between drinks is a little bit sparse.”

EBOS, Australia’s largest pharmaceutical wholesaler into pharmacies and hospitals, rarely disappoints when reporting, Power says.

The New Zealand business is one of the few healthcare companies not to withdraw its fiscal 2020 guidance of still expecting profit growth (the consensus view sits at 7 per cent growth), and with that 10.3 per cent growth rate it is one of the best performing companies on the ASX.

IVF provider Virtus Health is a company Power has been keen on for months, after former Ramsay Healthcare (ASX:RHC) COO Kate Munnings stepped up as chief in January.

He likes the IVF theme — people can only put off IVF for so long — and with elective surgeries coming back online everywhere bar Victoria, Power believes it will produce a better-than-expected result.

“Cycle volumes are showing solid increases following pent up demand after a slow March, April and May, and the new CEO is very impressive,” Power said.

“She’s aggressive and high credentialed, and I think she’ll do some really good things for the company.”

Imaging software provider ProMedicus sits in Power’s preferred theme of telemedicine, a sector that was ramping up before the COVID-19 pandemic but really began to gain pace as patients refused, or were discouraged, from visiting health professionals in person.

The consensus analyst view for ProMedicus is earnings per share growth of 25 per cent in fiscal 2020 and a solid pipeline of contracts worth around $200m over five years — a compelling proposition, Power says.

What’s up and what’s down

It was an up and down week for stem cell play Mesoblast (ASX:MSB) after a solid rally since March that was based on its trials of a possible COVID-19 treatment.

This week the company’s stock fell over 30 per cent ahead of expected push back from the Oncologic Drugs Advisory Committee (ODAC) of the US Federal Drug Administration (FDA) which was reviewing data supporting the company’s Biologics License Application (BLA) for approval of RYONCIL (remestemcel-L) in the treatment of steroid-refractory acute graft versus host disease (SR-aGVHD) in children.

It’s a tiny market and an indication unloved by investors, but Power says the market has marked the share price down significantly after a big run.

Then it came back, after the ODAC voted nine to one in favour of approving the treatment.

“This treatment is not a big part of the business, but it’s the first time Mesoblast has moved through the FDA approval process and it looked like it’d hit a roadblock and that might affect the pipeline of other products behind this one,” he said.

“But it looks like those fears from the market were unfounded.”

If Mesoblast broke hearts, then Regeneus (ASX:RGS), after years of trying, was the recipient of many little pink emojis after doing a licensing deal in Japan.

Power started talking about this a couple of weeks ago after the company said everything was on track, and voila, this week it sealed the thing.

“Regeneus is up around 50 per cent after it signed a licence and collaboration agreement with Kyocera to exclusively develop and commercialise its lead stem cell platform technology Progenza for the treatment of knee osteoarthritis in Japan,” he said.

“Regeneus gets $US19m in upfront, development and regulatory milestone payments.”

And Emerald Clinics (ASX:EMD) shot up after being engaged by the UK-based biopharmaceutical arm of Canopy Growth which was, until a few months ago, the world’s largest cannabis company.

It will develop a real-world evidence (RWE) data system and use its expertise to monitor the safety, efficacy and pharmaco-economics of specific medicinal cannabis products in a contract valued at up to $723,000.

Emerald is one of the few listed players in an emerging theme around RWE.

“The concept of RWE is starting to pick up traction. It’s what Zelira (ASX:ZLD) talks about and what Opyl (ASX:OPL) is delivering,” Power said.

“It’s an evolving theme that pharma companies are paying a lot more attention to, because it’s bringing in evidence that gives them the confidence that product is working and means they can hone in on particular types of people and conditions where it’s working well.

“The FDA is also paying much more attention to RWE.”

Power’s picks

Virtus is a key Power pick this week, but so is Impedimed (ASX:IPD) which is due to imminently released the meta data analysis from a collection of publications showing its technology can reduce incidence of lymphodema.

“This is a key catalyst for the stock,” Power said.

Using the meta-analysis as well as other studies, the company believes it will have a strong case to persuade insurers to reimburse medical professionals for SOZO testing in the detection of lymphoedema.

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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