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
Scott Power is bemused. “The market just doesn’t want to go down,” he said.
“People have withdrawn $27m out of their super and a lot of that is helping keep things in the market moving.
“Then there’s the expectation of the government keeping their stimulus going, and a US election in November which Donald Trump will throw everything at to be reelected, and everything is just pointing up.”
Australian and US markets have been continually recovering from the drop in March — the tech-heavy NASDAQ100 is over 1000 points higher than where it peaked before the slump — because governments and central banks have been, and continue to be, supportive of spending and therefore asset prices.
“This is why we’re happy to keep playing the more growthy and speculative names in the healthcare and life sciences space,” Power said.
“Each week we’re seeing companies raising money or being rewarded when they have announcements that are positive.”
Part of the foment behind markets is the regular news coming out about vaccines.
AstraZeneca, Johnson & Johnson, Merck, Moderna, and Pfizer are the frontrunners of a field of about 180, and even the multi-billion dollar companies have been seeing their share prices yo-yo by double-digit percentages whenever they release vaccine news.
After 2015 vaccines, thanks to blockbusters like Gardasil, became money makers again, which is concerning US policymakers and the general public alike.
Power says governments are effectively pre-ordering vaccines doses by investing in the companies making them, as the Australian and Queensland governments are doing with the University of Queensland vaccine candidate.
“But it’ll be the company with the first vaccine that’ll make money. Then it’ll be the vial makers, the logistics and transport companies, and the GPs and pharmacies that have to administer it.”
And while COVID-19 (and the vaccine potential) appears to be good for markets, it may have even de-risked chunks of the notoriously risky life sciences sector.
“We consider ‘healthcare’ to be service providers and big pharmaceuticals. So you’d be looking at IVF companies, aged care or hospitals, where the government funds between 50-70 per cent of revenue. That’s pretty stable,” Power said.
“The life science sector is where you have clinical trials and diagnostics which do have much more risk associated.
“COVID-19 is probably redefining that from the point of view that it’s likely the government will start looking for more locally made devices and drugs.
“For example, until recently all medical swabs came from China. Now there’s a Melbourne company called 3DMEDitech which is supplying 3D printed nasal swabs for COVID-19.”
What’s up and what’s down
Shares in Cogstate (ASX:CGS) shot up after it signed a deal with a big US clinical data collection company called ERT to deliver its cognitive assessment platform.
“We’ve always liked this story. It’s back on track after a slow down over the last few years in Alzheimer’s and similar trials, which its cognitive measurement tests are often used for,” Power said.
“Cognitive measurement tests are used particularly in clinical trials around Alzheimer’s and so forth, and cancer trials too which want to check for cognitive decline over the course of a study.
“A lot of clinical trials need a baseline before starting the study as well as measurements as they go along. If clinical trials do bounce back in the second half of the year Cogstate should benefit.”
Diarrhoea pill company Immuron (ASX:IMC) had a sterling run this week after it jumped on the COVID-19 bandwagon by releasing news that two products worked, in the lab, against the illness.
“It’s a bit of a long shot, but don’t let the truth stand in the way of a good story, I suppose,” Power said.
“They had a massive run up and smartly tapped the market for $US20m. But I think it’s a long bow to draw.”
Cancer hopeful Imugene (ASX:IMU) received ethics approval to start a phase one immunotherapy trial.
“Immunotherapy is a hot area and the head of Imugene, Leslie Chong, has a good background in big pharma and is well connected,” Power said.
“It’s a company that we’ve been keeping an eye on because it’s one of those immuno-oncology plays that has always appealed — immuno-oncology is a new wave of therapies coming through that have been quite successful — and because of the people backing it.”
Micro-X (ASX:MX1) stock rose after it got the anticipated FDA approval for its mini-Xray machine the Rover.
What was surprising about this is that it happened in a scant five weeks.
“That kind of turnaround from the FDA is very rare, which shows the significance of the technology and reflects the fact that it’s at the forefront with trying to help with this health crisis,” Power said.
“It’s hard to know why it was pushed through so quickly but the military applications — the US military want to buy some — and the humanitarian applications are likely to have played a part.”
Power’s picks
Mouth spray company Suda Pharmaceutical (ASX:SUD) has been doing the rounds over the past week and Power finds it “interesting” and one to watch.
Suda reformulates drugs into mouth sprays which can more effectively deliver active drugs via the oral-mucosal lining of the mouth rather than through the much more impervious gut lining.
It hasn’t had a hit yet, and its original malaria product, which it had been working on for years, was knocked back last year by the Australian regulator.
However, the company says it’s months away from TGA approval for an insomnia drug and it’s on the hunt for new technologies it can plug into its product pipeline.
“Previous management did their best, it hasn’t worked share price wise or product wise,” Power said.
“Someone new has come in, restructured it, refunded it, and tried to sharpen its focus. Those are the sort of stories that are worth looking at.
“It has a market cap of $4 with $2.5m in the bank, potentially more depending on how its capital raise goes, so the downside is limited and that appeals to certain investors.”
Suda Pharmaceutical (ASX:SUD) share price
It’s quarterly season and there have been some surprises — Somnomed (ASX:SOM) in particular.
After pulling guidance and saying they were having trouble getting into clinics, it produced sales for the year which were only down 6 per cent.
“Phenomenal, I couldn’t believe it when I heard that news,” Power said.
So perhaps there might be some more upwardly mobile surprises in the coming week?
Power says Impedimed (ASX:IPD), which he follows closely and which will report next week, has already told the market that sales would be weaker and at the lower end of guidance.
“It’s going to be a mixed bag but on the whole the market thinks things will be weak. So any company that comes out with something that is a little bit better than weak will be rewarded,” he said.
“I wouldn’t have said that last week, but because we’re still seeing strength in the market and rewards for positive news this coming week might be filled with surprises.”
SOM and IPD share price
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