ScoPo’s powerplays: Jazz Pharma’s $9.4b deal highlights pot plays
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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.
A huge acquisition in the international medical cannabis sector is set to give tailwinds to several ASX-listed marijuana companies, Scott Power says.
Ireland-based Jazz Pharmaceuticals (NASDAQ:JAZZ) this week agreed to buy cannabinoid drugmaker GW Pharmaceuticals (NASDAQ:GWPH) for $US7.2 billion ($9.4 billion) – a 50 per cent premium to GW’s closing price on Tuesday.
The British company is the first and thus far only company with a cannabis-based medication approved by the US Food and Drug Administration – Epidyolex, which was also approved in Australia this past September to reduce the seizures associated with two forms of severe epilepsy.
“Medicinal cannabis is becoming much more accepted around the world, and Jazz Pharmaceutical is a very good, aggressive company, and they’ve obviously seen some very strong reasons to get ahold of the GW Pharma portfolio,” Power said.
“That’s sort of a pivotal moment for the sector, and when you look at some of the players Australian market — you know, the Medlabs (ASX:MDC), the Zeliras (ASX:ZLD) and the smaller one, Avecho (ASX:AVE) — are all sort of working down this path of trying to get good clinical data to validate their claims.
“And that will help move it into the path of more traditional or mainstream medicine.”
Botanix Pharmaceuticals (ASX:BOT), which this week came out with positive data about the antimicrobial properties of its CBD gel and ointment, is another ASX company that stands to benefit, Power added.
Of those companies, Medlab Clinical rose 12.1 per cent this week to 32.5c; Zelira was down 1.3 per cent to 7.6c; Avecho gained 35 per cent to 2.7c; and Botanix declined 3.5 per cent to 14c.
Elsewhere in the sector, Queensland diagnostic company AnteoTech (ASX:ADO) soared 80 per cent this week to 18c after its customer Ellume won a $302 million contract to supply at-home COVID-19 tests to the United States military.
AntoTech supplies antigens to Ellume, a privately held company, and is working on its own COVID-19 self-test.
“That’s a pretty exciting opportunity there, linking in on that Covid theme,” Power said.
Next up, Volpara Health Technologies (ASX:VHT) gained 12.1 per cent to $166.5 after following up last week’s positive third-quarter earnings results with the $23 million acquisition of US-based breast cancer risk assessment company CRA Health.
“We were pretty impressed with that acquisition – well, not pretty impressed, we were very impressed with that acquisition,” Power said.
“We think it really builds their technology stack, and the company they’re buying is a profitable company in its own right.”
And Morgans thinks that Volpara paid a reasonable price for the company – about 5.5 times CRA’s annual recurring revenue of $4.1 million.
Some Software as a Service (SaaS) companies trade for 10 times their annual recurring revenue, Power said.
“So we think this is a good strategic acquisition,” he said.
Morgans has raised its price target on Volpara to $1.92, from $1.70, while maintaining its “add” recommendation on the Wellington, New Zealand-based breast density company.
Lastly, MicroX (ASX:MX1) fell 5.4 per cent for the week, to 35c, after the next-generation X-ray technology company raised $30.5 million in a 34c-per-share capital raising to professional investors.
“It’s a continuing theme we had last year – the volume of money that is available to fund good quality businesses,” Power said.
The funds, Power said, will position the Queensland company well for its four platforms of growth – portable X-ray machines, early stroke detection technology, bomb-checking devices and an airport self-check-in system.
“So that’s been exciting for us.”
Looking at the broader market, things picked up this week with a 3.5 per cent gain for the All Ordinaries, its best week since early November.
Healthcare underperformed but still rose a respectable 2.0 per cent.
“Last week there was a little bit of nervousness, a little bit of ‘risk-off’,” Power said. “I think now we’re sort of back on ‘risk on’.
“It’s driven by the low-interest rates, the government stimulus around the world, and the vaccine rollout giving people confidence that the economies at some point in the future.”
Monash shares finished the week up 2.0 per cent while to 77c while Virtus gained 2.6 per cent $5.89, breaking through Morgans price target of $5.82.
Medicare data late last year shows that more women are opting for IVF cycles with the pandemic easing.
“They’re looking really good,” Power said of the two companies.
Virtus reports its half-year results next Wednesday, while Monash does so on February 24.
Power also likes the look of Opyl (ASX:OPL), which he said had a very good quarter and is poised to roll out more technology that would help pharmaceutical companies improve their clinical trials.
“So we think that looks very interesting and very timely for clinical trials that are sort of coming back on stream,” he said.
And as mentioned earlier, Power thinks research-based medical cannabis plays like Medlab Clinical, Zelira Therapeutics, Avecho Biotechnology and Botanix Pharmaceuticals are all poised to do well.
“The GW Pharma (acquisition) is going to have some real positive sentiment across that space and continue to keep that medicinal cannabis space firmly in investors’ sights,” he said.
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