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Healthcare and life sciences expert Scott Power – a senior analyst with Morgans Financial for 24 years – on what the movers and shakers have been doing in health and which ASX health stocks make Scott’s Powerplays.
If you’ve experienced a frightening event, you know the memory unfortunately stays with you. However, why does a frightening memory stay with you when other memories may be difficult to recall over time?
Neuroscientists from Tulane University School of Science and Engineering and Tufts University School of Medicine in Louisiana have been studying formation of fear memories in the emotional hub of the brain – the amygdala.
Led by Tulane cell and molecular biology professor Jeffrey Tasker and his PhD student Xin Fu, the study was recently published in Nature Communications and found that the stress neurotransmitter norepinephrine, also known as noradrenaline, facilitates fear processing in the brain by stimulating a certain population of inhibitory neurons in the amygdala to generate a repetitive bursting pattern of electrical discharges.
The bursting pattern of electrical activity changes frequency of brain wave oscillation in the amygdala from a resting state to an aroused state leading to fear memories formation.
“If you are held up at gunpoint, your brain secretes a bunch of the stress neurotransmitter norepinephrine, akin to an adrenaline rush,” Tasker said.
“This changes the electrical discharge pattern in specific circuits in your emotional brain, centred in the amygdala, which in turn transitions the brain to a state of heightened arousal that facilitates memory formation, fear memory, since it’s scary.
“This is the same process, we think, that goes awry in PTSD and makes it so you cannot forget traumatic experiences.”
And it was another week to forget. Apart from a few positive individual company stories it was rather bleak for ASX health stocks. By 2.30pm (AEST) on Friday the S&P/ASX 200 index was up 0.58% in the past five days, while the S&P/ASX 200 healthcare index had fallen 0.68%.
“The broader market was up and down throughout the week, while healthcare was mainly down taking a further turn on Friday morning with the downgrade of Healius,” Power says.
“We’re just going through an economic cycle where we are going to see further volatility over coming months.”
The trading update through May 22 for healthcare services provider Healius (ASX:HLS) noted “operational challenges and additional costs due to level of Covid-19 infections e.g staff on sick leave, last-minute cancellations of surgery and imaging procedures”.
The company said its Q3 Imaging business is slightly ahead of the May guidance, while its Pathology business is ahead of Medicare data.
However, Healius revealed its unuadited underlying EBIT for the year-to-date to May is in the order of $473 million. With just one month remaining it has added less than $100 million in the second half, with H1FY22 EBIT of $376.1 million.
The Healius share price dropped 8% on Friday to $3.82.
The battle for fertility company Virtus Health (ASX:VRT) has come to an end with the company today announcing London-based equity firm CapVest had withdrawn its bid after Melbourne-based BGH gained the upper hand.
BGH last week increased its takeover offer to $8.15/share which compared with CapVest’s $8.15 or $8.10/share depending on whether a scheme of arrangement is approved.
Entities controlled by BGH including Oceania Equity Investments have been making a series of buy-ups and as of June 2 holding a 76.38% stake in the company, based on 85,536,996 shares on issue.
According to Morgans Virtus intended to pay a special fully franked dividend of up to 30 cents/share if BGH acquired at least 50% by 7pm on May 31 and 90% by June 14. It achieved a 50.45% stake on May 30. Virtus must pay a break-fee of $7.2m to CapVest.
“BGH has played a very strategic game, now have the best offer on the table and it has been recommended by the board and marching towards getting a 90% stake,” Power said.
“It’s been a six month tussle with the first bid coming in before Christmas so it’s really been very interesting to watch and it appears BGH will be successful with the offer due to expire on June 13 unless its extended.
“Each day the market will now be updated and when BGH get to a 90% holding they can compulsorily acquire the balance of the shares.”
The remaining IVF play on the ASX is Monash IVF Group (ASX:MVF), which Morgans has a buy rating and 12 month target price of $1.26. It is currently trading at $1.08 having fallen ~13% in the past month.
“Monash has good fundamentals, is growing and are acquiring other practices,” Power said.
Cancer immunotherapy company Immutep (ASX:IMM) is up this week after announcing positive data from its lead drug candidate efti. The new interim data from Part A of the Phase II TACTI-002 trial in first line NSCLC has been published in an abstract at the American Society of Clinical Oncology’s (ASCO).
Efti in combination with pembrolizumab continues to show favourable antitumor activity in first line non-small cell lung cancer (NSCLC) patients from TACTI-002 with data cut off January 2022
Among results was improved Overall Response Rate (ORR) of 37.3% (intent to treat, 28/75 patients) as assessed by local read based on 75 patients and compared to 36.1% at ASCO 2021.
In the health sector which has been hammered during recent bearish sentiment, Immutep has been bullish on the back of positive announcements. It’s share price price has risen 7.55% in the past five days and 30% in the past month to 43 cents.
“We think Immutep has some very good science behind it and is one we like,” Power said.
Power said investors should take note of enterprise imaging companies, which have software that goes across a hospital network. He said Health imaging companies ProMedicus (ASX:PME), Mach 7 Technologies (ASX:M7T), Volpara Health Technologies (ASX:VHT), and Imexhs (ASX:IME), the smaller of the four, are all quality plays in the sector.
“They basically have software that moves images like an X-Ray or ultrasound from the equipment to the radiologist and specialist for diagnosis,” he said.
“Like so many of the technology growth stocks they have been out of favour for a while probably since last October but they have qualities which I think will help them rebound quickly at some point when the market turns and I’d rather stay ahead.
Power said the companies certainly tick the environmental, social, and governance (ESG) box.
“They are low income on the environment, are benefiting patient outcomes and I think most of these companies have good gender diversification,” he said.
He said they are also not consumer facing or reliant on hospital and larger budgets.
“Tech companies reliant on the consumer have been hit very hard but these have been hit hard but not as hard and I think will rebound faster,” he said.
“They will probably recover quicker once money starts flowing back into the growth stocks.”
One of the enterprise imaging companies ProMedicus is Power’s stock of the week. PME has announced the signing of a $28 million contract for 7 years ($4 mill per annum) with US based integrated delivery network (IDN) Allina Health. L
Power said like with most PME contracts, the contract is volume-based which provides further upside to the baseline contract figures as study numbers grow.
Described by Morgans as “another nice chunky contract”, it is due to commence in FY23 with no major impact to FY22 forecasts. Rollout will start immediately with initial go-live is targeted for late 2H CY22.
The contract marks the fifth major IDN contract PorMedicus has won over the past 18 months and a continuation of the strong momentum for its cloud-based offering which Morgans sees as having a distinct advantage versus many of the incumbent, legacy systems.
Despite continued pressure on high PE growth names, Power said Promedicus continues to build on its significant position within the large enterprise networks within the US.
“It’s a profitable company and has some strong profit growth coming through over the next three to five years and it’s sort of sitting off its sentiment low,” Power said.
“When sentiment turns I think we could see this run back to our price target.”
Morgans has an add rating and target price of $56.20. ProMedicus is currently trading at $41.54 having fallen 8% in the past month of heavy selloffs.
The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.
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