Health Check: UBS turns ultra-bullish on Aussie healthcare leaders

• UBS reckons healthcare will fare better than any other ASX sector
• Bell Potter says Monash IVF has fertile recovery prospects
• Telix wins FDA usage expansion for prostate cancer imaging  

Financial giant UBS has declared that enough is enough with lagging healthcare valuations – and now believes it will be the best performer of any ASX sector.

In bestowing ‘pet sector’ status, the firm says that healthcare stocks are the cheapest they have been in 10 years.

This follows three years of remorseless earnings per share (EPS) downgrades.

The firm opines healthcare now offers the best EPS growth of all ASX sectors, with an expected increment of almost 20% in the 2025-26 year.

The S&P/ASX 200 healthcare index has fallen 5% over the past 12 months and is down 7% year to date.

In contrast, the broader ASX200 index looks to be finishing the year around 9% higher.

“Investor sentiment towards the healthcare sector has broadly cooled over the last year, with some marked deterioration seen across many stocks,” UBS says.

“Cochlear (ASX:COH) in particular has seen investor apathy build over the last year, which represents a significant change of views versus [12 months previously].”

The firm has upgraded Cochlear to a ‘buy’ for the first time since 2011.

ResMed (ASX:RMD) also joins the favoured list, alongside market fave Telix Pharmaceuticals (ASX:TLX)

“Challenging market conditions”

Meanwhile, Bell Potter notes that “challenging market conditions” have mostly persisted for small and mid-cap healthcare stocks.

Of the 35 stocks the firm covers, only nine are trading at a premium to their December-end values.

“The macro factors driving this broader performance include the uncertainty arising from leadership changes at the US Food and Drug Administration (FDA) and proposals to lower prescription drug price in the US,” the firm says.

“Consequently, institutional investors have largely adopted a wait-and-see approach.”

However, Bell Potter expects new drug approvals and earnings growth “to lead to a wave of new capital flowing into the sector”.

Oh baby! That’s an interesting call

Bell Potter’s three favourite healthcare stocks include the troubled Monash IVF Group (ASX:MVF), if only because the share price reaction to the company’s embryo-woes looks excessive.

In the broker’s half-year run-down of best buys across all sectors, the firm’s other two healthcare picks are Telix – that name again – and Neuren Pharmaceuticals (ASX:NEU).

Monash IVF’s two reported embryo transfer errors resulted in the June 12 resignation of CEO Michael Knaap.

Prominent silk Fiona McLeod is carrying out an independent probe into the snafus.

Meanwhile, Monash IVF shares have halved since January.

Bell Potter says Monash IVF trades on a multiple of six times. This compares with 12.5 times for nearest rival Virtus Health in 2022, when it was taken over by BGH Capital and delisted.

“The depressed share price may also invite a bid for the company adding corporate appeal to a deep value investment thesis.”

The firm reckons Monash IVF is worth $1.15 a share, more than twice its current valuation.

On safe ground

With Telix, Bell Potter says revenues from its lead prostate imaging product Illucix should continue to grow as it wins US market share.

The FDA recently approved another prostate imaging agent, Gozellix, and should green light the kidney cancer imaging product Zircaix in the September quarter.

Neuren is making hay from US sales of its Rett syndrome therapy Daybue, via partner Acadia.

But the firm believes the bigger value driver is Neuren’s separate compound NNZ-2591. This is for the rare ‘orphan’ diseases Phelan-McDermid, Angelman, Pitt Hopkins and Prader-Willi syndromes.

NNZ-2591 is thought to be more effective and less toxic than Daybue – and the market could be bigger.

Neuren reported positive phase II trial results for Phelan-McDermid and expects to kick off a phase III study within months.

With $340 million of cash, Neuren has oodles of dosh to fund the 160-patient trial.

In fact, the company is undertaking a share buyback to soak up stock at discounted levels.

Bell Potter also rates MesoblastMesoblast (ASX:MSB) , Clarity Pharmaceuticals (ASX:CU6) , Immutep (ASX:IMM) and EBR Systems (ASX:EBR) as speculative buys.

Telix in FDA win

Back to Telix – yet again – the FDA has approved a label extension for Illucix.

This will enable doctors to patients for radioligand (targeted radiation) therapy earlier in the piece, before they progress to chemotherapy.

Telix estimates clinical use of Illuccix will increase by at least 20,000 scans annually.

The label expansion piggybacks the FDA’s recent approval of an expanded indication for Novartis’s Pluvicto radioligand therapy.

The firm says Telix’s imaging has become a standard of care in prostate cancer detection and management.

The FDA also recently approved Telix’s Gozellix, another prostate cancer imaging agent.

Cleo pops down to the (bio) bank

The US National Cancer Institute has granted ovarian cancer diagnostics developer Cleo Diagnostics (ASX:COV) access to a US cache of blood samples.

Collected from 155,000 cancer patients over the last decade, the repository is called the Prostate, Lung, Colorectal and Ovarian Cancer (PLCO) biobank.

Cleo says PLCO is a a gold-standard resource, having derived from one of the “largest and most influential US longitudinal cancer studies”.

Cleo will use the data to strengthen its FDA marketing submission for a pre-surgical test and expects to complete the supporting trials by the end of the year.

Earlier, Cleo entered a compact with University College London to access a capacious ovarian cancer biobank.

“Together, these biobanks form a comprehensive, internationally representative … population that Cleo will use to enhance its clinical  evidence  and substantially derisk key regulatory milestones,” Cleo CEO Richard Allman says.

Cleo’s two trials pertain to pre-surgical identification and screening of an asymptomatic population.

Earlier studies showed Cleo’s tool confirmed or ruled out tumours 95% of the time, thus outperforming standard-of-care assays.

Capital raising corner

At the smaller end of the sector, companies are raising enough to keep the lights on – and perhaps a little more.

The maker of asthma adherence devices that wrap around ‘puffers’, Adherium (ASX:ADR) plans to raise $4 million at half a cent apiece.

This is by way of an insto and retail offer, partly underwritten and struck at half a cent.

Investors also get one option for every share issued, as well as a ‘piggyback’ bonus option.

An existing holder Phillip Thematic Fund has its hands up for $800,000, while Phillip Asset Management and Trudell Medical are good for $1 million of underwriting.

Heart device play Cardiex (ASX:CDX) has raised about $4.1 million in a rights offer, having gathered $2.4 million in a placement.

Both were done at four cents a share.

TALi Digital (ASX:TD1) is seeking $1.48 million in a right issue, having mustered $800,000 in a private placement. Both were struck at one-tenth of a cent per share.

Tali is developing tools that test kids for conditions including autism and attention deficit hyperactivity disorder.

This month Tali acquired You Can Do It! Education, “a social-emotional learning program aimed at improving the social, emotional, and academic outcomes of young people.”