How tech is changing healthcare, and where professional ASX investors are looking

By ASX sector, healthcare is one of the most open to disruption from technology.

But in picking the next market leader, the sector also poses some unique challenges — stricter regulatory criteria (for obvious reasons) and scalability chief among them.

The COVID-19 disruption has also created some strong talking points, most notably the shift to telehealth solutions. This week we spoke to two health-tech CEOs and investment firm Altor Capital to get an appraisal of the current market.

There’s winners & losers

For Craig Cooper, CEO of cardiovascular health company CardieX (ASX:CDX), the pandemic has served to accelerate medical technology trends already in place — with telehealth being a prime example.

“If you look at the growth of telehealth, it was already down a significant path before COVID-19 hit, but it’s sort of accelerated beyond warp speed what anyone would have thought six to eight months ago,” he said.

“So the themes are the same, and it’s important to remember there’s still been winners and losers over the last six months.

“The medtech sector generally has performed OK, and there’s been breakout performers in sectors which are more targeted such as PPE (personal protective equipment) or acute care requirements.

“But companies on the elective side have suffered more than the others, so it’s a real balancing act across the wider sector.”

Osteopore (ASX:OSX) director Geoff Pocock told Stockhead the company had operated adjacent to the COVID-19 disruption, which meant it had largely been “business as usual” in terms of strategy.

“The part of the health system we operate in has had slightly less impact than others. In some ways COVID-19 is changing the way we’re doing business, but from a tech and healthcare perspective we’re finding it somewhat isolated,” he said.

“In the short term we haven’t been affected, so the approach to manage it is continue doing what we’re doing and focus on securing access and getting penetration into these new markets.”

What investors are looking for

For Altor Capital portfolio manager David McNamee, companies in the medtech space have a number of boxes to tick before getting investment approval.

“You’ve got to look for businesses with a true value-add from a tech and science point of view, that can actually tie that together while also clearing the relevant regulatory hurdles,” he said.

“It’s all well and good to be looking for growth but you’ve got to be paying a reasonable price for that growth, and I’d stress that point.

“So you really need to drill into the risk/reward, and what you perceive the downside protection is in these investments.”

In terms of company’s that meet the criteria, McNamee said Altor held a position in HeraMED (ASX:HMD), the telehealth platform which offers an at-home pregnancy monitoring solution.

Along with a tailwind from COVID-19 for remote health solutions, McNamee also flagged US Food and Drug Administration approval for HeraMED’s monitoring device.

“They’re capped (market capitalisation) at less than $10m, with a strong management team and a chairman — Ron Weinberger — who has a track record with successful companies (including Nanosonics (ASX:NAN)),” he said.

“Plus they’ve got tech that’s been proven and have jumped through the relevant regulatory hurdles. So what’s that worth? Well we think it’s worth more today than before corona, and if they can commercialise it the upside is significant for that company.”

Another one McNamee said he hadn’t changed his view on was medical imaging company ImExHS Ltd (ASX:IME).

“They’re already at cashflow breakeven, they’re well capitalised and they’ve got some great clients and strong revenues but the valuation is still pretty reasonable for where that business is at in its growth cycle,” he said.

“For us there are segments of the market that are looking a bit stretched. But we’re happy to pay up for companies that can deliver on growth, so it’s a matter of distinguish where those companies are in their growth cycle and how management teams are making decisions in the wake of the COVID-19 disruption.”

Tech trends to watch

On the investor side in the US market, where CardieX is headquarterd, Cooper highlighted that medtech continues to attract healthy amounts of venture capital money at the early-stage level, despite the stricter regulatory framework surrounding the sector.

“Looking at the first half of this year, VC funding into digital health was $US5.4bn — up around $US2bn from the year before,” he said.

“So that’s $US5.4bn of venture money going into hundreds of new digital health companies, that are all positioning themselves for a breakthrough that will require some level of regulatory approval. So there’s a system in place to take account of that, it’s not as if it’s not expected or it’s causing a huge bottleneck.”

Looking ahead, Cooper said that from a tech perspective — for CardieX and the industry more broadly — the challenge was to expand distribution channels to get products into the hands of consumers who needed them.

“As an example, I was in China recently meeting with executives from Tencent, who are working with Chinese government on how they can take remote monitoring solutions out into rural villages,” he said.

“Whether it’s China, the US or Australia, one of the biggest challenges is how government and the private sector can work together to get these remote solutions out to less populated areas.”

On the company side, “traditionally the device has been very specialist based — cardiologists and big pharmaceutical companies are our clients”, he said.

“So our plan to grow distribution is to take our product to the consumer, and we’re on track to receive FDA approval for that next year.”

In the world of regenerative medicine, Osteopore’s Pocock said people were realising “how sophisticated the body actually is, and how much you can customise and develop healthcare solutions that tap into that”.

In response, the tech is starting to go “less interventionist and more complementary” to increase capacity of what the body is able to do.

“Within that, the concept of bio-absorption is something people are increasingly focused on,” Pocock said.

“If you’ve got a product that’s been put in place and it doesn’t need to be taken out, it removes the need for a second surgery.

“So thats a really strong theme that’s coming out in the future of healthcare — to augment what the body’s able to do, but do it the least invasive way possible.”