Sigma has won a lucrative Chemist Warehouse contract from EBOS. Pic: Getty Images
Health & Biotech
Morgans healthcare and life sciences expert Scott Power is away this week so his colleague Iain Wilkie is stepping in to explain what the movers and shakers have been doing in health and gives his ASX Powerplays.
While yoghurt is considered a nutritious food, a trip down the cold aisle of the local supermarket can leave many shoppers confused as to which is the healthiest.
A rise in the availability and popularity of plant-based yoghurts to supplement for dairy can add to the confusion.
A study published in Frontiers in Nutrition has examined the nutritional value of several different types of plant-based and dairy yoghurt products available in the US.
The study found while plant-based yoghurts may haver higher fibre content and less sugar they had lower amounts of nutrients like protein and calcium.
Almond yoghurts had the highest nutrient density out of all the examined products based on the index scoring system used by the researchers called the Nutritient Rich Foods Index.
The researchers found plant-based options may need to be fortified to improve nutritional value and fill in missing nutrients.
And ASX health stocks looked like they were getting their nutrients on Friday, regaining some losses from earlier in the week after the RBA’s latest 25bp rate hike bringing the cash rate to 4.1% took a toll on markets.
At 12.45pm (AEST) on Friday the S&P/ASX 200 healthcare index (ASX:XHJ) was down 0.59% for the past five days, while the benchmark S&P/ASX 200 (ASX:XJO) fell 0.35% for the same period.
“With US markets paring back after nice month-long plus run, Australian markets followed this lead and then were hampered mid-week by the RBA’s move to lift rates again,” Wilkie said.
Sigma Healthcare (ASX:SIG) is up more than 23% this week after announcing that it has signed a binding deal with Chemist Warehouse for the supply of both Pharmaceutical Benefits Scheme (PBS) medicines and Fast-Moving-Consumer-Goods (FMCG) product for a period of five years commencing on July 1, 2024.
SIG is the incumbent supplier for FMCG product to Chemist Warehouse, and those sales currently represent ~29% of Sigma’s net sales revenue.
However, SIG’s gain has come at the expense of its pharmaceutical distributor rival EBOS Group (ASX:EBO), down ~13% for the past five days after being informed by the retail chemist giant that it intends to pursue alternative wholesale supply arrangements and that its contract won’t be renewed beyond the expiry date of June 30, 2024.
“It was close to $2 billion in revenue that they would lose,” Wilkie said.
“But margins are pretty skinny on a contract like that and I’m not sure the maths is 100% correct but we’ve worked out that it’s about a 3.7% margin what they make out of it.”
Wilkie said SIG won back the contract it originally had from EBO, which would’ve found it hard to compete against the terms offered by its rival.
Among the terms, SIG will issue Chemist Warehouse ~10.7% of its share base at 64.2¢/share at the start of the supply contract.
Chemist Warehouse will also have the right to acquire certain non-core assets from SIG that have a $24.5 million value. If the pharmacy giant decides against buying the assets, SIG will have to pay it $24.5 million net cash.
“What we suspect from that reading between the lines is no one will ever win that contract again and it’s Sigma’s for life,” Wilkie said.
“Now Chemist Warehouse have a holding in Sigma.”
He said while EBOS bought Terry White, Chemist Warehouse may also be looking to vertically integrate the other way around.
Morgans maintains an Add rating on EBO but has reduced its 12-month target price from $44.12 to $38.07.
Medical devices company PolyNovo (ASX:PNV) came out of a trading halt on Wednesday, to rise by 15% after announcing its first ever $7m sales month.
PNV said May’s sales of $7.2m were driven by a strong showing in the US, where it had a record monthly sales (unaudited) of $5.2m, up 97.3% on the pcp.
The company also said there were encouragingly strong sales in Canada, Hong Kong, and India and a first-time order from the Middle East.
Wilkie said there is speculation that May sales for PNV benefited from a product recall enforced on competitor, NASDAQ-listed Integra Lifesciences, by the US FDA.
“I wouldn’t expect to many handbrakes coming their way with the Integra recall a couple of weeks ago,” Wilkie said.
“It might give the other players in the space a bit of a kick.”
Cancer diagnostics company Pacific Edge (ASX:PEB) has fallen more than 60% in the past five days after announcing the Medicare coverage of Cxbladder tests in the US market is expected to cease from July 17, 2023.
The decision came as US regulators determined that Cxbladder, and tests provided by other companies, as ‘not considered medically reasonable and necessary’.
This means Cxbladder has failed to satisfy the minimum threshold required for coverage under the US Social Security Act. A number of other companies are also affected by the decision.
As a direct result PEB’s revenue is expected to reduce substantially from current levels until Cxbladder tests regain coverage.
In FY23, tests for Medicare and Medicare Advantage made up around 60% of US commercial tests, or ~13,800 tests, and generated ~$15.3 million, or 77.3%, of the company’s operating revenue.
Post 17 July, all of these tests and revenues are expected to be impacted. PED said it was planning legal appeals.
“It’s about 80% of its sales so that has fallen a lot this week as a result,” Wilkie said.
S&P Dow Jones Indices have announced the June 2023 quarterly rebalance of the S&P/ASX Indices and there were no changes to the major indices.
Wilkie said there was expectation that market darling Neuren Pharmaceuticals (ASX:NEU) would be elevated to the S&P/ASX 200 after the company’s North American partner Acadia Pharma received US FDA approval of DAYBUE (trofinetide) for the treatment of Rett syndrome.
DAYBUE is now officially available for the treatment of Rett’s in the US and the NEU share price is up 62% YTD.
“Everyone was waiting for the quarterly rebalancing to see if Neuren would get into the ASX 200 and I think most people were expecting it as a couple of weeks ago it was hitting well within the 200 and was a prime candidate to get in,” Wilkie said.
“Our data guys seem to think the ones with potential to drop out weren’t quite low enough so there were no changes at all.
“A lot of those index tracker buyers will now have to wait a couple of months for Neuren to have another crack at it.”
Regenerative medicine and wound care company Avita Medical (ASX:AVH) is Wilkie’s stock of the week and was also Scott Power’s pick last week after the US FDA signed off on a premarket approval (PMA) for the use of its RECELL System to treat full-thickness skin defects.
The supplementary approval expands the use of RECELL in full-thickness skin defects, such as wound injuries after traumatic avulsion, surgical excision, or resection.
AVH said the grant has dramatically expanded the company’s market opportunity by at least five times with investors reacting favourably to the news and sending the share price up ~17% in the past five days.
The RECELL System was first approved in the US for the treatment of severe burns in 2018. It’s an autologous cell harvesting device that prepares, produces, and delivers a regenerative cell suspension, Spray-On Skin Cells, using a small amount of a patient’s own skin.
“It is big and the question is now how big and successful can Avita be at getting into these soft tissue repair surgeries,” Wilkie said.
“They’ve been really good with burns and selling to burns centres but now they have to go into these level one and two trauma centres which they might already have a relationship with but they might not, so their sales people will have to work pretty hard.
“But each rep only needs to sell five sales kits each month to break even and they think can get up to those levels within a couple of months.”
Currently, skin grafting is the standard of care for full-thickness skin defects, but significant pain, delayed healing, risk of infection, and scarring are associated with donor site wounds.
RECELL meanwhile, demonstrated that less skin from the patient is required to repair and close the wound without compromising the healing outcomes relative to convention autografting.
AVH is also developing an automated RECELL device, to be known as RECELL-GO, which will automate the cell disaggregation, reducing the time of the procedure.
AVH anticipates a FDA submission as a supplementary PMA for RECELL-GO by June 30, 2023 with FDA approval expected Q1 FY24.
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.
Health & Biotech
Health & Biotech
Health & Biotech
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