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Health & Biotech
Healthcare and life sciences expert Scott Power, who has been a senior analyst with Morgans Financial for 26 years, explains what the movers and shakers have been doing in health and gives his ASX Powerplay.
While hard-core military style bootcamp may not be for everyone it seems a take on the exercise regime by University of South Australia physiotherapy students is delivering positive life changing results for people affected by stroke.
Initial results show outcomes that are three times better than standard treatments.
Supported by The Hospital Research Foundation Group, the stroke recovery clinic is led by UniSA physiotherapy students (under the guidance of practitioners) for people needing ongoing rehabilitation in their arms and hands following a stroke.
Physiotherapist and UniSA researcher Dr Brenton Hordacre says preliminary data and patient results show that the program is highly effective.
“After a stroke, many patients cannot move their bodies in the same way they used to,” he says.
“And practically, this might mean they can no longer grasp a coffee mug or bring a fork to their mouth during mealtimes.
“Our program focussed on helping people regain these fundamental movements, so they get back some sense of normalcy, independence, and a higher quality of life.”
He says initial results show that improvements to patients’ upper limb function are almost three times the clinically meaningful change score used to measure arm recovery.
“We’re also finding that patients are really enjoying the intensive rehab – and want to do more,” he says.
“Going into the program, we also thought there was a risk that patients would not enjoy it, because the rehab was too challenging or intense.
“However, what we’ve found is that patients really enjoy the program, and the results they’re seeing, and don’t want to leave.”
In Australia, there are more than 100 strokes every day. One in four people will experience a stroke in their lifetime.
In response to this success, the UniSA team is looking at how to expand the intensive program to a supervised drop-in service.
And ASX health stocks are in need of some recovery this week. At 2.15pm (AEST) on Friday the S&P/ASX 200 Healthcare index (ASX:XHJ) had fallen 1.82% for the past five days, while the benchmark S&P/ASX 200 (ASX:XJO) was up .32% for the same period amid earnings season volatility.
Power says weakness we have seen over the past couple of weeks has continued and can also be put down to August being a seasonally slower month.
“As we come into the back end of the year markets usually are a lot stronger and I think in reporting for a lot of our healthcare names we should see more positive than negative results,” he says.
Power says the reporting season has been off to a poor start with Mesoblast (ASX:MSB) returned from a trading halt to tank more than 50% last Friday after failing to receive US FDA approval for its stem cell treatment, remestemcel-L.
MSB announced the US FDA had provided a complete response to its Biologics License Application (BLA) resubmission for remestemcel-L for the treatment of paediatric steroid-refractory acute graft versus host disease (SR-aGVHD) and will require more data to support marketing approval.
Meanwhile, leader in obstructive sleep apnoea and other sleep-related respiratory disorders ResMed (ASX:RMD) has fallen ~19% this week on its Q4 FY23 results.
RMD reported a revenue increase of 21% to $4.2 billion for the year, which was up 21% on pcp. However its margins contracted by 80 bps to 55.8%, while non-GAAP gross margin contracted 120 bps to 56.5%.
“Q4 was mixed, as strong sales across all product lines failed to translate into operating leverage,” he says.
He said unconstrained supply and the the continued absence of major competitor Philips supported device growth, while masks benefited from resupply programs and new patient setups.
“While softer GPM disappointed, a bit of altruism appears to be at play as demand fulfilment, despite unfavourable product mix and higher inventory component costs, trumped short-term profit growth,” Power says.
Power says an expanding installed base and franchised customers should not be frowned upon by the market, with margins likely to improve through FY24 on abating headwinds.
Morgans maintains an add rating on RMD but has reduced its 12-month target price to $36.95 from $37.80.
Power’s pick for last week soft tissue regeneration company Aroa Biosurgery (ASX:ARX) recorded a solid Q2 FY23 result and maintained its FY23 revenue guidance.
Operating in the US and internationally, ARX’s product line includes Endoform, Myriad and Symphony, with a direct sales team.
ARX’s Enivo product, designed for dead space management, recently received FDA 510k approval for two of its three components.
The company partners with Tela Bio (TELA-US) for distributing its hernia repair and breast reconstruction products (OviTex). ARX receives 27% of net product sales from TELA of OviTex products.
Revenue for Q2 was US$14.5m, (up 39% on pcp) and was in line consensus expectations, while revenue for H1 FY23 was $26.4 million.
Gross profit was US$10.2 million (70% of revenue), while Power says gross margin increase was due to better
inventory management and decrease in the reserve for excess and obsolete inventory (as a percentage of revenue).
TELA reaffirmed its FY23 revenue guidance of US$60-65 million with growth of 45-57%, which Power says implies a strong H2 FY23 – with revenue in the range US$33.6 million to US$38.6 million.
“This all goes well for ARX with TELA managing their inventory down in H1 and now with sales momentum increasing in H2, higher product ordering is expected moving forward,” Power says.
“Adding to this positive momentum is commentary around a strong return in hospital procedures of which the backlog of elective surgeries from Covid-19 continues.
Management estimates hospital procedures are now at ~90-95% of pre-Covid levels.
“Also TELA has increased its sales force from 40-45 reps in 2021 to 75 reps currently and are targeting 80 by year end,” Power says.
“To us this demonstrates management’s confidence in its ability to grow from a small base into the large US$1.5 billion market in Hernia repair and US$700m market in plastic and reconstructive surgery.”
Morgans maintains an ADD rating and 12-month target price of $1.50 for ARX.
Ansell (ASX:ANN) has been served with a shareholder class action filed in the Supreme Court of Victoria by the law firm Slater & Gordon on behalf of the lead plaintiff, Michael Gary Warner.
Operating in the personal protective equipment space (PPE) space, ANN’s larger single use medical gloves, surgical suits and PPE business soared during the first two years of the pandemic.
Power says the claim alleges that, during the period between Aug 24, 2021 and January 28, 2022, ANN failed to comply with its continuous disclosure obligations and engaged in “misleading and deceptive conduct” prior to the release of its FY22 trading update on Jan 31, 2022.
Management denies any liability and have said they will vigorously defend the claim.
Power says this is not a good look and merely adds more investor anxiety as management embarks on (yet another) reorganisation to simplify the structure, drive gains in productivity, normalise inventory levels and broaden the digital system, at a collective cost of US$70-85 million for pre-tax annualised savings (excluding IT initiatives) of US$45m by FY26.
“This remains a name in the ‘too hard’ basket as visibility on a full recovery is uncertain and difficult to forecast,” he says.
Regenerative medicine company Avita Medical (ASX:AVH) rose 3% on Friday after posting its Q2 FY23 results, which Power says came in at the top end of guidance with revenue of US$11.7 million up 42%.
Net loss was $US10.4 million and cash on balance sheet sits at US$68.8 million. AVH upgraded full year guidance to US$51-$53 million from US$49-$51 million up 53% at mid-point and gross margin in the range of 83% to 85%.
The company also provided was Q3 FY23 guidance of US$13-S$14 million.
AVH received US FDA approval of its RECELL System for full thickness skin defects in June, allowing for a broader label of full-thickness skin defects, such as wound injuries after traumatic avulsion, surgical excision or resection.
The biotech noted that this now represents eligible procedures of 264,000 from previous estimates of 127,000.
Sales representatives have increased to 70 from 30 six months ago with the break-even for a sales rep 5 kits per month with established sales staff doing 20 kits per month.
FDA approval for use of RECELL for stable vitiligo was also received in June with AVH planning to do a post market study.
The study includes analysis of the cost impact of mental health on vitiligo patients, which Power says aims to help with its reimbursement application expected to be received in 2025.
The company’s automated device RECELL Go, which saves time in disaggregation of cells process and training, is expected to receive FDA approval late December 2023.
“This is seen as a game changer for AVH in terms of sales growth in current markets as well as aiding expansion into overseas markets,” Power says.
Copenhagen-listed drug maker Novo Nordisk has seen its share price rise ~17% this week after data from its SELECT cardiovascular outcomes trial into its weight-loss medication Wegovy indicated a 20% reduction in the likelihood of “negative cardiovascular incidents”.
The trial spanned five years with 17,604 participants aged 45 or above, all of whom were either overweight or obese.
Additionally, the trial established that the 2.4mg dosage was consistent with the safety and tolerance levels observed in previous comparable trials.
Novo Nordisk produces Ozempic and Wegovy, both attracting attention this year for aiding weight loss. Despite different brand names, they share semaglutide as the key ingredient, with slight dosage differences.
Wegovy is US FDA-approved for weight loss, while Ozempic, intended for type 2 diabetes blood sugar regulation, has attracted attention for being off-label prescribed by doctors for weight loss.
Meanwhile, NYSE listed health care giant Elli Lilly and Co which has a new similar diabetes drug called Mounjaro surged on the positive news from its rival as it awaits a decision for it to be used to aid weight loss.
Mounjaro’s sales were up 72.3% to $979.7 million in Q2 FY23 from the previous quarter. Elli Lilly and Co’s share price is up ~24% this year, putting it on the path to become the world’s most valuable healthcare firm by market cap.
“These are two dominant players in the GLP-1 (glucagon-like peptide) medication space for weight loss,” Power says.
Market darling of the ASX biotech sector for 2023 Neuren Pharmaceuticals (ASX:NEU) is Power’s pick of the week.
In March, NEU announced that its North American partner Acadia Pharma received a historic US FDA approval of trofinetide, marketed as DAYBUE, making the drug the first and only approved treatment for Rett syndrome in the world.
NEU has now completed enrolments for its Phase 2 clinical trial of NNZ-2591 in Phelan-McDermid syndrome with topline results forecast for December.
“We think it will get into the ASX 200 in the September re-balance so that will be positive for them,” he says.
“We expect the readout for NNZ-2591 to be positive in December so news flow rich for the remainder of the year.”
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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