ScoPo's Powerplays: ASX health stocks end the week ahead despite freaky inflation data

ASX health stocks rise in past five days, despite May uptick in inflation
Healius downgrades guidance for FY24, citing inflationary pressures
Immutep falls despite positive results from Phase 2 trial in first line head and neck cancer

Healthcare and life sciences expert Scott Power, who has been a senior analyst with Morgans Financial for 27 years, explains what the movers and shakers have been doing in health and gives his ASX Powerplay.

Is it time for your adolescent to put down the smart phone or cut down their internet usage? A new study by University College London (UCL) researchers has found that adolescents with internet addiction experience brain changes that could lead to addictive behaviours and tendencies.

Published in PLOS Mental Health, the authors say internet usage has seen a large global rise over the last few decades, particularly among adolescents and young people, who have also been diagnosed increasingly with internet addiction (IA).

The study reviewed 12 articles involving 237 young people aged 10-19 with a formal diagnosis of IA from 2013 to 2023.

IA is defined as an inability to resist internet use, negatively impacts psychological wellbeing and social, academic, and professional lives.

Functional MRI scans revealed altered functional connectivity in the brains of addicted adolescents, with changes in both the default mode network (resting state) and the executive control network (active thinking).

These changes correlate with addictive behaviours, intellectual and physical coordination issues, and mental health impacts.

The researchers emphasised that adolescence is a crucial developmental stage, making the brain particularly vulnerable to IA, which can lead to negative behavioural and developmental changes.

To markets…

And despite hotter than expected inflation figures ASX healthcare stocks have finished the week in the green. At 2.15pm (AEDT) on Friday the S&P/ASX 200 healthcare index (ASX:XHJ) was up 0.21% for the past five days, while the benchmark S&P/ASX 200 (ASX:XJO) fell 0.09% for the same period.

According to new data from the Australian Bureau of Statistics (ABS), inflation is growing again with the monthly CPI indicator hitting 4% for May, much higher than April’s 3.6%, and above the 3.8% the market had forecast.

“The week has been mixed with higher inflation data putting the question of higher interest rates back on the table or at the very least pushing out the timing of any rate cuts,” Power says.

“The defensive part of the markets have been very strong so the banks and non-discretionary sectors.

“We are coming into 30 June and a number of investors will be cleaning out their portfolios which is some cases provides great entry points into stocks.”

‘Underperformer’ Healius falls after profit warning

Healius (ASX:HLS) has fallen 0.49% this week after announcing FY24 guidance has been downgraded, with the pathology provider now targeting underlying EBITDA $345-350m, ~5% downgrade at mid-point and EBIT $60-65m, 17% downgrade at
mid-point.

While H2 FY24 pathology volumes have improved and restructuring cost savings are marginally above targets, lower average GP fees and inflationary pressures remain headwinds to margins and profitability.

Morgans says the time it will take HLS to get back to pre-covid levels is difficult to predict, but is unlikely to happen over the near term.

HLS says Lumus Imaging and Agliex Biolabs are performing in line with expectations.

“We’re not particularly keen on the story and it’s rated as a hold by us,” Power says.

“It’s been through quite a few ups and downs and they’ve basically sold most of their businesses to focus on pathology and they’re looking to sell their radiology business so will become the second largest pathology operator in Australia.

“The share price for a decade has been an underperformer.”

Following the trading update, Morgans lowered its FY24-26 estimates, with its target price decreasing from $1.32 to $1.28 and the Hold rating maintained.

Immutep falls despite positive trial results

Immutep (ASX:IMM) plunged 35% on Thursday morning after releasing its topline results from the TACTI-003 Phase IIb trial in first line head and neck cancer.

The trial evaluated the effectiveness of eftilagimod alfa (efti), in combination with KEYTRUDA (pembrolizumab) for treating first-line head and neck squamous cell carcinoma (HNSCC).

The primary focus of the trial was to assess how efti, IMM’s proprietary soluble LAG-3 protein and MHC Class II agonist, performs alongside KEYTRUDA, a well-established anti-PD-1 therapy from Merck & Co.

The results revealed that the combination therapy significantly outperformed KEYTRUDA monotherapy across various levels of PD-L1 expression.

Patients with high PD-L1 expression (CPS >20) exhibited an overall response rate (ORR) of 31.0%, compared to 18.5% with KEYTRUDA alone in the randomised Cohort A of the trial.

In Cohort B, which focused on patients with negative PD-L1 expression (CPS <1), the response rate saw an improvement from earlier assessments, reaching levels that have been accepted for presentation at an upcoming ESMO Virtual Plenary session.

“The price got hammered pretty badly and while they hit their primary endpoint I think looking into the data it wasn’t as strong as what the market was expecting so the share price got pushed down which is a shame,” Power says.

The share price finished the week down ~24%.

LBT Innovations targets big pharma

LBT Innovations (ASX:LBT) published a strategy update this week. Power says LBT is targeting big pharma with their high-tech instrumentation enabling the rapid analysis of culture plates.

“They’re having some success on that front so we think it is one worth keeping an eye on,” he says.

LBT has two core products with their first the APAS Independence, targeting the clinical pathology market. Their second product the APAS PharmaQC, targets environmental monitoring for pharmaceutical manufacturing customers.

Power says through the use of AI technology, the products automate and improve the reading and reporting of microbial
growth on culture plates.

“A traditional microbial quality control lab is largely manual and prone to human error, with high volume testing required by regulators,” he says.

“LBT’s products streamline the entire process, improving operational efficacy, quality of results and data integrity.”

Power says LBT has provided a simple analysis detailing the revenue per product which suggests up to $1m revenue per APAS sale over 5 years.

The company expects the revenue split to be ~60/40 between upfront cost/one-off costs.

One of LBT’s competitors, Nasdaq-listed Micro Biosystems estimates the TAM being 10,000 instruments representing sales of US$5bn,” he says.

LBT raised $4.5m in a rights issue, priced at $0.005 in December 2023 to support expansion into the pharmaceutical microbiology market.

In addition, there are in-the-money options set to expire in September 2024 potentially raising up to $2.1m and in November 2025 potentially raising $3.3m.

Power says upcoming catalysts for the company include AstraZeneca expected to complete internal validation of APAS PharmaQC in Q1 CY25 as a precursor to their planned roll out commencing in Q1 CY25.

LBT is also is in talks with Thermo Fisher (exclusive distributor into laboratory market) to streamline and consolidate servicing of all its instruments.

“Other top 10 pharmaceutical companies are expected to engage with LBT following the AstraZeneca success and early sales to Perth based NovaCina and Thermo Fisher.

Power says the board and management have skin in the game, owning ~20% of LBT.

ScoPo’s Powerplay – Countdown to Neuren trial results

Neuren Pharmaceuticals (ASX:NEU) is Power’s pick of the week with positive clinical trial results for a rare disease called Angelman expected within a month.

Angelman effects ~14,000 patients in US and will be the third clinical result using NEU’s more advanced compound known as NZ-2591.

In 2023 NEU became the market darling of the ASX healthcare sector after receiving US FDA approval via its US marketing partner for Trofinetide, selling under the name Daybue, to treat Rett’s Syndrome.

Rett’s has a US patient population of ~10,000 with Daybue selling for US$375k per patient.

Power says when the clinical results were released in December 2023 for the first indication for NZ-2591 Phelan-McDermid NEU’s share price rallied 40% to an average price of $22.55.

He says when the clinical results were released for the second indication Pitt Hopkins on May 27, 2024 the share price rallied 15% to $22.84.

“That stock has been quite volatile in terms of its share performance and the share price runs up with an element of anticipation into a expected positive result,” Power says.

“Once the result is released it keeps going up but then profit taking comes in and we are sort of in this range of $19-24.

“If history is any guide it will run up into the results and assuming it’s positive, which we’re confident it will be, you’ll get some more share price appreciation and then the profit takers come in after that so it’s one for the traders.”

The NEU share price is up ~6% in the past five days.

The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead. Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.