ScoPo’s Powerplays: ASX health stocks fall in first week of FY23 as Mach 7 scores biggest deal in its history

ASX health stocks have fallen in the past five days in line with broader markets
Mach7 wins a US$60 million Veterans contract – the most significant in its history
Neuren completes recruitment for Phase II trial of NNZ-2591 in Phelan-McDermid syndrome

Healthcare and life sciences expert Scott Power, who has been a senior analyst with Morgans Financial for 26 years, is back after a holiday to explain what the movers and shakers have been doing in health and gives his ASX Powerplay.

Personally, I think a nap is one of life’s simple luxuries and relish a weekend afternoon snooze to rejuvenate for the week ahead.

According to a collaborative study between researchers from University College London, the University of the Republic in Uruguay, and the Broad Institute in Massachusetts, individuals with a genetic inclination for napping may have larger brain volumes compared to those without this predisposition.

The discovery is particularly noteworthy as brain volume typically decreases with age, but individuals prone to napping seem to exhibit slower brain aging.

A decline in brain volume is often linked to neurodegenerative processes and cell loss, while a larger brain volume is generally regarded as a positive indicator of overall brain health.

While the study doesn’t establish a definitive cause-and-effect relationship between napping and brain health, it presents a fresh avenue for exploration.

Some previous research has hinted at the cognitive benefits of short naps, but a direct causal link to brain health has yet to be identified. The latest study published in the journal Sleep Health employed an analysis technique to investigate potential causal connections.

Using data from the UK Biobank, the study analysed information from 378,932 participants, averaging 57 years of age and ranging from 40 to 69.

The researchers specifically sought individuals possessing the 92 genetic variants associated with habitual napping. Brain volume, hippocampal volume, reaction time, and visual memory were assessed in relation to these genetic markers, with the use of Mendelian randomisation revealing the reported associations.

To markets…

And ASX Health stocks look like they could do with a lie-down after a tough first week of trade for FY23. At 12:50pm (AEST) on Friday the S&P/ASX 200 healthcare index (ASX:XHJ) was down 3.6% for the past five days, while the benchmark S&P/ASX 200 (ASX:XJO) fell 2% for the same period.

Overall in FY23 the XHJ rose 2% underperforming the benchmark which was up 9%.

With sticky inflation and higher interest rates Power said Healthcare, like many growth sectors in the market, was out of favour.

“I think the sector has underperformed because it is typically seen as being more growth-orientated,” he said.

“Healthcare had a very strong run during the Covid-19 period and a big component of the index is CSL (ASX:CSL) which is essentially flat over the year.

“The gains across the market were fairly narrow so Energy did well along with Consumer Staples like Coles Group (ASX:COL), so the more defensive names did well.”

On the positive side Power said there have been lots of bright spots starting to come through in the Healthcare sector, particularly the small end of the market, after a couple of years of disappointment.

Mach 7 roars up 48% on US Veterans deal

Health imaging company Mach7 Technologies (ASX:M7T) has surged ~48% in the past five days after announcing on Monday it had won participation in the Veterans Health Administration’s National Teleradiology Program (NTP) in the US in a deal which could be worth up to $60 million.

According to Power it’s by far the most significant contract in M7T’s history and positions the company well for other larger deals.

“The shining star this week is M7T with a pivotal and game-changing deal,” he said.

“It will put them in the spotlight for more deals of significance.”

Under the contract, M7T will provide its VNA and eUnity Enterprise Diagnostic Viewer solutions, which will be integral to the NTP NextGen PACS architecture and serve as a replacement PACS for VISNs as it transitions off existing contracts.

The NTP is the in-house teleradiology service of Veterans Affairs, providing all radiology service support to VHA facilities.

The program aims to implement a state-of-the-art PACS system designed for teleradiology workflow and reading environment, replacing existing contracts. M7T’s involvement is as a subcontractor to the prime vendor, Frontier Acquisitions, LLC.

Key points of the deal include:

Phase 1 term (TCV of $11.7m over three years) – volume dependent so it will scale up over that time
Phase 2 term (TCV of $47.9m over five years) – volume dependent and will scale up to support seven Veterans Integrated Service Networks (VISNs)
All fees paid to be paid monthly

Volpara up 23% after reducing revolving credit facility

Medical imaging stock Volpara Health Technologies (ASX:VHT) which specialises in the early detection of breast cancer, is up 23% in the past five days after announcing it will reduce its revolving credit facility.

VHT said after a third successive quarter of strong cash flows, VHT has reduced its facility from NZ$10 million to NZ$2.5 million.

VHT obtained the NZ$10 million facility in May 2022 as part of its cash management planning. However, with strategy and staffing changes the business has operated on an approximately free cash flow break-even basis, with Q1 FY24 delivering another strong quarter of cash inflows.

The company said with more than NZ$12 million of cash on hand at the end of Q1 FY24 and repeatable operating cash flow positivity in sight, the business has decided to reduce the revolving credit facility in place as it is no longer considered necessary.

VHT incurs a line fee of 1.5% annually of the available facility, with the change resulting in further cost savings of NZ$112,500 per annum.

Furthermore Microsoft has named Volpara global Healthcare & Life Sciences Partner of the Year from more than 4,200 submitted nominations and 100 countries worldwide.

Microsoft, a major investor in OpenAI, the maker of ChatGPT, supports VHT in providing AI solutions to the breast cancer detection and prevention market.

The move adds to what has already been a good year for VHT, with the share price up more than 58% YTD.

“They’ve also had a strong cash receipt quarter and this is typically their weaker quarter in terms of lots of costs for performance payments, bonuses, insurance payments but they’ve indicated they’ve had quite a good turnaround.”

VHT is due to report Q1 FY24 results on July 21.

Neuren completes recruitment for US trial

Market darling of the biotech sector Neuren Pharmaceuticals (ASX:NEU) announced this week it completed enrolments for its Phase 2 clinical trial of NNZ-2591 in Phelan-McDermid syndrome has now been completed with topline results forecast for December.

The open label Phase 2 trial in up to 20 children aged 3 to 12 years at four hospitals in the US is examining safety, tolerability, pharmacokinetics and efficacy over 13 weeks of treatment with NNZ-2591.

Phelan-McDermid syndrome (PMS) is caused by a deletion or other change in the 22q13 region of chromosome 22, which includes the SHANK3 gene, or a mutation of the gene. PMS is also known as 22q13 deletion syndrome.

The most common characteristics are moderate to severe developmental and intellectual impairment and developmental delay, delayed or absent speech, symptoms of autism, low muscle tone, motor delays, mild to severe epilepsy, difficulties with toilet training and problems with eating.

It is estimated that between 1 in 8,000 and 1 in 15,000 people have PMS, with no medications, drugs, or therapies specifically for PMS.

In March, Neuren 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.

“The Neuren share price has been a little bit weaker over recent times and we are happy to buy it below $12 which is where it is sitting at the moment,” Power said.

Micro-X demonstrates the Argus at major bomb expo

Leader in cold cathode X-ray technology for the health and security sectors Micro-X (ASX:MX1) this week carried out its first US demonstrations for the Argus IED X-ray camera at the International Association of Bomb Technicians and Investigators (IABTI), International In-Service Training & Exposition in Florida.

It is the leading conference for bomb detectors attractings professionals from across the explosives community and includes anti-terrorism, bomb/explosives disposal and post-blast investigators.

Across the first two days of the IABTI Expo MX1 exhibited a pre-production Argus unit to a range of potential customers.

The Argus is the only portable backscatter system available to bomb technicians, capable of remote operation and stand-off imaging enabling suspect packages to be analysed remotely with greater clarity.

The unit recently completed the first field tests in Australia, with a range of tests where images were transmitted more than 1,500m line of sight from the target.

“I think the next step will be to get it formally in the customers’ hands and let them play with it in the field and from that we would be hoping to see the orders coming through,” Power said.

READ: ASX-listed Micro-X made a crucial bomb disposal breakthrough – and the US is watching

ResMed expands digital footprint

Leader in obstructive sleep apnoea and other sleep-related respiratory disorders ResMed (ASX:RMD) has acquired privately held, US-based sleep and respiratory care diagnostic software company Somnoware for an undisclosed amount.

Power said Somnoware provides an open and device-agnostic web-based platform that helps to streamline diagnostic testing workflows between medical devices, unifies datasets and delivers actionable analytics to enable faster diagnosis, proactive intervention, and automated patient engagement.

More than 1,500 diagnostic testing centres use Somnoware, providing more than 1 million sleep studies annually.

RMD will retain all Somnoware staff, integrate its offerings into the RMD brand, and will maintain the open nature of Somnoware’s offerings so end users can keep interoperating with various testing solutions and place orders for treatment devices and accessories from any supplier.

RMD’s core product remains the continuous positive air pressure (CPAP) machine, a portable pump that delivers a steady flow of air to the user via a tightly-fitted mask.

“ResMed has been a long-term key portfolio stock for clients and we think they are in very good shape.”

The M7T, VHT, NEU, RMD & MX1 Share price today:

ScoPo’s Powerplay – Avita Medical keeps regenerating

Power’s pick of the week is regenerative medicine and dual US listed company Avita Medical (ASX:AVH) (NASDAQ: RCEL).

AVH recently received US FDA Premarket Approval (PMA) of its RECELL System for treatment of vitiligo.

Using the device, a clinician can deliver autologous skin cells from pigmented skin to stable depigmented areas, offering a safe and effective treatment for vitiligo, a skin condition where patches of skin become pale or white, which affects up to 2% of the population worldwide.

The FDA also recently signed off on a PMA for the use of RECELL to treat full-thickness skin defects. The RECELL System was first approved in the US for 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.

“Avita Medical has had a very good run after ticking a number of key milestones,” Power said.

“Last Friday they submitted for their automated version of the RECELL product so that has a 180 turnaround time so hopefully by next January they will have that approved.”

He said AVH is due to report its Q2 FY24 result in early August. Power said they’ve provided guidance and had a very good track record of hitting guidance.

“I think with the share price weakness that has come through this is a ripper,” Power said.