ScoPo’s Powerplays: ASX health stocks flat as a pancake but hopes still of Christmas rally
Health & Biotech
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.
Do you get a headache after drinking red wine? Even a small intake of red wine can trigger headaches for some people.
Scientists at the University of California, Davis, investigated the cause behind what is often referred to as a “red wine headache”, particularly in individuals who don’t experience headaches from consuming other alcoholic drinks in small amounts.
Published in Scientific Reports, the researchers think that a natural flavanol called quercetin present in red wines might disrupt alcohol metabolism, potentially leading to headaches.
Quercetin is an antioxidant found in various fruits and vegetables like grapes and even available as a supplement. Quercetin is produced by the grapes in response to sunlight.
But wine chemist and corresponding author from UC Davis Department of Viticulture and Enology Andrew Waterhouse, says when combined with alcohol and metabolised, it transforms into a different form known as quercetin glucuronide.
“In that form, it blocks the metabolism of alcohol,” he says in a news release.
Consequently, people can end up accumulating acetaldehyde, a well-known toxin, irritant and inflammatory substance which can cause facial flushing, headaches and nausea.
Disulfiram, a medication given to alcoholics to deter drinking, induces similar symptoms by preventing breakdown of acetaldehyde, while ~40% of the East Asian population also has an enzyme that doesn’t work very well, allowing the toxin to build up in their system.
“We postulate that when susceptible people consume wine with even modest amounts of quercetin, they develop headaches, particularly if they have a preexisting migraine or another primary headache condition,” says co-author Morris Levin, professor of neurology and director of the Headache Center at the University of California, San Francisco.
“We think we are finally on the right track toward explaining this millennia-old mystery.
“The next step is to test it scientifically on people who develop these headaches, so stay tuned.”
And ASX health stocks aren’t quite celebrating with a glass of red this week, finishing fairly flat after being up for three consecutive weeks in what is hoped to be the start of a Christmas rally after a tough 2023.
At 11am (AEDT) on Friday the S&P/ASX 200 healthcare index (ASX:XHJ) was up 0.03% for the past five days, while benchmark S&P/ASX 200 (ASX:XJO) had risen just 0.02% for the same period.
Power is confident still in a Christmas rally and investors seem to have taken some profit after solid weeks.
“I think there’s been bit of consolidation and some profit taking after some really solid weeks,” Power says.
Wound care company Avita Medical (ASX:AVH) has fallen ~16% in the past five days after slightly lowering its full year 2023 guidance, driven by slower-than-anticipated progress in its customer’s Value Analysis Committee (VAC) processes. VACs are groups that manage medical and surgical product use within a hospital.
As a result of these delays, AVH revised its forecasted full year 2023 commercial revenue from the previously disclosed range of $51 million to $53 million, to a range of ~$49.5 million to $50.5 million.
“Avita had a modest downgrade to guidance with everything else on track and it has been dealt with very harshly,” Power says.
Power says the key catalyst for Avita remains US FDA approval for RECELL Go, in May next year.
Pharmaceutical distributor giant EBOS Group (ASX:EBO) is down ~9% this week after announcing discussions relating to a potential animal care business strategic transaction had concluded, with a decision not to proceed with any deal.
EBO went into a trading halt late last week before making the announcement on Wednesday. There was media speculation that EBO were in discussion to acquire Greencross Vets.
Power says EBO has a good reputation for careful and strategic acquisitions.
“I was a little surprised that the shares got sold down more than 5% but having said that EBOS has a good track record in terms of building a business and are very disciplined in what they buy,” he says.
“The fact that this acquisition will not proceed demonstrates to us that they are maintaining a disciplined approach to acquisitions.”
EBO announced earlier this year the loss of its Chemist Warehouse contract, worth about $1.1 billion in revenue, saying it won’t be renewed beyond the expiry date of June 30, 2024.
EBO’s loss was to the gain of pharmaceutical distributor rival Sigma Healthcare (ASX:SIG) which announced it would supply the chemist retail giant both Pharmaceutical Benefits Scheme (PBS) medicines and Fast-Moving-Consumer-Goods (FMCG) products.
With the Chemist Warehouse contract finishing Morgans is forecasting a 3% decrease in EPS in FY25, however, remain confident that EBO will resume double digit growth in FY26, which is in line with their 10-year history.
“They are well diversified and a good acquirer and integrator of businesses so that deficit will be filled in the next couple of years so we remain very positive on EBOS.”
Power’s top pick for last week, health imaging company Volpara Health Technologies (ASX:VHT), which specialises in the early detection of breast cancer, has released strong half yearly results.
Among highlights VHT increased half-year revenue by almost NZ$3million, or 17%, from NZ$16.9 million in HY23 to NZ$19.8 million.
VHT’s subscription revenues have maintained solid, organic growth, of 19%, or NZ$3.1 million to NZ$19.3 million from NZ$16.2 million.
The company’s three core revenue products Analytics With Scorecard, Patient Hub and Risk Pathways have increased by 27% to $14.9 million.
Capital revenues declined 22%, from NZ$700k to NZ$500k as VHT continues its migration of customers from legacy systems to Patient Hub.
The company now has contracted annual recurring revenue more than US$28.4 million (~NZ$46.3 million), while annual recurring revenue is now US$22.5 million (~NZ$36.6 million).
VHT has maintained its full year guidance of NZ$40 million to $42 million, which Power says will be a jump up in revenue and see them just below breakeven for the year.
“They’re in very good shape and are one of our key picks for 2024,” Power says.
Brisbane-based medical software technology company ImpediMed (ASX:IPD) started the week by announcing its continuing its leadership changes with Rick Valencia stepping down from his role as CEO effective immediately, to be replaced by Dr Parmjot Bains on January 8 2024.
IPD announced Tim Cruickshank had stepped down as CFO, and chair McGregor Grant had assumed the responsibilities of CFO effective immediately in an interim capacity, and will be an executive chairman.
IPD has a bit of a board stoush going on this year following a capital raising and perceived risk to shareholder wealth.
In August IPD announced in accordance with ASX listing rules it had received notice from shareholders holding at least 5% of the votes that directors hold a general meeting of the company to remove four of the existing directors and replace them.
At a general meeting on September 28, the directors were removed and replaced. Power says McGregor Grant is the former CFO and company secretary of Nanosonics (ASX:NAN) and has a very good reputation.
“We’re of the view that the incoming board of directors and new CEO will very get this company back on track and it is in good hands,” Power says.
IPD focuses on non-invasively measuring, monitoring, and managing fluid status and tissue composition using bioimpedance spectroscopy (BIS) medical technology.
The company achieved a key milestone earlier this year when the US National Comprehensive Cancer Network (NCCN) included BIS as part of its new version of guidelines as an objective measurement tool to identify early signs of lymphoedema.
Market darling of the biotech sector for 2023 Neuren Pharmaceuticals (ASX:NEU) is Power’s pick of the week as the countdown gets underway for its Phase 2 clinical trial of NNZ-2591 in Phelan-McDermid syndrome (PMS) results, which are scheduled for release in December.
In March the USA FDA approved its compound trofinetide (now called DAYBUE) for Rett’s syndrome, the first drug for the treatment of the rare neurological disorder which emerges in infancy.
NEU’s large pharma partner Acadia (NASDAQ:ACAD) recently reported Q3 FY23 net sales of DAYBUE for the treatment of Rett Syndrome in the US of US$66.9 million and provided guidance for net sales in Q4 FY23 of between US$80 million and US$87.5 million.
However, NEU CEO Jon Pilcher told Stockhead upon FDA approval of DAYBUE that NNZ-2591 is even more valuable to the company.
“I’ve been saying for a long time it’s worth a lot more to us than trofinetide,” Pilcher says.
“They are both involved in the biology of IGF-1 in the brain, which is growth factor critical for normal brain development and maintenance.
“The number of patients we are looking to target with NNZ-2591 is five times the patients of Retts syndrome.”
Power says NNZ-2591 is NEU’s second generation compound, a smaller peptide, easier to manufacturer and the patients are receiving lower doses.
“Those results will read out in December and our view is that those results will be positive so we’re very confident,” Power says.
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.