ScoPo’s Powerplays: ASX health stocks rise as big names ‘trading at very attractive fundamentals’
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.
How is your heart health? Implemented across over 200 GP clinics throughout Australia, the Heart Foundation’s Heart Health Check (HHC) Recall pilot study extended invitations to about 42,000 at-risk Australian patients via SMS encouraging them to undergo a HHC.
The results recently published in the Australian Journal of General Practice resulted in a 14-fold increase in HHCs in comparison to control practices.
The pilot is the largest focused trial for screening cardiovascular disease (CVD) in Australian general practice with potential to establish a structured CVD screening program in Australia in the future.
The Medicare-subsidised HHC is a 20-minute check-up for people aged 45 years or over, (30 and over if First Nations) and was first introduced in 2019.
During the HHC, a GP checks their patient’s blood pressure, cholesterol, blood sugar and asks key questions about nutrition, exercise, medical and family history.
These factors enable the GP to use a validated risk prediction equation to assess their patient’s risk of having a heart attack or stroke in the next five years.
Using the Heart Foundation-supplied HHC toolkit, the GP can then develop a preventative action plan to help their patient undertake action to reduce their risk of a heart attack or stroke.
“This is the most robust Australian evidence we have that shows a targeted CVD screening program could be both effective and feasible in general practice,” Heart Foundation healthcare programs manager Natalie Raffoul says.
“Just like Australia has dedicated screening programs for many cancers, we need to consider one for Australia’s leading cause of death, heart disease.”
And the ASX healthcare sector is looking a little heartier this week. At 11.30am (AEST) on Friday the S&P/ASX 200 Healthcare index (ASX:XHJ) was up 1.7% for the past five days, while the benchmark S&P/ASX 200 (ASX:XJO) was 1.3% for the same period.
“It’s been a pretty disappointing reporting season for healthcare names, particularly some of the larger companies, which have not performed as we would have expected,” Power says.
“Having said that we are in a position where a lot of these good quality names are now trading at very attractive fundamentals such as CSL (ASX:CSL), ResMed (ASX:RMD) and Sonic Healthcare (ASX:SHL) if I can call those three out.”
Power says he maintains his positive stance for the remainder of CY23.
“We’re looking for a stronger couple of months ahead particularly as we get closer to Christmas with seasonally October, November, December and January your stronger months,” he says.
“Given what I’ve said about attractive pricing occurring we remain confident some of these names will attract investors.”
The share price of Healius (ASX:HLS) has risen ~5% this week despite a mixed result from the pathology services company with underlying EBIT of $99 million in line with May 2023 guidance.
HLS reported an underlying profit of just $25.7 million, which is a 91.6% fall year from FY22. Covid-19 revenue of $83.8 million was down from $763.5 million in FY22 however, group non-Covid revenue of $1.6 billion increased 6.3% on FY22.
CEO Maxine Jaquet says that HLS is now well positioned for growth after a year in which the company had transitioned back to business-as-usual operations, and had reset its strategy, leadership team and cost base.
Power says no quantitative FY24 guidance was given but management expects volumes to “trend higher”, gearing to “remain within bank covenant” and will resume dividends upon a “return to normal market volumes”.
He says Morgans view is despite an inevitable rebound in diagnosis/surgery demand, as underlying drivers remain, ongoing structural changes make translation into sustainable earnings growth challenging to forecast.
“The upside is there is increasing pathology and X-ray volume coming through while the downside is it’s been a bit of a transition period for quite a few years and it’s been tough,” he says.
Morgans maintains a hold rating on HLS but has reduced its 12-month target price from $3.02 to $2.89.
Power says FY23 results of health imaging company Mach7 Technologies (ASX:M7T) were broadly in line with its expectations with a record sales order book of $40.3 million, up 21% and exceeding the $36 million target.
M7T says sales orders continue to be the best measure of the company’s financial progress from year to year, as the timing of cash receipts and revenue can vary.
The company also hit record revenue of $30.1 million, up 11% on FY22 with the recurring component up 22% on FY22.
Power says other key highlights include FY24 guidance of 20% sales order growth, 15-25% revenue growth, lower operating expenses than revenue growth and cashflow positive withe the pipeline remaining strong.
“We have rolled through a higher cost base and higher weighting to recurring contracts which defer revenue recognition,” Power says.
M7T has announced several lucrative contracts this year including that 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.
Power says it’s by far the most significant contract in M7T’s history and positions the company well for other larger deals.
Following its Fy23 result Morgans maintains an Add rating for M7T but has reduced its 12-month target price from $1.65 to $1.54.
Power says H1 FY23 results for medical device company EBR Systems (ASX:EBR) were in line with expectations, with a net loss of US$15.6 million, flat on pcp.
Operating costs fell 6% to US$15.6 million and R&D costs were up 6% to US$6.7 million. EBR’s cash position sits at US$45.4 million.
During the period EBR completed a $35 million capital raising with the proceeds to support its regulatory and commercialisation strategy for its Wireless Stimulation Endocardially (WiSE) CRT system, the only left ventricle in-the-heart leadless system for Cardiac Resynchronisation Therapy (CRT).
The cap raise followed release of positive top-line data from its SOLVE pivotal-CRT trial, which unlocked access to US$20m from the second tranche of growth capital facility with Runway Growth Capital.
“The key catalysts we are focused on is the finalisation of US regulatory submission in Q1 CY24, with US FDA approval expected by the end of CY24,” Power says.
“What they have confirmed is they’re on track for their FDA submission.
“EBR has been an important stock for the Morgans network and it’s good to see they’re maintaining their schedule.”
He says assuming regulatory approval, the commercialisation strategy will focus on established partnerships and presence in the US to drive initial sales growth with first sales targeted by H1 CY25.
Mogans has made no changes to its revenue and EBITDA forecasts. However, it has adjusted its model for the capital raising and additional debt draw down in June 2023.
As a result the net loss forecast has increased ~3% across the forecast period. Morgans maintains a Speculative Buy on EBR but Power says after rolling its model forward and allowing for the equity dilution, its 12-month target price has reduced from $1.55 to $1.49.
Antisense Therapeutics (ASX:ANP) is Power’s stock of the week after a Steven Bradbury moment where its US competitor FibroGen’s lead candidate, pamrevlumab, failed to meet primary and secondary endpoints in a Phase 3 trial for Duchenne muscular dystrophy (DMD).
Power says its lead program is ATL1102, an antisense oligonucleotide treatment for DMD and other diseases.
The company is currently undertaking an international double-blind, placebo-controlled Phase 2b trial with positive clinical data from prior single-arm Phase 2a study.
He says ATL1102 is a late-stage asset with substantial commercial opportunity with ~300,000 DMD patients worldwide. Existing therapies are priced up to US$300K per treatment year with a total market estimated at ~US$4 billion per annum forecast to rise to ~US$10 billion by 2030.
ANP says ATL1102 is potentially applicable to almost all DMD patients, not just those with specific genetic mutations (mutation agnostic), with the drug showing potential applications for ATL1102 in other disease areas.
Power says ANP, which includes former CSL staff on the board and part of its clinical team, has potential to be a Neuren Pharmaceuticals (ASX:NEU), which this year obtained key US FDA approval for trofinetide to treat Rett Syndrome.
“It’s targeting a rare disease, in late stage clinical trial and if they’re successful the prize is large,” Power says.
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.
Disclosure: The author held shares in CSL and Sonic Healthcare at the time of writing this article.