ScoPo's Powerplays: ASX health stocks rise as M&A activity heats up

Investors more bullish as ASX health stock rise in past five days along with broader markets
Integral Diagnostics and Capitol ink merger agreement to create $1 billion listed radiology company
Imricor starts global trial for US FDA approval with two procedures undertaken at French hospital

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 enjoy eating nuts but have been discouraged they may add calories to your diet? New research from the University of South Australia shows including nuts in calorie-controlled weight loss diets don’t hinder weight loss but may even assist.

Analysing findings of seven randomised controlled trials that assessed weight changes and glycaemic control in energy-restrictive (ER) diets, researchers found none of the studies produced an adverse effect to weight loss when nuts were included as part of the diet.

Instead, four out of the seven studies showed that people who ate 42-84 grams of nuts as part of an ER diet achieved significantly more weight loss than those on ER diets without nuts.

Weight loss from the ‘nut-enriched’ ER diets achieved an extra 1.4-7.4kg which the researchers say may be related to the ability of nuts to help curb hunger efficiently.

UniSA researcher Professor Alison Coates people often avoid nuts when trying to lose weight because they think that the energy and fat content in nuts can contribute to weight gain.

“But in fact, nuts are rich in healthy unsaturated fats, plant protein and dietary fibre, all of which play a role in promoting satiety, and reducing excess calorie consumption,” she says.

“Nuts are associated with improved cardiovascular and metabolic health, better gut health and enhanced cognitive performance.”

She says despite their nutritional value most Australians do not eat enough nuts, and 60% report eating none at all.

“If weight gain was a concern discouraging people from eating nuts – rest assured that this is not the case,” she says.

“Nuts do not cause weight gain. Furthermore, they do not adversely affect weight loss, rather they appear to assist it.”

To markets…

And ASX health stocks have had their nutrients this week. At 1.20pm (AEDT) on Friday the S&P/ASX 200 healthcare index (ASX:XHJ) was up 1.84% for the past five days, while the benchmark S&P/ASX 200 (ASX:XJO) rose 0.83% for the same period.

“There is a lot happening with a lot of capital raisings, M&A activity both domestically and internationally,” Power says.

“There are some big share price movements and volumes going through stocks which is good to see.

“Running into the end of financial year there will be some interesting trading opportunities as people dust off under performers and offset them against gains so its always and interesting time.

“In addition there is a lot of catalysts coming up which I think will keep a lot of interest in the sector.”

Sigma and Chemist Warehouse merger still front and centre

Power says the big news in the sector continues to be what will happen with the proposed merger of Sigma Healthcare (ASX:SIG) and unlisted Chemist Warehouse after the Australian Competition and Consumer Commission (ACCC) last week outlined preliminary competition concerns.

SIG is one of the largest wholesalers of prescription medicines, over the counter and front of store products. The company also provides brand and support services to community pharmacies operating as franchisees under Sigma banners such as Amcal +, Discount Drug Stores, PharmaSave and Guardian.

Chemist Warehouse operates as a franchisor and wholesaler under multiple brands such as Chemist Warehouse, MyChemist, Ultra Beauty, My Beauty Spot, and Optometrist Warehouse.

The consumer watchdog is particularly concerned about the effect of a merger on independent pharmacies currently supplied by SIG, potentially reducing competition in pharmacy retailing.

The ACCC says it will continue its investigation to evaluate these competition issues and is anticipating announcing its final decision on September 5.

“Essentially our view is that Sigma will be successful in answering the concerns of the ACCC with the biggest concern around competition in retail pharmacies so they will have to be quite persuasive on that front,” Power says.

“The rest of shareholder and court approvals are fairly procedural so the most important thing is getting the ACCC announcement.

Power says the share price has recovered this week from the ACCC’s announcement of its concerns last week and is back at all time highs at ~$1.30.

“The market is taking the view the merger will be successful and it’s run through our valuation but we want to stay on the front foot and continue what we describe as part positions on the stock,” he says.

Morgans maintains a hold and 12-month target price of $1.14 on SIG.

Mach7 renews contract with DocPanel

Mach7 Technologies (ASX:M7T) has announced renewal of a three-year subscription agreement with DocPanel for its Enterprise Imaging Platform and eUnity Diagnostic Viewer with a total minimum value of $1.9m.

DocPanel serves as the largest radiology marketplace in the US, connecting imaging providers and patients with a network of over 600 academic and subspecialty radiologists.

The deal, effective from April 1, is expected to generate approximately $600k in annual recurring revenue (ARR) for Mach7.

This represents a substantial increase of $500k in ARR compared to the previous contract, with potential for further growth based on volume performance beyond minimum thresholds.

M7T described the renewal deal as a pivotal achievement, marking the culmination of the company’s largest renewal program to date.

“It continues building their subscription base business, which they’ve done very well over the last 12 months or so,” Power says.

“They are sitting nicely but the share price hasn’t reacted which we find surprising but we feel it’s only a matter of time before Mach7 starts to pick up some momentum.”

Integral diagnostics plans merger with Capital Health

Integral Diagnostics (ASX:IDX) has inked a merger agreement with Capitol Health (ASX:CAJ) via a scheme of arrangement which would create a $1bn listed radiology company.

Under the proposed merger, CAJ shareholders would receive 0.12849 IDX shares, implying an equity value of $413m, representing a 33% premium to CAJ last close.

Following the proposed merger, IDX shareholders would own 63% of the merged company, with CAJ shareholders owning the remaining 37%.

IDX and CAJ have agreed to work together to complete confirmatory due diligence and finalise and enter into a binding agreement to implement the merger during a four-week period of mutual exclusivity, with the agreement also subject to customary conditions and regulatory approvals.

The merger aims to create a leader in diagnostic imaging across ANZ, with materially larger scale, an enhanced clinical offering and greater ability to invest in growth for the benefit of the two companies combined patients, doctors and shareholders

IDX says the combined group would have a materially greater financial profile, with ~A$651m in pro forma FY23 revenue and ~$93m in pro forma FY23 EBITDA.

The merger would see a footprint of 155 clinics supported by more than 3509 radiologists and ~3,000 employees.

Power says IDX and CAJ sit behind the larger unlisted I-MED Radiology and Healius (ASX:HLS) in terms of size.

“It looks like to us to be a sensible move,” he says.

“We don’t cover either stock formally but in terms of consolidation and the M&A scene it makes sense to us and gives them a bit more scale in the radiology space.”

Botanix gains FDA approval for Sofdra

The US FDA has granted approval to Botanix Pharmaceuticals (ASX:BOT) for Sofdra (sofpironium) gel, 12.45%, which is the first and only chemical entity approved specifically to treat primary axillary hyperhidrosis, commonly known as excessive underarm sweating

The FDA granted approval for its use in both adults and children aged nine years and older, addresses a significant medical need, with ~10 million people in the US suffering from primary axillary hyperhidrosis, which has limited effective treatment options.

The approval of Sofdra was supported by compelling data from two pivotal Phase 3 studies involving 701 patients with primary axillary hyperhidrosis.

BOT now plans to roll out its patient experience program starting in Q3 of this year, with the expectation of generating initial revenue from Sofdra in early Q4.

The company also went into a trading halt this week before announcing a capital raise on Friday.

“This trend of companies topping up their cash balance has been in place for most of this year,” Power says.

“It doesn’t seem to be letting up at all so between now and the end of the year expect more capital raises.”

ScoPo’s Powerplay – Imricor start trial to support US FDA approval

Imricor Medical Systems (ASX:IMR) is Power’s pick of the week after announcing its VISABL-AFL global clinical trial supporting US Food and Drug Administration (FDA) approval has started with the first two RF flutter ablations using its system undertaken at the Cardiovascular Institute of South Paris (ICPS).

“We did the first two cases of RF flutter ablation with the Imricor system, and it went quite smoothly.We are very enthusiastic about it,” head of cardiovascular magnetic resonance at the health facility Professor Jerome Garot says in the ASX announcement.

The VISABL-AFL, which stands for Vision-MR Ablation of Atrial Flutter, clinical trial is a prospective, single-arm, multi-centre global investigational study of the safety and efficacy of type I atrial flutter ablation procedures performed with IMR’s Vision-MR AblationCatheter (second generation) and Osypka HAT 500 RF generator and irrigation pump.

The study will include four sites across the US and Europe with a sample size of 91 patients and an interim analysis after 76 patients have achieved the 7-day follow-up.

Earlier this week, IMR announced that the Dubrava University Hospital in Zagreb, Croatia, had performed their first interventional cardiac magnetic resonance (iCMR) guided atrial flutter ablation procedure using IMR’s products.

IMR says dditional procedures are being scheduled on a regular basis, as the site meets their growing demand for ablations.

“Imricor is catalyst rich which we expect will attract more investor interest,” Power says.

“We expect TGA approval and start of the important European trial for ventricular tachycardia will be the next important near term catalysts.

“There is more interest coming back into the life science sector and we don’t expect the IMR share price to stay at these depressed levels for much longer.”

Morgans has a speculative buy rating and 12-month target price of 96 cents on IMR.

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.

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Disclosure: The author held shares in Mach 7 at the time of writing this article.