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ScoPo’s Powerplays: ASX health stocks seek some end of year love
Health & Biotech
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- Australian health stocks sightly up for the week with optimistism of a traditional end-of-year rally
- In positive news several healthcare names deliver strong quarterly results and forecasts
- Morgans upgrades Nanonosonics from Hold to Add and lifts revenue Fy23 forecasts
Healthcare and life sciences expert Scott Power, who has been a senior analyst with Morgans Financial for 24 years, explains what the movers and shakers have been doing in health and gives his ASX Powerplays.
Originating in part of the brain called the hypothalamus, oxytocin plays an important role in social bonding including childbirth, breastfeeding and romantic attachment.
Release of the hormone during sexual activity has earned oxytocin its popular nickname and reputation as the “love hormone”.
But researchers at Tokyo University of Science and Kitasato University in Japan have found oxytocin could hold potential as a treatment for memory loss associated with Alzheimer’s disease.
The researchers first confirmed that perfusing brain cells from the hippocampi of mice with beta-amyloid inhibits long-term potentiation (LTP), thereby reducing the cells’ plasticity. LTP is the mechanism allowing nerve cells to encode memories.
To investigate whether oxytocin could restore the nerve cells’ plasticity, the researchers conducted a further experiment.
Before perfusing the mouse brain tissue with beta-amyloid, they pretreated it with a chemical that blocks oxytocin receptors on nerve cells.
After this pretreatment, oxytocin was no longer able to restore the nerve cells’ lost plasticity.
The world-first study has shown that oxytocin can reverse beta-amyloid-induced impairments in the mouse hippocampus.
The findings have the potential to open up new pathways to the creation of new drugs for the treatment of dementia caused by Alzheimer’s disease.
To markets…..
And ASX health stocks are feeling just a little love this week. By 12.30pm (AEST) on Friday the S&P/ASX 200 healthcare index (ASX:XHJ) was up 0.19% in the past five days, while the S&P/ASX 200 (ASX:XJO) was up 1.40%.
“We are maintaining our optimistic stance and expect a rally into the seasonally stronger November and December,” Power said.
EBOS solid upgrade prompts upgrade
Pharmaceutical distribution company EBOS (ASX:EBO) recorded revenue of ~A$3bn and underlying EBITDA of ~$142m for Q1 FY23. The group continues to achieve double-digit revenue growth on FY22.
Management noted the ongoing effects of Covid-19 which impacted the business both positively and negatively during the quarter.
Positives included a demand for Covid-related products creating increased foot traffic into pharmacies, growth in consumer logistics services as well as demand for pet products.
Some negatives include reduced hospital elective surgeries which impact demand for the medical device segment, as well as inefficiencies due to labour, supply, freight costs and constraints.
“EBOS continues to leverage the growing population of pets and trend towards humanisation of pets through their animal care segment,” Power said.
EBO has opened a new pet manufacturing facility in Parkes (NSW) and has launched a new range of Black Hawk treats and puppy food products.
The solid quarterly result has prompted Morgans to upgrade EBO from a Hold to Add and lift its 12-month share price to $36.84.
Rhythm Biosciences registers ColoSTAT in NZ
Cancer diagnostics tech company, Rhythym Biosciences (ASX:RHY), has seen its share price rise ~3.7% this week after announcing it has successfully registered its lead product ColoSTAT with the New Zealand national database of Medical Devices.
This registration will allow the lifesaving cancer detection technology to be marketed and sold across the country.
ColoSTAT is a simple blood test to detect bowel cancer with the potential to make a material impact on health outcomes through greater detection and early diagnosis.
“The Australian approval is pending but we are quietly confident,” Power said.
New patient uptake boosts Clinuvel results
Clinuvel (ASX:CUV) recorded its highest quarterly results from customer receipts since starting commercial operations in Europe in June 2016 and the US in April 2020.
CUV said new patient uptake of its drug Scenesse (afamelanotide 16mg) coincided with peak treatment demand from both continents.
CUV’s receipts from customers for the July to September quarter were $25.15m, with net operating expenditures of $8.27m and net operating cashflow total of $17.34m.
The company said the quarter-on-quarter increase in overall net operating expenditures (47%) reflects both impact of the timing of certain payments as well as the controlled increase in overall expenditures as CUV expands its R&D activities.
It’s a “mid-cap healthcare company which is generating growing profits which is appealing to investors during these volatile periods,” Power.
Microba expands deal with SYNLAB
The Microba Life Sciences (ASX:MAP) share price has risen ~3% in the past five days after the company announced it had expanded its deal with Europe’s largest pathology company SYNLAB (ETR:SYAB)
The company entered into the agreement to pursue a multi-phased distribution strategy for Microba’s microbiome testing technology throughout Europe in 2020 and it has now been expanded out to December 2028.
The agreement also provides a new framework for SYNLAB’s affiliate countries to rapidly expand distribution across Europe and Latin America.
“Microba focuses on gut health an area which we are very interested in and they continue to form some strong alliances,” Power said.
Volpara joins EPIC App Market Program
Health imaging company Volpara Health Technologies (ASX:VHT) has announced it has signed an agreement with leading healthcare systems provider EPIC to join its App Market Program.
“This provides Volpara access to technologies and testing tools and technical support to help its app to interoperate effectively with EPIC software and workflows with the potential to be a significant collaboration,” Power said.
“Epic and Volpara have more than 100 shared customers, and this step enables Volpara to bring its products to the Epic App Market with stronger integration with Epic, as well as providing a platform to provide information about Volpara products directly to the Epic customer base,” Volpara said in an ASX announcement.
“Under the stewardship of new CEO Teri Thomas they’re forming good alliances and targeting larger customers which will help drive growth in company quarters,” Power said.
EBO, RHY, CUV, MAP & VHT share price today:
ScoPo’s Powerplay – Nanosonics
Heavily shorted Nanosonics (ASX:NAN) is Power’s stock of the week, with Morgans upgrading the stock from hold to add.
“We have been looking for an opportunity to upgrade NAN back to Add from Hold and given the recent share price weakness, we now have over 25% upside to our slightly increased target price of $4.91,” Power said.
He said the low Aussie dollar enables Morgans to increase its revenue forecast for FY23 and it now sits at the top end of the recently provided guidance.
NAN has its AGM on November 18 and Morgans expects management to reconfirm guidance provided at the FY22 results in August.
This included revenue growth of 20% to 25% (Morgans 25.9%), operating costs between $104m to $107.0m (Morgans at $106.2m), and gross margins of 75% to 76% (Morgans at 75%).
Nanosonics has developed and commercialised the trophon EPR device, a unique automated disinfection technology, which was the first major innovation in disinfection for ultrasound probes in more than 20 years.
Power said hospital systems and budgets are continuing to open up and recover from Covid-19 impacts.
He said, as a result, there is a potential upside to forecasts not only in FY23 but also in subsequent years driven by full integration of the direct sales team and supply chains becoming more efficient with inventory returning to more normal levels.
“The upgrade cycle from Trophon ERP to Trophon 2 is also gathering momentum with over 9,000 units now at least seven years old,” he said.
The Nanosonics share price is down ~35% year to date.
