ScoPo’s Powerplays: ASX healthcare rises in Christmas rally as EBOS ups stake in Transmedic
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.
Are you a daydreamer? Do you find your brain tuning out to your surroundings and just wandering?
A study in mice by researchers at Harvard Medical School has come closer to figuring out what happens to the brain while daydreaming.
Researchers tracked activity of neurons in the visual cortex mice brains while the animals were in a quiet waking state.
They discovered occasionally the neurons fired in a pattern similar to one that occurred when a mouse looked at an actual image, which suggested that the mouse was thinking — or daydreaming — about the image.
Furthermore, patterns of activity during a mouse’s first few daydreams of the day could predict how the brain’s response to the image over time changed.
Researchers say while further research is needed for confirmation, the study provides preliminary evidence that daydreams can shape the brain’s future response to what it sees.
They say daydreams may play a role in brain plasticity, which is the brain’s ability to remodel itself in response to new experiences.
And if you’ve been daydreaming about an ASX health stocks Christmas rally, it may be coming to fruition. At 4pm (AEDT) Thursday the S&P ASX 200 healthcare index (ASX:XHJ) was up 1.57% for the past five days, while the benchmark S&P ASX 200 (ASX:XJO) was up 1.71% for the same period.
“It’s been extraordinary in terms of the turnaround we’ve seen in the underperforming health sector since the beginning of November,” Power says.
“It feels like that momentum will continue into 2024, particularly at the small to mid end of the market which has really been ignored for two years.
“Interest rates look like they’re peaking and potentially may come down a bit next year which will bring money back into the equity markets.”
He says good news in the sector like Neuren Pharmaceuticals (ASX:NEU) achieving positive results of its Phase 2 results of NNZ-2591 in children with Phelan-McDermid syndrome (PMS) is further building optimism.
Pharmaceutical distributor EBOS Group (ASX:EBO) has announced it has increased its shareholding in Transmedic to 90% from 51%.
Power says Transmedic is one of the largest independent medical device distributors in Southeast Asia and has key relationships with global medical device manufacturers across several therapeutic channels including spine, orthopedics, cardiology, ophthalmology and radiation therapy.
“As the company had foreshadowed when the LifeHealthcare acquisition was completed in May 2022, the balance of the Transmedic shareholding would be acquired,” Power says.
The remaining 10% holding is being retained by Transmedic’s major shareholder and chairman TS Lee.
An option arrangement has been entered into to acquire the remaining 10% in two years.
The purchase price for the 39% shareholding is $135 million and will be funded from existing debt facilities.
But Power says the real story with EBOS is that they’re a potential beneficiary of the merger between Chemist Warehouse and rival Sigma Healthcare (ASX:SIG).
“It’s positive they’ll pick up some of the independent pharmacies moving across to them so that is an opportunity for EBOS,” Power says.
He says EBOS have a strong track record of being disciplined with their acquisition strategy and while there’s been commentary about potential buy ups recently, none have yet materialised.
“The company points towards a strategy of building up some of their key verticals, particularly in animal care,” he says.
“They have recently completed a manufacturing facility in Parkes for their range of pet food and treats, which is a high margin business we think they continue to build on and grow.
“Transmedic is part of the LifeHealthcare acquisition from 2022 and continues to expand the speciality medical devices part of their business which is niche and high margin and they’ve been very successful in their acquisitions in this area to date.”
He says this will all help replace earnings from the loss of Chemist Warehouse contract which won’t be renewed beyond the expiry date of June 30, 2024.
“We think they’re a beneficiary of the Sigma and Chemist Warehouse potential merger,” Power says.
Morgans has an add rating and 12-month target price of $39.43 for EBO.
Fertility company Monash IVF Group (ASX:MVF) has announced it is acquiring 80% of Perth-based North Fertility for an up-front cash payment of $12 million, with additional earn-out payments over a one-three year period payable on achieving certain targets.
MVF will have the ability to acquire the remaining 20% no earlier than three years from completion.
Fertility North currently generates $9 million in revenue from eight fertility specialists. MVF expects the acquisition will increase NPAT by 4% or ~$1 million.
The acquisition will be funded by cashflow and/or debt facilities, and is subject to ACCC approval with management expecting to be completed by Q3 FY24.
“We estimate the transaction will take MVF’s market share in Western Australia to around 25% from 10% and view this as a strategic acquisition to establish its growing presence in the state,” Power says.
“Nationally, their market share is around 25% and we think there is still some good organic growth,” Power says.
He says MVF is well placed to leverage strong structural demand for IVF services in Australia and internationally such as advanced maternal age, same sex couples, increased focus on families, growth in service offering including genetics, egg freezing and donor services as well as favourable government support.
Morgan’s maintains an Add rating on MVF and has lifted its 12-month price target to $1.50 from $1.29.
Diagnostics medtech company, Proteomics International (ASX:PIQ), has inked a licence agreement for the sale of its PromarkerD predictive test for diabetic kidney disease in Chile.
The deal was signed with long-standing partner Omics Global Solutions, for five years, extendable by mutual agreement and exclusive to Chile.
The licence agreement also includes commercially agreed royalties based on sales of the test, which Omics manufactures under licence.
Omics was the first licence partner for PromarkerD (sold as Innovatio ND2), which has already been launched in Puerto Rico and the Dominican Republic ahead of its entry to the US market.
Chile is home to 1.7 million adults with diabetes. Almost one in eight adults in Chile have diabetes, where the number of people with the condition has risen almost 50% in the past 10 years.
The PromarkerD test will initially be targeted at Chile’s private payer market. Omics is also targeting expansion into other markets in Central and South America.
“We view it as a vote of confidence that this distributor is likely seeing sufficient market penetration in various smaller markets to continue rolling the test out more broadly,” Power says.
In May PIQ announced it had inked an exclusive licence agreement with Sonic Healthcare USA, a division of Sonic Healthcare (ASX:SHL) to sell PromarkerD in the US.
Brisbane-based medical software technology company ImpediMed (ASX:IPD) is Power’s pick of the week, who he says has come through a volatile year stronger.
IPD saw a board stoush following a capital raising and perceived risk to shareholder wealth. But Power says board and management upheaval seems to be behind the company.
“We have now a very commercially-focused, cost conscious and shareholder aware board and management team so all the ingredients are now in place to see that share price re-rate significantly next year.”
Power sees IPD as ready to capitalise on inclusion in the US National Comprehensive Cancer Network (NCCN) of Bioimpedance Spectroscopy (BIS) as an objective measurement tool to identify early signs of lymphoedema.
“There BIS device called the SOZO is now the standard of care for the early detection of lymphoedema and insurance coverage is increasing across the US,” Power says.
“Insurance companies are changing their policies to reimburse the test because it’s now in the NCCN guidelines.
“The company is well capitalised in terms of cash so really it’s an executive story from now.
“We think the new CEO, management team and board are worth focusing investing attention on into 2024.”
Morgans has a speculative buy rating and 12-month target price of 22 cents on IPD.
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.