ScoPo’s Powerplays: Could ASX health stocks up for third week be a start of a Christmas rally?
Health & Biotech
Health & Biotech
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Morgans healthcare and life sciences expert Iain Wilkie is filling in for his colleague Scott Power to explain what the movers and shakers have been doing in health and gives his ASX Powerplay.
New research from UCL and the University of Sydney shows that even a few minutes of moderate exercise daily can significantly enhance heart health.
The study, which was backed by the British Heart Foundation and published in the European Heart Journal, delves into how various movement patterns throughout a day impact heart health.
The study is also the first evidence to emerge from the Prospective Physical Activity, Sitting and Sleep (ProPASS) consortium, led by the University of Sydney’s Charles Perkins Centre, which aims to generate knowledge to inform future guidelines and policies.
Cardiovascular disease, encompassing heart and circulatory issues, stands as the leading global cause of mortality, responsible for one in three deaths in 2021.
The study, analysing data from 15,246 individuals across five countries, unveiled a ranking of daily activities affecting heart health.
It underscores that moderate-vigorous activity yields the most benefit, followed by light activity, standing, and sleep, compared to the adverse effects of sedentary behaviour.
Replacing 30 minutes of daily sitting with moderate or vigorous exercise can lead to a reduction in BMI, waist circumference, and glycated haemoglobin, presenting notable improvements in health markers.
While vigorous activity shows the quickest results, researchers stress that activities of varying intensities can benefit individuals of all abilities, including using a standing desk instead of a sitting one for a few hours a day.
And after a tough 2023 health stocks are looking in better shape and have turned a corner, up for the third consecutive week. While still down ~8% YTD, at 11am (AEDT) on Friday the S&P/ASX 200 healthcare index (ASX:XHJ) was up 1.4% for the past five days, while benchmark S&P/ASX 200 (ASX:XJO) was up 0.5% for the same period.
“The sector has underperformed the whole year so at some point it was going to turn and there’s been a rotation back into healthcare names,” Power says.
“There’s an expectation that interest rates around the world are probably peaking and some of the inflation data is coming in lower than expected so putting all that together investors are looking for a reason to be positive so hopefully we get a nice run into Christmas and beyond.”
He says Australia’s biggest healthcare name CSL (ASX:CSL) is up 2.5% for the week as the market digests hype around GLP-1 class of drugs, such as Ozempic, which are continuing to gain attention as weight loss drugs with potential to reduce obesity-related conditions such as chronic kidney disease (CKD) and sleep apnoea.
At its recent inaugural capital markets day management expressed confidence in CSL’s resilience with no material impact from GLP-1s and competitive advantages in scaled operations, reiterating FY24 guidance and annual double-digit earnings growth over the medium term.
“The Ozempic news has been digested and the share price was knocked and now it’s starting to recover which is good,” Power says.
Market darling of the biotech sector for 2023 Neuren Pharmaceuticals (ASX:NEU) has risen more than 12% this week after announcing all study visits are complete in its Phase 2 clinical trial of NNZ-2591 in Phelan-McDermid syndrome (PMS).
Top-line results from the trial are expected to be available in December 2023. 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.
“We’ve had a nice step up in the Neuren share price and the key catalyst coming up into December is the results of the Phase 2 trial of the Phelan-McDermid syndrome study,” Power says.
“The company has said that is on target, they’ve completed recruitment and are analysing data so it’s a stock which continues to gain more attention.”
Hospital network Ramsay Health Care (ASX:RHC) has fallen ~2.7% this week after revealing that it has reached an agreement on the sale of its 50:50 joint venture in Asia Ramsay Sime Darby Health Care (RSD) with Malaysian partner Sime Darby.
RHC and Sime Darby will sell RSD to Columbia Asia for MYR6,056m (~AUD$2 billion). RHC expects the NPAT on the sale of its share of the JV to be approximately $630m, which will be reflected in the FY24 full year results through the “discontinued operations line”.
“The share price has fallen after what we viewed as a positive announcement,” Power says.
“They’ve announced the sale of their Asian joint venture for a little bit higher than what markets were anticipating and that will bring their gearing down.
“We thought it was good step forward but the market has marked it down so we are scratching our heads.”
Morgans has maintained an Add rating on RHC but has reduced its 12-month target price from $66.40 to $59.76.
Morgans has initiated coverage on commercial-stage specialist photoprotective biopharmaceutical company Clinuvel Pharmaceuticals (ASX:CUV).
Power says CUV’s primary asset SCENESSE is approved in most major jurisdictions for a rare phototoxic condition called erythropoietic protoporphyria (EPP) and is looking to expand its use in further indications with several clinical trials underway.
In its first report Morgans noted weak sentiment in the sector and perception of increasing risk with competition under late-stage development in EPP has weighed on the stock.
However, Morgans says its sees the asset remaining “a cash cow beyond 2030 with a strong and growing specialist network and a monopoly in an underpenetrated market”.
“It’s a great trading stock given the market is looking to buy these ones which have been out of favour,” Power says.
“It has plenty of liquidity and is a profitable company and we think it has a strong market position.”
Morgans has also initiated coverage on Sigma Healthcare (ASX:SIG), which is one of the largest full line pharmaceutical wholesalers in Australia with a current market share estimated at 17.7%.
“They’ve been awarded the prescription business for Chemist Warehouse which is a $1.1 billion contract,” Power says.
“They already have the front-of-store contract which is worth $1.9 billion.
“They’ve spent heavily in upgrading their distribution centres and IT systems over the last three to five years and that is now complete with the business looking to get some operational efficiencies in the massive investment they’ve made.”
Morgans has an Add rating on CUV and a 12-month target price of $22. The broker has an Add rating on SIG and a 12-month target price of 83 cents.
EBR Systems (ASX:EBR) is down more than 18% this week after reporting a three-month delay in its premarket approval application (PMA) to the US FDA for its Wireless Stimulation Endocardially (WiSE CRT System), the world’s only wireless cardiac pacing device for heart failure.
EBR has previously announced positive results from iSOLVE-CRT, a trial assessing the safety and clinical efficacy of the WiSE CRT System.
Management have submitted four out of five required modules and now expects to submit the final module in 3QCY24 (previously 1QCY24).
The three-month delay is a result of new information relating to the proposed testing schedule received from an expert consultant involved in the design verification testing required for the final module.
“We believe that the benefits from additional testing have the potential to demonstrate increased durability and longevity of the WiSE CRT device, resulting in a more robust PMA submission,” EBR president and CEO John McCutcheon told the market.
Power says the delay is disappointing and has just pushed the time lines out. He says importantly, nothing has changed with either EBR’s FDA Breakthrough Device Designation or its clinical results showing the pivotal study met both primary safety and efficacy endpoints.
Morgans maintains an Add rating on EBR and 12-month target price of $1.49.
Health imaging company Volpara Health Technologies (ASX:VHT), which specialises in the early detection of breast cancer, is Power’s pick of the week.
VHT is riding the wave of renewed investor optismism in the sector and is up ~8.1% for the week.
The company, which operates under the New Zealand financial year, is due to report its H1 FY24 results next Tuesday and Power is confident they will be positive.
VHT has reported three consecutive positive operating cashflow quarters.
“We expect them to maintain their guidance of 20% revenue growth for the year and have guided very close to breakeven,” Power says.
He says VHT is continuing to win large contracts and is also well-positioned to take advantage of investor interest in artificial intelligence within the healthcare sector.
“We think Volpara will continue to attract more investor attention in this rising market,” he 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.
Disclosure: The author held shares in CSL at the time of writing this article.