ScoPo’s Powerplays: Health stocks tumble but half-price sale presents buying opportunities

Healthcare and life sciences expert Scott Power – a senior analyst with Morgans Financial for 24 years – on what the movers and shakers have been doing in health and which ASX health stocks make Scott’s Powerplays.

Are you the cuddly type? Love a hug, to hold hands or a long lingering romantic kiss like in an old-fashioned movie?

There is good reason for that. Scientists have found pleasant touch delivered by touch such as a hug or holding hands triggers a psychological boost known to be important to emotional well-being and healthy development.

Washington University School of Medicine in St.Louis scientists have identified a neural circuit and a neuropeptide, a chemical messenger that carries signals between nerve cells, that transmits the sensation known as ‘pleasant touch’ from skin to the brain.

Scientists are hopeful identifying the neuropeptide and circuits that direct the sensation of pleasant touch may eventually help better treat disorders characterised by touch avoidance and impaired social development, including autism spectrum disorder.

Science – keeping the romance alive.

To Markets….

The healthcare sector could still do with a big hug after large falls on Friday. Interest rates moves have dominated markets and financial news this week. The RBA on Tuesday lifted rates 25 basis-points, increasing the cash rate to 0.35% in its first hike in more than a decade.

The US Federal Reserve increased its benchmark rate by 0.5% from near zero levels. At the end of close on Thursday the S&P/ASX 200 index was up 0.11% for the past five days, while the S&P/ASX 200 healthcare index was up 1.08%.

But the Bank of England’s raising of interest rates to 1% overnight on Thursday amid warnings of double-digit inflation and a shrinking economy later in 2022 caused markets to trip over fancy footwork as they appeared to be taking the RBA and Fed hikes in their stride.

US markets sank, reversing the previous session gains, and the ASX also pulled back strongly. By Friday midday AEST the S&P/ASX 200 index had fallen 3.43% for the past five days, while the S&P/ASX 200 healthcare index had sank 3.16%.

“The market still remains cautious for the outlook for rising interest rates and this has been reflected in the big fall on overseas markets on Thursday night and the ASX on Friday,” Power said.

“I think it will take a little bit more time for markets to digest the new economic conditions.”

Big end of town – Add rating for Cochlear

In healthcare news this week, Morgans’ healthcare team has put an Add rating and increased its 12-month price target to $244.50 for hearing solutions giant Cochlear (ASX:COH) which looks set to acquire hearing implant business Oticon Medical from Denmark-based Demant (OMXC: DEMANT.CO) for DKK850m (A$170m).

The acquisition is expected to add A$75-80m in annual revenue, although the business is currently running at a loss. Power said Cochlear management’s plan is to return the business to profitability as quickly as possible.

Another plus, Power said, was the acquisition could increase Cochlear’s patient base by ~75k hearing implant recipients.

The Cochlear share price has felt this week’s selloff and is down ~4.19% for the past five days to ~$216.55.

Ramsay’s tussle with Bupa

Private hospital owner Ramsay Healthcare (ASX:RHC) has announced it has issued a notice to private health insurance provider Bupa to terminate the Hospital Purchaser Provider Agreement between the two parties.

Unless a resolution is reached between the parties, Ramsay said its contract with Bupa will be terminated with effect from August 2, 2022.

Ramsay is of the view Bupa is not pulling its weight with soaring healthcare costs, despite making large profits.

“Costs of providing care have significantly increased for private hospitals over the past two years. On the other hand, health insurers have accumulated profits of $1.8 billion in the calendar year to 31 December 2021,” Bupa said in a release this week.

Mogan’s view is that in recent times, negotiations between hospitals and health insurers have become very public affairs, with both sides airing their dirty laundry and finger pointing at the other for all the inefficiencies in the system, as opposed to what tended to be a professional, closed door matter.

“There’s always a bit of a tussle between private hospitals and the insurers,” Power said.

“Both are big players and wanting to flex their muscles.”

He said the tit-for-tat has this week been creating a bit of nerves and overshadowing the $20 billion takeover bid of Ramsay by US investing giant KKR.

The Ramsay health price has fallen ~2.58% in the past five days to ~$78.

Small cap health news

Digital healthcare company Alcidion (ASX:ALC) confirmed that as part of a consortium led by Leidos Australia, it will deliver a health knowledge management system (KHF) that will support delivery of healthcare services for the Australian Defence Force (ADF) .

Alcidion’s Miya Precision platform will perform the role of aggregating data from consortium partner solutions to provide a single, consolidated, longtitudinal view of participant health status and history. Total contract value to Alcidion is $23.3 million over six years.

“Alcidion’s hospital software has been winning quite a few contracts over recent years so they are doing reasonably well,” Power said.

Dermatology company Botanix (ASX:BOT) announced it had acquired Sofpironium Bromide gel to treat excessive underarm sweating (known as primary axillary hyperhidrosis) from Brickell Biotech (Nasdaq:BBI). Botanix still needs to go through the approval process for the gel.

“The approval process will probably take about a year but then they’ll have an asset to take to market either themselves or with a partner,” Power said.

The US FDA has also granted Botanix new Qualified Infectious Disease Product (QIDP) designation for its investigational cannabidiol antibacterial product, BTX 1801.

The new QIDP status applies to the use of BTX 1801 to potentially reduce the risk of staphylococcus aureus bloodstream infections.

Medtech LBT Innovations (ASX:LBT) announced it had executed a binding sale agreement for an APAS Independence with urine analysis module worth ~$200k to Albany Medical Centre in New York.

The sale follows a successful evaluation-to-buy by a laboratory which is part of Albany Medical Centre health system, a not-for-profit with 1520 hospital beds across four hospitals in northeastern New York.

“They have sold a couple of these now and sold another so it’s good news for them,” Power said.

Shares in Imugene (ASX:IMU) slid ~13% on Monday to 19 cents after the clinical stage immuno-oncology company announced it had terminated its supply agreement with MSD, a tradename of Merck & Co.

Imugene announced in March it was collaborating with MSD on a clinical trial assessing the safety and efficacy of Imugene’s HER-Vaxx, a B-cell activating immunotherapy in combination with MSD’s anti-PD1 therapy in patients with HER-2 positive gastric cancer.

Imugene did not provide details as to why the agreement had been cancelled but did say its clinical trial will stay the course.

“I think the share price was treated harshly and was a bit of an over-reaction,” Power said.

“Imugene has more than $100 million of cash sitting on their balance sheet to fund clinical programs so there will be a bit of news flow coming out.”

Buying opportunities

Power said many of small and mid cap health stocks are being traded at significant discounts and represent good buying opportunities for investors.

He said Imugene, which peaked at 62 cents six months ago and is now ~18 cents was a good example, losing ~70% of its value.

“The good selling point for investors is that many of these good companies making good commercial progress are now half-price to six months ago,” he said.

“That just shows how money has rotated out of the small life sciences space and gone elsewhere like into resources and value-orientated stocks.”

ScoPo’s powerplay

Smallcap biotech Immutep (ASX:IMM) is Power’s stock of the week after reporting significant new biomarker and exploratory analysis data from its Phase IIb AIPAC trial which could help with the treatment of metastatic breast cancer.

Immutep is focused on developing novel LAG-3-related immunotherapy effective autoimmune and cancer immunotherapy treatments.

Data from the double blind and randomised AIPAC trial evaluated efti in combination with paclitaxel chemotherapy compared to placebo plus paclitaxel in 2267 patients with HER2-negative/HR positive metastatic breast cancer.

The data was presented at the ESMO’s Breast Cancer Congress. Immutep CSO and CMO Dr Frederic Triebel said the biomarker analysis is highly valuable for two key reasons.

“Firstly, the statistically significant difference in the immune response between the efti and placebo patients confirms efti is activating the immune system and helping patients live longer,” Triebel said.

“This is demonstrated by the increase in circulating monocytes, CD8 T cells and a serum Th1 marker, CXCL10, plus the absolute lymphocyte count (ALC), and correlation of these improved immune parameters with overall survival.

“Secondly, the early rise in ALC in patients treated with efti provides clinicians with a potential predictor of improved survival, helping them to determine early on if continued treatment with efti is potentially beneficial.”

The Immutep share price has fallen more than 17% in the past year to ~36 cents and is around half of its high of 71 cents in July 2021. The company has a market cap of ~$307.52 million.

“The share price rose ~around 9% on the data news but it is still down effectively half price despite doing a lot in recent months,” he said.