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.

Theme of the week

Healthcare (XHJ) finished the week up 2.77%, compared to the broader market which ended 1.65% higher.

It has been a tough period for the smaller end of the market, as most investors are focusing in the larger stocks with earnings results in full swing, according to Power.

“The market’s focus continues to be concentrated across a number of resource stocks, big tech, and finance companies,” Power told Stockhead.

“This has been the theme of the past few weeks; there is a lack of buying interest and the smaller end of the market is still in this no man’s land.”

This is despite these smaller companies reporting good results for the quarter, Power said.

The best performer in the sector was brain injury specialist, Neuren Pharma (ASX:NEU), which rose by 18% during the week.

Neuren has just completed Phase 3 enrolment for the study of trofinetide in Rett syndrome (neuro-development disorder), with results on track to be published in Q4 of 2021.

The company is working with Nasdaq-listed Acadia Pharma in this Phase 3 trial, which will test 180 patients for 12 weeks with trofinetide or placebo.

“This a pivot and major inflection point for Neuren. If the Phase 3 results are positive, it will trigger a number of milestone payments for them,” Power said.

Performance of recent IPO stocks

Power also pointed to the disappointing price action of companies that had recently raised capital.

Lumos Diagnostics (ASX:LDX) floated at $1.25 in June, and is currently trading below that at $1.24.

Lumos’ products include FebriDx, which is a finger-prick blood test that can indicate if a person has a general bacterial or viral acute respiratory infection within 10 minutes.

“It’s been sitting around that IPO price after raising $63m, so it’s not a great reward for investors in the early stages,” Power said.

Aroa Biosurgery (ASX:ARX) raised $52m last week at $1.16, but its share price has hovered around the $1.08-$1.12 level for much of the week.

“And the darling of 2020, Imugene (ASX:IMU), raised $90m at 30c, and is now trading at 29c.”

The other stock that hasn’t done so well after capital raising was Immutep (ASX:IMM), which recently raised $50m at 52c, and is currently trading at 51c.

“What all this tells us is there’s not a huge amount of investor interest in terms of pushing these stocks higher.”

“They’ve all raised big chunks of money, and there is definitely still money out there, but the reward is still minimal at the moment.”

“That’s a concern for the next couple of months,” Power thinks.

However, he believes there will be a period where investors will start to come back, and look at some of the undervalued players at the smaller end of the market.

Other health stock announcements you might have missed

Mach7 Tech (ASX:M7T)

The company has licensed its eUnity universal viewing device to St Luke’s Boise Medical Centre.

The licence contract is valued at $443k for the first year, and has the option for annual renewals at $389k per year for an additional five years, increasing the total contract value to $2.4 million.

“We’re a big fan of the enterprise imaging space, and we’re expecting a strong turnaround in terms of sales for Mach7 in FY22.”

ResApp Health (ASX:RAP)

The digital health company signed a licence agreement with Medgate, to use ResApp’s smartphone-based acute respiratory diagnostic test, ResAppDx, on Medgate’s telehealth platform in Europe and the Philippines.

Medgate is one of the largest European telehealth groups.

“Medgate has been trialling ResApp’s app, but has now turned it into a commercial deal, so that’s a big milestone,” said Power.

Proteomics (ASX:PIQ)

The company has signed a research agreement with the University of Melbourne and the Royal Women’s Hospital to collaborate in developing a non-invasive test for endometriosis.

The partnership aims to develop the world’s first blood test for the painful condition, which affects one in nine women  in Australia.

ScoPo’s Powerplay

Power’s stock pick of the week is EBOS Group (ASX:EBO).

EBOS is one of the biggest pharmaceutical distributors in Australia.

Its share price has risen by around 10% over the past three months, and the company has a history of delivering sustainable growth.

According to Power, the short term catalyst for EBO’s price would be its full year FY21 results to be reported in mid-August.

“We’re looking for an entry point below $30 on this stock, and a 12-month price target of $31.03,” said Power.

EBO closed the week at $30.50.


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