Scott Power: ASX health falls as Trump revives pharma import tariff threat; CSL ‘undervalued’

• ASX health stocks fall o.92% over past five days as US President Donald Trump renews tariff threat on pharmaceutical imports
• Morgans believes ASX’s biggest biotech CSL  is currently trading at levels significantly below fair value
• Cochlear hears good news with US FDA approval for its next-gen Nucleus Nexa implants and two sound processors

Big news for the week affecting the ASX healthcare sector was US President Donald Trump threatening again to impose tariffs on drugs imported into the US, this time up to 200%.

“We’re going to give people about a year, a year and a half to come in and, after that, they’re going to be tariffed,” Trump said.

“If they … bring the pharmaceuticals into the country … they’re going to be tariffed at a very, very high rate, like 200%.”

Trump previously targeted the pharmaceutical industry, warning in April that “major” tariffs were on the way, and stating in February that he planned to impose levies of “25% or higher” on drug imports.

“Trump has argued tariffs on pharmaceuticals would force companies to move their manufacturing operations to the US, with companies like Eli Lilly (LLY), Johnson & Johnson (JNJ) and AbbVie (ABBV) already falling in line and announcing plans to beef-up their US footprints,” Morgans’ analyst Dr Derek Jellinek wrote in a note to clients.

“The treat of tariffs, along with risk of drug-pricing reform under the Most Favoured Nation executive order and policy changes under Health Secretary Robert F Kennedy Jr, has negatively impacted investor sentiment across the global healthcare sector.

“While we do not believe this overhang is likely to abate over the near term and certainly poses a tricky situation for pharma companies, given the significant volumes of drugs, both generic (~80%) and branded (>50%), that are produced outside of the US, we believe any direct impacts would depend on the specifics of trade policy and tariffs enacted (if any).”

ASX health stocks fall over past week

The S&P/ASX 200 Health Care index (ASX:XHJ) fell 0.92% for the past five days, while the benchmark S&P/ASX 200 (ASX:XJO) was down 0.15% for the same period.

But let’s focus on a positive. At least Telix Pharmaceuticals (ASX:TLX) rose 6% on Wednesday after securing a permanent healthcare system code from the US Centers for Medicare & Medicaid Services for its PSMA PET imaging agent Gozellix.

“Essentially, there’s been a lot of news which have moved individual stock prices around quite significantly this week and there lies the opportunity for investors,” Power said, noting that Imricor Medical Systems (ASX:IMR) looked like one to keep an opportunistic eye on, having pulled back almost 20% this week.

Power’s Powerplay: ASX’s biggest biotech CSL ‘undervalued’

Morgans believes the ASX’s biggest biotech CSL (ASX:CSL)  is currently trading at levels significantly below fair value, pricing it as less than a single-division company, with the main Behring division alone justifying a higher valuation and no value assigned to either Seqirus or Vifor.

In a note to client Jellinek wrote that Morgans “view CSL as materially undervalued” and over the past decade the company had averaged an EV/EBIT multiple of 24.7 times but today it sits at 18.2 times.

Jellinek said strong demand and cost-cutting measures were helping margins recover for CSL Behring, which focuses on rare and serious diseases like bleeding and immune disorders and made up more than 70% of earnings.

He said CSL’s flu vaccines business Seqirus faced short-term uncertainty around vaccine uptake and the impact of vaccine skeptic Robert F Kennedy Jr’s position as Health secretary, but demand was still supported by pandemic contracts.

Growth in CSL’s iron deficiency and kidney care business Vifor, while slower than expected was also showing signs of improvement.

“Combined, we estimate an intrinsic value of $196 bn, representing c35% upside from current trading levels,” Jellinek wrote.

Morgans has lowered its FY25-27 underlying earnings estimates on CSL by up to 4.1% mainly on lower sales and margin assumptions in Seqirus and Vifor divisions.

The broker’s FY25 constant currency NPATA forecast of US$3.24bn sits within CSL’s guidance range of US$3.2–3.3bn, which implies 10-13% year-on-year growth.

“While Behring continues to do the heavy lifting, ongoing cost right-sizing and unmet demand across all divisions gives us confidence in a double-digit earnings growth trajectory over the medium term,” Jellinek wrote.

Morgans maintains a buy rating on CSL but has reduced its 12-month target price to $303.70 from $329.26.

Cochlear hears of approval from FDA

Cochlear (ASX:COH)  this week announced the US Food and Drug Administration (FDA) had approved its next-generation Nucleus Nexa implants – “the world’s first and only smart cochlear implant system” – as well as its Nucleus Kanso and Kanso 3 Nexa sound processors.

US approval was widely anticipated after the next generation of its Cochlear implants were launched last month in Europe and the Asia Pacific region following regulatory approval.

In June, Cochlear  further downgraded FY25 guidance to low double digits on slower services sales growth, along with slowing Cochlear implant developed market growth and “small loss” of share “in a few countries”.

The company has flagged ongoing work to identify and connect with recipients who could benefit from the latest sound processing tech and the introduction of Kanso 3 Sound Processors as key drivers of a lift in services revenue in FY26.

While consensus targets FY26 services revenue up 8% to $646 million, in a note to client Jellinek was less optimistic at 3% to $616m,  given the Kanso 3 Sound Processors were launching outside the typical three-to-five-year reimbursement cycle for upgrades.

He wrote they also appear to be an over-the-ear equivalent of the behind-the-ear Nucleus 8 sound processor, launched in December 2022, a more commonly used option, so may be construed as being about convenience rather than medical necessity from a reimbursement point of view.

“And while the Cochlear Nucleus Nexa System introduces several enhancements, it is based on the existing Nucleus 8 platform, with improvements appearing incremental and more about refining the user experience, as opposed to technological advancements in hearing capabilities that Nucleus 8 introduced over the Nucleus 7, potentially limiting gains compared to prior launches,” he wrote.

“Taken together, we remain cautious, targeting FY26 NPAT $436m (+10%; cons $457m, +15%), which appears more than reflected in the current multiple (45x FY26).”

Morgans has a hold rating on Cochlear and 12-month target price of $281.36.

Neurizon closer to lifting FDA clinical hold on ALS drug

Neurizon Therapeutics (ASX:NUZ) is progressing plans to lift a US FDA clinical hold on lead drug NUZ-001 and continue towards the start of its potentially pivotal phase 2/3 trial in amyotrophic lateral sclerosis (ALS) through the HEALEY platform trial in the US.

The FDA has provided written feedback to NUZ accepting its strategy of conducting two preclinical pharmacokinetic (PK) studies to lift the clinical hold on NUZ-001.

Based on the FDA’s initial clinical hold, NUZ proactively went ahead and initiated two PK studies in an effort to expedite addressing the FDA’s concerns about a gap in information around systemic exposure.

“Pleasingly, NUZ were on the money and have completed these studies ahead of schedule, with the treatment phase and blood sample analysis now finished, and study reports being finalised,” Morgans’ analyst Iain Wilkie wrote in a note to clients.

Neurizon will submit its complete response with the new data attached to the FDA in the coming weeks, requesting the lifting of the clinical hold, enabling the company to enter the HEALEY trial, a significant ongoing trial in the US aimed at accelerating ALS treatment development.

“A clear positive development here and pending final analysis, submission, and acceptance to lift the clinical hold and open the IND – NUZ expects to commence enrolling participants in the long awaited phase 2/3 trial by the end of the year, all of which we view as major catalysts to re-rate the stock,” Wilkie wrote.

“We view NUZ as a strong proposition in the rare disease space with significant near-term catalysts in a condensed timeframe and precedent for an accelerated approval pathway.

“While considerable clinical risk remains, we view NUZ-001 as a drug with a sound scientific basis in ALS, strong safety profile, and promising hint of potential efficacy above existing treatments.”

Morgans has a speculative buy rating on Neurizon and risk-adjusted 12-month target price of 42 cents per share.

Mach7 provides FY25 guidance update as new CEO takes reins

Often referred to as a mini version of ProMedicus (ASX:PME) health imaging stock Mach7 Technologies (ASX:M7T) provided an update on its expected FY25 results based on preliminary unaudited management accounts.

Revenue is expected to be  $33-$34m, sitting at the bottom end of prior guidance range of 15-25% growth ($33-$36m), while Morgans estimate for  FY25 was $34.7m.

Management expects recurring revenue – subscription revenue and maintenance and support revenue – to be 20% higher.

Contracted Annual Recurring Revenue (CARR)is expected to be ~$30m-$31m, slightly below the FY25 guidance of 15-25% growth ($32m-$35m).

Operating expenditure growth will be less than revenue growth, consistent with FY25 guidance.

Mach7 expects to have closed FY25 with $21m-23m with no debt. The company’s new CEO Teri Thomas officially started on July 1 and will update investors on July 29.

Thomas headed former ASX-listed breast imaging company Volpara Technologies, before it was taken over by South Korean provider of AI-powered solutions for cancer diagnostics and therapeutics last year.

In a note to client Wilkie said the CARR miss shouldn’t surprise the market too much considering no major new contract wins since the Q3 update.

“We were hopeful of a new contract or two prior to EOFY but like anything in this sector, timing on contracts are hard to predict and delays are common,” he wrote.

“The core business continues to perform steadily, yet it has been on the cusp of achieving profitability for several years without fully breaking through.”

“While there is significant potential for substantial progress, investors have only seen gradual improvements so far.”

Wilkie wrote it would be “interesting to see any changes to outlook or strategy going forward”  following Thomas’s appointment.

Morgans maintains an add rating and 12-month target price of $1.37.

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Disclosure: The author held shares in CSL and Mach7 at the time of writing this article.