Scott Power: ASX health sector down in week of good and bad news

ASX heath sector falls 2.1%, while broader markets rise 0.8% for the same period
Opthea phase III Coast trial into wet AMD fails to meet primary and secondary endpoints
EMVision starts pivotal validation trial for emu bedside brain scanner to diagnose stroke

Healthcare and life sciences expert Scott Power, who has been a senior analyst with Morgans Financial for 27 years, gives his take on the ASX healthcare sector for the week and his ‘Powerplay’ stock pick.

The ASX healthcare sector has retreated again after last week’s brief rebound. At 12.35pm (AEDT) on Friday, the S&P/ASX 200 Health Care index (ASX:XHJ) was down 2.1% for the past five days, while the benchmark S&P/ASX 200 (ASX:XJO) rose 0.8% for the same period.

“Another disappointing week for the healthcare markets, tariffs and changes to key healthcare postings in US continues to put pressure on the sector globally,” Power said.

The week kicked off on Monday with disappointing highly-anticipated top-line results from the Opthea (ASX:OPT) phase III COAST trial into wet aged-related macular degeneration (wet AMD).

The results showed lead drug candidate sozinibercept combined with standard of care (SOC) eylea failed to show an improvement in mean change in best correct visual acuity (BCVA), the primary endpoint.

Sozinibercept also did not demonstrate any numerical difference across key secondary endpoints compared to SOC.

While Opthea has US$113 million of cash, the company has obligations under a 2022 development funding agreement of up to US$170 million.

“Given Coast’s disappointing results, management is assessing its rights and obligations under the DFA and may be required to pay amounts that would have a material adverse impact on its solvency,” Morgans’ healthcare analyst Derek Jellinek wrote in a note to clients.

“Management have been in active discussions with DFA investors to explore possible options in respect to the ongoing clinical trial programs and are attempting to identify a pathway forward that represents the best outcome for the company and its shareholders.”

Opthea shares remain in suspension following the result.

Federal government keeps R&D tax incentive

The federal budget was handed down on Tuesday evening with not a lot of new news for the sector, with key measures mostly previously announced.

The big changes to health include the maximum co-payment for medicines under the PBS will come down to a 20-year low from $31.60 to $25.00 per script and remain frozen at $7.70 for pensioners.

The government is working to expand bulk-billing among GPs, with a big investment in Medicare. Power said he was pleased to see the R&D tax incentive was staying.

“For the life science sector its really about the federal government maintaining that R&D tax incentive program, which we think is really valuable,” Power said.

Power’s Powerplay: EMVision starts pivotal trial for emu

EMVision Medical Devices (ASX:EMV) is Power’s pick of the week after starting a pivotal validation trial for its first commercial device – the emu bedside brain scanner to diagnose stroke.

EMVision said Australian ethics approval had been granted and the Royal Melbourne Hospital (RBH) would start as the first Australian hospital after a successful site initiation visit with operator training in progress.

EMVision said an emu device had been shipped to the first US trial site, University of Texas Health Science Center at Houston (UTHealth) Medical School and Memorial Hermann-Texas Medical Center (TMC).

As well as sharing a name with a flightless native Aussie bird, emu refers to electromagnetic unit and is the most advanced of the company’s two trademarked products to rapidly diagnose stroke. The other device is a lighter version of emu named First Responder.

The trial is designed to support US Food and Drug Administration (FDA) de novo (new device) clearance for emu.

If granted clearance emu is anticipated to become the predicate device for First Responder allowing an expedited 510(k) FDA pathway for the pre-hospital market.

“EMVision has achieved a key milestone starting their US pivotal trial for emu,” Power said.

Micro-X shelves bomb detection device, re-focus on medical imaging

Micro-X (ASX:MX1) has undertaken a strategic review of its operations and will now focus on medical imaging for its cold cathode x-ray technology.

Further work on its Argus bomb detection device is being halted after the commercial launch didn’t attract sufficient customer interest.

Power said Morgans was supportive of the pivot with a strategic investment, a capital raise and project income from the US Advanced Research Projects Agency for Health (ARPA-H) helping replace the lost revenue from the Argus and improve Micro-X’s cash position to enable the company to realign its business focus.

Micro-X has completed a $4m capital raising at 7 cents per share including $2m placement and $2m entitlement offer of one share for every held for 10 to fund the new strategic focus on medical imaging.

In addition, a $2.4m strategic investment at 9 cents per share has been made to Billion Prima, a Malaysian security technology company, which will own ~4.4% of the company.

The two have entered a development agreement for $3.2m to commercialise a baggage and parcel scanning unit over the next 12 months.

Power said Micro-X would now specifically focus on:

its Rover+ mobile x-ray unit, which generated sales of $6.4m in FY24 and is being evaluated by a major US hospital;
development of a head CT scanner which is about to undertake human imaging at three hospitals in Australia, funded by the Australian Stroke Alliance (ASA); and
development of a full body lightweight portable CT scanner, funded by a five- year A$25m contract with ARPA-H.

“The two applications – security and defence – have been deprioritised,” Power said.

He said in short Micro-X’s security project – the airport baggage scanner self-check-in – which is being funded by the Department of Homeland Security (DHS) continues with a contract worth up to US$14.1m (~A$21m) to facilitate live airport testing.

“The company’s defence application Argus has been shelved because it’s failed to achieve the necessary commercial level of interest,” Power said.

Morgans maintains a speculative buy recommendation on Micro-X but has reduced its 12-month share price from 19 cents to 17 cents.

Morgans upgrades strongly pumping EBR

Morgans has upgraded its 12-month trading price on EBR Systems (ASX:EBR) from $1.76 to $2.86 after the cardiac play released full year CY25 results and awaits US FDA approval for its WiSE CRT (cardiac resynchronization therapy) system in April.

EBR’s reported CY24 net loss of US$40.8m, was broadly in line with Morgans’ expectations. R&D expenses fell to US$601,000 in the December 2024 quarter compared with US$2.51m in the March 2024 quarter as the company transitions to commercialisation.

EBR’s cash/short term investments sit ~US$66m as of Dec 31, 2024, giving more than six quarters of runway at the current cash burn with the company well capitalised through to initial commercialisation of its WiSE.

“We see little risk to FDA approval for the company’s wireless cardiac pacing device (WiSE) on or before 13 Apr-25, with 2H25 launch,” Jellinek wrote in a note to clients.

EBR’s WiSE technology has been accepted into the Transitional Coverage for Emerging Technologies (TCET) reimbursement pathway designed to expedite Medicare coverage for a highly selective subset of FDA-designated Breakthrough Devices.

The company is also beefing up manufacturing capacity by leasing a ~51,000 square feet (~4,751 sqm) facility to increase scale and capabilities for future growth.

“With a derisked regulatory path and enough capital to execute on a sound commercial strategy, we continue to view EBR as well placed to build a profitable medical device business in the cardiac resynchronisation therapy space,” Jellinek wrote.

Morgans maintains a speculative buy rating on EBR.

… and Pro Medicus also gets an upgrade

Morgans has upgraded health-imaging stock Pro Medicus (ASX:PME) to an add from a hold, which the broker believes now presents good value having fallen ~16% YTD with broader market volatility.

“We view PME as one of the highest quality businesses on the ASX with high margins and long contracted revenue base, providing significant baseline earnings support,” analyst Iain Wilkie wrote in a not to client.

“While risk remains given the high valuation, demand for quality growth assets remains strong,”

Morgans maintains its 12-month target price on Pro Medicus, which has been elevated to the S&P/ASX 50 in the March rebalance.

“Given the volatility and continued risks around the high valuation metrics PME trades on, this is more so a call for small initial positions rather than a ‘full-stack’ approach,” Wilkie wrote.

“More risk averse investors may look to wait for a turn in the current risk-off environment.”

HealthInvest 2025 to showcase sector’s emerging bright stars

If you’re in Sydney next Wednesday join Power and I at HealthInvest 2025, a collaboration between Stockhead, investor relations firm IR Department and Morgans to showcase emerging ASX healthcare companies to potential investors.

Companies presenting include EMVision Medical Devices (ASX:EMV), Orthocell (ASX:OCC), Microba Life Sciences (ASX:MAP), Lumos Diagnostics (ASX:LDX), Dimerix (ASX:DXB).

“I’m looking forward to the event with five exciting emerging health names presenting,” Power said.

HealthInvest will be held on Wednesday, April 2 from 4 to 7pm (AEDT) at Morgans, Level 21, 88 Phillip Street in Sydney with tickets free of charge and available on the HealthInvest 2025 website.

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.

At Stockhead, we tell it like it is. While EmVision and EBR Systems are Stockhead advertisers, the companies did not sponsor this article.