Scott Power: ASX health stocks rise; Race Oncology enjoys big week with lead drug discovery

• ASX heath sector up 2.84% for the week, while broader market rises ~2.4%
• Morgans Scott Power said sector showing signs of recovery heading into year end
• Race Oncology rises almost 30% this week after discovery in development of lead cardio protective anticancer drug RC220

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 is showing strong signs of recovery in October following a weaker September. Nearing closing time on Friday the ASX Health Care Index (XHJ) was up a very solid 2.84% for the past week, while the broader S&P/ASX 200 (XJO) had risen ~2.4% for  the same period.

The sector fell 4.15% in September and remains the biggest laggard year to date, dropping more than 14% but Morgans senior healthcare analyst Scott Power is feeling optimistic heading into last quarter of CY25.

“For the week it is looking much better for both the broader market and healthcare sector,” he said.

“There seems to be a lot more activity in the smaller end of the market and quite a few stocks which are starting to bounce and we’re coming into a seasonally stronger part of the year.”

Power noted, too, there’s been several capital raisings, while the IPO window was starting to open with more likely to come.

Trump pauses pharma tariff threat after Pfizer deal

US drugmakers surged on Wednesday (US time), with the NYSE Arca Pharmaceutical Index (DRG), which tracks the top 20 pharma stocks, up 5.4% after signs of easing MFN (most favoured nation) drug pricing and tariff concerns following Big Pharma Pfizer’s deal with the US government to lower drug costs.

Pharma companies have been scrambling to meet US President Donald Trump’s MFN demands and avoid threatened tariffs (100% by October 1), with Pfizer the latest to announce a US$70 billion investment alongside measures to address drug pricing in the US.

In a note to clients, Morgans’ Derek Jellinek wrote that Pfizer would get a three-year reprieve from tariffs as part of the deal and participate in a new federally operated direct-to-consumer (DTC) drug purchasing platform, TrumpRx.gov, offering drugs at a discount.

“While the agreement is largely viewed as more symbolic than transformative, with limited direct consumer benefits, it is likely to encourage similar commitments from other pharmaceutical and improves overall sector sentiment, given it eliminates the ‘worst-case’ scenario of extreme tariffs and pricing uncertainty,” he wrote.

For the ASX’s largest biotech blood products giant CSL (ASX:CSL), Jellinek wrote it was likely to be a beneficiary or at least insulated from any US tariffs on pharmaceuticals given its strong US operational footprint in plasma collection, fractionation, and manufacturing.

Around 40-50% of CSL’s revenue comes from the US, particularly via its plasma-derived therapies division CSL Behring, and it operates major plasma facilities in Illinois and North Carolina with one of the largest plasma collection networks in the US (CSL Plasma).

“CSL would be minimally impacted by US tariffs on finished pharma products because it sells into the US mostly from its US operations,” Jellinek wrote.

“MFN pricing frameworks would have less relevance to CSL’s plasma-derived therapies, which are less price elastic and more supply-constrained than small-molecule generics.”

CMS payment update expands Recell access

Wound-care company Avita Medical (ASX:AVH) has announced that, effective October 1, US hospitals will be eligible for New Technology Add-on Payment (NTAP) reimbursement from the Centres for Medicare & Medicaid Services (CMS) when using its Recell system to treat acute, non-burn trauma and surgical full-thickness wounds.

In a note to clients Morgans’ healthcare analyst Iain Wilkie wrote these wounds historically represent a small portion of Avita’s sales mix with burns being dominant segment.

The NTAP was granted under CMS’ alternative NTAP pathway, which recogniss the transformative nature of products that have received Breakthrough Device designation from the US Food and Drug Administration (FDA).

The designation will remain in effect through September 30, 2026, providing hospitals with supplemental reimbursement of up to $4,875 per case in addition to the standard CMS payment.

“The NTAP is a significant commercial milestone, as it lowers the financial barrier for hospitals to adopt RECELL for non-burn indications,” Wilkie wrote.

“While the reimbursement itself does not flow directly to Avita, it acts as a strong incentive for hospitals to use the technology, potentially accelerating uptake and broadening the addressable market.

Recell is used by healthcare professionals to prepare a suspension of Avita’s Spray-On Skin cells from a small sample of the patient’s own healthy skin.

“The NTAP decision is a strong endorsement of RECELL’s value proposition and should help drive adoption in the acute wound segment,” Wilkie wrote.

“While the reimbursement is paid to hospitals, it meaningfully improves the commercial environment and could support stronger sales momentum over the next 12 months.”

Morgans has a speculative buy rating on Avita with a 12-month target price of $2.

“We view AVH as undervalued in the mid A$1 range and remain cautiously optimistic at current levels,” Wilkie wrote.

Impedimed receives reimbursement win

Impedimed has also had a reimbursement win, with “one of the largest customer-owned US health insurers” issuing positive coverage for CPT Code 93702, recognising bioimpedance spectroscopy (BIS) as medically necessary for lymphoedema assessment.

The decision is good news for Impedimed, supporting reimbursement for lymphedema testing using its Sozo Digital Health Platform – the only US FDA-cleared, clinically validated BIS device for early detection and prevention of lymphoedema.

Lymphoedema is the build-up of fluid in the limbs, typically as a result of treating breast cancer. Medical staff have traditionally measured the resulting limb swelling with a tape measure.

Impedimed said the expanded coverage means more than 86% of all US patients were now reimbursed for their treatment.

“They are almost there in terms of full coverage and that will ensure that the rate of the install base continues to grow as more hospital systems can now justify adoption in a financially constrained environment,” Power said.

“Last quarter they had a record install base of 44 Sozo units and we expect a similar number this quarter and it to accelerate in subsequent quartets.”

Morgans has a speculative buy rating on Impedimed and  12-month target price of 15 cents.

Power’s Powerplay: Race surges ahead on discovery

Race Oncology (ASX:RAC) is Power’s pick of the week after rising more than 45% on Thursday after a key discovery in the development of its lead cardio protective anticancer drug RC220. The share price pulled back a tad on Friday, but is still up around +30% for the week.

Scientists have now identified for the first time the primary mechanism of action (MOA) of the active pharmaceutical (E,E)-bisantrene (RCDS1) in RC220.

Instead of acting like older chemotherapy drugs, RCDS1 targets special structures in DNA and RNA called G-quadruplexes (G4s), which control important cancer genes like MYC.

“By doing this, the drug can help slow cancer growth and may work better for certain patients,” Wilkie wrote in a note to client.

The breakthrough follows on from recent positive news around solidifying its IP,  further de-risking its regulatory pathway and likely improves partner options with a well-rounded and protectable package.

“Recent studies show RCDS1 attaches to and stabilises these G-quadruplex structures, which in turn slows down cancer-promoting genes and blocks certain enzymes that help cancer grow and resist treatment,” Wilkie wrote.

“MYC is a key gene that makes cancers grow and resist therapy, but it’s been nearly impossible to target directly until now.

“RCDS1 can reduce MYC’s activity by stabilising the DNA structures that control it, offering a fresh way to treat tough cancers.”

Knowing exactly how the drug works means Race can better choose which cancers to target, design smarter drug combinations and develop tests to find patients who will benefit most.

“Knowing the MOA increases the likelihood of regulatory approval and pharma partnering,” Wilkie wrote.

It supports development of its proprietary RCDS1 formulation RC220 for solid tumours and Acute Myeloid Leukemia (AML), with a focus on combinations with doxorubicin for enhanced efficacy and cardio protection.

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 as it is. While Race Oncology is a Stockhead client, the company did not sponsor this article.

Disclosure: The journalist held shares in CSL at the time of writing this article.