Strong gains among selected life science shares is fuelling optimism that the sector may have further to run.
Life sciences stocks are involved in things like biotech, genetics, pharmaceuticals and medical devices.
In a low growth earnings environment, sector leaders — multi-billion dollar companies such as CSL (ASX:CSL), Cochlear (ASX:COH), Sonic (ASX:SHL) and Resmed (ASX:RMD) — are all delivering around 10 per cent growth, says Morgans Financial senior analyst Scott Power.
On the next level down, stocks such as Nanosonics (ASX:NAN) and ProMedicus (ASX:PME) “have been unbelievably strong”.
But it is at the smaller end of the market where significant profits have been made.
Promising research results lit up the share price of Opthea (ASX:OPT) last month, while over at Clinuvel Pharmaceuticals (ASX:CUV), regulatory approval — gaining access to the giant US market — triggered a scramble for its shares, pushing its valuation skywards.
READ: How Opthea became a $1 billion stock in a month
“If you roll further down the sector, anything that has a milestone or a catalyst that is achieved, the market is welcoming it,” Power said.
“Money is willing to look at high growth, speculative names.”
And there appears to be significant investor interest on the sidelines willing to reward success.
“Resapp (ASX:RAP) has done well getting [European] clearance,” Power told Stockhead.
“The next step is signing up some commercial partners in Europe and FDA approval in the US.
“Antisense Therapeutics (ASX:ANP) is trialling a drug treating a form of muscular dystrophy. It is a phase 2 trial. It has Australian Ethical (ASX:AEF) on its register with 20 per cent and Platinum (ASX:PTM) with 6-7 per cent.”
The presence of heavyweight institutional investors gives Antisense’s research program significant credibility, which was reinforced by recent promising research results which gave the shares a big lift.
A more detailed assessment of the research data is due before year end.
“In the medical cannabis space, the merger recently outlined by Zelda Therapeutics (ASX:ZLD) with the US based Ilera looks quite interesting,” Power said, with the news triggering a significant lift in its shares.
Other stocks at the cannabis end of the market, such as Ecofibre (ASX:EOF), have also been strong in recent trading, Power said.
Part of the interest here may reflect the surge in revenues in the September quarter as it starts to gain traction.
Elsewhere, ImExHS (ASX:IME) — “a mini Pro-Medicus or Mach7 Technologies” which is working in the radiology software market — also has promise.
Also of interest to Power is Neuren Pharmaceuticals (ASX:NEU), which rallied hard Wednesday on further regulatory approvals in the U.S., while Cynata (ASX:CYP) has a potential merger on the table with big Japanese pharma group Sumitomo Dainippon.
It recently finalised a licencing deal with Fujifilm, generating a handy cash injection.
“We sense the market is rewarding growth names, and sentiment in life sciences is buoyant,” Power said.
“It is cyclical; it does come in waves. I sense the wave is building at the moment.”