ScoPo’s Powerplays: ASX health stocks fall but there’s ‘wind in the sails again’

ASX health stocks have fallen this week but Morgans analyst Scott Power is more optimistic after the US Federal Reserve cut the cash rate by 50bps.

Power reckons the wind is coming back in the sails for ASX health stocks. Pic: Getty Images

• ASX health stocks dropped 1.74% in the past five days, while the broader markets rose 1.55%

• Power confident US Fed's 50 basis points cut in cash rate this week will bring more optimism to the sector 

• Morgans, investor relations firm IR Department and Stockhead teamed up to host HealthInvest 2024 in Sydney this week

Healthcare and life sciences expert Scott Power, who has been a senior analyst with Morgans Financial for 26 years, explains what the movers and shakers have been doing in health and gives his ASX Powerplay.

Australia has a long history of medical research and innovation with health science research in Australia ranked seventh globally. As part of our weekly ScoPo column we’ve decided to showcase groundbreaking Aussie medical research. 

Here's some news for anxious parents of risk-taking teens. Studies show teen brains are wired to take risks, but that can be good.

According to an article by Dr Sarah M. Tashjian, a lecturer within the University of Melbourne School of Psychological Sciences, positive risk-taking can support key developmental goals during adolescence.

She said advances in functional neuroimaging (fMRI) offer insights into how the teenage brain functions and develops, particularly in decision-making.

Tashjian said teen years, or adolescence, starts with puberty and continue until the prefrontal cortex – responsible for planning, decision-making, impulse control, emotion regulation, and social behaviour – fully matures, typically around age 25.

"Because the prefrontal cortex helps us control our behaviour and emotions, before its development is complete, teens are swayed by other neural systems that mature earlier – like the amygdala and striatum," she said.

"These structures reside deep in the middle of the brain and are responsible for emotion and sensory processing, as well as motivating us to seek out rewards."

Tashjian said the rewards teens seek vary, but are often social in nature with social acceptance in particular a core motivator of adolescent decision making.

"Teen's seeming obsession with social acceptance is normal for this stage of development and allows them to figure out which behaviours are most likely to result in social status," she said.

Tashjian said although risk and impulsivity are often associated with negative behaviours that can compromise their health and wellbeing, reward-seeking is crucial to learning how to function in daily life.

"Rewards help motivate us to engage with the world around us, learn new skills and tackle challenges," she said.

She said parents can help redirect a teenager's urge for reward into more positive exploration.

"The first step is to help your teen plan for different risky situations before they are around friends and those subcortical regions of the brain overpower their impulse control."

You can gain more tips about talking to teens about risky behaviours and challenges in their formative years by listening to The University of Melbourne's PsychTalks podcast.

To markets…

ASX healthcare stocks are still causing some anxiety for investors this week but Power is upbeat about risks heading into the rest of 2024. At 1.45pm (AEST) on Friday the S&P/ASX 200 Health Care index (ASX:XHJ) was down 1.74% for the past five days, while the benchmark S&P/ASX 200 (ASX:XJO) was up 1.55% for the same period.

Power said the US Federal Reserve's announcement of a 50 basis points (0.50%) cut in the cash rate this week was good news for the growth end of the market like healthcare.

"We think it will help return investor interest in the sector, which has been lagging a bit over the past couple of months with macro uncertainties and people sitting on the sidelines," he said.

"Reporting season for us was quite mixed so I think we now have a bit of a positive turn in sentiment."

Power said it was worth noting there had been a fair amount of money raised by companies within the ASX healthcare sector so far in 2024.

"In the first half there has been $1.2bn of capital raised, which was more than what was raised for the entire year in 2023."

He added that share price performance has been quite patchy, but has seen "outstanding" performances from the likes of radiopharmaceuticals company Clarity Pharmaceuticals (ASX:CU6), which is up ~267% YTD.

That said, "there has been a lot of share prices which either haven't done much or have gone down," he noted.

In some good news for biotech investors, Power is now feeling more optimistic about the rest of 2024.

"If we're right with this US interest rate cut we might see more interest coming back into the space and there will be plenty of upside for the sector over the rest of the year," he said.

"I recently said I felt like I’m on a sailing boat in the middle of the ocean with no breeze and there is no wind in the sail so we’re just bobbing around.

"But we can now see that we're starting to get wind in the sails again."

HealthInvest 2024

Morgans, investor relations firm IR Department and Stockhead teamed up to host HealthInvest 2024 in Sydney this week, with the event showcasing some of the ASX’s leading and up-and-coming health and life sciences companies.

Power said it was a good opportunity for both professional and retail investors to hear directly from key industry players.

ImpediMed 'hiting their straps'

Power said ImpediMed (ASX:IPD) CEO and managing director Dr Parmjot Bains made the point that with a new board and management team the company was starting to make strong progress.

IPD’s SOZO digital health platform incorporates its trademarked L-Dex technology and bioimpedance spectroscopy (BIS) to non-invasively, accurately and quickly measure and monitor fluid status.

SOZO is FDA-cleared, CE-marked, and ARTG-listed for various conditions, including lymphoedema, heart failure, and protein-calorie malnutrition, and is available in select global markets.

It is the only US FDA-cleared, clinically validated BIS device for early detection and prevention of lymphoedema.

BIS, for preventing breast cancer-related lymphoedema, is now included in the globally recognised guidelines of the National Comprehensive Cancer Network and the Multinational Association of Supportive Care in Cancer.

"They're really starting to hit their straps now," Power said.

"Bains joined in January and the focus is on targeting key states in the US to build the installed base of the SOZO device.

"She told us that momentum is picking up, so that is a good sign."

Race prepares for clinical trial

Power said Race Oncology (ASX:RAC) executive director Dr Peter Smith spoke about progress of the company in reviving the anticancer drug bisantrene through reformulation and repurposing to improve cancer care.

Originally developed by Lederle Laboratories in the 1970s–'80s as a less cardiotoxic alternative to anthracyclines, bisantrene’s initial formulation was highly insoluble, complicating its use.

RAC has overcome this challenge with a new, soluble formulation RC220, which targets high unmet needs in oncology, with a clinical focus on anthracycline combinations to offer cardioprotection and enhanced efficacy in solid tumours.

RC220 is also being explored as a low-intensity treatment for acute myeloid leukaemia.

Smith has more than 35 years of experience in the pharmaceutical and biotech industry with a strong focus on therapeutics, especially oncology.

The company is preparing for its first planned Phase 1a/1b trial of RC220.

"The thesis they're trying to prove with their clinical trial is that by adding their drug bisantrene there is less damage done to the body so it sounds pretty interesting," he said.

"He noted the company is well cashed up to conduct clinical trials so they're hoping to have their first patient dose by the end of this year."

Key catalyst nears for Percheron

Percheron Therapeutics (ASX:PER) is focused on development and commercialisation of novel therapies for rare diseases in particular Duchenne muscular dystrophy (DMD).

The company is undertaking a Phase 2B trial of its lead program avicursen (ATL1102) into non-ambulant boys with DMD, where a readout is expected before the end of CY24.

Avicursen is an antisense oligonucleotide targeting CD49d, a receptor involved in white blood cell activity and has shown effectiveness in multiple inflammatory conditions, including multiple sclerosis and DMD.

"Managing director and CEO Dr James Garner noted this was a major milestone for the company and success would see a rapid re-rating of the share price," Power said.

"All eyes will be on Percheron with this near-term catalyst."

Top performer Clarity turns heads

Power said radiopharmaceuticals has emerged as one of the hottest spaces in biotech right now and front and centre on the ASX is Clarity Pharmaceuticals.

He said CU6 has been one of the top-performing stocks in the ASX health care sector this year with a market cap now of ~$2.56bn having risen ~267%.

Executive chairman Dr Alan Taylor, who has been with CU6 since 2013 and instrumental in the company's growth, said the key focus was the cohort expansion into its Phase 1/2a safety study into prostate cancer called Secure and recruitment into its Phase 3 diagnostics trial for prostate cancer.

The company this week announced Secure had produced further evidence that the proposed therapy was safe to use, with “strong preliminary safety data” in the first multi-dose cohort enrolled.

The trial uses the copper isotope 64Cu/67Cu-SAR-bis to image – and possibly treat – metastatic castrate-resistant prostate cancer patients expressing the prostate-specific membrane antigen (PSMA).

"They've had some outstanding results so far, which has been reflected in the very strong share price we've seen."

"The radiopharmaceutical sector globally has attracted a lot of interest from big pharma and Clarity is very well placed."

ScoPo’s Powerplays – Imricor resonates with investors

Power said one of the presentations which seemed to really resonate with investors attending HealthInvest was by Imricor Medical Systems (ASX:IMR) – delivered by vice president of corporate strategy Nick Corkill, who focused on the importance of the cardiac-focused company's two trials currently underway.

"We just did a quick around the grounds after the event and the presentation which received the most recognition was Imricor," he said.

Power said all the presentations were very good but he is happy to put down IMR as his stock of the week.

IMR is focused on development and manufacture of MRI-compatible devices for performing a cardiac ablation, where a catheter is guided into the heart with the purpose of burning/ablating the tissue responsible for causing an arrhythmia (irregular heartbeat).

Cardiac ablations are currently undertaken with X-Ray guidance to identify the location in the heart requiring treatment. However, as an imaging tool, X-Ray has limitations as it does not show the soft tissue of the heart and exposes the patients and physicians to repeated radiation.

IMR is undertaking the Vision-MR Ablation of Atrial Flutter (VISABL-AFL) pivotal clinical trial supporting US Food and Drug Administration (FDA) approval of its products.

"They expect to have recruitment finished by the end of this year," Power said.

In Europe, where the company has already received regulatory approval for atrial flutter, it’s about to start the VISABL-VT clinical trial for its second indication, ventricular tachycardia (VT).

Power said Corkill noted that as it's such a difficult procedure there were a lot of cardiologists globally watching the VT trial, with MRI having potential to add significant value as doctors can see the heart in real time.

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 Imricor and Race Oncology are Stockhead advertisers, the companies did not sponsor this article.

Originally published as ScoPo’s Powerplays: ASX health stocks fall but there’s ‘wind in the sails again’