Scott Power: ASX health stocks up in strong start to reporting season

Morgans senior healthcare analyst Scott Power says healthcare stocks have had a strong start to the latest reporting season.

ASX health stocks delivered a robust start to reporting season. Pic: Getty Images

• ASX heath sector up 1.9%, trailing ASX 200's 2% gain in short week revival  

• Sleep-related respiratory disorders company ResMed reports "stronger than expected" Q3 FY25 results

• Imricor makes key regulatory strides in Q1 CY25, including submitting second module for US FDA premarket approval

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.

In a shortened trading week replete with Easter and Anzac Day holidays, Aussie health stocks have felt some reprieve from recent volatility as US President Donald Trump said he "won't play hardball" with China and ultimately the two countries would reach a trade deal.

In a further positive sign for investors Trump said he had no intentions of firing US Fed chair Jerome Powell.

Meanwhile, China's foreign ministry spokesperson Guo Jiakun said China’s attitude towards the tariff war launched by the US was quite clear.

"We don’t want to fight, but we are not afraid of it," he said.

"If we fight, we will fight to the end; if we talk, the door is wide open."

How has this all affected health stocks?

At 3.20pm on Thursday, the S&P/ASX 200 Health Care index was up 1.9% for the past three days, while the benchmark ASX 200 rose 2% for the same period.

"It's a little bit better this week but the uncertainty is still making investors very nervous and that is what we are dealing with at the moment," Morgans' Scott Power said.

Healthcare stocks still raising cash

In a positive sign healthcare companies have still managed successful funding rounds in the midst of market volatility.

Among the latest capital raising announcements, clinical-stage biotech company that targets the underlying drivers of genetic diseases PYC Therapeutics (ASX:PYC) this week announced that it had received the full ~$146m proceeds of its entitlement offer announced in February.

Completion of the entitlement offer provides PYC with a cash runway of more than $200m that will fund human safety and efficacy read-outs within the company’s pipeline of multiple first-in class drug candidates with disease-modifying potential over the course of the next 24 months.

And precision diagnostics play Proteomics International Laboratories (ASX:PIQ) has completed a $4.5m placement to institutional and sophisticated investors.

The placement coincides with a share purchase plan, which aims to raise a further $1m. The capital raise aims to fund the commercial launch across PIQ's range of diagnostic tests in Australia and the US as well as upgrading systems and establishing laboratory platforms.

In a note to clients, Morgans healthcare analyst Iain Wilkie said the PIQ placement addressed immediate cash concerns, although it appears insufficient to see the company through to meaningful commercial success.

"We believe that the in-house commercial rollout and reliance on out-of-pocket funding will hinder initial sales and thereby extend the timeframe to achieve meaningful revenues," he wrote.

"Notwithstanding our longer-term view that there is substantial value in these tests, we view there is commercial risk, time, expenses, and likely another capital injection to wash through before the sales traction gets interesting.

"Happy to hold at these levels or add small positions on weakness for risk tolerant investors."

Morgans maintains a hold on the emerging company but has cut its 12-month target price from 50 cents to 43 cents per share.

Power's Powerplay: ResMed's Q3 results 'stronger than expected'

In the throng of reporting season, Power's stock of the week is leader in sleep-related respiratory disorders ResMed (ASX:RMD), which has reported "stronger than expected" Q3 FY25 results.

Morgans healthcare analyst Derek Jellinek said key highlights from the ASX's second biggest healthcare stock – CSL (ASX:CSL) is the largest – included adjusted EPS of US$2.48 (+22%), above consensus of  US$2.39 and the broker's expectation of US$2.43.

Revenue of ~US$1.29 billion was up 9% on a constant currency basis for Q3, which Jellinek said was slightly above consensus  expectations  of US$1.29bn but a touch below Morgans' forecast of US$1.31bn.

Gross margin improved 140 basis points (bps) to 59.3% with non-GAAP gross margin improving 140 bps to 59.9%.

Operating income rose 14% to US$426.3m with operating cash flow of US$579m.

SaaS revenue grew 10% in constant currency to US$161m, ahead of expectations (consensus US$150m), reflecting continued organic growth in residential care software portfolio.

ResMed declared a dividend of US 53 cents per share, up 10% but just below consensus and Morgans forecast of US54c per share.

With Resmed deriving half its revenue from the US, the company's CEO Mick Farrell told Stockhead's Tim Boreham on Thursday he was not concerned about the impact of tariffs.

He said the company had been assured that a four-decade old US exemption on medical devices for people with disabilities – such as Resmed’s pumps and masks for obstructive sleep apnoea (OSA) – would remain.

"We have reaffirmed with the current customs and border protection that we have zero tariffs on our products and we expect it to stay like that," Farrell said.

He's also not concerned about the potential impact of GLP-1 weight loss drugs on the sleep apnoea market — a recurring concern that has weighed on ResMed’s share price at times, despite its solid financial performance.

Farrell cites a mega study of 1.3 million patients, which has shown that those with a sleep apnoea diagnosis and prescribed GLP-1 drugs were 11% more likely to initiate continuous positive airway pressure CPAP therapy.

"The share price has fallen back so far and and we think it is a quality company with great technology," Power said.

Morgans has an add rating and 12-month target price of $41.33 per share on ResMed.

Telix reports strong lift in revenue

Radiopharmaceuticals company Telix Pharmaceuticals (ASX:TLX) is up this week after reporting a strong lift in revenue in Q1, driven by demand for its prostate cancer imaging agent Illucix.

Telix reported Q1 unaudited revenue of ~$186m,  an increase of 62% on PCP and a QoQ increase of 31% and includes:

• $151m from global sales of Illuccix, up 35% on PCP and QoQ increase of 9%; and
• $33 million from RLS Radiopharmacies (RLS) since its acquisition of the US nuclear medicine manufacturer by Telix was finalised in January.

Melbourne-headquartered Telix expanded its North American production capabilities with the US$230m acquisition of RLS securing access to 31 licensed radiopharmacies across the US.

Telix has reaffirmed its guidance for FY25, targeting revenue of US$770m to US$800m. The company said guidance reflects revenue from Illuccix sales in jurisdictions with a marketing authorisation and an 11-month contribution from RLS.

Strong start to milestone year for Imricor

Power said Imricor Medical Systems (ASX:IMR), which has developed the world’s only MRI-compatible devices for cardiac ablations, had made a strong and promising start to what’s shaping up to be a landmark year.

Imricor made several regulatory achievements during Q1 CY25 including submitting the second module for premarket approval of its products to the FDA.

IMR also received CE Mark approval for its second generation Vision-MR Ablation Catheter under the new more stringent European Medical Device Regulation (MDR).

Subsequent to quarter end, Imricor started its VISABL-VT pivotal trial at Amsterdam University Medical Centre, achieving the first–in–human ventricular ablation guided by real–time MRI using the NorthStar mapping system.

"This has been a 20 year journey for Imricor’s founder Steve Wedan and his team," Power said.

"This is a major step forward in the field of interventional medicine and there will be future publications and conference presentations to follow."

"The NorthStart mapping system is very valuable and they are looking for approval in Europe this half and the US in quarter three so they're key milestones together with selling the products," Power said.

Imricor finished Q1 CY25 in a strong cash position following a $70m capital raising.

Morgans maintain a speculative buy recommendation on Imricor and a 12-month target price of $2.28.

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Originally published as Scott Power: ASX health stocks up in strong start to reporting season