Check Up: Why Goldman Sachs won’t change its ratings on 3 ASX stocks despite Ozempic-driven sell-off

Three ASX stocks took a beating after news Novo Nordisk’s Ozempic drug seems to delay kidney disease – but Goldman Sachs is keeping the faith.

While Ozempic's results may have been good news for sufferers of kidney disease, they wasn't necessarily so positive for three competing stocks. Picture: Getty Images

Three ASX stocks took a beating after news Novo Nordisk’s Ozempic drug seems to delay kidney disease – but Goldman Sachs analysts are keeping the faith.

GS analysts said they will make no changes on their ratings for CSL (ASX:CSL), Fisher & Paykel Healthcare (ASX:FPH), and Resmed (ASX:RMD), despite a heavy sell-off last week.

Traders have been aggressively jettisoning these stocks after Danish biotech Novo Nordisk appeared to have made a breakthrough in its weight-loss wonder drug, Ozempic.

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Novo announced that its FLOW trial had been stopped early on the advice of the Independent Data Monitoring Committee (IDMC), because Ozempic had met the predetermined criteria for efficacy after showing signs of delaying the progression of kidney disease in diabetes patients.

FLOW is a large, placebo-controlled study evaluating semaglutide 1.0mg (branded as Ozempic), as a treatment to slow/prevent the progression of kidney disease in a population with CKD (chronic kidney disease) and type 2 diabetes.

The trial, initiated in 2019, has enrolled more than 3500 participants across 28 countries, with a readout scheduled in 1H24.

Goldman says it’s not uncommon for trials to stop early (for efficacy or futility), and there are no hard and fast rules for what threshold would trigger it.

Novo’s breakthrough has impacted these three ASX stocks for two main reasons, says Goldman.

First, there is a direct earnings impact for CSL’s Swiss subsidiary, Vifor, which sells drugs to the kidney disease/dialysis market.

In addition, GS says, there is also potential consequences for the carrying value of Vifor itself, which is comprised almost entirely of intangible assets and goodwill.

Secondly, each positive outcome trial from Novo broadens the potential utility of GLP-1/GIP receptor drugs such as Ozempic, which strengthens the argument that US payor coverage/reimbursement should be expanded.

When this payor access improves, it would impact those companies with exposure to weight, diabetes, and cardiovascular diseases like Resmed and Fisher and Paykel.

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Why Goldman maintained its ratings

Goldman has explained why it maintains the ratings on CSL, FPH, and RMD.

CSL – still Neutral rating

Chronic kidney disease (CKD) is progressive (stage 1-4), and can ultimately lead to end-stage renal disease (ESRD), also known as kidney failure.

At the point of ESRD, the patient will require either regular dialysis or a kidney transplant to remain alive. Around 70 per cent will proceed to dialysis, partly since the waitlist for a transplant can be long and the risk of rejection is not insignificant.

According to Goldman’s estimate for FY24, kidney disease contributes around 7-8 per cent of CSL Group FY24 revenue forecast (which includes Vifor’s).

Goldman has however maintained its Neutral rating on CSL, arguing that the degree of benefit from GLP-1s to CKD progression for Ozempic is not at all clear (and won’t be until data in 1H24).

FISHER AND PAYKEL – still Buy rating

For Fisher and Paykel, Goldman says it remains positive on the longer-term growth profile, supported by the accelerated penetration opportunity from Covid.

“Whilst the near-term revenue trajectory is still subject to uncertainty, our analysis and feedback suggest the majority of the excess inventory will be cleared by 1H24, and so we now expect to see a stronger demand profile to drive revenue/earnings growth once more.

“We believe risk/reward is favourable with FPH trading in line with key device peers despite offering significantly greater growth potential. We are Buy rated on FPH,” noted Goldman.

RESMED – also still Buy rating

And Goldman says Resmed could continue to capture market share in the sleep apnea devices segment as a result of problems encountered by its competitor, Philips.

In 2021, Philips recalled more than 5 million continuous positive airway pressure (CPAP) machines because foam inside the units, meant to reduce noise, was breaking off and blowing into users’ mouths.

The CPAP machine is used to eliminate snoring and prevent sleep apnea.

As of June this year, the problem had not been resolved completely with the US FDA maintaining the safety warnings it had provided to consumers in June 2021.

Prior to the recall, Philips held around 35-50 per cent of market supply for this device, and Goldman believes its troubles have afforded RMD a generational opportunity to capture market share.

Goldman says its sees further upside for Resmed if the Philips recall is extended indefinitely, or if there is an acceleration in the realisation of the new patient backlog.

“We see a favourable risk-reward skew post the recent de-rate, noting the shares are trading meaningfully below historical averages on both a P/E and EV/EBITDA basis,” noted GS.

Biotech newsmakers

NOXOPHARM (ASX:NOX)

Noxopharm has been surging after announcing in early October that the US FDA has granted Orphan Drug Designation (ODD) status to Noxopharm’s CRO-67 preclinical drug candidate, for the treatment of pancreatic cancer.

CRO-67’s designation as an orphan drug supports the company’s development plan for the asset, and its future commercial value, as Noxopharm continues to build the data package that will be required for regulatory progression.

So far this year only two other Australian companies have received an ODD from the FDA, from a total of 260 issued.

Noxopharm followed that piece of good news with another announcement on Wednesday where it said that new data showed that SOF-VAC, its proprietary asset, significantly reduced mRNA-driven inflammation in animal testing.

In the animal study, inflammation from mRNA was reduced by around 50 per cent when SOF-VAC was added.

This is an important finding, says NOX, as many side effects of mRNA vaccines are due to inflammation.

With this study completed, Noxopharm has now largely concluded its planned development work on SOF-VAC, and is seeking a commercial partner to take the asset forward to the next stages of its development.

According to Precedence Research, the mRNA market in 2022 was $US40 billion, and is expected to grow to $US137 billion by 2032 at a compound annual growth rate of 13 per cent.

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DIMERIX (ASX:DXB)

Dimerix rose after announcing an exclusive licence agreement with Advanz Pharma to sell Dimerix’ Phase 3 drug candidate DMX-200.

DMX-200 treats focal segmental glomerulosclerosis (FSGS) kidney disease, and the deal will provide Advanz rights to sell the products in the European Economic Area, the UK, Switzerland, Canada, Australia, and New Zealand.

Dimerix retains all rights to commercialise DMX-200 outside of these territories.

DMX-200 is in global Phase 3 clinical development, with the first analysis outcome expected in March 2024.

INTELICARE (ASX:ICR)

InteliCare rose after revealing a pilot study had been established by Peter MacCallum Cancer Centre to assess the accuracy of a remote patient monitoring (RPM) solution in two specific settings, to the current standard of care in hospital.

Peter Mac is a world leading cancer research centre.

The RPM solution involves software from InteliCare and hardware from Biobeat Medical, distributed through Matrix Medical Innovations.

InteliCare says remote patient monitoring (RPM) is a growth segment for healthcare, and is an increasingly important factor in addressing hospital demand.

TRUSCREEN (ASX:TRU)

The medical device company reported a 33 per cent growth in H1 FY24 product sales, and a 28 per cent growth in sales of single-use disposable sensors (SUS) sales against the pcp.

The company says China has been a major contributor to sales, returning to pre-Covid levels.

This came as TruScreen was recognised recently in major national Guidelines by the Chinese Society of Colposcopy and Cervical Pathology (CSCCP), published in the July edition.

ALTHEA (ASX:AGH)

The cannabis company has generated $C4.6 million ($5.32 million) after a sale and leaseback agreement on its land and building assets in Ontario, Canada.

A subsequent deal with a private investor has secured lease term of up to 15 years.

The property was purchased by AGH in 2019 for $2.6 million, and is home to the company’s wholly-owned subsidiary, Peak Processing Solutions, a Health Canada-licensed contract manufacturer of adult-use cannabis products.

Althea says the funds received will be used to repay the entirety of AGH’s debt, including full repayment and redemption of all outstanding convertible notes.

This content first appeared on stockhead.com.au

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