Scott Power: ASX health stocks up as Trump’s bark proves worse than bite

Morgans’ Scott Power said President Donald Trump’s executive order to cut US drug prices under ‘most favored nation’ policy has been the big news for the sector this week.

Thankfully, it wasn't a dog of a week for ASX health stocks. Pic via Getty Images

• ASX health stocks up 2.1% over past week, while the broader market is up 2% 

• President Donald Trump signs executive order to cut US drug prices under 'most favored nation' policy

• PolyNovo has a breakthrough with its NovoSorb technology in treating and managing Type 1 diabetes

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.

Big news for the global healthcare sector for the week was US President Donald Trump signing an executive order lowering prices of US prescription medicines to bring them in line with other countries, a policy referred to as the "most favored nation" (MFN).

The policy aims to link US drug prices to much lower prices overseas – what Trump referred to as "equalizing" prices.

Morgans’ healthcare analyst Derek Jellinek wrote in a note to clients that there were "more questions than answers (as expected) despite the policy seemingly being far-reaching".

Trump said the MFN policy would cut US pharmaceutical prices "almost immediately by 30% to 80%", although he later said the prices would cut by 59%.

In a release The White House said the US had less than 5% of the world’s population and yet funds around three quarters of global pharmaceutical profits.

"This egregious imbalance is orchestrated through a purposeful scheme in which drug manufacturers deeply discount their products to access foreign markets, and subsidize that decrease through enormously high prices in the United States," the release read.

Jellinek said the MFN appeared to run across multiple federal agencies, with the Office of the US Trade Representative and the Department of Commerce expected to take action against "unreasonable and discriminatory" policies in foreign countries.

The Department of Justice and the Federal Trade Commission has been tasked with rooting out anticompetitive behaviours and the Department of Health and Human Services trying to cut deals with drugmakers to lower prices within 30 days.

"Outside the above, there is little additional information as to what exactly happens beyond the 30-day negotiating period with the industry and what the implications are if drugmakers do not agree to lower prices to an MFN target," Jellinek wrote.

Power said Derek has summed it up pretty well with Trump's "bark was worse than bite".

"It has still got a fair way to play out but it has set the scene for the healthcare and pharmaceutical markets globally with still a lot of uncertainty with changes on pricing, staff cuts across key agencies," Power said.

"Having said that a number of stocks have bounced back pretty strongly and if you look at ProMedicus (ASX:PME) it hit a low of $161.64 on April 7th and has rallied back to over $270, up 67% in a little over five weeks.

"But there is still some nervousness out there."

At 12.30pm on Friday, the S&P/ASX 200 Health Care index was 2.1% for the past five days, while the benchmark ASX 200 was up 2% for the same period.

PolyNovo announces diabetes breakthrough

Wound care company PolyNovo (ASX:PNV) has announced a breakthrough with its NovoSorb technology in treating and managing Type 1 diabetes (T1D).

PolyNovo has been working for more than a decade with Adelaide-based private company Beta Cell Technologies on a novel method to stimulate insulin production for type 1 diabetes sufferers.

Beta Cell director Professor Toby Coates AO presented to the Joint Congress of ESPE and ESE in Copenhagen proof-of concept study results showing that Novosorb enables survival and function of human pancreatic islets when transplanted into an "alternative neovascularised site within the skin".

The trial involved three participants with long-standing type 1 diabetes who received islet cells after a kidney transplant.

"Our results are the culmination of the past ten years of research and development using the Novosorb technology and islet cells in rats and pigs and now in a first in human study," Coates said.

"The results of our trials confirms tat the NovoSorb technology had the potential to be a game changer in the cell therapies space."

The current standard of care to treat Type 1 diabetes is to transplant human islet cells into the liver. However, PolyNovo said researchers report that 75% of cells are lost in the first 48 hours.

Independent of the latest announcement and on the back of a positive trading update Morgans last week moved its recommendation for PolyNovo up to a speculative buy and increased its 12-month share price from $1.37 to $1.69.

Power’s Powerplay: FDA reconfirms endpoints for Neuren's Phase III trial

Neuren Pharmaceuticals (ASX:NEU) has confirmed that it has received the official minutes of its Type C meeting with the US Food and Drug Administration (FDA), held in April to discuss efficacy endpoints for its upcoming phase III trial of NNZ-2591 to treat Phelan-McDermid syndrome.

Neuren said the primary endpoints for the trial were reconfirmed and it remained on-track to start the phase III trial of NNZ-2591 in the rare and severe genetic condition affecting children in mid CY25, subject to FDA review of the final version of the trial protocol.

The company said there were no treatments specifically for PMS, which has an overwhelming unmet medical need. NNZ-2591 is Neuren's second drug candidate in development for multiple neurodevelopmental disorders, with positive results achieved in phase II clinical trials in Phelan-McDermid syndrome, Pitt Hopkins syndrome and Angelman syndrome.

Daybue (trofinetide) is approved by the FDA and Health Canada for the treatment of Rett syndrome. Neuren has granted an exclusive worldwide licence to Nasdaq-listed Acadia Pharmaceuticals for the development and commercialisation of trofinetide.

Neuren said its financial strength means that no additional funding was required to execute phase III clinical program of NNZ-2591 to treat Phelan-McDermid syndrome.

Microba's test can identify underlying gut issues

Microba Life Sciences (ASX:MAP) has reported positive preliminary results from the analysis of more than 4,600 of its MetaXplore GI Plus tests, a comprehensive test for the assessment and management of lower gastrointestinal disorders, spanning symptoms including chronic pain, bloating, constipation, or diarrhoea.

This study demonstrates that MetaXplore can support clinicians to identify and address underlying gut issues that often go undetected by conventional testing.

In more than 70% of cases, the test revealed findings, such as abnormalities in gut bacteria, signs of infection, markers of inflammation or insufficiency that could inform targeted treatment state.

Further, two-thirds of MetaXplore patients in a separate study of follow-up survey results reported improvement of symptoms after their care was guided by the test results.

"These results highlight the clinical value of MetaXplore test results in advancing outcomes for patients with chronic lower gastrointestinal disorders, highlighting the potential to reshape clinical management of these conditions and set a new standard of care," Power said.

Morgans has a speculative buy and 12-month target share price of 32 cents on Microba.

Ramsay's European business showing signs of improvement

Ramsay Health Care (ASX:RHC) has provided a positive update on its 52.8% stake in European hospitals business Santé, with unaudited group revenue for the nine months period ending March 31, up by 5.1%.

"One of the problematic parts of Ramsay's business is their French operation Santé, but it's showing signs of improving off a pretty low base," Power said.

"Ramsay has said they're looking to try and resolve some of the issues with the business and perhaps sell that part of the operation.

"It's a large cap stock which has chronically underperformed over the last couple of years but is showing tentative signs of turning around."

Morgans has a hold rating on Ramsay and 12-month target price of $37.10.

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.

Originally published as Scott Power: ASX health stocks up as Trump’s bark proves worse than bite