ScoPo’s Powerplays: Nanosonics ‘in the doghouse’, but ASX health stocks are largely being good boys

ASX health stock rise in past five days in line with broader markets
Nanosonics tanks after negative trading update with Morgans reducing target price
Aroa’s Enivo system shows promise in management of dead space for mastectomy surgery

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. 

Finding it hard to stick with an exercise routine? Researchers at the University of South Australia might be able to boost your motivation with a study revealing that incorporating virtual reality (VR) in exercise not only makes the activity more enjoyable but also helps in managing chronic pain.

The research used discovered that combining VR with cycling boosts exercise enjoyment by 20% and extends workout duration by 15%.

The study used a stationary bike system with a head-mounted VR display. The system was wirelessly linked to a bespoke VR program enabling remote control of the stationary bike’s resistance, as well as the ability to record how hard participants were working (power output in watts).

Participants rode the VR bike for up to 30 minutes but were able to end their session early for any reason.

“In our study, we combined VR with cycling, so when a rider started exercising with the VR headset on, it made it seem like they were riding in a digital countryside,” says PhD candidate Erin MacIntyre.

“We found that the VR experience distracted cyclists from the exertion of exercise and made the exercise feel easier, which together contributed to increased enjoyment and engagement.”

In Australia, exercise guidelines recommend adults 18-64 exercise for 30 minutes at least three to five times a week yet statistics show only one in five do so.

Furthermore, 3.4 million people live with chronic pain in Australia. Globally, one in five people struggle with chronic pain.

Senior researcher Associate Professor Tasha Stanton says the VR bike system offers a safe, valid, and credible intervention for improving exercise engagement in clinical settings.

“While more research is needed, we are confident that VR will be more broadly adopted to support health and rehabilitation goals,” Stanton says.

To markets… Nanosonics slumps after poor H1 FY24 update

And ASX health stocks moved in the right direction this week, although it has been volatile.  At  close on Thursday the S&P ASX 200 healthcare index (ASX:XHJ) was up 2.79% for the week, while the benchmark S&P ASX 200 (ASX:XJO) rose 2.20% for the same period.

Disinfection device maker Nanosonics (ASX:NAN)  had its worst day ever on Wednesday,  down more than 33% to $2.91 after a negative trading update for H1 FY24.

NAN says total revenue for the half year is expected to be $79.6 million, representing a decrease of 2.4% on the pcp, primarily related to lower than expected capital unit sales (in particular upgrade sales).

Operating expenses are expected to be $60.8 million for the half, representing an increase of 12% compared to the pcp.

NAN now expects to report profit before tax of $4.9 million for the half, compared with $11.4 million in the pcp.

Based on the expected H1 results, NAN has issued an updated outlook for the remainder of FY24. Total revenue and gross margins guidance are still being reviewed, however increases in operating expenses are expected to be below the bottom of the range of NAN’s previously communicated outlook of 17-22%.

Following the trading update, Morgans has substantially reduced its 12-month target price from $5.32 to $3.88 but maintains an Add rating.

“It’s coming back a bit this morning but it’s lost a bit of credibility and will be sitting in the doghouse for a little while,” Power said on Friday.

Proteomics flags delays to US rollout of PromarkerD

Diagnostics medtech company Proteomics International Laboratories (ASX:PIQ) is up more than 12% in the past five days after providing its quarterly activities report.

During the quarter the US Centers for Medicare & Medicaid Services (CMS) published its final determination of the national reimbursement price in the US for PIQ’s PromarkerD predictive test for diabetic kidney disease.

However, Power says in terms of the commercial launch and rollout of PromarkerD in the US, PIQ’s update was “a bit disappointing”.

In May 2023 PIQ announced Sonic Healthcare USA, a division of Sonic Healthcare (ASX:SHL) had obtained an exclusive licence for marketing, promotion, and sales of PromarkerD.

In their latest update PIQ says both parties are “working towards a national launch in Q2 2024”, which Power says is a three to six month delay.

“A key development in this process is the establishment of reimbursement pricing,” PIQ says.

“However, the launch timeline may be impacted by external factors such as global supply chain challenges and the availability of qualified staff.”

Power says consequently Morgans has adjusted its PIQ forecast and 12-month price target down.

“They’ve had a delay in their commercial launch but have topped up their bank account with a placement to a couple of institutions so from a cash perspective are in a good position,” Power says.

Morgans has a Speculative Buy on PIQ with a reduction in its 12-month share price from $2.42 to $1.38.

PolyNovo lifts 16pc, achieves profitability ahead of expectations

Power’s pick for last week, wound care company PolyNovo (ASX:PNV), is up more than 17% in the past four days after a strong H1 FY24 trading update, which Power says included profitability ahead of expectations.

The company achieved record sales revenue of $42.2 million, up 54.9% on pcp, as well as US sales of $32.2 million, up 41.7%.

Rest of world sales were up 122.2% to $10 million during the quarter.

PNV specialises in the development and commercialisation of dermal regenerative solutions with its FDA approved Novosorb BTM (biodegradable temporising matrix) used to temporarily close a wound and aid the body in generating new tissue.

Earlier in the week PNV pushed through Morgans’ 12-month target of $1.88. It closed the four-day trading week $1.80.

Morgans have moved its recommendation back to hold,  looking for a better entry point,  and adjusted its 12-month target price to $1.95.

ResMed bounces back after obesity drugs concern

Leader in obstructive sleep apnoea (OSA) and other sleep-related respiratory disorders ResMed (ASX:RMD) is up more than 9% this week after providing a positive Q2 FY24 result.

Power says adjusted NPAT of US$277 million was up 13% and above consensus  of US$264 million and Morgans’ expectation of  US$273 million.

Adjusted EPS was US$1.88, up 13% on consensus, while revenue of US$1,163 million was up 12% or 11% on constant currency and  came in above consensus of US$1,148 million and Morgans’ forecast of US$1,152 million, RMD says.

RMD came under pressure in 2023  due to investor angst around the potential impact of weight loss drugs, namely GLP-1s in curtailing the core OSA addressable market.

“There was a perceived impact of these drugs on kidney and heart disease, sleep apnoea and so on but all those concerns appear to be moderating,” Power says.

“Companies like Resmed are bouncing back on investors understanding that concern may not be so material and also they’re posting some pretty good results as well.”

Morgans sees Mach7 downgrade as ‘realignment’

Health imaging stock Mach7 Technologies (ASX:M7T) is down 1.45% in the past week after providing a trading update including H1 FY24 revenue to drop 19% to $13.3 million.

M7T says the drop reflects a change in customer preference to more subscription style revenue, which will be up 21% to $9.9 million with capital revenue to be $3.4 million.

Revised revenue for FY24 is to be between $27 and $30 million, a downgrade on consensus and Morgans’ forecast of $36.6 million.

Operating cash flow is expected to be positive for FY24, as per previous guidance.  The US sales order book is expected to exceed $60 million, up from the previous target of $48 million, which Power says is a good pointer to future sales growth.

M7T has cash on hand of $22.7 million, slightly up on pcp of $20.6 million but marginally lower to June 30, 2023 of $23.4 million.

Power says as M7T transitions to more subscription-based revenue the lumpier capital receipts will become less with Morgans viewing this as a good downgrade or “realignment” to announce to the market.

“Importantly positive operating cashflow is still expected for FY24,” Power says.

Morgans maintains an Add rating but has lifted its 12-month target price slightly from $1.54 to $1.56.

The NAN, PIQ, PNV, RMD & M7T share price today:



ScoPo’s Powerplay – Aroa Biosurgery

Soft tissue repair company Aroa Biosurgery (ASX:ARX) is Power’s pick of the week. The company is due to release its Q3 FY24 results next week, and released positive trial results on Thursday.

Power says other wound care companies PNV and Avita Medical (ASX:AVH)  have had a good run so he’s also confident in ARX.

“They have a March year-end and are getting into the stronger quarters for them so we are expecting that momentum will continue,” he says.

In November ARX released strong H1 FY24 results with top-line growth led by sales of its Myriad product family which grew by 80% on H1 FY23 to NZ$10.2 million.

ARX updated full-year FY24 guidance to NZ$73-76 million total revenue with NZ$72-75 million product revenue, representing a 19-24% increase on FY23.

Furthermore, ARX this week announced that the first clinical study of its trademarked Enivo system is showing encouraging results in management of dead space after a mastectomy.

To date, six patients of the expected 10 to be enrolled in the Enivo pilot clinical study have undergone a unilateral mastectomy and completed follow-up care, with no clinically relevant seroma or complications reported.

The ARX share price today:

At Stockhead, we tell it like it is. While Aroa Biosurgery is a Stockhead advertiser, it did not sponsor this article. 

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.

Disclosure: The author held shares in Mach 7 Technologies and ResMed at the time of writing this article.

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