The Australian stock market recently witnessed a heavy selloff in three prominent healthcare stocks - CSL (ASX:CSL), Fisher & Paykel Healthcare (ASX:FPH), and Resmed (ASX:RMD). Despite this, Goldman Sachs analysts have decided to maintain their ratings for these stocks. The selloff was triggered by a breakthrough in Danish biotech Novo Nordisk's weight-loss wonder drug, Ozempic, leading to concerns about its potential impact on the competitive landscape. The Goldman Sachs report sheds light on the reasons for the selloff and provides insights into the future outlook of these healthcare stocks.
Novo Nordisk's Ozempic Breakthrough
Danish biotech Novo Nordisk halted its FLOW trial early after receiving advice from the Independent Data Monitoring Committee (IDMC). The trial was evaluating Ozempic's efficacy in delaying the progression of kidney disease in diabetes patients. This breakthrough had a significant impact on CSL, Fisher & Paykel Healthcare, and Resmed for two main reasons, according to Goldman Sachs.
Firstly, CSL's Swiss subsidiary, Vifor, which sells drugs in the kidney disease/dialysis market, faces a direct earnings impact. Additionally, there are potential consequences for the carrying value of Vifor itself, largely comprised of intangible assets and goodwill. Secondly, positive trial outcomes from Novo Nordisk broaden the potential utility of Ozempic, influencing the argument for expanding US payor coverage/reimbursement. This expansion would particularly impact companies like ResMed and Fisher and Paykel, which have exposure to weight, diabetes, and cardiovascular diseases.
Goldman's Ratings and Rationale
CSL (ASX:CSL) - Neutral Rating
Goldman maintains a Neutral rating on CSL. The report emphasizes that chronic kidney disease (CKD) is a progressive ailment, potentially leading to End-Stage Renal Disease (ESRD). Around 70% of patients at the ESRD stage may proceed to dialysis, making kidney disease a significant contributor to CSL Group's revenue. However, Goldman argues that the degree of benefit from Ozempic to CKD progression for CSL is unclear and won't be clarified until data is released in 1H24.
Fisher & Paykel Healthcare (ASX:FPH) - Buy Rating
Goldman remains positive on Fisher & Paykel Healthcare, asserting a Buy rating. The report acknowledges near-term revenue uncertainty due to the impact of the Novo Nordisk breakthrough. However, Goldman anticipates a stronger demand profile post clearing excess inventory by 1H24. The report highlights the favorable risk/reward balance for Fisher & Paykel Healthcare, trading in line with key device peers but offering significant growth potential.
Resmed (ASX:RMD) - Buy Rating
Resmed retains its Buy rating, with Goldman indicating the potential for continued market share capture in the sleep apnea devices segment. Philips' recall of more than 5 million continuous positive airway pressure (CPAP) machines in 2021 has created an opportunity for Resmed. Goldman sees a favorable risk-reward skew for Resmed, especially if the Philips recall extends indefinitely or if there is an acceleration in realizing the new patient backlog.
Other Notable ASX Stocks
Noxopharm (ASX:NOX) - Positive Developments
Noxopharm has experienced a surge following the US FDA granting Orphan Drug Designation to its preclinical drug candidate, CRO-67, for pancreatic cancer treatment. Additionally, new data suggests that Noxopharm's SOF-VAC significantly reduces mRNA-driven inflammation, potentially addressing side effects of mRNA vaccines. The company is actively seeking a commercial partner to advance SOF-VAC's development.
Dimerix (ASX:DXB) - Licensing Agreement
Dimerix rose after entering an exclusive license agreement with Advanz Pharma to sell its Phase 3 drug candidate DMX-200 for treating focal segmental glomerulosclerosis (FSGS) kidney disease. Advanz Pharma gains rights in specific territories, and Dimerix retains commercialization rights outside those regions.
Intelicare (ASX:ICR) - Remote Patient Monitoring Study
Intelicare witnessed a rise after Peter MacCallum Cancer Centre initiated a pilot study to assess the accuracy of its remote patient monitoring (RPM) solution. This study, conducted in collaboration with Biobeat Medical, aims to compare the RPM solution with the current standard of care in hospital settings.
Truscreen (ASX:TRU) - Sales Growth and Recognition in China
Truscreen reported a 33% growth in H1 FY24 product sales, with significant contributions from the Chinese market returning to pre-COVID levels. The company's recognition in major national guidelines by the Chinese Society of Colposcopy and Cervical Pathology further validates its position in the market.
Althea (ASX:AGH) - Sale and Leaseback Agreement
Althea generated CAD$4.6 million through a sale and leaseback agreement for its Canadian land and building assets. The funds will be used to repay the company's debt, including the redemption of outstanding convertible notes.
Conclusion ASX healthcare shares is navigating through dynamic challenges and opportunities. While the Novo Nordisk breakthrough has caused turbulence in specific stocks, strategic decisions, positive developments, and market recognitions continue to shape the trajectory of these companies. Investors should closely monitor the evolving landscape for potential entry points and risks.
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