Health stocks approach positive benefits
When star-eyed newcomers to investing in the stock market begin their due diligence process of finding attractive stocks for their first portfolio, health stocks are often at the top of the list.
With the aging of the world’s population and increasing demand for healthcare among all age groups, the sector has strong favorable winds to propel it forward. It doesn’t take a lot of research to identify start-ups, small caps, and even major players experiencing a massive bullish move in stock prices following positive announcements.
Limiting their attention to rising stock prices may lead some new and old investors to ignore the adage: the greater the risk, the greater the potential reward.
Arguably the main risk to the rise in healthcare stocks is cash. Another adage applies here: it takes money to make money. Healthcare stocks need cash to fund their operations pending final product development, revenue generation, and ultimately profitability.
“Cash burn ”is the phrase found in analysts and pundits’ comments on most stocks in the health care sector, unable for the moment to fund their operations from their income. Stocks with more debt than cash are more risky than stocks with a low leverage ratio, where leverage is the company’s total debt to the value of its common stock. Double-digit gearing means the business is more at risk, as does a low current ratio. The current ratio measures the company’s ability to manage short-term debt, with desirable ratios of 2 or more.
A corollary risk is time. Bringing a new medical device or treatment to market can take years, with multiple clinical trials along the way. Each test carries the risk of dramatic drops in the stock price if the test does not yield positive results.
These companies raise funds in three ways: injections from a partner company; get into debt; or sell stocks.
The third highlights one of the strange endings with the start-ups in the sector. While borrowing money isn’t ideal, it doesn’t cause most investors the same concerns selling stocks.
Selling additional shares dilutes the value of existing shareholders’ holdings, so a common reaction to the announcement of a capital increase to fund the growth investors seek is for those same investors to sell the shares.
Stroke Oncology (RAC) is an example. The company was listed on the ASX in 2016 with the intention of returning a previously registered “orphan” drug for use in rare cancers – Zantrene® – to its current use.
Race now has multiple US patents for Zantrene® as well as the orphan drug designation from the FDA (Food and Drug Administration) in the United States and has expanded the targeted diseases to include breast and kidney cancer and melanoma. Orphan drugs are those that treat diseases rare enough to raise concerns about their potential for profit.
Zantrene® has obtained positive results in phase II clinical trials. On November 24, the company announced a stock purchase plan for sophisticated / professional investors to raise $ 29.7 million. The stock price fell more than 12% in intraday trading.
December 8, Race came out with another announcement of a new use for Zantrene® (the brand name for the original drug, Bisantrene). Carfilzomib is a medicine for the treatment of multiple myeloma, but there is a risk of serious damage to the heart in patients.
A preclinical study found that Zantrene® not only protects the patient’s heart cells, but also improves cancer cell killing efficiency when used in conjunction with Carfilzomib (owned by US pharmaceutical giant Amgen. Race immediately filed for a patent for the combination of the two drugs.
The share price rose nearly 5% intraday.
Despite the firm’s solid progress in the five years since its listing and its growth potential, Race remains without income or profit. Investors were rewarded with share price appreciation alone, with three-year average shareholder returns of + 258% over three years and + 76.5% over five years.
IDT Australia (IDT) is an ASX listed pharmaceutical / biotech / life sciences company that made its first profit in fiscal 2021. The company is multi-faceted, providing drug manufacturing capabilities to customers across the world. commercial scale, from active pharmaceutical ingredients (API) to finished dosage forms (FDF). The company also offers packaging for clinical trials and customer support on regulatory issues. Among its customers are the manufacturers of medical cannabis.
On March 19, the share price rose when the company announced that the Australian Department of Health had requested IDT Assess the feasibility of using the company’s sterile manufacturing facility to supplement COVID 19 vaccine production. The share price has climbed nearly 65%.
In mid-August, the share price surged again in the absence of any new announcements. In response to a quote from ASX, the company cited a general press commentary on the growing demand for vaccines here in Australia and the substantial profits going to vaccine manufacturing companies.
Three days after the August 19 response, IDT formally announced discussions with the government for the use of IDT the installations continued. On September 7, the company announced that it had signed a “sterile preparation agreement” with the government. November 30 IDT announced that it has successfully produced a COVID-19 mRNA receptor drug product for use in the Monash Institute of Pharmaceutical Sciences (MIPS) Phase 1 clinical trial starting early next year.
For the year 2021, IDT made its first profit since 2009, with an NPAT (net profit after tax) up 209.6% and revenues up 17.5%.
There are three additional perspectives expected to achieve positive profits over the next two years,
Alcidion Group (ALC) is in the healthcare equipment and services sector, offering innovative software solutions based on AI (artificial intelligence). The company serves more than three hundred hospitals and seventy healthcare organizations here in Australia, as well as New Zealand and the United Kingdom.
The company offers four software platforms:
- Miya Precision
- Smart page
- Patientrack, and
The product names are somewhat descriptive of the solutions provided, with Patientrack’s predictive algorithms alerting a physician or clinician to a patient’s condition in real time.
Smartpage is a secure messaging system that allows clinicians and non-clinicians to communicate instantly.
ExtraMed is digitizing the management of patients from entry to discharge, with nursing care and other clinical assessments during treatment.
Miya Precision’s flagship platform includes sixteen individual, customizable clinic-linked platforms, enabling full integration of clinical and operational workflows. Bringing together information from multiple sources into one intuitive point of interface enables faster and more accurate medical decision-making. The platform is driven by artificial intelligence.
The company has increased revenue in each of the past three years while remaining unprofitable. For fiscal year 2021 Alcidion reported negative earnings per share of 0.1 cents per share, which is expected to turn positive in fiscal 2022 at 0.3 cents per share before climbing to 15.5 cents per share in fiscal 2023 , an increase of 960% over three years.
Acquisitions that can stimulate growth but are costly are another source of irritation for investors. On December 3, fickle investors were elated when Alcidion announced the signing of a contract, raising the share price 11% during the day before lowering the price on December 8, when the company emerged from a halt in trading after the successful completion of a $ 43 million equity offering to fund an acquisition.
Neuren Pharmaceuticals (NEU) has six drugs for the treatment of neurological disorders in various stages of clinical trials.
The share price rose 100% intraday following news of successful Phase III clinical trials for its Rett syndrome drug – Trofinetide. The study was carried out by the company’s American partner, Acadia Pharmaceuticals (NASDAQ: ACAD). The study involved 187 young girls and women, aged between five and twenty. Trofinetide had previously been granted orphan drug status by both the US FDA and the European Medicines Agency (MEA).
Acadia will meet with the FDA in the first quarter of 2022 to secure a pre-new drug application, followed by a new drug application in mid-2022.
All six Neuren treatments under development for the treatment of multiple serious neurological disorders that appear in infancy have received orphan drug status from the FDA.
Trofinetide for the treatment of another disorder is in Phase II trials, with four more Phase I trials underway for the compound NNZ-2591, expected to be completed in 2022.
Despite its orphan drug status, Neuren projects annual sales of Rett syndrome treatment to reach A $ 500 million. In fiscal 2020, the company reported negative earnings per share of 8.6 cents per share, with a fiscal 2021 estimate of 8.3 cents per share before rising to 29.8 cents per share. , an increase of 133.8%.
Kazia Therapeutics (KZA) is listed on both the ASX and the US NASDAQ. The company is developing cancer treatments with its flagship product, Paxalisib, targeting the most common and aggressive type of brain cancer: glioblastoma.
The company cleared Paxalisib from Genentech in late 2016 and has since achieved orphan drug status by the FDA in 2018 and Fast Track status in August 2020.
Kazia is currently recruiting for a clinical trial of Paxalisib for the treatment of primary central nervous system lymphoma and non-Hodgkin lymphoma in the United States; a clinical trial in France for the company’s EVT801 treatment for solid tumors; and a US clinical trial for GDC-0084, a treatment for brain metastases.
In fiscal 2021, Kazia reported negative earnings of 5.0 cents per share, with a forecast for fiscal 2022 of a loss of 9.9 cents per share before reaching positive earnings over the course of the year. for fiscal year 2023 with a positive estimate of 1.3 cents per share.
The following table lists the key metrics for four stocks on the verge of profitability.