Scott Power: ASX healthcare falls as September weakness takes hold

September pressure is building for ASX healthcare stocks as the broader market sells off. Pic: Getty Images

ASX healthcare loses 3.66% in past five days as broader markets fall in September sell-off
US FDA rejects EchoIQ’s application for AI-driven heart failure tool Echosolv HF
Aroa’s positive interim results from MASTRR Registry show low infection rates for Myriad bioscaffold products

 

Healthcare and life sciences expert Scott Power, a senior analyst at Morgans Financial for 27 years, and his team share their insights on the ASX healthcare sector for the week.

The ASX healthcare sector has broken its winning run, playing into the historical playbook of September being a weaker month for markets.

Healthcare surged 18.83% in August to be top performing ASX sector for the month and rose in the first week of September.

However, concerns about higher interest rates along with escalating tensions in the Middle East have seen the sector fall in line with broader markets this week.

The XHJ has also fallen 3.66% over the past five days, while the benchmark S&P/ASX 200 (ASX:XJO) fell 3.14%.

“Healthcare has been rallying pretty strongly since the beginning of July but it’s giving some of that back now,” Power said.

“Seasonally, September is the weakest month ahead of what are typically stronger months heading into the end of the year and into January.

“If we follow seasonal patterns we’ll have a few more weeks of sogginess in the markets and then things should start to pick up.

“Higher oil prices and interest rates heading up around the world also put pressure on stock markets and in particular the growth or risk on-sectors like healthcare.”

 

‘Heartache, not heart failure’ for EchoIQ

Heart disease diagnostic company Echo IQ (ASX:EIQ) has seen its share price sink more than 50% this week after a regulatory setback with the US Food and Drug Administration (FDA) for its AI-driven heart failure tool Echosolv HF.

EIQ applied for clearance under the 510(k) predicate device path, but FDA deemed the device to be not substantially equivalent to anything else.

Echo IQ is reviewing its options, including an appeal, a mediation or a resubmission.

In a research note Morgans healthcare analyst Iain Wilkie wrote rejection pushed back the company’s “biggest near-term catalyst and revenue driver”.

“The determination landed day 264 of the FDA’s 270-day clock, leaving the agency no scope to seek further information and forcing a decision on what it had,” he wrote.

“Management confirms a single outstanding statistical point, not a safety or clinical issue, and says the letter invites resubmission.”

“We read this as a file closed on expiry rather than a technology rejected, and the 510(k) route stays open.”

Wilkie “views the validity of the tool as intact” and wrote that several options remained for EIQ.

These include seeking an informal review through the FDA’s Center for Devices and Radiological Health (CDRH) ombudsman, lodging a 517A appeal or De Novo request within 30 days, or preparing a new 510(k) submission using re-analysed data.

“Because the objection is analytical rather than structural, we see resubmission as the highest-probability path,” Wilkie wrote.

Morgans retains a ‘speculative buy’ call but estimating clearance delayed by 12 to 24 months has cuts it per-share valuation from $1.85 to $1.10.

 

Aroa delivers Myriad MASTRRclass

Aroa Biosurgery (ASX:ARX) has reported positive interim results from its MASTRR Registry showing low infection rates for its Myriad bioscaffold products, which Morgans expects will support greater surgeon adoption.

The MASTRR Registry is an ongoing prospective, multicentre observational study evaluating the real-world safety and performance of Aroa’s flagship Myriad Matrix and Myriad Morcells across a range of complex soft tissue reconstruction procedures.

“In simple terms, it is a large patient database that tracks how surgeons use Myriad in everyday clinical practice,” Power said.

“It measures outcomes such as infection rates, safety and adverse events, healing outcomes, number of Myriad applications required and performance across different types of complex wounds and reconstructions.”

The interim results from the MASTRR Registry covered 411 patients and 474 soft tissue defects.

Despite the complexities of the patient cohort, deep tissue infection occurred in only 0.7% of patients, while superficial infection occurred in 2.9%.

No infections were definitively attributed to Myriad over a median follow-up period of 27 weeks, and the median number of applications was one.

More than 550 patients are now enrolled, with approval to enrol up to 800 patients across 15 US sites. This will continue to provide valuable data in the future.

Myriad revenue rose 54% to NZ$49.5 million last financial year, representing 48% of ARX’s revenue with a gross margin of 90%. Morgans forecasts Myriad to generate average sales growth of 20% over the next three years.

“We believe the data from the MASTRR Registry will support broader surgeon adoption and continued commercial momentum,” Power said.

He noted further upcoming catalysts for ARX including publication of a randomised clinical trial of treatment for diabetic foot ulcers using Symphony, which could underpin future commercialisation for the new product.

ARX is due to report its H1 CY26 in November. The same month TELA Bio, its Nasdaq-listed distributor of its Ovitex range of reinforced tissue matrices for abdominal hernia and breast surgery in North American and Europe, will report its Q3 CY26 results.

Morgans has a buy rating on ARX and 12-month price target of 79 cents.

“The share price continues to languish despite operational and clinical progress,” Power said.

“With 45% upside to our target price, we think ARX is undervalued.”

Neurizon appoints industry veteran as CEO

It’s been a big week of news flow for Neurizon Therapeutics, with the company first announcing the appointment of pharmaceutical veteran Dr Chris Bremer as CEO.

Bremer officially joins Neurizon on October 1, bringing more than 20 years of pharmaceutical and biotechnology leadership experience.

The US National Institutes of Health has also awarded a grant to fund an Expanded Access Program for Neurizon’s NUZ-001 in ALS.

The program is expected to give up to 200 people who are ineligible for clinical trials access to NUZ-001 for up to 96 weeks.

It will run alongside the Phase 2/3 ALS Platform Trial, with enrolment targeted to start by Q1 CY27.

And finally, Neurizon has agreed to redeem 1 million convertible notes held by Obsidian, reducing the number of notes outstanding to 750,000 as part of what the company described as a disciplined approach to capital management.

The notes, which have a face value of US$1.11m, will be redeemed for total consideration of US$1.15m.

Separately, as part of the agreement, Obsidian has agreed not to sell its Neurizon shares for two months.

“Neurizon is improving its funding situation ahead of the release of top line results in 2QCY27. Investor interest will increase leading into this key event,” Power said.

 

Clever Culture secures new big Pharma order

Clever Culture Systems (ASX:CC5) rose 28.57% on Monday after announcing a purchase order from big pharma Novo Nordisk for two additional APAS Independence instruments, following successful evaluation of its flagship technology.

The order takes Novo Nordisk’s installed base of APAS Independence instruments to three, with two new instruments to be installed at a single site in Denmark.

The instruments will be used for formal global validation of APAS technology, with successful completion expected to enable routine laboratory use supporting regulatory-required Good Manufacturing Practice (GMP).

CC5 said this was the final technology performance milestone required by Novo Nordisk ahead of potential broader deployment.

The company has also received an order to develop an advanced interface between Novo Nordisk’s global Laboratory Information Management System (LIMS) and APAS. The interface will enable bi-directional communication, supporting more intelligent sorting of environmental monitoring samples.

CC5 has installed APAS Independence with eight global manufacturers, including AstraZeneca, Bristol Myers Squibb, Boehringer Ingelheim, Pfizer and Thermo Fisher (Patheon), with customers at different stages of evaluation, validation and deployment.

CC5 expects expansion within existing customers to become an increasingly important driver of instrument sales from FY27 and beyond.

“We think CC5 has built good momentum with its land an expand strategy and expect orders to be secured from the other large pharmaceutical companies over FY27,” Power said.

 

 

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: Scott Power owns shares in Clever Culture Systems, while Iain Wilkie owns shares in EchoIQ and Neurizon Therapeutics.