Scott Power: Week of wins and setbacks for ASX healthcare sector

ASX healthcare served up a week with more than a few head-scratchers. Pic: Getty Images

Paradigm’s phase III knee osteoarthritis trial has failed its interim efficacy test
Telix strikes $3.3 billion merger deal with Germany’s ITM Isotope Technologies Munich
Microba Life Sciences and Genetic Signatures have agreed to merge in a proposed scheme of arrangement

 

Healthcare and life sciences expert Scott Power, a senior analyst at Morgans Financial for 29 years, and his team share their insights on the ASX healthcare sector for the week.

 

It’s been a big week of news for the ASX healthcare sector, which has lifted again despite a traditionally soft September, with a failed phase III trial and proposed mergers among the highlights.

The XHJ has moved up 0.86% over the past five days, while the benchmark S&P/ASX 200 (ASX:XJO) is down 0.32%.

“The Australian healthcare sector traded largely sideways this week, reflecting a balance between company-specific wins and setbacks,” Power said.

 

Paradigm’s phase III trial fails interim efficacy test

Paradigm Biopharmaceuticals’ (ASX:PAR) phase III knee osteoarthritis trial has failed its interim efficacy test, with the company saying significant missing data impacted the result.

In an ASX announcement PAR said the 538-patient PARA-OA-012 trial of Zilosul (injectable pentosan polysulphate sodium) “did not reach the pre-specified threshold required for the study to continue”, following an assessment by an independent data safety monitoring board.

PAR said operational challenges during the trial resulted in a “significant amount of missing data”, which impacted the interim efficacy results.

The company continues to review the available data to better understand the nature and extent of that impact.

The interim analysis covered 50% of participants at day 112 of treatment. Based on the result, the trial is unlikely to meet its primary efficacy endpoint in the final analysis, which was due in the March 2027 quarter.

PAR is also assessing the financial and operational implications of the outcome, including its funding arrangements with Obsidian Global Partners.

The company said it retains a “substantial intellectual property portfolio” and is assessing the most appropriate path forward.

PAR has requested that its securities remain in voluntary suspension until it can release a further announcement addressing the financial and funding implications of the trial outcome, which is expected by September 28.

“We will have to wait until Paradigm resumes trading and provides an update on the trial and funding arrangements,” Power said.

 

Telix strikes $3.3 billion merger deal

Telix Pharmaceuticals (ASX:TLX) has unveiled a proposed merger with private German radiopharma company ITM Isotope Technologies Munich valued at up to $3.3 billion.

Under the proposed deal TLX will acquire 100% of ITM for US$1.65 billion ($2.35 billion) upfront, comprising $1.75bn in TLX shares and the assumption of about $424 million in ITM net debt.

A further US$700 million (~$980m) could be payable if ITM-11 hits specified regulatory and sales milestones.

ITM is a major supplier of therapeutic radioisotopes including lutetium-177, actinium-225 and terbium-161, with a global distribution network spanning more than 65 countries.

The company generated US$273m ($383m) in revenue in 2025 and operates a profitable isotope manufacturing business.

The deal also brings ITM-11 (lutetium-177-edotreotide), a late-stage treatment for gastroenteropancreatic neuroendocrine tumours (GEP-NETs), into TLX’s pipeline.

ITM-11 has completed one phase III trial, while a second phase III study is fully enrolled with an interim analysis expected in the first half of 2027.

The combined group is expected to generate pro forma 2026 revenue and income exceeding US$1.3 billion, according to management estimates.

The transaction is subject to TLX shareholder and regulatory approval, with completion targeted by the end of 2026.

“This is a strategically significant acquisition that strengthens Telix’s isotope supply chain, expands its therapeutic portfolio, and accelerates its ambition to become a global leader in radiopharmaceuticals,” Power said.

 

Microba, Genetic Signatures plan merger

Microba Life Sciences (ASX:MAP) and Genetic Signatures (ASX:GSS) have agreed to merge, creating a combined diagnostics group with annual revenue pushing $30 million.

“The proposed merger will bring together two established Australian diagnostics businesses with complementary technologies, products and international distribution networks to create a larger and stronger combined ASX-listed diagnostics group,” the companies said.

Under the proposed scheme of arrangement, GSS will acquire 100% of MAP. Under the terms, MAP shareholders would receive 0.654 new GSS shares for every MAP share.

MAP shareholders would own 67% of the enlarged group, with existing GSS shareholders holding 33%. The proposed ownership split reflects the relative market capitalisations of the two companies, with MAP valued at ~$35.8m and GSS at ~$18m.

The proposal first requires GSS shareholder approval before the companies execute a Scheme Implementation Deed. MAP shareholders would later vote on the scheme itself, which would also require court approval.

There is another complication to the proposed merger, with breast cancer diagnostics company BCAL Diagnostics having amassed an 18.5% stake in GSS and wanting to remove certain directors.

“A board spill mid-Scheme raises genuine risk to the deal proceeding,” Morgans healthcare analyst Ian Wilkie wrote in a research note.

GSS has developed its proprietary 3base molecular diagnostic technology, which underpins its EasyScreen range of PCR tests for rapid gut, respiratory and other infectious pathogens.

MAP provides clinical gut microbiome testing to healthcare professionals in Australia and the UK.

Wilkie wrote the proposed merger removed some uncertainty but also introduced new risks for MAP shareholders.

“Plenty more to come on the merger front but in terms of pure MAP view – we think it muddies the case on two fronts,” he wrote.

“The standalone breakeven story was clean, this resets it and adds integration risk.

“The board that struck these terms is itself under attack, so there’s real doubt the terms survive to execution. Conviction lower near-term pending clarity on the GSS board outcome.”

Morgans has a speculative buy on MAP and 12-month price target of 12 cents.

 

Sonic faces another US headwind

Sonic Healthcare (ASX:SHL) is facing another headwind in its US pathology business after the US Centers for Medicare & Medicaid Services (CMS) released preliminary Calendar Year 2027 Clinical Laboratory Fee Schedule (CLFS) rates.

Morgans healthcare analyst Derek Jellinek wrote in a research note that the latest rates will see most Medicare laboratory test payments moving towards private-payor rates.

“The preliminary data implied an average reduction of about 16% across affected codes, although the statutory 15% annual reduction cap means the impact will be phased through CY27-29,” he wrote.

Jellinek wrote that while the preliminary CLFS rates were a negative development and added to existing pressures including Swiss fee reductions, Australian wage increases and higher UK costs, the impact appeared manageable.

He wrote SHL had previously flagged a potential $15m FY27 impact, which was immaterial to the group, and was excluded from its $1.95 billion to $2.03bn FY27 EBITDA guidance.

The US business generated $2.05bn of revenue in FY26, about 19% of group revenue, with Morgans forecasting FY27 US EBITDA of ~$310m.

Jellinek estimates the $15m fee impact would reduce US EBITDA by ~5%, but group EBITDA by less than 1%, although the final impact will depend on SHL’s test mix and the final rates.

The reimbursement pressure comes as SHL undertakes an operational review of its US business.

Jellinek noted nine anatomical pathology practices have been rationalised, alongside procurement savings, a 10% reduction in corporate headcount and centralisation of corporate functions.

The initiatives completed or underway are expected to add $25m to $30m to FY27 earnings.

Final rates are expected in November following a 30-day consultation period and will take effect from January 1, 2027.

Morgans has a hold rating on Sonic with a 12-month price target of $22.40.

 

Ramsay demerger of European business remains on track

Ramsay Health Care’s (ASX:RHC) proposed demerger of its European healthcare business Ramsay Santé remains on track, which Morgans sees as “strategically positive”.

Ramsay Santé’s recent Capital Markets Day outlined its new Connecting Care 2030 strategy,
focusing on strengthening its integrated healthcare offering, digital transformation, portfolio and contract management, cost initiatives and new revenue streams.

Jellinek wrote in a research note management expects revenue growth of 2-3% and stable EBITDA margins in FY27, followed by ~3% annual revenue growth and gradual margin improvement through FY29.

“While the strategy provides multiple levers to improve profitability, we see limited evidence of a material earnings acceleration, particularly given continued funding and tariff constraints in France,” he wrote.

Jellinek wrote the proposed distribution of RHC’s 52.8% stake remains on track for shareholder approval in November and completion in December.

“Importantly, RHC shareholders would retain economic exposure through ASX-tradeable CDIs, while RHC will benefit from simpler portfolio and greater management focus on its core Australian and UK businesses,” Jellinek wrote.

“We view the demerger as strategically positive, although the ultimate benefit will depend on the standalone valuation attributed to both RHC and Ramsay Santé following separation.”

Morgans maintains a hold rating on RHC with a $49.39 price target.

 

LillyDirect unlikely to disrupt Sigma’s pharmacy business

Morgans expects Big Pharma Eli Lilly’s new direct-to-patient pharmacy model to have a minimal impact on Sigma Healthcare (ASX:SIG) .

Lilly is introducing LillyDirect in Australia, allowing patients prescribed selected Lily medicines, including the popular GLP-1 medicine used for diabetes and weight management Mounjaro (tirzepatide), to access dispensing and home delivery online.

Pharmaceutical distributor and Chemist Warehouse owner Sigma is Lilly’s biggest customer in Australia.

Speaking to The Australian, Eli Lilly Australia and New Zealand general manager Dr Manny Simons said Mounjaro would be the first medicine available through LillyDirect.

“Doctors and patients have told us they want more affordable access to our medicines,” Simons said.

“LillyDirect is one practical step we are taking to improve access and affordability of medicines for Australians, while we continue to advocate for broad reimbursement via other pathways.

“This is coming out of the increasing difficulty of securing federal government reimbursement for these medicines, which has triggered several parallel efforts to expand access.

“The goal is to be able to get the patient the medicine at a lower cost, more conveniently.”

The move follows Lilly’s withdrawal of Mounjaro from PBS pricing negotiations earlier in 2026 and the challenge of obtaining government reimbursement for obesity medications.

Power said under the model, prescriptions were uploaded to the LillyDirect platform, with third-party digital health company Evermed connecting patients with participating pharmacies.

“Pharmacies bid to supply the prescription, with the selected pharmacy dispensing and delivering the medicine directly to the patient,” Power said.

Power expects the economics of the model to be challenging for Australian pharmacists, particularly given the need for cold-chain delivery for GLP-1 medicines and associated delivery costs.

“The Australian pharmacy market is different to the US or other large economies, and we struggle to see how pharmacists can make money through a tendering process and cutting their margins,” he said.

“GLP-1s (injectables) need a cold chain supply and the current delivery costs by mail is $27.50, a cost the pharmacist would have to wear.

“GLP-1s are a low margin product for pharmacist and much of the upside comes from the additional purchases associated with the GLP-1s like protein powder and vitamins.

“As such, we believe it is unlikely to gain much traction in Australia given we know Chemist Warehouse is already the lowest priced in the market.”

Power said it was also likely the Pharmacy Guild of Australia would advocate strongly against the LillyDirect platform.

“Our conclusion is that this is a storm in a teacup,” Power said.

Morgans maintains a buy rating on Sigma and 12-month price target of $3.30.

 

 

 

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 and Iain Wilkie own shares in Microba Life Sciences. Derek Jellinek owns shares in Ramsay Healthcare. The journalist owns shares in Sonic Healthcare. 

Corporate disclosure: Morgans Corporate Limited was Joint Lead Manager to the Placement of Shares and Share Placement Plan for Microba Life Sciences in June 2026 and has received fees in this regard.

Morgans Corporate Limited holds 3.5m Options in Microba Life Sciences Limited at an exercise price of $0.075 expiring July 29, 2029 because of capital raising activities.