It's been a good year for healthcare shares in 2019. Led by CSL Limited (ASX: CSL), the S&P/ASX 200 Healthcare Index (ASX: XHJ) is up over 42% for the year.
We take a look at 3 ASX healthcare shares that have delivered healthy returns this year.
Polynovo Ltd (ASX: PNV)
Shares in Polynovo are currently trading at $1.96 (at the time of writing), up 226% from 60 cents in January. Polynovo is a medical device company that is focused on developing and commercialising products using its unique polymer technology. Its Novosorb BTM product is an implantable dressing that can be integrated into the body as it heals.
Sales approval
Polynovo shares moved higher in December following the announcement the Novosorb BTM product had been granted a certificate of conformance (CE mark) approval for sale throughout the UK, Ireland, and the European Union. The company reports it already has strong brand recognition and awareness of its clinical success in these markets via international conferences, publications and peer interactions. Following the White Island volcano tragedy the company announced it had supplied the Novosorb BTM product to 3 hospitals in New Zealand and 2 in Australia. The product, it said, mitigates some of the serious challenges involved in treating mass trauma and burns.
Sales figures
Sales of Novosorb BTM increased from $1.7 million in FY18 to $9.3 million by FY19. Guidance for FY20 has been in the region of $12 million, however the company is seeing growth in all markets. In general the company is seeing month-on-month growth and expects the sales run rate to increase as the months go on. Growth in the US business is very strong and the Novosorb BTM product is changing clinical practice in many areas. The product can be used in burns and trauma treatment and surgical reconstruction. Plans are in motion to apply the product in hernia and breast treatments.
Future objectives
Polynovo has good profit margins and growing sales, with good cash flow and declining cash burn. It is close to its objective of breaking even this year. The current focus remains on aggressively pursuing market penetration and sales growth rather than short term profit. The company has raised the prospect of raising capital to fuel growth but concluded additional working capital is not currently required – they are confident new sales staff can quickly pay for themselves and earn profits. Whether additional capital is required for R&D is a work in progress.
Opthea Ltd (ASX: OPT)
Shares in Opthea are currently trading at $2.99 (at the time of writing), up 433% from 56 cents in January. Opthea is a biotechnology company that has developed a treatment targeting wet age-related macular degeneration (wet AMD).
Phase 2b study results
Opthea released the results of the Phase 2b study of its OPT-302 treatment for wet-AMD in August. The treatment was found to offer significant benefits compared to the control treatment. Shares in Opthea lept 234% from 87 cents to $2.91 when the results of the study were released. Dr Pravin Dugel, a study investigator on the trial, said:
OPT-302 has the potential to be a game-changer in the treatment landscape, not just for wet AMD but also for other debilitating retinal vascular diseases where there remains a significant unmet medical need for more efficacious therapies.
What is wet AMD?
Wet AMD is the leading cause of blindness in the developed world in people over 50 years old. It is caused by abnormal growth and leakage at the back of the eye. Opthea's treatment works by targeting growth factor proteins which promote blood vessel development. This has the potential to treat both wet AMD and diabetic macular edema (DME). Sales of treatments for Wet AMD and DME totalled nearly $10 billion in 2018.
Funding
In December Opthea undertook a $50 million capital raising via a private placement to a small number of professional and sophisticated investors. Approximately 18.9 million shares were issued at an issue price of $2.65 per share. Proceeds from the capital raising will be used to fund two concurrent Phase 3 trials in approximately 660 wet AMD patients each.
An ongoing Phase 2a study into DME and Phase 2b trial close out activities are being funded from cash reserves and a $14 million Research & Development tax rebate. Proceeds from the raising and existing cash reserves are expected to enable Opthea to fund its operations into the first half of calendar 2021.
Outcomes
Opthea's success is dependent upon the success of its research and development projects and its ability to attract funding to support these activities. The company has delivered promising results thus far. Next steps will be the outcome of the Phase 2a DME study and Phase 3 wet AMD study.
Nanosonics Ltd (ASX: NAN)
Shares in Nanosonics are currently trading at $6.52 (at the time of writing), up 128% from $2.85 in January. Nanosonics manufactures a disinfection device for ultrasound probes, trophon, that is used globally.
Results
In FY19 Nanosonics reported revenue of $84.33 million, up 39% from $60.69 million in FY18. Earnings before interest tax depreciation and amortisation were up 200% to $17.64 million from $5.86 million the previous year. Operating profit after tax was $13.60 million up from $5.75 million the previous year.
Sales increased by 39% in FY19, which saw the launch of the next generation trophon2. The number of installed trophon units increased 18% to 23,930 units. This means that approximately 18 million patients a year are protected from the risk of cross contamination by decontamination using trophon.
Market opportunity
Nanosonics estimates the global installed unit opportunity at 120,000, with market penetration of 17% achieved thus far. This consists of an opportunity to install 40,000 units in each of North America, Europe and the Middle East, and the Asia Pacific. To date market penetration of 46% has been achieved in North America, 2% in Europe and the Middle East, and 4% in the Asia Pacific.
Expansion
Nanosonics expanded into a number of new markets in 2019, including Spain, Portugal, Switzerland, and Israel. Significant investment was made in the company's growth strategy which resulted in 15.5% growth in total operating expenses, up to $49.2 million. The cash balance at the end of the financial year was $72.2 million which will support ongoing investment in growth.
Investment
Investment in the long term growth agenda of the company is considered the best use of the company's free cash flow and capital reserves currently. Nanosonics invested $11.4 million in research and development during FY19 to enhance core technologies and progress the development of new platforms.
Nanosonics strategic growth agenda includes expanding the adoption of trophon and expanding the product portfolio through investment in research and development to bring new infection prevention products to market. Investment in R&D will be continued in 2020 to develop a pipeline of product opportunities. It is anticipated that the first non-trophon related product will be brought to market by the end of FY20, subject to regulatory approvals.
