There are more than 150 healthcare shares listed on the ASX, varying from pharmaceutical manufacturers, to medical software developers to facility operators. So where should you start if you want to add ASX healthcare shares to your portfolio this year?
To help you narrow it down, we take a look at 3 ASX healthcare shares to watch in 2020.
Paradigm Biopharmaceuticals Ltd (ASX: PAR)
Paradigm shares increased 195% in 2019 and today are currently trading at $2.85. Paradigm is an Australian biopharmaceutical company focused on repurposing the drug pentosan polysulphate sodium (PPS) for the treatment of osteoarthritis. PPS is an FDA-approved drug, with a long track record of treating inflammation over 60 years.
Paradigm has developed an injectable form of PPS, called Zilosul, which is registered in 4 of 7 major global pharmaceutical markets. Zilosul is intended to treat osteoarthritis, which is the most common joint disorder in the United States (US). Symptomatic knee osteoarthritis occurs in around 10% of men and 13% of women aged 60 years or older. This number is likely to increase due to the ageing population and obesity epidemic. There are more than 100 million osteoarthritis sufferers in the US, Europe, and Japan.
Positive clinical testing results
Paradigm’s Phase 2b trial successfully met primary, secondary, and exploratory endpoints. After 53 days, nearly half of patients given Zilosul reported >50% reduction in pain, compared to around 20% of patients given a placebo. Competing treatments have not demonstrated the same combination of safety, efficacy, regression of disease and reduction of key biomarkers.
The Australian market
Paradigm met with the Therapeutic Goods Administration (TGA) in November to present its case for provisional approval of Zilosul as a treatment for knee osteoarthritis. Based on feedback received from the TGA, Paradigm is proceeding with the provisional assessment process. If provisional approval is successful Paradigm could be generating revenue in Australia as early as the third quarter of 2020. With 3 million sufferers, the revenue potential in Australia at 20% market share is as much as $1.5 billion per annum.
Europe and the United States
In the first quarter of 2020, Paradigm will be meeting with the United States’ FDA and Europe’s EMA to determine the clinical trial design that will support regulatory approval in Europe and the United States. Paradigm expects the Phase 3 trial to begin in mid 2020, with the potential for a regulatory submission in the US as early as 2021.
The revenue potential in the US at 10% market share is as much as $9 billion per annum. Zilosul has been granted FDA approval under the Expanded Access Program to treat 10 patients, all ex-NFL players suffering osteoarthritis. The players were treated at the end of 2019 and results from their treatment are expected in mid 2020.
Paradigm had $75 million in cash on the balance sheet at September 2019 and was fully funded for all major clinical trials and regulatory approvals in osteoarthritis. The company holds patents on Zilosul in all key markets from 2030 to 2039. A secure scalable manufacturing supply agreement is in place with an FDA approved facility.
Pro Medicus Limited (ASX: PME)
Pro Medicus provides radiology information and image management systems to hospitals and imaging centers across Australia, Europe, and North America. The Pro Medicus share price increased over 96% in 2019 and shares are currently trading at $22.35.
In FY19, Pro Medicus reported an 83.1% increase in underlying net profit after tax, up from $12.24 million in FY18 to $22.74 million. Dividends in FY19 were increased 75% to 10.5 cents per share, fully franked. This gives a payout ratio of approximately 50%. It is anticipated that future dividends will be fully franked.
In June 2019, Pro Medicus was included in the S&P/ASX 200 Index (INDEXASX: XJO), which has increased the volume of shares traded, but also the volatility of the share price. As a result, the Board commenced buying back shares in an effort to mitigate volatility. In September 2019 the founders of Pro Medicus sold approximately 1 million shares each. Post-sale, the founders remain the majority shareholders of Pro Medicus with a combined stake of approximately 54%.
In November the Chairman reported that Pro Medicus remained in an excellent position to capitalise on increasing global and local opportunities as they present themselves. The management team was working on a significant number of new opportunities and the pipeline continues to grow. The Board anticipates another strong year in FY20, with the majority of growth occurring in the second half of the financial year. The budget for the current financial year recognises continued strong growth and results as at November were comfortably ahead of budget.
Ramsay Health Care Limited (ASX: RHC)
Ramsay Health Care is one of the largest hospital operators in Australia. Operating 489 facilities across 11 countries, the Ramsay Health Care share price increased 29% over 2019 and is currently trading at $72.40.
In FY19 Ramsay Healthcare reported revenue of $11.4 billion, up 24.4% on the previous year. Earnings before interest tax depreciation and amortisation (EBITDA) increased 14.1% to $1.6 billion. Core net profit after tax increased by 2% to $599.9 million. Core earnings per share (EPS) were 285.8 cents, up 2.1%, and full year dividends of 152.5 cents per share were paid, up 5.2% on the previous year.
Core net profit after tax has grown at a compound annual growth rate of 7.1% since FY16. EPS has grown at a compound annual growth rate of 7.3% over the same period. Ramsay Health Care has raised its dividend every year for the past 19 years.
Ramsay’s Australian operations have delivered solid earnings growth with private admissions growth above the industry growth rate. Ramsay maintains a market leadership position in Australia with high quality, strategically located hospitals. Strong growth has been seen in certain specialty areas like cardiology, cancer, and mental health.
In Australia 16 capacity expansion projects were completed in FY19. In FY20, Ramsay Health Care expects to complete major Brownfields projects at Peninsula Private Hospital in Victoria, St George Private Hospital in New South Wales, and North West Private Hospital in Queensland.
In Europe, FY19 was a year of significant growth with the acquisition of pan European healthcare company Capio by Ramsay’s French joint venture. The acquisition is now in the advanced stages of integration and makes Ramsay Healthcare one of the largest healthcare operators in the world. Capio is a market leader in Scandinavia and has a large footprint in France. The transaction is expected to be core EPS accretive in the next two years.
United Kingdom and Asia
In the United Kingdom, strong revenue growth was seen in the second half of FY19 which is expected to continue into FY20. In Asia, Ramsay saw a 10% growth in admissions in FY19 and opened a day surgery in Hong Kong. The group is currently exploring acquisitions, partnerships, and bolt-on opportunities in the region.
Ramsay’s size and scale provide the opportunity to drive greater efficiencies and establish strong global partnerships. Stronger volume growth is anticipated in FY20 with industry fundamentals continuing to drive increased demand. Ramsay continues to target core EPS growth on a like-for-like basis of 2–4%.
If there's one thing for sure, 2020 has been the year we embraced sanitisation. Scott Phillips has discovered a little-known Australian healthcare company could be set to reap the rewards of the post-covid world.
Better yet, this fast-growing company is currently trading at a 30% discount from its highs. Scott believes in this stock so much, he's staked $209k of our own company money on it. Forget 'buy now pay later', this stock could be the next hot stock on the ASX.
Scott and his team have published a detailed report on this tiny ASX stock. Find out how you can access our TOP healthcare stock today!
As of 2.11.2020
Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Pro Medicus Ltd. The Motley Fool Australia has recommended Pro Medicus Ltd. and Ramsay Health Care Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.