The Motley Fool

3 ASX medical shares to hold for the long term

I believe ASX medical shares are among the most defensive on the market. After all, people require medical treatment regardless of the state of the economy. Despite the volatility seen in share markets as a result of COVID-19, the S&P/ASX 200 Healthcare Index (ASX: XHJ) has increased 21% over the past year. By comparison, the S&P/ASX 200 (ASX: XJO) has fallen nearly 10%. 

The healthcare sector is involved in the fight against coronavirus, but also stands to benefit from long-term trends such as the aging population and increased focus on personal health. Globally, some $6.5 trillion is spent on healthcare every year, according to the World Health Organisation (WHO). On that note, let’s take a look at three ASX medical shares to hold for the long term. 

3 ASX medical shares to hold for the long term

Fisher & Paykel Healthcare Corp Ltd (ASX: FPH) 

Fisher & Paykel Healthcare has been in the respiratory care market since 1971. The company offers a range of products and systems used in respiratory and acute care and in the treatment of obstructive sleep apnea. Fisher & Paykel’s products have been in strong demand in the fight against coronavirus. Its respiratory humidifiers and consumables are used in treating COVID-19 patients which has resulted in an increase in demand globally, causing the company to ramp up production. 

Fisher & Paykel reported record results for the financial year ended 31 March 2020. Operating revenue increased 18% over the previous year to reach $1.26 billion. This was largely driven by growth in the use of Fisher & Paykel’s Optiflow nasal high flow therapy, demand for products to treat COVID-19, and strong hospital hardware sales. “The 2020 financial year was already on track to deliver strong growth before the coronavirus impacted sales,” said CEO Lewis Gradon. He went on to comment “Beginning in January, the demand for our respiratory humidifiers accelerated in a way that has been unprecedented.” 

Fisher & Paykel’s Hospital products group, which includes products used in respiratory, acute, and surgical care, saw operating revenue increase 25%. The Homecare product group, which includes products used in the treatment of obstructive sleep apnea and home respiratory support, saw revenue rise 9%. Net profit after tax increased 37% in FY20 to $287.3 million, with a final dividend of 15.5 cents per share. This represents a 15% increase on the previous final dividend. 

In the first three months of FY21, growth in the Hospital product group has continued to accelerate. Hardware growth is tracking at over 300% while a one-third increase has been seen in consumables. Fisher & Paykel has provided guidance of full year operating revenue of $1.48 billion for FY21. This would give net profit after tax of approximately $325 million to $340 million.

Cochlear Limited (ASX: COH) 

Cochlear is behind cochlear implants which are used to help the hearing impaired. Unlike hearing aids, which amplify sounds, cochlear implants bypass the damaged part of the ear and stimulate the hearing nerve directly. The implants work by using electrical stimulation to replace the function of the inner ear (cochlea). 

The ASX medical share was negatively impacted by the coronavirus pandemic as infection control measures resulted in many implant operations being deferred. A significant decline in surgeries across major markets materialised. Although implant surgeries are restarting in some major markets, the rate of recovery is unclear. Nonetheless, many of the delayed surgeries are expected to progress once hospitals resume normal operations. 

As a result of the decline in surgeries, Cochlear saw sales revenue decline 60% in April with most elective surgeries postponed across the United States and Western Europe. In China, surgeries recommenced in late February and are now running close to pre-virus rates despite Beijing, the largest surgery centre, remaining closed to elective surgery. Implant surgeries have also restarted in the US, Germany and Australia. 

Cochlear has significantly reduced non-essential spending and capital expenditure pending a sustained increase in surgeries. The company strengthened its liquidity position with a $1.1 billion capital raising and $225 million in debt facilities. Longer term, there remains a significant unmet need for cochlear and acoustic implants that is expected to underpin long-term growth for Cochlear. Its enhanced liquidity position will enable the business to weather the temporary decline in demand caused by COVID-19 while continuing to progress the R&D pipeline. 

Paradigm Biopharmaceuticals Ltd (ASX: PAR) 

Paradigm is an ASX medicare share focused on repurposing the drug pentosan polysulphate sodium (PPS). Previously used to treat bladder inflammation and deep vein thrombosis, PPS has anti-inflammatory and tissue regenerative properties. Paradigm has developed an injectable form of PPS (Zilosul) which is being trialled in the treatment of osteoarthritis. 

Yesterday, Paradigm released data showing Zilosul reduced cartilage degradation in osteoarthritis patients. Data from one patient cohort showed their chronic pain response reduced by a mean 44.9% with Zilosul treatment. 85.7% of patients reported a moderate to considerable improvement in their condition following treatment. A number of former NFL players with knee osteoarthritis have also been treated with Zilosul under an Expanded Access Program with results expected in early August. 

Paradigm plans to apply to the Therapeutic Goods Administration (TGA) for provisional approval of Zilosul. Data from the clinical trials and Expanded Access Program will be used to support the application. PPS has a long track record of usage prior to Paradigm provisioning it to treat osteoarthritis which will also assist in obtaining regulatory approval. 

Osteoarthritis is the most common joint disorder in the United States. Symptomatic knee osteoarthritis occurs in 10% of men and 13% of women aged 60 years and older. The number of people impacted by oseteoarthiris is expected to grow rapidly due to the increase in geriatric and obese populations. The osteoarthritis therapeutics market was estimated to be worth $6.8 billion in 2019 and is projected to reach $10.1 billion by 2024, with a compound annual growth rate of 8.1%. If Zilosul proves successful in treating osteoarthritis, Paradigm could capture a significant portion of this market. 

Paradigm is also looking beyond osteoarthritis to broader uses of PPS. A trial is planned to evaluate the drug in the treatment of Mucopolysaccharidosis. Furthermore, a commercial research agreement with an Australian University is being finalised which will investigate the use of PPS in viral induced respiratory diseases.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of June 30th

Kate O'Brien owns shares of Cochlear Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. The Motley Fool Australia has recommended Cochlear Ltd. 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.

Related Articles...

Kate O'Brien