ASX medical shares reported some positive results in the most recent reporting round. The medical sector is a popular choice for both growth and income investors.
Earlier stage companies such as Polynovo Ltd (ASX: PNV) and Avita Medical Inc (ASX: AVH) are on the journey to commercialisation, investing revenues in product development and growth. So how did these ASX medical shares perform in the most recent half-year?
PolyNovo reported a 31.2% increase in sales of its NovoSorb BTM product in the first half of FY21 (1H FY21), sales reaching $11.25 million. The NovoSorb BTM product is an implantable wound dressing that can be integrated into the body as it heals. US sales increased 41% during the half, with 22 new US customers signed despite the challenges of COVID-19.
With elective surgeries reduced globally, revenues have been lumpy. Access to hospitals and surgeons has also been impacted. Nonetheless, regulatory approval for the product was granted in Taiwan, Turkey, Finland, Norway, Sweden and Greece during the half.
First sales to distributors in Taiwan and Finland were also achieved. PolyNovo reported a net loss of $3.54 million for the half, finishing 2020 with cash on hand of $7.66 million.
Research and development activities are focused on the potential for NovoSorb technology to be used to treat hernias and in reconstructive medical devices. PolyNovo is building a factory in Port Melbourne, to manufacture hernia products, which is expected to be completed this month.
The company is examining product configurations to meet surgeon and patient needs. The regulatory strategy is also being refined to ensure the best pathway to FDA approval.
Concurrently, PolyNovo is considering prototypes and looking at partnership opportunities to accelerate market entry, with the preferred pathway to be announced in July.
Avita Medical reported a 57% increase in revenue in the quarter ended 31 December 2020, with global revenue of $5.1 million. US-based RECELL revenue accounted for $5 million, a 62% increase over the prior corresponding period. The RECELL system uses spray-on skin technology to treat wounds and aid soft tissue reconstruction.
“I’m proud of our progress over the last quarter as we strive to broaden the application of our platform,” said CEO Dr Mike Perry. “Our sales team is poised and ready to drive utilization as the pandemic abates and we regain access to hospitals and patients.”
Operating expenses for the second quarter of FY21 were $10.4 million, leading to a net loss of $6.6 million for the quarter. The company had cash of $59.8 million at 31 December 2020.
Avita Medical has declined to provide full-year financial guidance due to uncertainty surrounding the pandemic. COVID-19 and other factors may mean hospitals are unable to treat patients, or must delay the treatment of patients, which would negatively impact revenues.
In February Avita raised US$69.1 million via an offering of common stock. Proceeds will be used to fund its product development pipeline and pursue approvals of products for additional indications.
Fisher & Paykel Healthcare
Fisher & Paykel Healthcare’s current financial year ends on 30 March 2021 after which full-year results will become available. In a trading update covering the nine months to 31 December 2020, the healthcare company advised that operating revenue was up 73% on a constant currency basis.
“We have continued to see an influx of COVID-19 patients requiring hospitalisation for respiratory treatment, said CEO Lewis Gradon. “Given the elevated hospitalisation rates for COVID-19, our hospital hardware sales have continued to be very strong, as has the use of our hospital hardware.”
Operating revenue in the hospital product group, which includes products used in acute and chronic respiratory care, grew 113% over the nine months to the end of 2020.
Given the uncertainty surrounding the course of the pandemic, Fisher & Paykel has declined to provide formal guidance for the full 2021 financial year. In November, the company advised full-year operating revenue would be approximately $1.72 billion, with net profit after tax approximately $400 million to $415 million.
More recently, however, Fisher & Paykel has advised that these assumptions are outdated, with revenue and net profit after tax expected to be higher than previously estimated.
Cochlear experienced improving momentum in 1H FY21 as implant surgeries recovered following COVID shutdowns. The pace of recovery, however, has varied across countries. Strong growth was recorded in the US, Japan, Korea, and China, with a slower recovery across most emerging markets.
Cochlear implant units declined 8% compared to the prior corresponding period with developed markets up 5% and emerging markets down around 30%. Sales revenue declined 4% to $742.8 million with the first quarter down 8% and the second quarter up 7%.
Underlying net profit fell 6% to $125.3 million, but statutory profit increased 50% to $236.2 million thanks to innovation fund gains, COVID government assistance, and patent litigation-related tax and other benefits.
Cochlear reintroduced its dividend in 1H FY21 thanks to improved trading conditions and cash flow generation. An interim dividend of $1.15 per share was declared, representing a payout ratio of 60% of underlying net profit.
The company is committed to maintaining a dividend policy that targets a 70% payout of underlying net profit, and anticipates returning to this ratio as markets improve. For FY21, Cochlear expects to deliver an underlying net profit of $225 million to $245 million, which would be a 46% to 59% increase on underlying net profit for FY20.
Although there continues to be uncertainty about the trajectory of the COVID-19 pandemic, Cochlear is increasingly confident of the resilience of the hearing implants business.
ASX Medical shares
Some ASX medical shares, such as Fisher & Paykel, have performed well due to the COVID-19 epidemic, which is driving sales. Others, such as Cochlear, have had performance impacted by lockdown disruptions, however, signs of momentum are emerging.
Investors will be watching conditions closely as the vaccine rolls out to see how these ASX medical shares perform.
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Kate O'Brien owns shares of Avita Medical Limited, Cochlear Ltd., and POLYNOVO FPO. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Avita Medical Limited, Cochlear Ltd., and POLYNOVO FPO. The Motley Fool Australia has recommended Avita Medical Limited and Cochlear Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.