Healthcare & Biotech Outlook for 2018 - Tanushree Jain

The fundamentals and demographic trends for the healthcare and biotech sector remained strong in 2017 and we expect this momentum to continue into 2018, based on the following 3 key themes:

1. Friendly regulatory environment - the US FDA not only approving more drugs, but also making efforts to expedite the approval of much needed innovative drugs.
2. Increased activity in licensing and M&A - driven by large pharma and biotech’s need to replenish pipelines following the expiry of patents on their legacy blockbuster products. Also, potential US tax reform could provide these companies with a much larger war chest to be able to aggressively go after the most promising innovation.
3. Companies approaching maturity phase - several of the ASX listed biotech and healthcare stocks we cover will reach maturity, with sentiment overall likely to be driven by late stage trial read outs, regulatory approvals and launches, increased commercial momentum and partnering activity.

In view of these factors we believe the following stocks stand out as potential winners:

Medical Developments International (MVP)

MVP is a specialist health care company with pain relief and respiratory device products. Its flagship product is Penthrox, a non-opioid analgesic for emergency trauma pain treatment, which has been used for several years in Australia and is in the initial stages of global expansion. 

MVP has re-rated on the back of commercial progress in existing EU countries and successful closure of its decentralised procedure (DCP) for approval in 22 additional European countries. We see the potential for further re-rating in 2018 with with sales expected in more than 50 countries.

With the opioid epidemic front and centre in US, with president Trump declaring it as a public health emergency and the FDA Commissioner’s statement implying more efforts will be made to prevent new addictions which would include promoting development of non-opioid pain treatments, Penthrox’s US path to market is increasingly looking de-risked. MVP will file a Fast Track application along with its IND in 1Q18. US partnering interest also remains high and MVP has now received its first conditional offer for the US market. For its respiratory device business, MVP expects to grow market penetration in the US from current ~16% to 40% by end of 2018, to be driven mainly by additional deals.

Buy, PT $7.77/sh

Starpharma (SPL)

Starpharma is a Melbourne-based platform company commercialising the science of nanoscale polymers called dendrimers. Its proprietary dendrimer technology is versatile with wide applicability across the pharmaceuticals sector. In drug delivery the company is focused on oncology (cancer).  SPL’s strong cash position of ~A$56.9m and sharpened focus on pharmaceuticals following sale of its agrochemical business underpins its future growth.

Key catalysts for 2018 include:

• Approval and launch in FY19 and licensing of its late stage VivaGel BV (Bacterial Vaginosis) product, including launch of VivaGel BV by Aspen in Australia in 1Q18
• Significant progress expected across its DEP drug delivery business
• Initiation of a Phase 1 trial for second internal candidate DEP Cabazitaxel and progress in recruitment with Phase 2 DEP docetaxel trial, and 
• Initiation of a Phase 1 trial by partner AstraZeneca for AZD0466 triggering a US$3m milestone to SPL.

Buy (Speculative), Valuation $1.78/sh

Mesoblast (MSB) 

Mesoblast is a biotechnology company commercialising the therapeutic use of mesenchymal lineage cells (MPCs and MSCs) – a kind of adult stem cell. It is the leading allogeneic regenerative medicine player with one of the most diversified pipelines and several products in late stage. 

We expect positive results from the company’s late stage paediatric GvHD (Graft vs. Host Disease) Phase 3 trial in 1Q18 could trigger a partnering deal.
MSB recently received a RMAT (regenerative medicine advanced therapy) designation from the FDA for its MPC-150-IM end stage heart failure product in patients requiring LVAD, which makes it eligible to discuss an accelerated pathway to market for this product with the FDA.

A US National Institutes of Health (NIH) run and funded Phase 2b trial for this asset is due to read out data on 6 month primary endpoint in 1Q18, with full data read-out expected in 3Q18. Positive results could provide further impetus to MSB’s ongoing partnering discussions for the asset.

MSB is also focusing its efforts and resources towards finding a partner for its chronic discogenic low back pain product. The ongoing Phase 3 trial for this product is due to complete enrolment in 1Q18.

Buy (Speculative), Valuation $3.69/sh