The ASX biotechs surfing the coronavirus story

Tim Boreham

Independent Investment Research

Normally investors shun speculative plays in times of market uncertainties, but that’s not been the case with ASX-listed life sciences stocks across the drug, diagnostics and device sectors.

Naturally, the biotechs drawing a connection with fighting or detecting the virus – spurious or otherwise – have seen their valuations soar. Not that investor interest is limited to the ‘Covid cluster’, with capital raisings in the sector supported across the board.

A notable winner valuation -wise is Genetic Signatures (GSS), which markets of molecular diagnostics tests for bacterial and viral conditions including superbugs, sexually transmitted diseases and norovirus (the number one plague of cruise ships before the coronavirus hopped onboard).

Sold under the Easyscreen brand, the kits allow for rapid and accurate detection in large volumes. The tests take the genetic information of the targeted organism and change the genetic sequence to reduce the number of variables.

And, yes, the company is a COVID-19 story as well. Before the plague descended, the company’s Easyscreen tests had not been able to distinguish Sars-cov-2 from say, Severe Acute Respiratory Syndrome (SARS), but the company has devised a variant to do just that.

Reporting a 278 per cent revenue surge to $4.7 million for the June quarter, management called out demand for the COVID-19 tests as a growth driver.

Broker Bell Potter notes the global molecular diagnostics market was worth more than $US6 billion ($8.4bn) in 2018 and is expected to grow to $US10bn by 2026.

The sector’s also been a hotbed of acquisitions, such as Thermo Fisher’s recently-lobbed $US11.5 billion offer for Dutch diagnostic group Qiagen and Danaher Corp’s $US4bn acquisition of US counterpart Cepheid in 2018.

“We expect merger and acquisition activity to continue in the space and Genetic Signatures is strategically well positioned to attract interest as it further expands into key US and European markets and grows is product suite,” Bell Potter says.

While Genetic Signatures is a case of building incremental revenues, stem cell developer Mesoblast (MSB) is on the cusp of company-moving announcements pertaining to several late-stage clinical trials and expected US approval of its therapy for graft versus host disease (a common affliction for transplant patients).

Naturally, most investors are focused on the COVID-19 trial which involves treating critical-care patients with its off the shelf therapy remestemcel-L (branded Ryoncil).

Most coronavirus victims die from acute respiratory distress syndrome (ARDS), an inflammatory condition caused by the immune system’s response to the virus.

Mesoblast aimed to enrol 300 patients across 30 US hospitals – a moving target given the disease epicentre is moving from region to region.

Nonetheless, the first patients were dosed in May, with an interim analysis is due when at least 30 percent of the patients have been treated for 30 days.

In other words, investors should soon know whether the company is on the cusp of a major treatment breakthrough.

And if that’s not enough excitement, Mesoblast expects to announce results from two phase III studies: a 566-patient effort for chronic heart failure and a 404-patient trial for chronic lower back pain caused by disc degeneration.

Also in the stem-cell space, Cynata Therapeutics (CYP) is planning to carry out its own COVID-19 clinical trials not just in relation to ARDS, but sepsis and cytokine release syndrome (all causes of COVID-19 deaths).

The company is encouraged by pre-clinical modelling and has regulatory approval to carry out a trial.

The company planned to enrol 24 intensive patients in NSW – but perhaps it should refocus efforts south of the Murray.

“It was fairly clear that Australia’s prevention measures effectively flattened the curve and we quickly ran out of available patients,” Cynata chief Ross Macdonald said before the Victorian resurgence.

Tackling the cause of COVID-19 mortalities is one thing, but what if the risk of contracting the diseases could be more accurately predicted beyond the clinical factors of age and co morbidities such as heart disease and diabetes?

That way, the denizens of locked down geographies such as Victoria could discard their masks and emerge from isolation.

Meanwhile, shares in kidney disease house Dimerix (DXB) last week soared on positive clinical results pertaining to a rare condition called focal segmental glomerusclerosis (FSGS).

But the drug candidate in question, DMX-200 has also been selected for appraisal in a global trial to treat ARDS, the common element between ARDS and FSGS being fibrosis.

Known in shorthand as REMAP-CAP, the World Health Organisation endorsed trial aims to enrol 7000 patients across more than 200 sites. DMX-200 is one of many potential therapies being looked at, but the beauty for Dimerix is the trial costs are paid the governments that are funding REMAP-CAP.

Changing tack, molecular diagnostics house Genetic Technologies (GTG) has filed a provisional patent for a genetics based assessment of the risk of developing COVID-19.

Based on third-party genomic data from 1500 COVID-19 patients, the company intends to develop a prototype model to identify patients most likely to require hospitalisation should they contract the disease.

If and when a vaccine materialises, the genetic profiling could help to prioritise who gets jabbed first.

Hitherto known for its predictive breast cancer kits, Genetic Technologies has never matched its performance to its promises and investors should be cautious.

But US investors have been willing to support the stock, with the company raising $US5.1 million ($7.2m) in a placement via its Nasdaq listing. 

Tim Boreham edits The New Criterion

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Disclaimer: The companies covered in this article (unless disclosed) are not current clients of Independent Investment Research (IIR). Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense.

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Tim Boreham
Editor of New Criterion
Independent Investment Research

Many readers will remember Boreham as author of the Criterion column in The Australian newspaper, for well over a decade. He also has more than three decades’ experience of business reporting across three major publications.

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