The impacts of the pandemic, combined with inflation, rising interest rates and a host of other challenging macroeconomic conditions, took a razor to the healthcare sector in 2022.
The S&P/ASX 200 Health Care index lost more than 7% over the course of the year, finishing at 40,555 points, well short of the 47,500+ highs seen in 2021 and early 2020 before the pandemic hit.
But experts say there are plenty of reasons to be optimistic about a revival in fortunes in the coming 12 months, provided the aforementioned macroeconomic conditions stabilise.
2023 looks better
Morgans healthcare research analyst Iain Wilkie admits 2022 was a tough year but adds that companies would learn from the challenges.
“There was a shift into bigger, higher value names for investors as a lot of companies suffered from labour shortages, wage inflation and supply issues,” he says.
“But a lot of the commentary I have seen is around strengthened planning. Companies are looking more forward than they typically would, there’s greater planning at the board level and I think companies are emerging from 2022 smarter than they were before.
“2023 looks better. There is a lot of cash on the sidelines looking for a home.
“This year, good news will be rewarded, rather than sold into, and we’ll see some of the depressed valuations turn around, because there are a lot of very high-quality healthcare companies.”
It is also worth remembering that the healthcare sector has historically performed strongly; and that the end-of-year lows are, well, not so low compared to just a few years ago.
What trends will run hot?
Wilkie says 2022 was a bleak year right across the healthcare sector, from biotech and drug development to medtech, software and service providers.
In addition to wage inflation, supply issues and labour shortages, drug development companies also found it difficult to recruit patients into their trials, slowing down the progression of clinical-stage assets.
Wilkie expects these factors to turn around in 2023. “As the macro concerns ease, we’ll see investors moving back into growth companies,” he says.
“Companies have been forced to get a bit smarter about how they recruit patients and where they might do their trials.”
Wilkie says there has been strong growth in the number of companies looking to tackle chronic diseases, and that Australian healthcare companies bat above their average considering their size.
One company well-advanced in this area is Emyria Ltd (ASX:EMD), which will this year begin a pivotal Phase 3 clinical trial of its Ultra-Pure Cannabidiol (CBD) candidate, EMD-RX5, for the treatment of psychological distress.
Psychological distress describes a collection of symptoms that may comprise mild anxiety, stress, sleep disturbance and gastrointestinal upset. It affects up to 11% of all Australian adults with a higher prevalence in patients living with chronic disease, according to data from the Australian Institute of Health and Welfare in 2018.
MGC Pharmaceuticals Ltd (LSE:MXC, OTC:MGCLF, ASX:MXC) is another, late last year completing a pre-clinical trial measuring the anti-inflammatory effects of CimetrA™ on rodents.
The investigational drug has been shown to reduce the production of Interleukin 1α (IL-1α), an inflammatory cytokine responsible for activating the escalation of disease manifested in the form of severe acute or chronic inflammation.
Wilkie says radiology will continue to be a well-supported theme in 2023, as “investor curiosity” in the diagnosis of a range of diseases increases.
In November, Radiopharm Theranostics Ltd (ASX:RAD) welcomed data from a Phase 2a imaging trial linked to one of its treatment candidates.
The imaging trial enrolled patients with brain metastases and Imperial College London is investigating F-18 Pivalate’s therapeutic potential to target this and possibly other brain tumours.
The additional data includes high-contrast images, seen 60 minutes after patients were given a radiotracer injection.
Scientifically speaking, the images show the maximum standardised uptake within lesions compared to the mean differed in a statistically significant manner.
What’s more, the calculated tumour-to-background ratio ranged from 1.73 to 6.07, which supports the assertion of high image contrast in patients regardless of the origin of the primary cancer.
- Daniel paproth
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