Lens on two healthcare stocks amid the COVID-19 pandemic: Sigma Healthcare, Mesoblast

  • May 14, 2020 AEST
  • Team Kalkine
Lens on two healthcare stocks amid the COVID-19 pandemic: Sigma Healthcare, Mesoblast

The outbreak of coronavirus has changed the dimensions for the businesses around the globe. On the one hand, companies have struggled to cope up with the unprecedented situation which led to a halt in operations and declining demand while on the other hand, they have shifted their focus towards alternate strategies to try and come out of the situation relatively unscathed.

For healthcare companies, the scenario has created an opportunity. An increasing number of COVID-19 cases, coupled with the fact that there is no approved vaccine for the infectious disease, has given rise to a substantial unmet need.  Besides, the lockdowns and restrictions imposed to contain the spread have resulted in supply chain disruptions giving rise to another challenge for the industry that offers essential products and services.

The Australia government is playing its part in addressing the situation and has made specific interim arrangements for prescriptions to lower the risk of coronavirus infection. As announced on 30 April 2020, the government has planned to fast track ePrescribing (electronic prescribing) under the National Health Plan.

The healthcare companies have also been active and ramping up efforts in areas such as potential vaccine R&D, improving distribution process, increasing production of sanitisers and related products for disease prevention.

Interesting Read: 3 Mega-trends for Australian Healthcare Space in 2020

Let us have a look at two ASX-listed healthcare stocks that are active in the fight against the global pandemic: SIG and MSB.

Sigma Healthcare Limited (ASX:SIG)

ASX-listed healthcare player Sigma Healthcare Limited manages a large pharmacy chain in Australia with more than 1,200 independent and branded stores. SIG has a wholesale business and distributes medicinal products to hospitals and communities.

Project Pivot:

Sigma had taken appropriate actions to achieve AU$62.3 million in its Project Pivot on 31 January 2020. This was in line with initial Year 1 expectations. The Company further mentioned that it expects delays in its project in Year 2, because of the coronavirus pandemic and bushfires.

With some realisation in Year 3 (FY 2022), the Company is set to remain on target to deliver more than AU$100 million of benefits.

Financial result: SIG released its FY2020 results for the period ended 31 January 2020. The principal activities performed in the year include growth in hospital and pharmacy network, investment in critical IT infrastructure, operationalised new distribution centres with the latest automation.

The snippet of FY2020 performance is as follows:

  • Retail pharmacy brands generated a like-for-like sales growth of 11.7 per cent.
  • Hospital pharmacy services business achieved sales growth of 26 per cent.
  • For 12 months to 31 January 2020, ongoing revenue in wholesale business increased by 8.5 per cent.
  • Delivered underlying EBITDA of AU$46.7 million, which was in line with guidance.
  • Revenue stood at AU$3.2 billion, a drop of 18.4 per cent compared to FY2019.
  • At 31 January 2020, net debt was AU$146 million.
  • Withdrew FY2020 dividend.

 

COVID-19 Update:

  • In March, the volumes increased significantly by 70 per cent, and for some weeks, it went up by more than 80 per cent.
  • Ongoing revenue (excluding Hep-C and sales to Chemist Warehouse) for March till 25 March 2020 increased by 50 per cent as compared to last year.
  • SIG has placed a resource hub to help its team members who are working from home or in the workplace.
  • To help community pharmacies and patients, the Company has implemented several initiatives.
  • To overcome the logistical challenges and ensure the supply chain of medicine, Sigma is actively working with the Government, Department of Health and National Pharmaceutical Services Association.

 

Outlook:

Although the Company mentioned that it had started FY2021 with good momentum, it is unable to provide formal guidance for the year at this time. SIG predicts to have sustainable earnings growth from its diversified business and a combination of actions. The Company intends to create opportunities to enhance its growth profile after the emergence from COVID-19 pandemic.

Stock performance:  On 14 May 2020, SIG shares were trading at AU$0.585 (at 03:15 PM AEST), an increase of 0.855 per cent compared to the previous close. The stock has generated 1-month and YTD return of -5.65 per cent and 1.74 per cent, respectively.

Mesoblast Limited (ASX:MSB)

ASX and Nasdaq-listed company, Mesoblast develops off-the-shelf allogeneic cellular medicines. Mesoblast has an extensive portfolio of commercial products and leveraged its mesenchymal lineage cell therapy technology. The Company has operations in Australia, Singapore, and the US.

Treatment with MSB’s allogeneic cell therapy remestemcel-L:

On 24 April 2020, the Company provided an update on the outcome from the use of its cell therapy during March-April 2020 at Mt Sinai hospital in New York City. Ventilator supported COVID-19 patients having moderate or severe ARDS (acute respiratory distress syndrome) were treated with two intravenous infusions of MSB’s allogeneic mesenchymal stem cell product candidate remestemcel-L. Key outcomes are mentioned below:

  • Within the first five days of the treatment, 83 per cent or 10/12 patients survived.
  • Within a median of 10 days, 9/12 or 75 per cent of patients have effectively come off the ventilator support.

 

After viewing the statistics of COVID-19 affected survivals, MSB entered in Phase 2/3 trial, which is a randomised and placebo-controlled study. This will further confirm the survival benefit of MSB’s cell therapy on patients.

On 6 May 2020, Mesoblast announced that out of 300 placebo-controlled randomised patients, the first patient had been dosed under the Phase 2/3 trial. Further, MSB highlighted that the Phase 2/3 trial would include a maximum of 30 sites located in North America. Patient screening and enrolment at several hospitals and centres have already started. MSB expects that enrollment would be complete within three to four months.

Financial results:

MSB released its third quarter FY2020 results for the period ended 31 March 2020 which provided the operational highlights and quarterly cash flows. The highlights include:

  • Revenue from the sales of TEMCELL®1 HS Inj. in Japan was US$2.1 million, a growth of 99 per cent on pcp basis.
  • At the end of the quarter, cash on hand was US$60.1 million.
  • Total cash payments for operating activities reduced by 2.8 per cent on pcp basis, to US$22 million.
  • Expenditure on clinical programs declined by US$4.2 million on pcp basis.
  • The Company stated that it might get access to a further US$62.5 million over the next 12 months.
  • Net cash used was US$19.9 million, and manufacturing payments were US$2.7 million. Also, R&D payments were US$ 9.2 million.

 

Placement of US$90 million:

On 13 May 2020, the Company notified the market that it had completed a capital raising of US$90 million. The placement included the issue of 43 million shares which signifies 7.4 per cent of MSB’s new total issued capital. The issue price of AU$3.2 per share, represents 7 per cent discount to both the price at the five-day VWAP (volume-weighted average price) and the close of trading (8 May 2020).

The proceeds will be majorly used in the manufacturing of remestemcel-L. The remaining will be utilised for working capital and general corporate activities. 

The underwriter and lead manager of the placement was Bell Potter Securities.

The expected date for the settlement is 15 May 2020, followed by the issuance of new shares and start of ASX trading on 18 May 2020.

Stock performance:  On 14 May 2020, MSB shares were trading at AU$3.715 (at 03:15 PM AEST), an increase of 9.587 per cent compared to the previous close. The stock has generated 1-month and YTD return of 44.26 per cent and 65.37 per cent, respectively.

 


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