What are the best ASX Health Stocks for FY25? Here are our top 4 picks!

Nick Sundich Nick Sundich, July 1, 2024

As FY24 has come to an end, we thought we’d list our best ASX Health Stocks for FY25! Traditionally, healthcare stocks are seen as defensive plays in dour markets. This has not proven to be the case in the last couple of years. Many ASX health stocks have suffered from high inflation and rising interest rates, and have been unable to pass these costs onto their consumers without impacting margins. The fact that only a handful have had successful clinical outcomes has not helped the sector either.

On top of all this, many investors are worried about the rise of weight loss drugs and the impact they might have on the broader market. After all, if you can reduce obesity, you just might reduce the market for many healthcare stocks.

But in the latter part of 2024 and into 2025, we think ASX health stocks will bounce back. We think the key catalyst will be inflation coming back under control and Central Banks around the world lowering interest rates. In that improving environment, we think these 4 stocks will lead the charge, not just because of the market, but because they all have significant company-specific catalysts in the new year.

 

The 4 best ASX Health Stocks for FY25

 

CSL (ASX:CSL)

Yes, this is an obvious pick as the number one pick on our list. This company is the largest ASX health stock, capped at over A$130bn and has been a market darling for so many years. That is, until 2023 when shares fell 25% in four months after the company announced a profit downgrade. Shares recovered from the dip, although are only up 4% in the last 12 months and off all time highs reached earlier in the previous half-decade multiple times.

We are not going to pretend that investor fears are illegitimate. For those who’ve been living under rocks, these are:

  • Reduced margins in its blood plasma business
  • That $11.7bn was too much for Vifor
  • Ozempic will hurt the company’s market in the long-run

ASX health stock investors are forgetting that it is a solid business that is still on track to make a US$2.9-3bn profit in FY24 – a figure that will be confirmed in August. Consensus estimates for FY25 suggest a US$3.3bn profit as well as $15.9bn in revenue (a figure that would be 9% higher than the year before).

We also think they are worrying too much over those 3 fears we listed above. When considering Ozempic, investors should keep in mind 2 things. First, weight loss drugs do not treat the diseases when they finally show up. Second, even though the risk of obesity-related diseases is lower if you’re not obese, it does not entirely eliminate the risk altogether. And this is the message that CSL tried to sell investors at its Investor Day recently. In our view, even if drugs like Ozempic could impact the market for healthcare stocks in the long-term, it would be a while (i.e. decades) to see such an impact take place.

In relation to Vifor, it is about placing the company in a position to tackle the kidney disease market. Over time, the company’s R&D pipeline will expand and it will have better bargaining power to negotiate more favourable deals with partners.

 

Sonic Healthcare (ASX:SHL)

Sonic Healthcare is a pathology, radiology and medical centre stock with a presence across the globe. Pathology stocks suffered because they experienced a hefty spike in revenues due to COVID-19 testing fees, only to have it drop off.

Granted, Sonic hasn’t suffered a share price decline as much as its peers like Australian Clinical Labs (ASX:ACL) and Healius (ASX:HLS). But ultimately, we think investors aren’t seeing that there are plenty of catalysts that will enable growth. These include:

  • Momentum in its core-business
  • Post-COVID normalisation of its workforce
  • Synergies from acquisitions
  • Fee indexation in various markets
  • Lab infrastructure rationalisation underway in Germany
  • Digital pathology and AI to enhance efficiencies

So far as specific guidance is concerned for FY24, Sonic has not given profit guidance but has guided to $1.7-$1.8bn in EBITDA, which would be up to 5% growth. But consensus estimates suggest 6% revenue growth and 13% profit growth for FY25. We think this company is one ASX health stock investors should keep a close eye on.

 

Cyclopharm (ASX:CYC)

One of the few feel good stories among ASX healthcare stocks in FY24 was Cyclopharm getting FDA approval for Technegas. Cyclopharm has a radiopharmaceutical product, Technegas, that allows potential lung diseases to be revealed. The patient inhales it and is then examined by a gamma camera enabling the camera to see how ventilation is performed in the context of lung imaging. Technegas is sold in over 60 countries, but not in the US and it is hoping that will change.

After over 15 years of efforts, it was approved and the company will roll it out. By the end of CY24, it anticipates having up to 300 generators placed – a number that might seem high at first glance, but is nowhere near enough to meet the formal expressions of interest in the product. It has over 200 generators in its Kingsgrove facility waiting to be shipped, and they will be reimbursable by health insurers from Day 1. The company concluded FY24 with a major milestone – receiving necessary clearance so that Technegas could be fully reimbursed through the American medicare system.

 

Opthea (ASX:OPT)

Opthea is stuck in a kind of purgatory – one not unfamiliar amongst ASX health stocks, but frustrating nonetheless. It has a highly effective optometry drug in OPT-302, as shown by its Phase 2 results in 2019. It could fight wet-AMD with flying colours. This is a condition causing fluid to build up in the eye and consequential blindness, impacting over 3m people annually.

But ever since, Opthea has toiled at two separate Phase 3 trials. It took longer than expected to start up and it has had to raise more capital than investors expected. Nonetheless, not all this time has been lost. Last year, the company brought onboard Carlyle Group as an investor and signed a deal whereby its Abingworth unit would receive 7% of net sales if and when it was commercialised, plus a milestone payment on market approval. With a near 5-decade history of investing in biotech, Abingworth knows a thing or two about investing in biotechs – it has invested in over 179 of them.

And of course, Opthea has presented at several conferences across the globe. These raise awareness about the company and its therapy, putting it in the best position to hit the ground running if and when it is approved. Opthea is expecting results in the first half of CY25. And it could then apply for regulatory approval at that point. The recent case studies of Telix and Neuren passing Phase 3 clinical trials show what could be in store for investors.

 

So, keep your eye on all 4 of these ASX healthcare stocks in FY25!

 

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