The Australian stock market has a large and active biotech sector, full of life sciences and medical devices companies all looking to commercialise their particular drug candidate, diagnostic test or medical device.
But it also has a much smaller sector dedicated to the emerging concept of wellness, which covers healthy eating, natural therapies, fitness and even beauty: an industry which can be thought of as pre-medical, in that its aims are better prevention of ill-health through improving lifestyle and eating habits, so as to give individuals the highest chance possible to avoid getting sick.
It is a difficult industry to pin down in statistical terms, because it has so many elements, from vitamin and dietary supplements, complementary/alternative medicines and natural health products, through to wellness tourism.
In all of its forms, the global wellness industry is a US$3.7 trillion ($4.9 trillion) market, according to the Global Wellness Institute – which would make it more profitable than the pharmaceutical industry. Take that with a grain of salt – admittedly, not a great idiom in the wellness industry – because that is the industry talking itself up, but there could actually be more value in keeping people healthy than in treating illnesses, and that is the basis of the wellness industry. The Global Wellness Institute says the largest segment of the wellness industry globally is beauty, personal care, and anti-ageing products and services, with another third of the industry split between fitness and exercise, and nutrition and weight loss.
So how to invest? Well Blackmores immediately comes to mind.
Blackmores (BKL, $137.00)
Market capitalisation: $2.4 billion
Analysts’ consensus estimated FY19 yield: 2.7%, fully franked
Analysts’ consensus price target: $135.80
The go-to stock on the ASX for wellness is Blackmores, which calls itself Australia’s premier listed natural health business. The company is usually described as a vitamin maker, but Blackmores says that is too limiting a description, because it also produces bioceuticals (natural products that are effective against certain conditions), health foods, nutritional supplements and probiotics.
Blackmores has been an outstanding performer on the stock market, rising from $5 at the turn of the century to $137, with a peak of $206.83 in 2016, before concerns over regulatory changes in China pulled it back. The stock is a fully franked dividend payer and has a very strong balance sheet, but it has become a victim of its own success. Earlier this year, Blackmores was savaged in the wake of its half-year profit, even though total sales rose by 9% to $287 million, China sales surged by 27% to $73.9 million, net profit jumped by 20% to $34 million, and the interim dividend was lifted by 15% to $1.50 a share. But the share price fell almost 20% on the result. The problem was simply that the market expected better.
The stock market definitely expects strong earnings growth this year and next, but according to analysts’ consensus targets, that growth is expensive: on Thomson Reuters’ collation, Blackmores is trading on a FY18 forward P/E of 33.5 times earnings and a FY19 forward P/E of 28.8 times earnings. Thomson Reuters has an analysts’ consensus price target on the stock below the current price, at $135.80: FN Arena puts it at $130. Share price growth prospects, in the near term at least, do not look great, and the yield is not high enough to sway the picture into a buy.
So – where else can an investor look? Most of the rest of the wellness stock candidates are minnows. But here are four interesting situations in the wellness area, which are not yet profitable, but which I like and which could reward the patient speculator.
- Bod Australia (BDA, 56 cents)
Market capitalisation: $31 million
Listed in October 2016 at 20 cents a share, natural medicines and cosmetics developer and distributor Bod Australia has made a good fist of life as a listed company, rising to 56 cents. In FY17 Bod Australia reported a loss of $3.2 million, on revenue of $350,000. Bod has a portfolio of natural medicine brands positioned across the skin care, baby skin care, brain health, superfoods, antioxidants and immune support segments.
Bod also has two natural medicines brands set for launch, which have been obtained via a Bod’s distribution agreement with Belgian manufacturer Tilman: Enterofytol, for the treatment of irritable bowel syndrome (IBS) and SediStress, for the treatment of stress and anxiety, both of which are growing health issues in Australia and the western world.
The company is also moving into cannabis-based therapies: in January, Bod signed an agreement with New Zealand Manuka honey producer Manuka Pharma to develop and manufacture a cannabis-infused Manuka honey, which it says can help in reducing stomach acids and acid reflux, combatting staph infections and eczema, improving sleep quality, and in preventing tooth decay and gingivitis.
Earlier this month, Bod received full ethics approval from the Human Research Ethics Committee (HREC) to begin phase I clinical trials of the company’s proprietary ECs315 CBD extracts of cannabidiol (CBD), which is found in the seeds, stalk and flowers of cannabis plants. The aim of the trial is to emerge with a standardised, reproducible and patent protected cannabis product that could be distributed or licensed to major global pharmaceutical companies.
- Bioxyne (BXN, 7 cents)
Market capitalisation: $45 million
Health products company Bioxyne focuses on the dietary supplements and functional foods (foods that have a potentially positive effect on health beyond basic nutrition) markets, mainly through its patented probiotic strain, lactobacillus fermentum (PCC), which it sells to drug maker Sanofi and Denmark-based global bioscience company Chr. Hansen, which is a global leader in natural food additives and supplements products for the food, health, pharmaceutical and agriculture industries. The other major customer is US-based global marketing company Nu-Skin, which uses Bioxyne’s probiotics strain to market its own range of probiotics products through direct selling. At present the business generates about $2 million in annual sales, but the company makes a loss.
Bioxyne currently has PCC in a clinical trial assessing its effect on the bacterial microbiome composition of the gastrointestinal tract, and thus on the immune system, with positive effects on general wellbeing and weight loss.
The company has registered PCC in China, and is aiming to build direct sales into China and South-East Asia
BXN has also developed a range of immune-therapeutics, based on a proprietary technology that uses the application of mucosal immunology to treat common human diseases. The lead product, HI-164OVA, is an orally administered immunotherapeutic that works by controlling bacterial colonisation of airways damaged by inhaled toxins. The product has completed a Phase 2b clinical trial for chronic obstructive pulmonary disease (COPD).
- Anatara Lifesciences Ltd (ANR, 84 cents)
Market capitalisation: $42 million
Anatara is developing non-antibiotic oral solutions for gastro-intestinal diseases in animals and humans. The company’s initial focus is the development and commercialisation of its Detach product, which is a natural, plant-based, non-antibiotic therapy that prevents and treats diarrhoea in livestock, and potentially in humans. Anatara believes Detach helps to address global concerns around the overuse of antibiotics in animals and their feed, which is seen as contributing to the rise of so-called “super bugs” that make infectious diseases harder to treat.
Detach contains the active ingredient Bromelain, which is a mixture of proteases extracted from pineapple stems. Field trials, involving more than 6,000 pigs, have been successfully conducted on Australian commercial pig farms. In 2016 Anatara signed a deal with global animal health company Zoetis under which the latter would evaluate Detach as a non-antibiotic approach to help control diarrhoeal disease (or scour) in livestock and horses. Zoetis generates almost two-thirds of its US$5.3 billion ($7 billion) annual revenue from farm animal health products.
In August last year, Zoetis exercised its option to negotiate a commercial agreement for the worldwide development, distribution and marketing of Detach: earlier this month, that turned into an exclusive global licensing agreement with Zoetis, which says it will continue its research and development of this “novel approach,” and explore Detach’s place in its diverse portfolio of solutions to prevent and treat gastro-intestinal illness in livestock animals and horses.
The terms of the agreement include a US$2.5 million ($3.3 million) upfront payment as well as milestone payments further down the track of up to US$6.3 million ($8.4 million), based on product sales. But the intellectual property rights “exclusively licensed” to Zoetis under the agreement will remain the sole property of Anatara. Zoetis will manufacture and market Detach.
Further out, Anatara believes Detach also has a human application: its R&D team is developing a similar version of Detach to prevent diarrhoea in humans. The company expects Detach be effective against most types of diarrhoea, regardless of the cause, and also have other human gastro-intestinal health applications.
- Brain Resource (BRC, 3.9 cents)
Market capitalisation: $21 million
Brain health, mental fitness and wellness platform Brain Resource develops brain health products, based on its platform, International Study to Predict Optimized Treatment (iSPOT). It has two main businesses: i-SPOT offers cognitive or genetic testing to predict drug effectiveness for depression and ADHD and from this, BRC intends to deliver personalised treatment pathways for depression and ADHD.
The second business, called MyBrainSolutions, is an online health platform used by corporate customers including Boeing and Accenture. MyBrainSolutions provides an integrated platform for brain health and wellness training for employees and consumers – and, the company says, increasingly for doctors – to use with their patients. Its MyCalmBeat product is a breathing-based brain optimisation tool that uses heart rate patterns to help manage stress and improve performance.
While also helping clinicians, ultimately, Brain Resource aims to build the world’s first subscription-based cloud-hosted digital brain and mental health fitness platform to allow individuals to assess and benchmark brain capacities, screen for risk of mental health disorders and recommend personalised capacity-targeted and mind-body fitness program. It wants to create the Fitbit for the brain, and improve people’s mental agility.
Chief executive officer Louis Gagnon expects to double revenue this year, to $US3.2 million ($4.3 million), and treble the amount of MyBrainSolution users by next year. He has been quoted as having ambitions for $100 million-plus in revenue in five years.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.
