The healthcare sector underperformed in 2021, according to experts, but is predicted to perform strongly next year.
The Australian healthcare sector’s reputation for being an investor’s safe haven should be reaffirmed in 2022, following sluggish underperformance this year, according to experts.
In another year impacted by the COVID-19 pandemic and lockdowns, the healthcare sector followed an eerily similar trajectory to that of 2020: a huge dip in March, followed by a bumpy recovery.
But Morgans research analyst Iain Wilkie says the “choppy” performance of the sector in 2021 should not put a dampener on the outlook for 2022 and beyond.
“We saw a broad switch into more cyclical plays and some of the healthcare names got hurt a bit by that,” he says.
Positive healthcare outlook
But as Wilkie points out, the sector has a strong long-term record; over the past five years, the ASX 200 healthcare index has gained an astonishing 121%.
“But over the long run healthcare is one of the highest returning sectors year-on-year, and it is seen as a safe haven in that aspect, and it will come back pretty strongly.
“I have got a positive outlook and I think we will see more deals and more cap raises.
“There is also a growing focus on environmental and social governance (ESG), and healthcare ticks a lot of boxes in that area.
“The COVID exit will continue to play out for a couple of years and as the virus becomes less of a concern the market will relax a little bit more.
“And any company with clinical-stage assets that are looking to run trials can look forward to 2022 in multiple jurisdictions, as there are less likely to be delays from regulators.”
Immuno-oncology success
Though it was a choppy performance for the sector overall, some subsets within healthcare enjoyed prosperous years.
Nowhere was that seen more clearly than in immuno-oncology, which aims to develop treatments that take advantage of the body's immune system to fight cancer.
Imugene Limited is perhaps the sector’s most successful example, having gained 370% this year, and more than 500% when the stock hit its peak in early November.
A clinical-stage immuno-oncology company developing a range of novel immunotherapies, Imugene has two drug candidates in phase two trials: HER-Vaxx and B-Vaxx.
In early September, Imugene revealed positive data for its Phase 2 HER-Vaxx gastric cancer trial, while in November the stock hit an all-time high on news the company had secured a clinical trial supply agreement with big pharma names Merck and Pfizer.
“Imugene was an absolute ripper,” Wilkie says. “It really lit a fire under that sector.”
And though not working in the nascent field of immuno-oncology, Wilkie also pointed to Pharmaxis Ltd (ASX:PXS, OTC:PMXSF), a fellow anti-cancer drug developer, as a promising company; it has gained 22% this year.
“Pharmaxis will have some major readouts in the 2022 calendar year, namely in its bone marrow cancer and wound care trials,” he says.
“It has got enough cash to run its clinical programs and it has an approved cystic fibrosis drug on the market.
“The cystic fibrosis treatment alone won’t set the market on fire, but with an approved drug in the background, the blue sky upside for Pharmaxis is fantastic.”
Another broker, Taylor Collison, agrees; it raised its outlook on the company to outperform.
- Daniel Paproth