MoneyTalks: Summit Biotech Fund's three standout ASX healthcare stocks

News.com.au

4 days ago

MoneyTalks is Stockhead's drill down into what stocks investors are looking at right now. We tap our list of experts to hear what's hot, their top picks and what they're looking out for.
Today we hear from Australia's Summit Biotech Fund manager Reece O'Connell.
With experience trading through multiple economic and market cycles, Reece O'Connell has developed a long-term investment approach focused on preserving and growing capital.
In a career that has taken him from Perth to London and back again, he has worked closely with high-net-worth and wholesale investors, tailoring strategies to meet their objectives while navigating changing market conditions.
At Summit Biotech Fund (SBF) he aims to provide long-term capital growth by investing in a portfolio of life science companies where innovation plays a crucial role in improving global health and economic outcomes.
This includes biotechnology, pharmaceuticals, medical devices and equipment, medical data, information technology (e-health), and robotics. And in some good news for the fund, a rotation back into the healthcare sector appears to be gaining momentum with the S&P ASX 200 Health Care index rising 9.05% in July.
"The healthcare sector has been the worst performing sector for two years and there's great positioning in quality healthcare names before the sector turns," he said.
"We see these sector rotations every three to five years and I believe the ASX healthcare sector represents good value and plenty of upside in quality names with strong management."
Here's three companies Summit Biotech Fund has invested in and why.
Arovella Therapeutics (ASX:ALA)
SBF is a major shareholder in Arovella, which is developing a next-generation cell therapy platform based on invariant Natural Killer T (iNKT) cells engineered with Chimeric Antigen Receptors (CARs) to target specific cancer antigens.
Unlike traditional CAR-T therapies, Arovella's approach uses healthy donor cells to create off-the-shelf treatments, which reduces cost, complexity and time to treatment — the major issues currently faced by CAR-T companies.
Arovella's lead candidate, ALA-101, targets CD19-positive blood cancers, and its pipeline encompasses therapy development for solid tumours such as gastric and pancreatic cancers.
O'Connell reckons Arovella is in a hot area of cancer research. Nasdaq-listed MiNK Therapeutics recently soared following publication of a case report in the peer-reviewed Oncogene journal, detailing a patient with advanced, treatment-refractory testicular cancer who achieved complete remission after receiving its lead product iNKT Agentâ€'797, in combination with the immune checkpoint inhibitor nivolumab.
"Arovella presents an opportunity in a rapidly growing sector, with a differentiated platform and strong early-stage clinical momentum," O'Connell said.
"The company is the only ASX-listed biotech delving into CAR-iNKT therapies and one of only a handful globally."
He said Arovella was well funded, finishing Q4 FY25 with cash of $20.9 million, which should fund the company through to completion of patient enrolment for its phase I clinical trial for ALA-101 n non-Hodgkin's lymphoma and leukaemia patients exhibiting the CD-19 biomarker – the target its CAR-iNKT cells recognise.
The funding will also support the advancement of the company's solid tumour programs (CLDN18.2-CAR-iNKT targeting gastric cancer) and its armouring program (IL-12-TM).
"ALA presents a highly compelling investment opportunity over the next six to 12 months, given the competitive landscape and the deals being struck for allogeneic assets and platforms," O'Connell added.
SBF is a significant shareholder in Tryptamine, a clinical-stage biopharmaceutical company developing next-generation psychedelic medicines for neuropsychiatric conditions.
Its lead program, TRP-8803, is a proprietary, IV-delivered formulation of psilocybin designed to provide more precise dosing and improved patient tolerability compared to oral psychedelic treatments.
Phase 1b trials have already shown the drug to be safe and well tolerated in obese and non-obese participants. The company recently kicked off a world-first psilocin trial with TRP-8803 targeting Binge Eating Disorder (BED).
The study, run in collaboration with Swinburne, will assess TRP-8803 when administered with psychotherapy with the goal to evaluate safety, feasibility and efficacy in adults diagnosed with BED.
For O'Connell when analysing a biotech it as much about who is running the company as it is about the science.
"One of the most important investment themes I always look for is a material monetary investment by directors in a company," he said.
"Too many small ASX-listed companies have boards that aren't truly aligned with shareholders.
"The number one way to be aligned is to have directors putting in their hard-earned cash like us. In this case, TYP ticks all the boxes.'
He said directors, management,and major shareholders were collectively invested for more than $9m, with CEO Jason Carroll personally contributing more than $1 million.
Carroll's 30-year career in big pharma includes two decades at Johnson & Johnson, where he led the strategy that doubled US sales of Remicade — a blockbuster IBD drug that ultimately reached US$10bn in annual global sales.
O'Connell said other board members brought similar firepower. Executive director Chris Ntoumenopoulos was involved in the growth of Race Oncology (ASX:RAC) from $10m to north of $200m, founded former ASX-listed ResApp Health, which was acquired by Pfizer for ~$200m, and has helped double Island Pharmaceuticals' (ASX:ILA) value since joining its board.
As part of the last raise experienced biotech investor Dr Daniel Tillett joined the Tryptamine board as a non-executive director and became a cornerstone investor. Tillet also cornerstoned a raise in Race Oncology in its early days and now leads it as CEO and managing director.
Recent clinical progress provides Tryptamine with valuable proprietary data as its seek to advance the use of TRP-8803 in patient-specific indications.
"With a differentiated psychedelic platform, directors heavily invested alongside shareholders, and multiple catalysts on the horizon, Tryptamine is emerging as one of the more compelling plays in the sector," O'Connell said.
SBF also holds a strong position in NeuroScientific, which O'Connell said was positioning itself as a serious player in the fast-growing field of stem cell therapies for immune-mediated diseases, underpinned by its recently acquired StemSmart platform.
The patented mesenchymal stromal cell (MSC) therapy has shown strong early results including a 53% remission rate in a phase II trial for refractory Crohn's disease and outperforming Humira, the long-time anti-inflammatory drug used as a standard of care.
It also showed high response rates in a phase I trial for steroid-refractory Graft-versus-Host Disease (GvHD).
"With the global markets for Crohn's and GvHD forecast to reach US$25 billion combined by 2035, StemSmart is tapping into significant unmet needs," O'Connell said.
He also sees validation from the sector's leader Mesoblast (ASX:MSB), which recently secured US Food and Drug Administration (FDA) approval for its MSC product and now commands a $3.1bn market cap.
He said by comparison, Neuroscientific trades at just ~23 cents but carries a midpoint valuation of 60 cents, representing around 161% upside based on a probability-adjusted DCF model assuming modest success rates and future partnerships.
This assumes modest 20% success rates, 25% market penetration in Crohn's and potential partnerships with big pharma to fund late-stage trials.
With a Special Access Program about to generate real-world data, plans to initiate Phase II trials in 18–24 months, and expansion into additional inflammatory and lung diseases, StemSmart offers a scalable pipeline.
"For investors looking at the MSC space NSB could be an early-stage, high-upside opportunity positioned to follow Mesoblast's trajectory as the market matures," he said.
The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.
Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.
Disclosure: Summit Biotech Fund held shares in Arovella, Tryptamine Therapeutics and NeuroScientific Biopharmaceuticals at the time of writing this article.