This Is A Useful Review Of Stocks Involved In Health AI And Some Emerging Ones!.

These appeared last week:

Top AI healthcare stocks - Part 1

By streamlining workflows and improving diagnostics, Pro Medicus is the Apple of AI healthcare.

By Graham Witcomb · 5 Jul 2024

Practically all medical fields will benefit from artificial intelligence (AI) but, for now, most applications are more science fiction than fact. The medical imaging industry, however, is already experiencing the advantages — and Pro Medicus is leading the charge.

Currently, most algorithms approved for use by the US Food & Drug Administration (FDA) are focused on medical imaging. Plenty more will come: traditional radiology relies heavily on pattern recognition, which is an area where AI performs exceptionally well.

Key Points

·         AI to improve diagnosis

·         Opening platform to AI ecosystem the best bet

·         Stock priced for growth

AI has two main applications within medical imaging — prioritisation and diagnosis.     

AI is being used to triage cases by reading through the endless stream of scans and putting those patients with the highest risk of pathology at the top of the pile for a radiologist to review.

One German university hospital found that using AI to prioritise cases reduced the average turnaround time for reporting critical findings from 80 minutes to 35-50 minutes. This may not sound like much, but there's a major shortage of radiologists in Australia, Europe, and the US, so small increases in efficiency mean radiologists can see more patients and reduce wait times.

Diagnostic accuracy

So far, Pro Medicus's bread and butter has been a software platform that processes medical images remotely and streams the necessary pixels to the radiologist's viewing station, allowing doctors to access high-resolution scans almost instantly. This approach improves efficiency and output, enabling faster diagnosis and more convenient viewing (see Analyst picks: Uncovered gems).

While superior processing speed is Pro Medicus's main competitive advantage — allowing it to charge a 50% premium to competitors — the company is investing in machine learning to enhance its software's capabilities, including the ability to spot anomalies and assess patient risk.

The company has taken a shotgun approach to AI. Its three-pronged strategy includes: (1) developing its own AI algorithms internally; (2) partnering with third-party providers and universities to co-develop them; and (3) providing an open imaging platform accessible to independent AI developers.

The first prong of that strategy is arguably the weakest. In 2021, Pro Medicus received FDA approval for an internally developed algorithm to detect and categorise breast density. Since then, however, the company has barely said a word about internally developed AI — there may be further advances, but we're more excited by a number of partnerships with external developers.

Earlier this year, Pro Medicus invested US$5m into Elucid, a US-based AI provider that specialises in a Fractional Flow Reserve (FFR) evaluation tool for cardiac CT scans, which measures the pressure gradients in a coronary artery. The procedure's use is limited by its cost, complexity, and invasiveness, so an AI-driven non-invasive estimation of FFR will be a major benefit to patients.

Elucid has raised around US$120m in total funding. Pro Medicus's stake is small, but it shows the company's seriousness about building relationships with AI providers and funding their growth. Pro Medicus intends to partner with Elucid and integrate its AI algorithms into Pro Medicus's imaging platform.

Apple-esque

While developing AI algorithms and partnering with start-ups are both opportunities worth exploring, our best hopes are pinned on the third prong in Pro Medicus's AI strategy — its imaging platform.

Most revenue currently stems from image processing, not charging for AI services, and Pro Medicus boasts impressive financials: gross margins over 99%, with a free cash flow margin and return on equity each brushing 50%. Over the past three years, revenue from imaging has grown by 30% a year. Anything that strengthens the imaging platform's competitive position is a good thing. 

Rather than focus solely on building the best AI models, the company has opened its imaging platform to third parties by providing accessible APIs (application programming interfaces). These APIs allow other AI developers to easily integrate their AI models into Pro Medicus's software.

We think it's the right strategy. Pro Medicus's strength is in speed and convenience, not AI development and diagnosis; open access is a way to use external developers — who may be better at AI than Pro Medicus — to improve Pro Medicus's core product.

Two things are clear: Pro Medicus's platform shows the output of AI, which is ultimately what matters to the radiologist; and there are hundreds of companies working on AI algorithms to improve diagnosis across an endless array of diseases. Given the choice between using dozens of different applications or using a single platform that shows the output of dozens of different AI models, we suspect the latter will win out.

Just as Apple's success with the iPhone stemmed from providing a platform for apps, Pro Medicus's approach allows radiologists to access a wide range of AI models through a single, streamlined interface.

It's hard to fault Pro Medicus's strategy and, so far, the company has gone from strength to strength. With roughly $150m of revenue, Pro Medicus has a 7% market share in North America, double what it was three years ago.  

Unfortunately, the market has already caught on to Pro Medicus's potential: the stock's market cap of $14bn is 177 times the $80m of net profit expected in 2024. Consensus estimates are for net profit to more than double by 2028, making that price-to-earnings ratio more digestible — but anything other than rapid growth would still clobber the share price.

We'd love to own Pro Medicus at the right price, but we'll probably need to wait for a disappointing result before we get an opportunity.

For companies like Pro Medicus, AI is a core component of their product, making it integral to the user experience; other companies benefit from AI's capabilities quietly in the background. In Part 2, we'll explain how one such company's AI investments will deliver improvements in efficiency, costs, and research.

Here is the link:

https://www.intelligentinvestor.com.au/investment-news/top-ai-healthcare-stocks-part-1/153685

Top AI healthcare stocks - Part 2

No health stock has more to gain from AI than CSL, with drug and vaccine development just the start.

By Graham Witcomb · 10 Jul 2024 · 5 min read

In Part 1, we looked at how AI is transforming the medical imaging industry through the innovations of Pro Medicus. Now, we turn our attention to CSL, the undisputed leader in blood products and a top-tier producer of vaccines.

AI's potential applications within CSL are extensive, offering significant improvements in efficiency, speed, and research. 

Key Points

·         Predictive drug design

·         Faster vaccine development will improve effectiveness

·         Manufacturing efficiencies

Traditionally, drug discovery has been a lengthy and expensive process.

The first phase of drug development involves identifying potential drug candidates through laboratory studies to evaluate the biological activity and efficacy of these contenders. A bottleneck in this research is the sheer quantity of proteins available for study: blood plasma contains more than 4,000 different proteins, sometimes in indescribably small quantities, each of which could have an important biological effect when concentrated and administered to patients for a specific illness.

AI can help to prioritise research. By analysing huge datasets, algorithms can predict how different molecules will interact with biological targets, identifying promising candidates more quickly than conventional methods based on trial and error.

AI can analyse research data more precisely than humans to find unusual patterns or similarities in drug performance. For CSL, this means a more efficient path to discovering new therapies, reducing time and cost.

R&D accelerator

Once a drug candidate shows promise in basic research studies, it progresses to clinical trials, which are conducted in three phases to test the drug's safety, dosage, and side effects. The clinical trial sequence is the most expensive part of research and development (R&D), often costing hundreds of millions and taking more than a decade.

CSL hit this reality check with its plasma-derived cholesterol drug CSL-112. Earlier this year, the company announced the results of an enormous 18,000-person Phase III clinical trial and found that CSL-112 was no better than placebo at reducing cardiovascular events following a heart attack. CSL spent $500m or so and a decade of research on this single project.

As mentioned earlier, AI is likely to help in the drug discovery process by proposing molecules worthy of investigation or spotting anomalies in data. Its most valuable contribution, however, may be eliminating low-potential drugs earlier in the clinical trial process. Only 1-in-10 drugs that move from basic research to clinical trials make it through all three phases to commercialisation. R&D is a lottery where most research spending is wasted.

The final Phase III trial typically accounts for around 60% of clinical trial costs. By more thoroughly analyisng the vast quantities of data produced by earlier trials — or trials of similar molecules — AI may be able to predict the likelihood of success with more accuracy, helping CSL to allocate resources more effectively.

When one of CSL's therapies is finally approved, the research doesn't end there — the company is constantly looking to repurpose drugs, aiming to find new uses beyond their original indications. Most rare diseases — CSL's specialty — don't have any approved treatments, so AI has the potential to help CSL expand the market for its existing products by finding new therapeutic uses for them. Given the cost of development, an expanded list of 'off label' uses could add meaningfully to CSL's return on investment.

Vaccine development

AI's fast analysis is especially helpful for CSL's vaccine division. CSL has a 26% share of the flu vaccine market, making it the world's second-largest flu vaccine maker.

Influenza viruses mutate frequently, leading to a phenomenon known as antigenic drift. Small changes in the virus's surface proteins can lead to new strains that existing vaccines may not protect against.

The issue is that the flu virus is evolving constantly, whereas vaccine development takes many months. As soon as a new flu vaccine hits the shelves, it is already out of date because the virus has shifted slightly since it was developed.

To address this, flu vaccines are reformulated each year based on predictions of which strains will be most prevalent. This prediction process involves global surveillance and data collection by health organisations. Despite these efforts, there is almost always some degree of mismatch between the vaccine strains and the circulating strains, resulting in reduced vaccine effectiveness for that season.

CSL can use AI to model viruses and predict immune responses, speeding up vaccine design. By accelerating the development process, vaccine strains will more closely match the virus they're targeting.

AI is likely to become a standard feature in flu vaccine development, so we doubt it will give CSL any competitive advantage or increased profitability, but you never know — small differences in software performance could lead to large discrepancies in real-world outcomes. In a field where effectiveness is paramount, doctors are likely to recommend the most effective vaccine, so the company that delivers that could dominate the market. And more effective vaccines overall could improve demand.

Manufacturing

Two final applications of AI that could supercharge CSL's operations extend beyond R&D into manufacturing and compliance.

The company intends to use AI to improve the efficiency of its supply chain and assist in meeting its regulatory, legal, and compliance requirements. Predictive maintenance algorithms keep production equipment running efficiently, reducing downtime and increasing output. Real-time monitoring through machine learning models can detect anomalies early, preventing potential quality issues.

AI can aid CSL in making more informed strategic decisions, too. Predictive analytics can forecast market trends, assess demand, and guide management in where it invests the company's cash pile.

Management expects net profit of US$2.9bn-3.0bn in 2024, up 13 -17%, putting the stock on a price-to-earnings ratio of 32 at the midpoint.

AI has the ability to enhance almost every aspect of CSL's operations — from drug discovery and expanded labelling to vaccine development, manufacturing and quality control.

CSL's size and 100-year operating history is a major competitive advantage as it has troves of research data on which is can train AI models more effectively. The company spends 9% of revenue on R&D and its US$1.2bn research budget is bigger than almost any competitor.

With significant financial resources, CSL can invest in cutting-edge AI technologies and infrastructure, hire top talent, and collaborate with leading AI research institutions. We can't think of a healthcare stock better positioned to benefit from developments in AI. HOLD.

Here is the link:

https://www.intelligentinvestor.com.au/recommendations/top-ai-healthcare-stocks-part-2/153690

It is interesting that the review did not extend to some of the smaller AI companies in the health sector of which there are many in various states of development.

There is also a useful review here:

AI is already being used in healthcare. But not all of it is ‘medical grade’

Published: June 20, 2023 1.39pm AEST

Authors

Karin Verspoor

Dean, School of Computing Technologies, RMIT University, RMIT University

David Hansen

CEO, Australian e-Health Research Centre, CSIRO

Enrico Coiera

Professor of Medical Informatics, Macquarie University

Artificial intelligence (AI) seems to be everywhere these days, and healthcare is no exception.

There are computer vision tools that can detect suspicious skin lesions as well as a specialist dermatologist can. Other tools can predict coronary artery disease from scans. There are also data-driven robots that guide minimally-invasive surgery.

To precisely diagnose diseases and guide treatment choices, AI is used to analyse patients’ genomic and molecular data. For instance, machine learning has been applied to detect Alzheimer’s disease and to help choose the best antidepressant medication for patients with major depression.

Deep learning methods have been used to model electronic health record data to predict health outcomes for patients and provide early estimates of treatment cost.

Much more here:

https://theconversation.com/ai-is-already-being-used-in-healthcare-but-not-all-of-it-is-medical-grade-207912

We just have to wait and see how this evolves – as we can be sure there will be a lot of investment in this area over the next few years!

Watch this space….

David.

There Really Are Some Who Can’t Recognise The Time To Stop It Has Arrived!

This appeared last week:

Personally Controlled Electronic Health Record

No ‘shoebox of PDFs’: My Health Record in good shape, says former ADHA CDO

---

By Peter Gearin

Thursday July 11, 2024

Steven Issa stepped down as chief digital officer of the Australian Digital Health Agency (ADHA) two years ago, but any criticism of My Health Record still stings.

“I genuinely believe in it,” Issa told The Mandarin following his presentation at the Qualtrics X4 conference in Sydney. “For families like mine — and those who are frequent fliers in the healthcare system — I can’t tell you how much of a benefit it can be.”

More here:

https://www.themandarin.com.au/250453-no-shoebox-of-pdfs-my-health-record-in-good-shape-says-former-adha-cdo/

Really you wonder why, after more than a decade, there is still a belief that the myHR can be a nationally useful system that should continue to be supported and funded!

It is clear the time has come to stop wasting money on what is obviously a failed idea – or at least a failed implementation of an apparently unworkable idea.

Surely we need to stop it before we all go blind!

David.

Australian Healthcare Companies Worth Considering Investing In!

This appeared a few days ago:

Buy Hold Sell: 2 high-conviction healthcare winners for FY25

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Plus, fund managers outline the key trends shaping the sector.

12 July, 2024

Livewire Markets

Healthcare stocks have been some of Australia's most consistent wealth generators, with stocks like CSL (ASX: CSL) skyrocketing more than 6000% since listing on the ASX 25 years ago. 

Over the past 20 years, the S&P/ASX Health Care Index has far outperformed the rest of the market, lifting 994% compared to the S&P/ASX 200's 121% over that same period. By a long shot, it has been the ASX's best-performing sector over the past 20 years.

And yet, while COVID-19 put our health back into the spotlight, healthcare stocks have been a mixed bag since then. Yes, the developed world's populations are ageing - which spells good things for healthcare companies, but many of the sector's former darlings are now on life support. 

So how can investors identify the companies with a clean bill of health?

To find out, Livewire's Ally Selby was joined by two healthcare analysts in Alphinity Investment Management's Stuart Welch and Yarra Capital Management's Marcus Ryan.

They share some of the trends they are seeing in terms of valuation, cost pressures, and supply chain challenges, whether investors need specialist knowledge to be successful when investing in the sector, and the one non-negotiable healthcare companies need to make their way into these fund managers' portfolios.

Plus, they also analyse three healthcare companies, including CSL (ASX: CSL), Ansell (ASX: ANN) and Sonic Healthcare (ASX: SHL), and each name their highest conviction stock pick within the sector.

Note: This episode was recorded on Wednesday 10 July 2024. You can watch the video, listen to the podcast or read an edited transcript below. 

Edited Transcript

Ally Selby: Hello and welcome to Livewire's Buy Hold Sell. I'm Ally Selby and today we're taking a deep dive into the healthcare sector. Many of Australia's greatest success stories have been healthcare companies, but since COVID, quite a few of those stocks have been on life support. So to find out which of these stocks have a clean bill of health, we're joined by Stuart Welch from Alphinity Investment Management and Marcus Ryan from Yarra Capital Management.

A lot of healthcare valuations have traditionally been more expensive than the rest of the market. Stuart, I'm going to start with you. With some of the pain that we've seen in this sector, is that still the case? 

Is the healthcare sector overvalued?

Stuart Welch: I think people have historically been attracted to healthcare because of the structural defensive growth, and whilst it was upended a little bit during COVID, I think that is still the case. We still see growing ageing populations, increasing chronic disease, and often a lot of new treatments that improve the standard of care. And so I think people are still attracted to those growth stories that can continue irrespective of the economic cycle.

Ally Selby: Over to you Marcus. How much value are you actually seeing within the healthcare sector today?

Marcus Ryan: The sector is trading on a higher PE premium relative to the market, and that's really reflecting investor expectations around the better growth of prospects. Overall, I would describe the healthcare sector today as being modestly cheap. Interestingly, the PE ratio, the premium relative to the industrial companies is around a 50% premium, and that compares to the historical average of around 60%.

We believe though that there's really a story within a story here. Using that same basis of relative PE, what's really interesting is that 10 of the 15 major healthcare companies are trading at higher PE multiples today relative to their historical average. So as we sit here today, we think dispersion in the sector is large and we are really focused on unique stock opportunities rather than the sector overall. 

Are there any headwinds facing the sector?

Ally Selby: As you mentioned there, we have seen quite a lot of dispersion in the healthcare sector, particularly when it comes to returns. A lot of those companies have been facing high costs as well as supply chain challenges. In your view, are we still seeing those headwinds today?

Marcus Ryan: I would say we are partially seeing those headwinds. What's interesting is we observe supply chain challenges across the sector. We're really noticing that it's evolving from being broad-based wage cost inflation pressures and product-specific shortages to now being more discreet issues like Red Sea shipping cost increases. We expect this to manifest when we think about the margin potential. 12 of the 15 major healthcare companies today are actually continuing to have margins below pre-COVID levels.

These issues could still provide a challenge to get those margins back. As you mentioned, FY24 was the year for stock dispersion within the healthcare space. In fact, while the sector put on almost 10% for fiscal '24, what was amazing is that the best returner Pro Medicus (ASX: PME), a healthcare technology company, jumped 119%. Whereas at the other end of the ledger, pathology names, actually dropped 25%. They were really hit hard with some of those inflation issues. So, moving forward, the key themes we are monitoring across the sector are AI, GLP-1s and how that'll impact the sector.

Ally Selby: Stuart, over to you. What are some of the major trends you're seeing right now in the healthcare sector?

Stuart Welch: So I think Marcus has touched on one of the key ones. I think it's margins. So as we came through COVID, there were COVID beneficiaries and COVID losers. Normally it's a very stable industry. We had the companies that were able to provide the pathology tests, for example, or respiratory systems for COVID patients winning. And some of the hospitals that were quasi-nationalised and CSL (ASX: CSL), for example, which couldn't collect plasma, struggle.

I think every company has been recovering at different stages, but I think in the last 18 months, they have been hit with margin pressures and that's been relatively universal across the space. And so I think that's one of the key trends in terms of trying to understand the performance of the sector - what's the outlook and trajectory for that margin recovery and how quickly that's going to come through relative to people's expectations.
Do you need specialist knowledge to be successful in healthcare investing?

Ally Selby: All the stocks in the sector are incredibly different. Do you feel like you need specialist knowledge to be able to be successful when it comes to investing in healthcare stocks?

Stuart Welch: Quite a few other sectors are a lot more homogenous. The healthcare sector is very heterogeneous. So firstly, you have the different sub-sectors, so you've got things like hospitals, pathology companies, radiology companies, aged care. But then also the three largest companies are leaders in various specific sub-segments like Cochlear's (ASX: COH) cochlear implants, sleep apnea for ResMed (ASX: RMD), and blood plasma products for CSL. Each one of those has very different fundamentals, and so it's very hard to apply a one-size-fits-all kind of approach to healthcare.

On top of that, it's not only the products they offer and the markets within which they operate, which are often highly regulated and vary country by country, but you also have to have an eye on the competitors. So it's often the product you don't know about that could upend some of these companies as well. So there's a lot to keep on top of, if you're not doing that full-time, I would suggest...

Ally Selby: ...Maybe not doing it at all. Do you feel like you need a medical degree or any kind of knowledge like that to be able to invest in these stocks?

Marcus Ryan: The answer to that would be definitely for the healthcare sector. Our investment process does lean into engagement with specialists and we find that's a really helpful part of the process, particularly for healthcare. When I think about specialist expertise, it could be with a prescribing physician who's close to patient trends. And what we've really found is that can often help identify and validate potential points of inflexion for businesses early on.

Today, consensus expectations are in excess of 15% profit growth for the healthcare sector over the next two years. That's really quite staggering compared to the last two years when the sector only generated 4% per annum earnings growth. And it's these specialist engagements that help to discern which companies will have the capacity to meet or beat those expectations. 

One non-negotiable when investing in healthcare stocks

Ally Selby: Okay. Marcus, one more question today before we get into buy, hold, sell. For you, what is one non-negotiable that you believe every healthcare stock needs for it to make its way into the portfolio?

Marcus Ryan: What we find really interesting when we look across the sector is that stocks are trading on anywhere from 15 times earnings to in excess of 100 times earnings growth. And what that says to us is a key ingredient is understanding the durability of revenue and the sustainability of earnings growth. That's our number one focus and I'd call that our non-negotiable.

In addition to that, I'd say before we actually put a new healthcare name into the portfolio, we're often asking the question, "Does this make sense from a portfolio perspective? Could there actually be a better stock outside of the healthcare space that makes better sense?"

And just finally and impressively when we think about the healthcare sector over the last decade in Australia, and this is actually quite staggering, the sales growth and the earnings growth from the healthcare sector per annum is in excess of three times the growth rate of what we've seen from ASX industrial companies. And it really encourages us with that active research to lean into the sector and to find the best stock ideas.

Ally Selby: Over to you, Stuart. What's your one non-negotiable when investing in healthcare stocks?

Stuart Welch: So it is something we apply to all of the stocks that we put in the portfolio. And what we're looking for is quality, reasonably valued companies that are in or entering an earnings upgrade cycle. These are companies where we think the earnings power has been underappreciated and earnings can come in ahead of expectations. We apply that lens across all companies that we invest in. And healthcare is no different. We do think that one of the key drivers of that over the next 12-18 months is going to be margins for some of the reasons we've talked about already. 

CSL (ASX: CSL)

Ally Selby: Let's get into buy, hold, sell now. First up today we have CSL, which is Australia's biggest healthcare company by a country mile. Stuart, going to start with you today. Is it a buy, hold or sell?

Stuart Welch (BUY): We think that one's a buy. It's a company that is yet to recover from COVID. Margins are still 800 basis points in their key business bearing below where they were pre-COVID. And it's been struggling with some of those inflationary cost pressures that we've been talking about in the healthcare space. One of the key drivers to improve that is the Rika system, which is a new plasma collection system. This will decrease the amount of time required to collect a donation but also increase the volume of donations that they can take from patients as well. And we do think that the rollout of that is going a bit faster than what people currently expect and that there's some margin upside from that as that comes through.

Ally Selby: Its share price has recovered around 12% over the past 12 months. Its share price is now trading back near $300. Marcus, is it a buy, hold or sell?

Marcus Ryan (SELL): For us, Ally, CSL today is more of a sell. We like parts of the industry that CSL operates in. We like parts of the business, and we like the management team, but what we just cannot get our heads around is the mispricing opportunity. Building on some of the margin comments that Stuart made, where we see things a little bit differently is we feel some of that margin upside story seems to be well captured by consensus expectations. When we also think about competing products and generic products, we sense that that's going to be an ongoing feature of the industry. And just finally, we feel it's actually a very well-loved stock. Interestingly, if you look at analyst reports, 12 of the 16 brokers covering CSL have it on a buy or a very strong buy. And we just think that limits the potential for positive news flow. 

Ansell (ASX: ANN)

Ally Selby: Okay, next up today we have Ansell, which sells protective equipment like medical gloves. Marcus, staying with you, is it a buy, hold or sell?

Marcus Ryan (BUY): For us, Ansell, a leading personal protective equipment company, is a buy. This is really predicated on a bunch of key points. We see the healthcare part of the business as returning to system growth as they rotate through COVID impacts. We like the cyclical upside potential from the industrial side of the business. Thirdly, we actually see the business quality and the earnings quality improved as a result of their April acquisition of the Kimberly Clark PPE business. And just finally, we think the valuation's attractive. The stock's trading at a PE discount relative to where it historically traded.

Ally Selby: Okay, its share price has fallen around 3% over the last 12 months, but most brokers rate it as a buy. Stuart, over to you. Is it a buy, hold or sell?

Stuart Welch (SELL): We would look at that as a sell. It's been getting some earnings downgrades. It's had, I think, earnings downgraded by 40-50% over the last couple of years. And actually, the first half was no different - earnings missed by about 40%. And the key issue is that these guys benefited greatly during COVID. They sold a whole lot of gloves. In fact, people ordered a lot more than they needed and have been stockpiling them. And that's been impacting the outlook for the business. And that first-half result was a 40% miss at the NPAT line. At some point that will normalise, but I think we'd need to see some evidence that that is normalising before we could get comfortable stepping into it to make sure there are no further earnings downgrades ahead of us.
Sonic Healthcare (ASX: SHL)

Ally Selby: Okay. Next up today we have Sonic Healthcare, which is a pathology services provider. Its share price has fallen around 25% over the last 12 months. Is there value there, Stuart, or is it a trap? Is it a buy, hold or sell?

Stuart Welch (SELL): That would also be a sell for us. It was a huge COVID beneficiary as well doing a lot of the pathology tests for COVID patients. And during that period, they were actually able to repay pretty much all of their outstanding debt, excluding leases. And what's happened subsequently is that they've been redeploying that capital into acquisitions that should drive growth. The underlying base business earnings power has been eroded through inflation. So they've got a fixed reimbursement from the government. And as those higher costs have come through, that's eroded the margin of the underlying business. We've seen that as some of those COVID tests have receded. And so I think we would again just need to see a bit more evidence that those inflationary pressures are under control and that the margins have stabilised before we could get comfortable investing in Sonic.

Ally Selby: That said, most brokers rate the stock or buy, or at least on the system that I was looking at. Marcus, over to you. Is it a buy, hold or sell?

Marcus Ryan (HOLD): For us Ally, Sonic would be more of a hold at this point in time. The challenge we have at the moment is just trying to understand, particularly the pathology industry, how it actually can lift margins back anywhere close to where they were pre-COVID. Building on some of the themes that Stuart touched on, what we're observing at the moment is volume demand for pathology services is still quite sluggish. We're seeing the cost pressures linked to labour costs still inflated. And while some of the acquisitions we would say look pretty good on the surface, the overall earnings trajectory is still challenged. And as a result of that, we have to be a hold.

Ally Selby: Okay, we asked our guests to bring along their highest conviction healthcare stock today. Really excited for this one. Marcus, I'm going to start with you. What stock are you backing? 

ResMed (ASX: RMD)

Marcus Ryan (HIGH CONVICTION BUY): Our key pick in the sector is the sleep apnea treatment leader, ResMed. For us today, we see the real opportunity centring around the concern that the increased prevalence of GLP-1 drugs could erode ResMed's market opportunity moving forward. We've done a tonne of calls over the last couple of weeks, building on the specialist knowledge question from earlier, to try to understand what physicians are saying and what patients are doing. And frankly, we're getting a picture back from these experts that is very different to what's embedded in the current share price and frankly, very positive for ResMed.

So what we're hearing back from the sleep practitioners, and the weight loss practitioners, is that CPAP - which is the treatment that ResMed put forward to sleep apnea - is still the primary solution for sleep apnea. The other thing we're observing is that GLP-1s, if anything, are just increasing the treatment awareness for sleep apnea.

We see ResMed as the key mispricing opportunity in the large-cap healthcare space. We like the market opportunity. There's a tonne of penetration opportunity for the company. It's the market leader. We still see high single-digit EBITDA growth over the next few years. And the stock's trading at a tremendous discount PE relative to the past.

Ally Selby: Okay. Over to you, Stuart. Your time in the hot seat. What's your highest conviction healthcare stock right now? 

Cochlear (ASX: COH)

Stuart Welch (HIGH CONVICTION BUY): It would be Cochlear. So Cochlear produces cochlear implants to improve hearing. Their key market is the adult market. They've always had a huge addressable market. The challenge for Cochlear has been unlocking that, and system growth has been reasonable in the low mid-single digit range.

Under the current CEO, they've put a whole bunch of long-term growth initiatives in including medicalizing hearing loss, putting in standards of care, seeing studies come through that link hearing loss with accelerated dementia, and a bunch of initiatives to try and free up clinic capacity and operating theatre capacity to be able to service those patients as well.

We think a lot of those long-range initiatives are starting to bear fruit and we're actually seeing an acceleration in system growth, which we think can move further as well. And that's really the key driver for Cochlear, which is the leader in the space. They own that space. They've got a 65% market share, they invest far more in R&D than anybody else and they've got a far superior product suite. And we see more of that coming, which further extends their lead, but also helps free up the industry to grow more as well.

Ally Selby: Well, I hope you enjoyed that healthcare special of Buy Hold Sell as much as I did. If you did, why not give it a like? Remember to subscribe to our YouTube channel. We're adding so much great content just like this every single week.

Here is the link:

https://www.livewiremarkets.com/wires/buy-hold-sell-2-high-conviction-healthcare-winners-for-fy25

I can confess I have holdings in most of these – and am certainly not equipped to offer share purchase advice – but I reckon each of these is worth a close look!

Make up your own mind and seek your own advice!

Overall I reckon the healthcare sector is quite investable as part of a properly diversified portfolio – if you have a few spare dollars available!

David.

Surely If They Were Implemented Usefully The Healthcare Identifiers Would Have Been Adopted Long Before This?

This appeared last week:

Raising healthcare identifiers adoption in Australia

The Australian Digital Health Agency has outlined specific steps to increase the uptake of healthcare identifiers across health facilities.

By Adam Ang

July 11, 2024 07:12 PM

The Australian Digital Health Agency has released a five-year roadmap for raising the uptake of national healthcare identifiers in Australia.

Developed with the Department of Health and Aged Care and Services Australia, the National Healthcare Identifiers Roadmap 2023-2028 outlines specific actions to take for the broad adoption of healthcare identifiers, which are unique numbers used to identify individuals, healthcare provider individuals, and healthcare provider organisations. These identifiers are issued through the national system, HI Service, operated by Services Australia.

WHY IT MATTERS

The federal government envisions a future where national healthcare identifiers are readily available and universally used by all individuals and healthcare providers in all health information exchanges and digital health projects involving health information sharing. It also aims to reduce or eliminate the mismatch in individuals' identification; streamline the management of identifiers and associated documents, such as digital certificates; and enable individuals to use identifiers to control their information and manage their privacy.

"Increased adoption of the national healthcare identifiers will mean Australians will avoid having to retell their story as they move across the health system," Simon Cleverley, assistant secretary of Digital Health at DoHAC, explained. 

"Access to information in real time will also support healthcare providers to make well-informed clinical decisions and care plans."

In the coming years until 2028, the government will pursue the activities outlined in the roadmap, focusing on legislative changes, service improvements, technical updates, and operational enhancements.

It seeks to reform the HI Act, which implements the national system for assigning unique healthcare identifiers; publish a federal government policy position on HI Service adoption; develop a simple guide to the HI Act; create a template of policies and guidelines on healthcare identifiers use; and issue a policy on healthcare identifiers use in consumer applications. 

Work to improve the HI Service includes enhancing data matching (including for Aboriginal and Torres Strait Islander peoples) and data quality, reviewing existing messages and responses, improving search considerations, creating individual healthcare identifiers for newborns, and enabling consumers to enter or verify registration data and easily update their information.

On the technical side, the government seeks to create guidance for organisations on appropriate structures, the conduct of a conformance review and update of the HI Service, the update of its technical standards, the extensibility of the HI Service architecture, and the development of guidelines on clinical systems architecture and functional requirements.

To improve operations, a stakeholder engagement and communication plan and educational materials for the HI Service will be developed. There will be a review of support arrangements and monitoring and feedback processes and the continuous improvement of the HI Service. Finally, there will be a review and update of the HI Service's governance structure and processes.

THE LARGER CONTEXT

The creation of the National Healthcare Identifiers Roadmap is part of actions outlined in the National Healthcare Interoperability Plan 2023–2028. The plan also seeks the wide uptake of healthcare identifiers "to enable a connected and interoperable health system where every person, healthcare provider, and organisation can be accurately and quickly identified." 

Also part of the ADHA's Interoperability Plan is collaborating with industry. In 2022, the agency partnered with Health Level Seven Australia to raise the adoption of FHIR standards across the Australian health system. 

ON THE RECORD

"Healthcare identifiers are the linchpin for safe, secure, and seamless information sharing across the nation’s healthcare system in near real time. They are central to the evolution of digital health and will empower Australian healthcare consumers to have continuous care across all healthcare facilities in every corner of Australia,” Peter O’Halloran, chief digital officer at ADHA, said in a media statement.

Here is the link:

https://www.healthcareitnews.com/news/anz/raising-healthcare-identifiers-adoption-australia

What is not mentioned here is that use of Healthcare Identifiers have been facilitated by the  HEALTHCARE IDENTIFIERS ACT 2010 so that the system is now 14 years old. Surely if it was so usefully implemented it would have been fully adopted by now? How can we still be developing an implementation plan from 2023-2028!

Here is the link to the Act:

http://www8.austlii.edu.au/cgi-bin/viewdb/au/legis/cth/consol_act/hia2010199/

The ADHA really needs to research just what they are doing wrong that is meaning that the system is not universally used after this length of time!

The outcome of that research would be fascinating given the obvious benefits of a national system! Right now it looks like a spectacular farce!!!

Why do you think most seem to just ignore the service?

David.

 

AusHealthIT Poll Number 755 – Results – 14 July 2024.

Here are the results of the poll.

Do You Believe President Joe Biden Is Past His Use-By Date And Should Retire At The End Of The Year?

Yes                                                                             22 (81%)

No                                                                                 5 (19%)

I Have No Idea                                                             0 (0%)

Total No. Of Votes: 27

A very clear cut vote suggesting it is really time for Joe to go!

Any insights on the poll are welcome, as a comment, as usual!

A very good voting turnout. 

0 of 27 who answered the poll admitted to not being sure about the answer to the question!

Again, many, many thanks to all those who voted! 

David.

It Is A Pity We Can Fix The Body Rather More Effectively Than We Can Fix The Brain!

This appeared a few days ago:

Peggy Noonan

Joe Biden can’t spin his way out of this

July 4, 2024

We are living big history. We do that so often we don’t always notice. But a proud president is hunkered down in the White House, and his party is frantically trying to decide whether to press him to step aside from his bid for re-election after a catastrophic 90 minutes revealing that he is neurologically not up to the demands of a campaign or a second term. (And revealing, too, that his true condition, the depth of his decline, had been kept, quite deliberately and systematically, from the American people. Oh, the histories that will be written, and the villains that will be named.)

To me it feels like August 1974. The president’s position isn’t going to get better, it is going to get worse. The longer he waits to step aside the crueller his departure will be.

The post-debate polls show he is losing support both overall and in the battlegrounds. A cratering like that doesn’t happen because you had a bad night, or a cold, or were tired. It happens when an event starkly and unavoidably shows people what they already suspected. It happens when the event gives them proof.

Before the debate a majority of those polled said they no longer thought he had it in him physically or mentally to do the job of president anymore. After the debate that number reached 72%. You can’t un-ring that bell.

There’s no repairing this. His staff can’t spin or muscle their way out. He is neurologically compromised, we can all see it, it isn’t his fault. You have no governance in how you age and at what speed, or what illnesses or conditions arise. You only have governance in what you do about it.

Those who support the president offer suggestions on conference calls. “Just get him out there—long, live interviews, lots of news conferences, a big rally in the round with Q&A from the voters.”

They don’t know what they’re talking about. He can’t do what they want him to do. He can’t execute it. He tried to do it last week—the debate was, in effect, a live, high-stakes interview. He won’t be able to do it next week or next month either. Old age involves plateaus and plummets. It gets worse, not better.

The president’s staffers fantasize that they can plow ahead with teleprompter events—he looks stronger at the podium. But no one doubts he can stand and read. His staffers think they can smooth past things with supportive interviews with sympathetic journalists, but that won’t work either, not long term. Because everyone saw the debate, or, since, has seen pieces of it, and the image of a debilitated president has burned its way into the American brain and there’s no erasing it.

A big part of the president’s personal mythos, and it is shared by all of Biden-world, is that the guy’s a survivor, he always pulls through, you knock him down, he gets back up. An inner belief like that can get you far and gird you. But it can also harden into mere conceit and unrealism, and blind you to the real facts of current circumstances.

I don’t agree with the narrative that what was revealed in the debate was a sudden and dramatic decline. What he has been showing, for at least two years, is a steady and unstopping decline. In January 2022 we worried here about the president’s propensity for “unfinished sentences, non sequiturs; sometimes his thoughts seem like bumper cars crashing and forcing each other off course.” In April 2022 we wrote of a poll in New Hampshire that asked if Joe Biden was physically and mentally up to the job if there is a crisis. Fifty-four percent said, “not very/not at all.” In June 2022 we said there’s a broad sense it’s not going to get better: “He has poor judgment and he’s about to hit 80 and it’s not going to change.” Voters feel “unease.” In December 2022: Mr. Biden doesn’t think he’s “slipping with age,” but he’s wrong. “He’s showing age and it will only get worse, and he will become more ridiculous, when he’s deeper into his 80s.”

Trusted Biden intimates must tell him to get out of the race. “You got rid of Donald Trump. You got us out of Afghanistan. You passed huge FDR-level bills that transformed the social safety net. . . . You did your job in history. You fulfilled your role. And now you should go out an inspiration.”

In September 2023 Mr. Biden had been busted in the press for telling tall tales that didn’t check out. We noted that while repeated lying is “a characterological fault, not knowing you’re lying might suggest a neurological one.” “The age problem will only get worse.” “In insisting on running he is making a historical mistake. . . . He isn’t up to it.”

What we saw in the debate isn’t new. That’s why voters won’t accept the idea that it was just a bad night. They think it’s been a bad and worsening two years.

small a thing for such big history. In any case it isn’t about one man’s personal needs, or his family’s enjoyment of importance and the blessings of proximity to power. It isn’t a party question or a White House question, it’s about America. Can America afford for another four years to have an obviously neurologically impaired president? No, it isn’t safe. It is on some level provocative. Weakness provokes. The president’s rationalizers point out that he’s fine from 10 a.m. to 4 p.m. I am sure presidents Xi of China and Putin of Russia will only decide to take back Taiwan or move on Poland at lunch time EST, to keep things fair. Why wouldn’t they schedule their aggressions around the president’s needs?

The elected officeholders of the Democratic Party should take responsibility and press the president to leave. You can’t scream, “Democracy is on the line,” and put up a neurologically compromised candidate to fight for it. They haven’t moved for two reasons. One has to do with their own prospects: You don’t want to be the one who kills the king, you want to be the one who warmly mourns the king and takes his mantle after someone else kills him. The other is fear of who would replace him on the ticket, and how exactly that would happen.

Journal Editorial Report: Democrats now face a hard choice.

These are understandable fears. But the answer isn’t to hide in a dumb fatalism, a listless acceptance of fate. It makes no sense to say, “Joe Biden is likely going to lose so we should do nothing because doing something is unpredictable.” Unpredictable is better than doomed.

This is a party afraid of itself, literally afraid of its own groups and component parts. They are afraid of their own delegates. Party professionals think letting the convention decide would reveal how fatally shattered and divided the party is—how wild it is. But that’s how the party looks now, with its leaders in Washington frozen and incapable and no one in charge.

What a tragedy this is. A president cratering his historical reputation, his wife and family ruining any affection history would have had for them when Donald Trump wins. They have no idea how they’re going to look.

The Wall Street Journal

Here is the link:

https://ww.theaustralian.com.au/business/the-wall-street-journal/joe-biden-cant-spin-his-way-out-of-this/news-story/4aa98eaa872748ac8ee69a94bb6071dc

To come right to the point Joe Biden has seen (much) better days and needs – for all our sakes – give up the Presidency rather than thinking he can go on for four more years

Joe Biden is well past his prime and over the next four years will just get worse – dementia / cognitive decline is not something that improves – without a specific remediable cause—and so we can assume it will just get worse.

Joe needs to simply sign off and let someone else steer the ship. He is a good man, and was a good president- time to rest and sleep more!! To go on is frankly wrong.

Sadly we do not have a system that manages this issue well – food for thought I reckon. It is really hard to know when your time is up - and even harder to accept it!

David.

It Looks Like A review Of The myHR Procurement Has Found Lots Of Problems!

This appeared last week:

05/07/2024  09:34

The logical sequel to procurement, probity and ethics is … this NEW Audit Committee inquiry into Contract Management!

Parliament of Australia

The Joint Committee of Public Accounts and Audit (JCPAA) has commenced an inquiry into the contract management frameworks operated by Commonwealth entities.

The Chair of the JCPAA, Mr Julian Hill MP, said that “recent major inquiries into Commonwealth Procurement and Probity and Ethics revealed serious failings. Recent audit reports have highlighted similar issues ‘downstream’ of procurement in how agencies manage contracts once executed. The Committee will examine whether the frameworks supporting contract management by various Commonwealth entities are fit for purpose to ensure project delivery.”

Mr Hill noted in this regard that “successful outcomes are very unlikely to be achieved from Government procurement activities without effective contract management. This is therefore a vital capability for public sector agencies but one that commonly goes under the radar and is often lacking for a number of reasons.”

He further commented that “we will be carefully evaluating the levels of expertise, governance arrangements, record-keeping, performance measures, and policies and guidelines of a number of recently audited agencies with respect to their external contracts. There are also ongoing probity issues which arise during the management of a contract and the Committee will consider whether current frameworks and practices are fit for purpose.”

The inquiry will have particular regard to any matters contained in or connected to the following Auditor-General Reports:

• Auditor-General Report No. 21 2023–24 Management of the Australian War Memorial’s Development Project 
• Auditor-General Report No. 36 2023–24 Procurement of My Health Record 
• Auditor-General Report No. 37 2023–24 Administration of the Adult Migrant English Program contracts 
• Auditor-General Report No.47 Defence's management of contracts for the supply of munitions: Part 1
  [This audit has been conducted in two parts and Part 2 is currently expected to be tabled in the Parliament in November 2024] 

• Defence’s procurement and implementation of the myClearance system (due to table in July 2024) 

Submissions to the inquiry addressing the above terms of reference are invited by Thursday, 15 August 2024. Details of this inquiry – including the submissions received and public hearings – will be available on the inquiry website.

Media inquiries

Mr Julian Hill MP, Chair of the Joint Committee of Public Accounts and Audit on
(03) 9791 7770 (Electorate Office) or via Laura Hooper 0422 85 1127.

For background information

Committee Secretariat
02 6277 4615
jcpaa@aph.gov.au

For more information about this Committee, you can visit its website. On the site, you can make a submission to an inquiry, read other submissions, and get details for upcoming public hearings. You can also track the Committee and receive email updates by clicking on the blue ‘Track Committee’ button in the bottom right-hand corner of the page.

Here is the link:

https://newshub.medianet.com.au/2024/07/the-logical-sequel-to-procurement-probity-and-ethics-is-this-new-audit-committee-inquiry-into-contract-management/56301/

Specifically on the myHR we have:

Procurement of My Health Record

Published  Wednesday 12 June 2024

Portfolio Health and Aged Care

Entity Australian Digital Health Agency

Contact Please direct enquiries through our contact page.

Activity Procurement

Sector Health

Why did we do this audit?

• My Health Record (MHR) is a national public system. It aims to improve the availability and quality of health information, and the coordination and quality of health care.
• It is estimated that $2 billion has been invested in the MHR system.
• Procurement and contract management relating to large public-interfacing IT systems involve unique and elevated risks.

Key facts

• Approximately 23.8 million Australians have a My Health record.
• Accenture has been contracted as the National Infrastructure Operator (NIO) of MHR since June 2012.
• The Australian Digital Health Agency (ADHA) has been responsible for MHR since 2016.
• ADHA varied the NIO contract with Accenture eight times between 2018 and 2023.

What did we find?

• ADHA’s procurement and contract management of the MHR NIO contract has been partly effective.
• ADHA’s governance framework for procurement and contract management is largely fit for purpose.
• ADHA’s management of the NIO contract has been partly effective.
• ADHA has not conducted procurements of the MHR NIO effectively.

What did we recommend?

• There were 13 recommendations to ADHA. They related to management of risk, contract variations and records; review of contractor deliverables; assurance over system architecture documentation; procurement planning and decision-making; probity policies and practices; and AusTender reporting.
• ADHA agreed to 12 recommendations and agreed in principle to one recommendation.

$699 m was added to the MHR NIO contract with Accenture through contract variations since 2012.

72% of ADHA expenditure on MHR national infrastructure service providers (2018–19 to 2022–23) was to Accenture.

55% of ADHA business area reviews of Accenture monthly operations reports were conducted in accordance with requirements in 2023.

Summary and recommendations

Background

1. My Health Record (MHR) is a national public system for making health information about a healthcare recipient available for the purposes of providing healthcare to the recipient.¹ The My Health Records Act 2012 (MHR Act) states that the goals of MHR are to overcome fragmentation and improve the availability and quality of health information; reduce adverse medical events and the duplication of treatment; and improve the coordination and quality of health care provided by different healthcare providers.²

2. The Australian Digital Health Agency (ADHA) was established as a corporate Commonwealth entity in 2016, at which time it became MHR system operator.

3. MHR ‘national infrastructure’ is comprised of the IT systems and support enabling the flow of information in and out of the MHR system. The Department of Health and Aged Care and ADHA used IT supplier contracts to implement MHR national infrastructure. The largest contract is for the National Infrastructure Operator (NIO), which is responsible for operation, maintenance, support and integration of MHR national infrastructure.

4. The NIO contract was first executed with Accenture Australia Holdings Pty Ltd (Accenture) on 27 June 2012 for a total value of $47 million to 30 June 2014. As at February 2024, arrangements with Accenture totalled $746 million for MHR NIO services between 2012 and 2025.

Rationale for undertaking the audit

5. The Australian Digital Health Agency reports that approximately 23.8 million Australians had a My Health record as at March 2024.³ It is estimated that $2 billion has been invested in the My Health Record system.⁴

6. There has been parliamentary interest in government procurement.⁵ Procurement of large public IT systems can raise risks relating to obsolescence, security and interoperability. This audit provides assurance to the Australian Parliament about whether ADHA has effectively managed MHR procurement.

Audit objective and criteria

7. The objective of the audit was to assess the effectiveness of the Australian Digital Health Agency’s procurement and contract management of the My Health Record National Infrastructure Operator.

8. To form a conclusion against the objective, the ANAO adopted the following high-level criteria.

• Does ADHA have a fit-for-purpose governance framework for contract management and procurement?
• Has ADHA managed the My Health Record National Infrastructure Operator contracts effectively?
• Has ADHA conducted procurements of the My Health Record National Infrastructure Operator effectively?

Conclusion

9. ADHA’s procurement and contract management of the My Health Record National Infrastructure Operator has been partly effective. Effectiveness has been diminished by poor procurement planning and failure to observe core elements of the Commonwealth Procurement Rules.

10. ADHA’s governance framework for contract management and procurement is largely fit for purpose. There are policies and guidance for procurement and contract management, although probity guidance could be improved. Management and oversight arrangements for procurements and contract management are largely appropriate. Internal audit coverage of procurement has been limited.

11. ADHA’s management of the National Infrastructure Operator contract has been partly effective. The identification and assessment of commercial risk has been limited. The effectiveness of day-to-day administration of the contract is diminished by contract management planning that is not fully fit for purpose. Contract variations within the existing contract term have been made with insufficient assessment of risk, consideration of materiality and justification of value for money. The management of contract performance has not utilised all available levers under the contract.

12. ADHA has not conducted procurements of the National Infrastructure Operator contract effectively. ADHA’s planning and decisions about how to approach the market for the contract in 2019 and 2022 were deficient. For both sole source limited tender procurements, ADHA’s conduct of limited tender processes under Division 1 of the Commonwealth Procurement Rules (including demonstrating value for money, managing probity and public procurement reporting) was also deficient.

----- End Extract – more at the link:

I think it is fair to say this is not a clean bill of health for the ADHA is procuring myHR goods and services by a long way.

In summary the ADHA needs to do a great deal better with our money.

Pity no one ever gets reprimanded or fired as our money is just not spent and managed as it should be!

Hopeless for the public interest. Lots of words but little change and! improvement apparently!

David.