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Could this be the best ASX healthcare stock in 2020?

Rhys Brock
Doctor with stethoscope in hand and data graph showing upward trend

Shares in ASX healthcare company Polynovo Limited (ASX: PNV) have been on a tear recently. Since the beginning of this year, Polynovo’s share price has surged over 55% to $3.07 as at the time of writing.

But the charge really began a lot earlier than 2020: longer-term shareholders who have held Polynovo for at least 12 months are now sitting on gains of well over 300%.

Why is Polynovo’s share price skyrocketing?

Polynovo is a junior healthcare company which specialises in the development of biodegradable medical devices to aid in tissue repair. Its flagship medical technology is called NovoSorb, which was originally developed by the CSIRO. It is a medical grade polymer designed for use in surgery, tissue repair, and other medical procedures and will safely biodegrade and be excreted by the body.

Novosorb BTM is the first fully commercialised Novosorb product developed by Polynovo. It is a synthetic polymer matrix that clinicians can use to treat serious burn victims. The polymer can be applied to burns and trauma sites on the body and will encourage the construction of new skin tissue, before being eventually absorbed and excreted, leaving only biological material behind.

The reason behind Polynovo’s share price growth is the underlying momentum of the company. The last couple of months have been very strong for Polynovo. In early January it announced that December was the first month in which it had generated more than $2 million in sales. And while CEO Paul Brennan warned that sales could continue to be “lumpy”, it was still a significant milestone for Polynovo, especially considering that the first time the company had generated $1 million in sales in a single month was as recently as April 2019.

Sales growth could continue to accelerate throughout 2020 as Novosorb breaks into new overseas markets.

Soon after, Polynovo also announced that Novosorb BTM had been used in surgical operations in the UK, Germany and Switzerland, and that orders had also been placed for the product in Austria.

Plus, Polynovo has already entered the US market. In a recent interview with Alan Kohler, Paul Brennan stated that Polynovo was supplying various hospitals in the US, and last year the company announced it had been granted access to the US Department of Defence.

In the same interview with Alan Kohler, Paul Brennan laid out his aggressive growth strategy, which should please long-term investors. Although Brennan confirmed that Polynovo had delivered a number of profitable months recently, he stated he was more inclined to invest that money back into the business rather than necessarily announce an overall profit for the half year.

While this strategy might turn off short-term investors seeking an earnings surprise from Polynovo’s half-year results announcement (which is due at the end of the month), it should reassure shareholders that management has the longer-term goals of the company in mind when making business decisions.

Foolish Takeaway

Along with other junior healthcare companies like Paradigm Biopharmaceuticals Limited (ASX: PAR), Medical Developments International Limited (ASX: MVP) and Opthea Limited (ASX: OPT), Polynovo is an exciting investment prospect. It has already commercialised its biotechnology, is expanding globally and is pursuing an aggressive growth strategy.

This isn’t to say it isn’t risky. It is still a young company with a short track record, and there is always the chance its technology will be superseded by something else. It should also be noted that a few uses of its product in Germany and Switzerland doesn’t necessarily mean it will be adopted by hospitals all across Europe.

But for those investors wishing to take some degree of risk and back a growing healthcare company, Polynovo makes for an attractive investment. Novosorb is an exciting technology with potentially wide medical applications, and its growth story is difficult to ignore.

The post Could this be the best ASX healthcare stock in 2020? appeared first on Motley Fool Australia.

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Rhys Brock owns shares of Medical Developments International Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Medical Developments International Limited. The Motley Fool Australia has recommended Medical Developments International Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020