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3 high risk microcap stocks with huge potential

This week’s 4th Annual Australian Microcap Investment Conference showcased a number of up-and-coming companies from a diverse range of industries. The companies ranged in size from the minnow Leaf Energy (ASX: LER) with a market capitalisation of just $3 million to NewSat (ASX: NWT) which has a market capitalisation approaching $300 million.

One of the great advantages which individual investors have over fund managers and institutional investors is the ability to buy into very small and illiquid companies. With relatively fewer investors searching through the ‘microcap’ market looking for opportunities, this can create a number of overlook and mispriced opportunities. Here are 3 companies which presented at the conference and that are developing exciting technology with significant end market applications.

1)  Biotron (ASX: BIT) is a mid-stage drug development company focussing on the treatment of Hepatitis C as well as the treatment of HIV. The lead drug has shown pleasing results from phase 2 trials with management positioning the drug to have strong licensing appeal, which if commercially successful would likely be worth many multiples of the current $20 million market capitalisation of Biotron.

2)  Regeneus (ASX: RGS) is a regenerative medicine company. The company’s Chief Executive Officer Professor Graham Vesey is also the founder of the recently listed $44 million dollar firm. Regeneus has 3 main product platforms that are being developed to treat a range of musculoskeletal and other inflammatory conditions in both humans and animals. Its flagship product was launched in 2011 and has so far been used to treat over 800 joints across 350 patients.

3)  Anteo Diagnostics (ASX: ADO) is developing a surface coating which can be used as a ‘molecular glue’ to attach biomolecules. The firm, which has a market capitalisation of $46 million is chaired by Mr Mark Bouris of television show The Apprentice fame and who is also Executive Chairman of financial services firm Yellow Brick Road (ASX: YBR). Over the past 13 years over $38 million has been invested in developing the ‘glue’ technology known as ‘Mix&Go’ with the company entering into a number of commercial licenses.

Foolish takeaway

Despite huge potential each of the above named biotech firms also have significant risks. The risks come in many forms but include ‘execution’ risk – in other words that a product is ultimately developed and commercially successful, and ‘financing risk’ – that the company can ultimately secure the funding necessary to either take a product all the way through to commercialisation or remain afloat until it is bought out.

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Motley Fool contributor Tim McArthur owns shares in NewSat Ltd.

 

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