3 small-cap healthcare shares I think could be tomorrow’s blue chips

Headquartered in Melbourne, CSL Limited (ASX: CSL) has been one of the country’s great medical success stories. Originally founded over a century ago, CSL has grown into a global biotechnology company and an industry leader specialising in the treatment of rare and serious diseases as well as the development of influenza vaccines. 

In its FY18 results released earlier this month, CSL announced that it had exceeded its own guidance, delivering full year net profit of $1.73 billion, an uplift of 29% on the prior year. The company expects continued growth and margin expansion into FY19 and forecast net profit for next year to be in the range of $1.88 billion to $1.95 billion. 

The CSL share price is up almost 60% this calendar year and shows no sign of stopping in its steady march higher. The company’s share price was at $224.43 when the market closed on Friday afternoon.

Long term investors have been rewarded handsomely for their faith in the biotech company: those who bought CSL 5 years ago would have seen their holdings more than triple in value by now. 

Needless to say, getting in early with a company like CSL can bring rich rewards. Here are three small cap biotech firms listed on the ASX that may grow into the next CSL. 

  1. Cynata Therapeutics Ltd (ASX: CYP) 

Cynata is an Australian stem cell research company. It has developed its own proprietary technology called Cymerus based on research conducted at the University of Wisconsin-Madison. The technology seeks to address a number of issues affecting commercial stem cell production, including difficulties harvesting stem cells from adult donors.  

Cynata’s Cymerus technology, while still in its clinical trial phase, can source all of its cells from a single adult donor. It claims that this will increase clinical predictability and cut down on manufacturing costs. It also makes it a more commercially scalable stem cell technology. 

Revenues from ordinary activities for FY18 were $1.5 million, slightly down on the $1.8 million in FY17. Cynata posted a net loss of $4.5 million for FY18, which was pretty flat against FY18. Cynata shares were valued at $1.295 when the market closed on Friday afternoon, meaning they are up over 100% this calendar year.     

  1. Opthea Ltd (ASX: OPT) 

Headquartered in Canada, Opthea is a biotechnology company specialising in the treatment of eye conditions. It owns a portfolio of IP developed to treat age-related macular degeneration, which Opthea claims is the leading cause of blindness in the Western world. The company is also developing treatments for blindness related to diabetes. 

The company is in the late stages of its clinical trial processes, and has recently dosed patients to test the safety and efficacy of these treatments in humans. If results of the trial are positive, Opthea could wind up with a medical product that meets rising global demand. 

The Opthea share price is down about 16% for this calendar year, although it has made a significant recovery since hitting a 12 month low of 41.5 cents late May. It now trades at 59 cents per share. 

  1. Nanosonics Ltd. (ASX: NAN)  

Significantly larger by market cap than the other two companies on this list, Nanosonics specialises in the development of high level disinfection for medical ultrasound probes. Ultrasound is widely used in many different branches of medicine, including oncology, cardiology, gynaecology, and obstetrics. 

Nanosonics has developed its own proprietary device called trophon, which is an automated solution for ultrasound probe disinfection. This technology aims to meet growing global demand for better disinfection tools in response to stricter medical practice guidelines in many countries. Nanosonics now operates in North America, Canada, the UK and across Europe. 

Earlier than anticipated regulatory approval of its trophon2 technology – while good news for the company in the long run – hurt revenues in FY18. Nanosonics stated that many of its clients were running down their inventories of the trophon or delaying new purchases until the official launch of trophon2. Consequently, annual revenues for FY18 were down 10% against FY17 levels. 

The market showed faith in Nanosonics, with its share price gaining 6% over the last week to reach $3.71 on Friday afternoon. Overall this calendar year the Nanosonics share price is up over 30%.     

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Motley Fool contributor Rhys Brock owns shares in Nanonsonics. The Motley Fool Australia owns shares of and has recommended Nanosonics 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.

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