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Why has Next Science stock tripled since its April IPO?

In April this year, medical technology business Next Science Ltd (ASX: NXS) hit the ASX boards after doling out 35 million shares to investors at the initial public offering (IPO) stage at just $1 per share.

After a business update released today, the company’s stock is up 13% to an incredible $3.15 to deliver the IPO investors a whopping 210% gain in just over a month. The company now has a market value of around $564 million, or $921 million if we include the 113 million shares escrowed off market into its valuation. Notably, the shares are only escrowed until April 2021 so investors should consider this when weighing up whether the stock represents any value.

Driving the wild excitement over the business is that Next Science already has four anti-bacterial FDA-approved products (used to treat common wounds or lacerations) in the US market under its ‘Xbio Family’ generic label. Like any good speculative biotech, it also has multiple new products in the pipeline for potential FDA approval and commercialisation. It also has an acne treatment product it expects to launch in Australia in the second half of 2019.

In fairness, Next Science isn’t all speculative as it is already bringing in revenues via its approved products and sales are growing strongly, albeit off small bases. Today’s update was also somewhat vague, although it appears over the 2019 calendar year to date, two of its products (BlastX and Bactisure) have delivered sales of around US$1.65 million.

As such, I must admit to not knowing why investors are driving Next Science’s valuation so high, but I doubt anyone who invested in the IPO is complaining.

Other more established businesses in the med-tech device and software space, respectively, to consider are Nanosonics Ltd. (ASX: NAN) or Pro Medicus Limited (ASX: PME).

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Tom Richardson owns shares of Pro Medicus Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Pro Medicus Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Nanosonics Limited. The Motley Fool Australia has recommended Nanosonics Limited and Pro Medicus Ltd. 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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