Everyone’s portfolio should have some healthcare exposure. Since people tend to regard healthcare as a non-discretionary spend, healthcare companies’ profits are largely unaffected in an economic downturn. This means they can provide great diversification benefits to your portfolio during times of uncertainty.
And with large barriers to entry for new companies trying to enter the sector, once a mature company has carved out a niche for itself it is generally able to defend its market position.
Just look at global leaders like CSL Limited (ASX: CSL) and Cochlear Limited (ASX: COH) which have both delivered stellar returns to shareholders over the last few years by reinvesting much of their profits back into research and development.
But healthcare is also an exciting sector to invest in because it’s so diverse. While CSL and Cochlear may be leading in their fields, there are still plenty of unaddressed markets for smaller companies to break into.
So, here are three such companies looking to carve out their own niches – and that might even grow into tomorrow’s CSL or Cochlear.
Zoono Group Ltd (ASX: ZNO)
This little-known ASX small cap biotech company has enjoyed a great start to 2020, with its share price soaring 165% year-to-date.
Zoono manufactures and distributes environmentally friendly and non-corrosive antimicrobial surface and skin sanitisers. When sprayed on surfaces or applied to skin, its product leaves behind a microscopic polymer layer of “pins” that attract and pierce the cell walls of pathogens, killing them and preventing mutation. It can continue to work for up to 30 days after being sprayed on surfaces.
Zoono is one company that has actually benefited from global fears around the spread of coronavirus. The company’s website currently says it is experiencing such high demand that customers need to allow 7-10 business days for Zoono to pack their orders.
In response to the coronavirus outbreak, Zoono issued a statement stating it was confident that its products could be part of the solution to fighting the spread of the disease.
Zoono’s product has been sent to Germany to be tested for effectiveness against the latest strain of coronavirus, with the outcome expected to be announced to the market in March – expect a further share price bump if the tests are successful.
Nanosonics Ltd. (ASX: NAN)
Nanosonics is another healthcare company that has had a strong start to 2020, with its share price up close to 15% so far this year.
Nanosonics operates in a not too dissimilar field to Zoono: it specialises in the development of hospital grade disinfectant solutions, with a particular focus on ultrasound equipment. Although we typically associate ultrasounds with obstetrics, this equipment has a wide range of medical applications and is also used in oncology, cardiology and gynaecology.
The company’s FY19 results were strong across the board, with revenue up 39% year-on-year to $84.3 million and operating profit after tax up 137% to $13.6 million. Most of its revenues came from its North American operations which grew by 41% to $76.5 million, but Nanosonics also expanded its presence in both Europe and the Middle East and Asia Pacific, where annual revenues grew by 27% and 21%, respectively.
Paradigm Biopharmaceuticals Ltd (ASX: PAR)
Paradigm is another interesting company operating in the healthcare space. It specialises in the treatment of inflammation related to osteoarthritis.
According to information provided in Paradigm’s most recent quarterly results, over 100 million people across the United States, Europe and Japan suffer from osteoarthritis, so there is a large (and potentially growing) addressable market.
Paradigm has taken somewhat of a novel approach towards the development of a treatment solution. Instead of coming up with a new drug and having to go through the exhausting and risky process of safety testing, Paradigm has repurposed an existing medication named pentosan polysulphate sodium (PPS).
PPS has historically been used to treat bladder inflammation and deep vein thrombosis, but Paradigm wants to find out if it can also be effective in the treatment of symptoms related to osteoarthritis.
Because Paradigm is repurposing an existing drug, there is already extensive data it can use to prove the medication’s safety, so it has a shorter path to commercialisation. Its clinical trial results have also been positive, with phase 2b results demonstrating its increased effectiveness over current osteoarthritis treatments like steroids and opioids.
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Rhys Brock owns shares of Cochlear Ltd. and Nanosonics Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd., CSL Ltd., and Nanosonics Limited. The Motley Fool Australia has recommended Cochlear Ltd. and 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.