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How this small cap ASX biotech company is helping the fight against coronavirus

The Zoono Group Ltd (ASX: ZNO) share price has continued its strong run in 2020. So far this year, the New Zealand-based ASX biotechnology company has seen its share price soar over 180% higher to $1.86 (as at the time of writing).

The gains could have been even greater if it wasn’t for a correction in March: as of mid-February, the company’s shares had surged to a fresh 52-week high of $2.44, before tumbling back down towards $1.25.

But the company’s shares have been on a tear again recently, up around 45% in the last 3 weeks.

What is driving the volatility?

Zoono manufacturers antibacterial skin and surface sanitisers. It uses innovative, advanced polymer technology that kills pathogens on contact. When the product is applied to a surface, it leaves behind a microscopic layer of tiny positively charged pins. These tiny pins draw negatively charged pathogens towards them, rupturing their cell walls and killing them. The company claims this method of destroying pathogens can prevent cell mutations and may even slow the development of superbugs.

In late January, the company announced that it had seen a surge in demand for its products. Its sanitisers had previously been tested on bovine coronavirus and achieved a 99.9% efficacy within just 5 minutes. At that time Zoono asserted its confidence that its product would be just as effective against COVID-19. Shortly after, it announced exclusive distributor agreements had been reached in both China and Singapore and its share price took off. Then, in late February, Zoono announced that, as anticipated, its product had been proven effective against COVID-19.

Broad equity selloffs throughout March saw some softening in the company’s share price, but a string of positive announcements caused it to bounce again recently. Just last week, Zoono released its quarterly cash flows, in which it reported revenues for the March quarter of NZ$15.7 million. As a point of comparison, Zoono’s revenues for the entire first half FY20 were only NZ$1.7 million. Gross margins had increased, and it had expanded its global footprint, with its UK operations bringing in NZ $3.5 million in revenues during the quarter.

Zoono was deemed an essential service by the New Zealand government, and continues to remain operational during their strict lockdown.

Should you invest?

This is an incredibly exciting time for a company like Zoono. Its flagship product is clearly beginning to be recognised globally as an effective defence against coronavirus. The company is experiencing a rapid increase in demand for its products and revenues are soaring. Despite the surge in its share price already this year, there is a clear runway for continued growth with the company announcing further distribution agreements are still in its pipeline.

Investors with a longer-term focus still need to weigh up this short-term demand against how the company may continue to perform once the coronavirus crisis is over. There is the obvious potential for sales to drop off once the world isn’t in the throes of a global pandemic anymore.

This is incredibly difficult to forecast. However, Zoono’s polymer technology does create a point of difference with other sanitisers. This could mean that it will have a variety of personal and medical uses which could keep demand high even after the coronavirus panic has passed.

Whatever your opinion of its longevity, Zoono is definitely an exciting company to be watching right now.

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Motley Fool contributor Rhys Brock has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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