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3 junior ASX healthcare shares with explosive growth potential

As the economic outlook grows increasingly gloomy, many investors may be thinking of diversifying into defensive companies as a way of strengthening their portfolios. Generally, healthcare companies provide a good defence against a downturn as demand for health services tends to remain robust regardless of the prevailing economic conditions. However, many investors may want to look beyond the big name companies like Cochlear Limited (ASX: COH) or CSL Limited (ASX: CSL) to find pockets of higher growth in the sector. Here are three up-and-coming ASX healthcare companies that may offer explosive growth potential at bargain prices.

Polynovo Ltd (ASX: PNV)

Polynovo is a junior healthcare company that develops biodegradable medical devices for skin tissue repair. Its flagship medical technology is called NovoSorb, a synthetic polymer that clinicians can use to treat serious burn and skin trauma patients. It can be used in surgical procedures and will safely biodegrade and be excreted by the body.

The company recently announced it had secured US$15 million in funding from the Biomedical Advanced Research and Development Authority (BARDA), an office of the United States Department of Health and Human Services. The money will help finance a clinical trial to evaluate whether NovoSorb technology can apply to be an approved treatment for ‘full thickness burns’ in US hospitals. Full thickness burns are severe burns that destroy both the epidermis and dermis layers of skin.

The trial’s chances of success are relatively high, as NovoSorb is already used to treat these types of burns outside of America. This could cap off a surprisingly successful year for Polynovo. The company recently reiterated its FY20 guidance for sales to at least double FY19’s numbers.

Mesoblast Limited (ASX: MSB)

Mesoblast is an emerging pharmaceutical company that uses stem cell technology to develop treatments for a range of inflammatory diseases. The company’s shares have skyrocketed in recent months after one its treatments showed promising results in COVID-19 patients suffering from acute respiratory distress syndrome.

It was also recently announced that Mesoblast’s treatment for graft versus host disease – a potentially lethal condition affecting some cancer patients – had been accepted for priority review by the US Food and Drug Administration (FDA). If approved, the product has the potential to be made available in the US as early as September.

Revenues for the first nine months of FY20 were US$31.5 million, a 113% increase over the same period in FY19. A successful capital raise in May also means the company now has close to US$150 million in cash, which it is hoping to use to launch new treatments in the US, as well as scale up its manufacturing potential.

Medical Developments International Ltd (ASX: MVP)

Medical Developments International is a pharmaceutical and medical device company which specialises in pain management and the treatment of respiratory conditions like asthma. Its flagship product is a non-opioid analgesic named Penthrox.

Prior to the COVID-19 pandemic, the Medical Developments International share price had surged to an all-time high of $11.78. Excitement around the company was justifiably high: clinical trials of Penthrox were underway in China, and a US launch also seemed imminent.

However, the pandemic meant Chinese trials were put on hold, while talks with the US FDA don’t seem to have progressed markedly. Many impatient investors jumped ship, sending the share price tumbling – and even despite some recent gains, MVP is still trading at just $6.34.

However, for investors with a long-term outlook, I think this recent pullback in the share price offers the opportunity to pick up Medical Developments shares at bargain prices. Once the effects of the global pandemic subside, I believe the company still has a long growth runway ahead of it.

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Rhys Brock owns shares of Cochlear Ltd. and Medical Developments International Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd., CSL Ltd., Medical Developments International Limited, and POLYNOVO FPO. The Motley Fool Australia has recommended Cochlear Ltd. and Medical Developments International 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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