The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July. Here's why.

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Shares in ASX healthcare company Polynovo Limited (ASX: PNV) almost doubled in price last year. And, despite a shaky start to 2021, at their current price of $2.62 they are still up over 100% versus their March 2020 low of $1.275.

For investors willing to weather the volatility in the share price, Polynovo has delivered some significant gains – it wasn't all that long ago that the company's shares were trading consistently below $1, and in December they touched a record high of $4.08.

But there is another under-the-radar junior biotech company currently trading on the ASX that operates in the same sector as Polynovo.

New Zealand-based healthcare company Aroa Biosurgery Limited (ASX: ARX) listed on the ASX in July last year after raising $45 million at $0.75 a share. The Aroa share price has already surged 63% higher than its IPO price to $1.22 as at the time of writing, meaning the company now has a market cap of a touch under $367 million.

What does Aroa do?

Like Polynovo, Aroa specialises in the development of biodegradable medical devices that aid in skin tissue repair. Aroa's flagship product is called Endoform and is originally derived from a sheep's forestomach. When applied to complex wounds and severe skin injuries, Endoform aids in tissue repair and regeneration, encouraging new skin growth.

Aroa claims its product has delivered superior results versus current market leaders across a range of qualitative factors in preclinical studies. It also claims its product is 20% to 60% less expensive than those of its competitors.

Recent news out of the company

In its most recent market update, covering the December quarter, Aroa reported quarterly cash receipts of NZ$5.9 million, an uplift of 44% over the September quarter, reflecting an improvement in market conditions. Despite the challenges posed by COVID-19, the company – which reports its financial results based on the New Zealand financial year ending 31 March – believes it is still on track to deliver revenue growth for the second half of FY21 versus second half FY20.

It also announced that Endoform, as well as another of its regenerative tissue solutions, Myriad, had received regulatory approval in India. Aroa estimates that the advanced wound care market in India was valued at between US$225 million and US$485 million in 2020.

Outlook

With only the March quarter left in FY21 for Aroa, it believes it is on track to deliver revenue of NZ$21 million for the year on a constant currency basis. This would be slightly below its FY20 revenue of NZ$22 million.

However, the company is expanding. Now that it has secured regulatory approvals to distribute its products in India, it is appointing a distribution team and plans to begin rolling out its products in the second half of this calendar year.

For its part, Aroa is feeling bullish about its future prospects. The company is in the process of expanding its manufacturing facility in order to meet the expected rise in demand for its products over the next 3 years. And, in an announcement released to the market earlier this week, the company stated that it planned to expand its direct sales team in the US, in a move "expected to positively impact medium-term sales".

Rhys Brock has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of POLYNOVO FPO. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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