The Motley Fool

Alongside AstraZeneca, I’d buy this small-cap share in the pharmaceutical sector

After many years in the doldrums, the FTSE 100’s AstraZeneca is seeing its R&D pipeline produce new treatments. I think it’s a good time for me to be holding some of the firm’s shares. That’s because some of the products could go on to achieve big sales and profits for the company. On top of that, they’ll likely be protected by new patents.

But I’m also keen on some small-cap shares in the wider pharmaceutical sector. For example, today’s audited full-year results report from Ergomed (LSE: ERGO) is full of positives. And the share price has risen a bit today too.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Doing its bit for the coronavirus pandemic

The small-cap company provides specialist services to the pharmaceutical industry. And on 18 March, it announced its involvement in a clinical study aimed at finding a treatment for patients with Covid-19, who have developed serious respiratory complications. The study is sponsored by the Papa Giovanni XXIII Hospital in Bergamo, Italy, and supported by EUSA Pharma (EUSA).

That’s a small part of the company’s activities, which span “all phases” of clinical development, post-approval pharmacovigilance, and medical information. And today’s figures reveal to us some patterns of fast growth within the business. In 2019, revenue grew by just over 26% compared to the prior year, and adjusted EBITDA shot up by a little over 440% to £12.5m. Looking ahead, the order book of future contracted revenue rose by a just under 14% to a smidgeon above £124m.

Executive chairman Dr Miroslav Reljanović described in the report how 2019 has been a “transformational” year for Ergomed.  He reckons the business performed “strongly” and the acquisition of Ashfield Pharmacovigilance after the end of the period was a “major strategic step” for the company in the US.

Growth on the agenda and strong finances

Growth is on the agenda, but the firm is monitoring “closely” the escalation of the coronavirus outbreak. Reljanović thinks Covid-19 poses an “unprecedented” global healthcare challenge. And he hopes Ergomed can use its “expertise and proven capabilities” to advance drug development and improve outcomes for coronavirus patients.

Meanwhile, the balance sheet looks strong with no borrowings. Cash and equivalents rose by almost £175% in the period to just over £14m, which compares with lease liabilities of just under £5.5m.

I reckon cash inflow has pushed profits higher, which combines with the strength of the firm’s finances to provide a solid base for further expansion. But, just to make sure, the company agreed a new £30m credit facility with its bankers to fund its growth strategy and to help with any challenges that may arise because of the coronavirus.

My guess is we can expect further progress abroad in the years ahead. In 2019, around 42% of revenue came from mainland Europe, the Middle East and Africa, 37% from North America, 19% from the UK, 2% from Asia, and a tiny comparative amount from Australia.

Meanwhile, with the share price close to 340p, the forward-looking earnings multiple for 2020 sits near 18. That strikes me as fair for a company with decent growth prospects.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended AstraZeneca. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.