2 ASX biotech shares that could be the next CSL

Market fundamentals and changing demographics could see the biotech sector rocket in 2020 and beyond. Here are 2 ASX biotech stocks that could be the next CSL.

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Recently it was announced that CSL Limited (ASX: CSL) has been ranked as the third-most valuable biotech company in the world. The CSL share price cracked through the $300 per share barrier to start the year and is well poised to become the most valuable listed company on the ASX.

In a country where big miners and banks are seen as the most notable companies, CSL has shown that there is great potential in the Australian biotechnology sector. Market fundamentals and changing demographic trends could see stocks in the biotech sector rocket in 2020 and beyond.

Here are 2 biotech stocks on the ASX that could potentially be the next CSL.

Mesoblast Limited (ASX: MSB)

Mesoblast is a world leader in developing off-the-shelf (allogeneic) regenerative medicines for inflammatory diseases. The company has used its cell therapy technology to establish a broad portfolio of commercial products and has a large pipeline of therapies in late stage development and testing.

This year could be transformational for Mesoblast with its first US Food and Drug Administration (FDA) product approval in sight. As a result, the company's share price has surged more than 41% since the start of the year. Mesoblast currently has licensing agreements and commercial partnerships in China, Japan and Europe.

Mesoblast is eagerly awaiting FDA approval of its flagship Ryoncil product. Ryoncil is the commercial name for the allogeneic cell therapy that is targeted to counteract steroid-refractory acute graft versus host disease in children. Mesoblast is in the final process of filing its biologics licence application for Ryoncil and requesting a priority FDA review. If approved, Ryoncil is set to be launched in the US later this year.

Medical Developments International Ltd (ASX: MVP)

Medical Developments is an Australian company that specialises in products that address emergency pain relief and respiratory problems. The company's products are used in emergency departments and other medical settings including the Australian Defence Force and Australian Ambulance Service.

Medical Developments' flagship product Penthrox is a fast-acting, non-opioid analgesic used for patients with trauma or for surgical procedures. The product has been used in Australia for more than 40 years, with more than 7 million units sold. Penthrox is also approved for sales in 40 other countries, including Europe, the UK and is pending FDA approval in the lucrative US market.  

The Medical Developments share price has returned more than 130% in the past 12 months and is currently trading at all-time highs.

Foolish takeaway

Commercialisation of new biotechnologies and therapies is a long and lengthy process. As a result, it is important that emerging biotechs not only plan for the next 10 years but also have a stream of organic revenue growth. One of the secrets of CSL's global success is the company's persistent investment in research and development. CSL currently spends at least 10% of sales on product development and innovation, allowing it to lead the sector in technology.

The regulatory environment in the US remains supportive, with the FDA accelerating pathways in order to meet patient demand and this year it expects to see continued licencing and M&A activity driven by small businesses.

I think emerging biotechs are important companies to watch in 2020. A prudent strategy would be to keep these companies on a watchlist, do further research on their commercialisation pathways and wait for price action to confirm before making an investment decision.

Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of and has recommended 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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