$ARX FY26 — A breakout year: the OviTex overhang is now explicit, and Myriad is firmly the key growth driver

Pre-amble

Aroa Biosurgery released their FY26 result this morning. Preliminary results were foreshadowed 4 weeks ago, and for those interested in further background I refer you to recent posts by @mushroompanda

Market response has been subdued in part due to the earlier release, but also what might be considered soft guidance and management indicating a significant step-up in US sales and marketing resourcing. I’ll address both.

@Strawman has arranged a further meeting with CEO Brian Ward, next Wednesday, so today’s results are a good set up for that meeting.

Headline numbers were strong and exceeded guidance on both lines, but the story is increasingly bifurcating between the directly-sold Myriad franchise (firing) and the partner-distributed OviTex line (structurally constrained, for reasons that got what I consider as an honest airing on the call). Symphony sits separately as a newly de-risked potential upside – not yet recognised by the market, not unreasonably given that management have yet to prove they can capture the opportunity presented by the disruption unfolding in the synthetic skin outpatient market, which Brian discussed in some detail on the call.

TLDR

FY26 represents a long-awaited breakthrough into profitability (cash and NPAT); however, the market clearly doesn’t believe an inflection point has been reached. Will reinvestment into US sales and marketing see a continuation of the operating leverage of recent years, where costs have been managed carefully? The norm for ASX-listed medical devices cracking the US is that this can be a hard slog. Or, are management being conservative in the guidance given, such that stronger-than-guided sales momentum more that offsets the expanding sales and marketing cost base?

FY26 vs FY25 — the headline numbers

The trend in key financial metrics is clear in the graph below.

Source: My analysis of Company accounts – numbers differ from management “adjusted” figures.

On a constant-currency basis, revenue of NZ$101.3m beat the top of the NZ$92–100m guide, and normalised EBITDA of NZ$11.3m came in at ~174% of the guidance midpoint of NZ$5–8m. 

Direct sales are now 59% of product revenue (up from ~52% in FY25) and growing materially faster than the partner channel. $ARX’s destiny is increasingly in its own hands, a turnaround from a previous thesis breaker for me.

Operational highlights in the year include:

• Customer accounts grew to ~440 (from ~330) on a broadly flat sales headcount of ~49 reps — that's the operating leverage management have been pointing to, in numbers
• Symphony's randomised control trial (RCT) in DFUs met its primary endpoint (announced earlier, confirmed today, with further details to come on publication of the trial)
• GPO contracts secured across all major groups, covering >95% of US hospitals, but $ARX’s limited sales force footprint meaning that only a minority of these are being accessed today
• US tariff costs of NZ$1.6m absorbed cleanly; a contingent ~NZ$1.4m refund identified but not recognised (potential FY27 tailwind – good luck, join the queue!)
• Five consecutive years of revenue growth; Myriad alone has compounded from NZ$4m (FY22) to NZ$49m (FY26)

Key Drivers

Myriad has been the story for several halves now, and it remains so. +54% on a base that was itself +39% the year prior, sold by ARX's own reps into the hospital OR, with reported gross margins north of 90%. Trauma and limb salvage are the bread and butter. 

Brian was explicit on the call when Matt Joass asked whether anything one-off had boosted growth — no competitor recall, no regulatory windfall, just sales execution against a TAM management now sizes at US$750m+. (Note: I’m not convinced that Brian was right here. Primatrix (Integra) and Myriad do overlap, as pointed out previously by @mushroompanda, and there is no doubt in my mind that $ARX has been a beneficiary of the protracted absence of Primatrix – as have the many other competitors. This is something to watch in FY27, now that PriMatrix is back!) 

$ARX has invested steadily over the years in building evidence to support its marketing claims. For example, the MASTRR registry continues to grow the evidence dataset across multiple surgeons, with the 423-patient interim analysis due in FY27 Q2.

Separately, the longer-dated COVER RCT is worth noting. Myriad vs Myriad + NPWT (negative pressure wound therapy). NPWT is used in >1m procedures per year in the US. If the combination beats NPWT alone, that's a genuinely large new wedge for Myriad. Not in FY27, but in the pipeline.

Endoform's -6% is deliberate — management has been candid that almost no effort has gone into it for ~4 years while resources concentrated on Myriad. That changes now, because Symphony plugs into the same Endoform legacy: hospital outpatient department, which is literally the floor below where the OR team already calls. (More on Symphony below.)

The OviTex situation: this deserves careful reading

Headline OviTex growth of 8% continues to be underwhelming, and $ARX is guiding flat OviTex sales to TELA Bio for FY27. More telling is what's buried in the audited financials: the TELA Bio revenue-share growth assumptions used to calculate accrued contract revenue have been slashed — OviTex from 19% to 2.7%, OviTex PRS from 37% to 15.8%. That's a meaningful de-risking of a contract asset that now sits at NZ$21.4m, and it tells you management's internal expectations for the OviTex line have stepped down materially. The audit report flagged this as a key audit matter.

Brian addressed it directly and (IMO) transparently. The substance:

• TELA Bio has hospital contracting headwinds. Becton Dickinson is alleged to have locked up ~80% of the US hernia mesh market through long-term hospital contracts, effectively foreclosing OviTex from accounts on commercial rather than clinical grounds
• TELA Bio has now filed antitrust action against BD in the US District Court for the Eastern District of Pennsylvania (filed 19 December 2025), alleging exclusionary conduct, retaliatory contracting against providers using OviTex, and abuse of dominance (BD reportedly holds ~65% of permanent and ~77% of resorbable hernia mesh spend in the US). BD's stated position is that the allegations are without merit
• In parallel, TELA Bio is pursuing a unique reimbursement code that could route around the contracting issue altogether

Brian's validation argument could be seen as compelling: in the UK, where BD doesn't have the same contract structure, OviTex sales are surging on clinical evidence alone. The product works — the issue is purely a distribution moat being defended by an incumbent with very deep pockets.

My read: the BD litigation is a multi-year process and outcomes are uncertain even on a successful path. The reimbursement-code workaround is potentially faster but unproven. I'm now treating OviTex as an effectively flat ~NZ$43m revenue line with potential upside, rather than a growth contributor. That's a material change to how I'd previously modelled it. If you'd previously assumed 15–20% OviTex CAGR (and many of us did, including management based on their prior accounting estimates), you should be re-cutting that now.

Symphony: has the catalyst just became real?

The Symphony RCT meeting its primary endpoint in DFUs is, I think, the most under-appreciated single element of this result. The setup:

• From January 2026, CMS reset reimbursement for skin substitutes to a flat-fee basis regardless of product price
• Brian's framing on the call: the addressable US market re-bases from ~US$10bn (inflated by perverse incentives that paid clinicians a percentage of product cost) down to a US$1–2bn 'real' market
• Many incumbents priced at thousands of dollars per application are now uneconomic. Brian noted competitors are already exiting and inventory dumping is occurring
• In the new world, winners need (i) RCT-grade evidence, (ii) competitive pricing, (iii) hospital outpatient access. Symphony has all three. Many competitors don't have RCT data because they didn't need it under the old reimbursement regime

It is worth noting on the trial design: $ARX used a meaningful proportion of Wagner 2 patients (more severe DFUs) alongside the standard Wagner 1 cohort that competitors typically restrict themselves to. If those subgroup results read out positively when published in Q2 FY27 (that’s the 3Q CY26!), it widens Symphony's clinical positioning further - evidence based differentiation.

FY27 guidance assumes Symphony contributes just NZ$1–5m, explicitly conservative per CFO James Agnew. The NZ$4m incremental sales infrastructure spend is to 'get a toehold' rather than chase a number. Clearly, the opportunity is unproven and management must be uncertain. However, this could emerge in the second half of FY27 as a significant upside, driving momentum into FY28. Another one to watch!

Operating leverage and the FY27 setup

The cleanest signal in this result is the leverage: revenue +23%, opex +11%, normalised EBITDA +201%. Management aren't going to let that compound through FY27,— they're explicitly stepping up sales and marketing investment by NZ$9m (NZ$5m for Myriad scaling, NZ$4m for the Symphony launch). EBITDA guidance of NZ$8–11m therefore implies a small absolute decline in EBITDA, despite 13–23% revenue growth. And this is why today’s SP response has been muted – the market was expecting more revenue growth and short term profit growth.

However, I think management is making the right call. The Myriad rep count has been deliberately held flat while productivity per rep was improved (now 440-odd accounts across 49 reps, vs ~330 accounts on a similar headcount in FY25). See the chart below. 

Over FY24 to FY26, management has held the direct sales force essentially flat at c.50, while driving activation of new customer accounts from c.300 to c. 440, driving sales growth. By comparison, benchmarking this, Polynovo services 800+ US hospital accounts with a direct force of 85 + 15 management (based on my analysis of recent disclosures). So, for this market this size of ARX's sales force is underweight, reflecting a more cautious management approach.

FY27 will add 10–15 reps, and management has telegraphed a 100–120 rep target over 3–5 years. Based on looking across competitors, 100+ definitely makes sense to me, and this should drive continued strong sales growth over this timeframe.

What helps is that $ARX has a portfolio of products, and reps. can visit both the OR and the hospital outpatient clinic. Importantly, the salesforce will be enabled by a growing body of clinical data – both for Myriad, and now for Symphony – to breathe life into the withering Endoform franchise, and also take advantage of a disrupted outpatient environment with a low-cost product, compared with competition. It is a good set up albeit one with several moving parts.

The Symphony "reset window" is time-sensitive. If $ARX doesn't establish itself while competitors are exiting, the opportunity narrows materially. That said, don’t expect much from FY27 as the outpatient segment is in turmoil, with inventory to be offloaded presenting a short-term supply overhang.

Capex – still OK for the coming years

I asked management on the call about manufacturing capacity and future capex. Brian and CFO James both seemed comfortable. Existing facilities support NZ$200m+ revenue at current mix, with capex guidance of ~NZ$10m per additional NZ$100m of revenue capacity (potentially better at NZ$120–130m given the higher-mix products). That's a very capital-light scale profile and reinforces the self-funding narrative.

My Key Takeaways

1. The Myriad franchise is now at scale (NZ$49.5m, +54%, >90% GM, direct, durable evidence base) and on its own justifies a material share of the current market cap. Last five-year CAGR is ~65%.

2. OviTex needs to be re-marked to flat for the foreseeable future. The optionality from BD litigation and the unique reimbursement code is real but unquantifiable; I'd value it at zero in a base case and treat upside as gravy.

3. Symphony is the most interesting near-term catalyst and is conservatively guided. The CMS reset is a once-in-a-decade market dislocation in a re-based US$1–2bn market, and $ARX has the RCT evidence most competitors don't. (Look out for the details when published later this year!)

4. The FY27 EBITDA decline is intentional, not deteriorating fundamentals. But the operating-leverage narrative does pause for a year while management reinvest operating cash to build out the US sales force. And while that’s more “jam tomorrow” it is worth bearing this in mind given the muted market reaction to the result and the guidance.

5. Self-funding with NZ$27m of cash and no debt. Balance sheet is in good shape to execute. Financially sustainable.

Conclusion

On balance, $ARX is set-up to execute sustainably in the US, with multiple upsides from existing products. While I have held $ARX in the past, I exited (last in Dec-22) because I considered the path to cash generation just looked too long and the economics and reliance on Tela Bio both unattractive. 

International expansion is a further upside. Management don't say much about this, but sales are no doubt via distirbutors in what is a competitive and well-served market. So resources would need to be allocated if this is to become material. An option perhaps, when the US potential has been captured - commendable focus by management.

Based on the FY26 result, and some of the insights provided, and the growing body of positive clinical evidence and Myriad traction, I’ve recently decided to give $ARX another chance. In fact, I’ve added to my position this morning, doubling it to 4.5% of my RL ASX portfolio.

Growth is now more in the hands of management as they have established their direct US sales force. They are much less dependent on Tela Bio (which remains a significant risk as it continues to burn cash.The last 5 years have seen the SP slide progressively from US$15 to US$0.90 today.)

The bull case has therefore narrowed somewhat. OviTex is no longer a core growth lever. However Myriad is scaling and Symphony offers upside. Genuine risk now sits on OviTex and, to management's credit, they’ve now been pretty clear about that.

I do believe there is a degree of conservatism in management’s guidance. Realising the upside does come down to how well they execute the sales and marketing expansion (under their control) plus whatever hopefully positive surprise Tela Bio can achieve.

Valuation

I'm still re-cutting my valuation following today's data. The key questions are: i) scenarios for Myriad, and ii) potential upsides for Symphony, with the cost base /capex now well-characterised.

To me, $ARX is looking like anything from $0.60 to as much as $1.20 – but for more than that, I need to crank the model. Picking up some more this morning at $0.62 and $0.64 seems pretty decent.

I’m really look forward to the Strawman meeting, and will be doing more work on $ARX in the lead-up to it.

Disc: Held (RL 4.5%)