$PNV reported their FY23 results, and before heading into the David and Swami show, I am reporting my quick take.
Top line: strong revenue growth slightly ahead of market expectations at +59% (alebit behind my model), but with a significant expansion in costs, with total expenses up +66% largely driven by expanding the sales force into new markets. This drove an increased net loss of A$4.93m (FY22 A$1.19m), which they go on to say is essentially flat after adjustments (departed executives ... the gift that keeps on giving).
Their Highlights
- Total revenue including BARDA of A$66.5m up 58.8% on prior year of A$41.9m
- Strong growth in U.S. achieving sales of A$46.1m up 44.6% on prior year of A$31.9m
- ROW sales of A$13.5m up by 133.9% on prior year A$5.8m
- The Group recorded a net loss after tax of A$4.93m (2022: $1.19m loss).
- The loss in the prior year FY22 included the reversal of A$4.7m in share-based payments from the forfeiture by the previous CEO and COO on their resignations. The underlying net loss after tax excluding non-cash items is A$2.32m (2022: $2.00m loss). At year end the business had A$46.8m cash on hand.
- Excellent sales growth can be explained by the genius technology that is NovoSorb BTM and NovoSorb MTX, and by an increased sales force and geographical expansion. However unprompted surgeon engagement around the world in trialing the product, and publishing and presenting their results and developing new uses for the product has been amazing.
The Company’s other key initiatives and achievements include:
- First $7 million sales month in May 2023 (May 2022: $3.3 million), Total Revenue $8.3m in May 2023
- $53m capital raising
- 510(k) clearance from the FDA for NovoSorb MTX and saw first sales to plastics and reconstruction
- Entered Hong Kong, India, and Canada markets and saw early sales
- Grew the U.S. team from 54 to 93 and increased U.S. customer accounts from 189 to 299 hospitals
- In our direct markets including the U.S., we increased our customer accounts from 470 to 638
- Increased staff worldwide from 152 to 218
- Enrolled 64 patients into the U.S. BARDA pivotal burns study (53%)
- Enrolled 25 patients into the U.S. DFU Chronic Wound study for health insurance reimbursement (18%)
- Enrolled 35 patients into the chronic wound study with Flinders University South Australia (55%)
- Leased an adjacent property in Port Melbourne to significantly increase manufacturing capacity
- Awarded Victorian Government grant for manufacturing Diabetic Foot Ulcer product (NovoSorb SynPath)
My Analysis
With a strong cash position post the capital raising late last year, $PNV are making good on their investment in sales and marking to accelerate sales.
So, the 43% expansion in headcount (surely, mostly in sales and marketing) is hardly unexpected, and is their fastest expansion for a while. And given that we know it takes up to a year for a new sales and marketing employee to break even, such a scale of investment comes at a necessary cost.
Cash is still being burned. A total of -$8.3m (including leases) which is up from -$2.4m in FY22 (where I am excluding the benfit of the sale of the Melbourne property). With $47m in the bank, the rate of burn is not a concern, although the major spend in the new manufacturing facilities is still to ramp up – so we should expect to see significantly more capital investment in FY24.
Global hospital accounts at 638 are up 35%, and of course new accounts are a leading indicator of the sales growth to follow.
In both the report and the presentation, prominence if being given to the number and breadth of publications demonstrating the expanding clinical applications physicians are finding. And those of us on the DW mailing list have seen the benefits being report. So, another leading indicator of future growth.
The presentation is light on detail in terms of market progress. We can see that US Novosorb sales grew 44.6% (although only 34.0% in USD) and RoW sales reached $13.4m up 133.9%.
On sales, the US constant currency rate is slower that I expected, so it will interesting to hear how this is characterised on the call this afternoon. (There is no evidence of a boost from Integra’s recall of Surgimend.) With US accounts expanding by 58% to 299 from 189, and existing accounts expected to grow sales, the US sales growth number is a bit soft in my view.
RoW is starting to become more material, and this is a key number to watch in the future. Several of these markets including Canada, Hong Kong and India only started during FY23, with several only really getting going in H2. Of course, this is where a lot of the sales and marketing expansion has been, so it is not surprising.
I’ll leave it at that ahead of the call.
My Key Takeaways
Overall, there is something in the result for every thesis. Bears more focused on the short term will point to increased cash burn, rising costs and slowing US Sales. The bulls will point to expanding market footprint with strong RoW becoming material, new accounts, top line growth, and growing positive clinical evidence.
I remain in the bull camp based on this report. But I can see a stronger focus on revenue growth pushing the cash generation profile backwards, and so there is nothing in this report for me to upgrade my valuation. If anything, the upper part of my range is scaling back. But that’s for later in the year.
Based on this result, I am a solid hold. But I want to learn more about US progress, as I am sure others on the call will too.
Disc: Held in RL (4.3%) and SM