Hi All,

Just a quick note on Aroa Biosurgery (ARX) and the numbers that underpin its valuation.

At first glance, ARX seems appealing given it’s EV/Sales multiple vs Polynovo (8x to 33x).  However, a further deep-dive reveals the ambitious growth numbers required to justify ARX’s current share price.  If we assume a Price to Sales of 4.5 by FY24/25 (the standard long-run multiple for biotechs), then working backwards the market is implying YoY Sales growth of c. 52% to justify the current share price of $1.07 (assuming a discount rate of 10%).

A 52% CAGR over the next 4 years is not out of reach, however it requires a dramatic acceleration of growth.  And to step-change growth, ARX will need to step-change it’s selling capabilities as its current Selling model has not enabled the strong growth required of ARX over the next 4 years.  Hence, by taking a long position in ARX, one is “betting” that ARX will be able to turnaround it’s selling capabilities – something that ARX has not demonstrated to date. 

No doubt there are plenty of positives with Aroa, however at the current share price, I will watch from the sidelines.  Of course, very happy to hear alternate views and reasons for ARX to achieve strong growth numbers over the medium-term ????