Some SM members are already familiar with ARX, some are not. In short ARX are a NZ based company that produces sheet wound products for hernias, chronic wounds, traumas etc. Product is made from the forestomach of sheep. It has a market cap of around $340m and they have been going for about 14 years and have been listed on the ASX for nearly 3 years.

 The CEO Brian Ward started the company and owns about 10%. Annual sales to the 31/3/23 were $62m. It lost $1.7m and had operating cash outflow of $3.7m. For the first time this year time some of the R&D was capitalised - $1.3m versus $10.6m that was expensed. Still very conservative accounting.

Looks highly likely will turn cash flow positive in the 2024 year. It has around $45m in cash, so is not going to go broke.

 The focus is on US sales so there are lots of issues in getting this happening around sales teams, surgeon acceptance, contracts with healthcare providers and product reimbursement.   There is a lot in the presentation material released on the 1/6/23 -  much of it you have to take their word for it, unless you are an industry insider.   

However a clearer picture of this company is emerging:

• Their product appeared superior in certain applications
• Their products are cheaper than the existing biologic mesh’s on the market. (It is a crowded market with pig and human tissue products, as well as fully synthetic products)
• The management all have their working lives and money locked into it and are pushing it very hard.  You cannot say they are not trying.
• They are not going to go broke

 What is further convincing however is if you take out their R&D for their new product Envio (a product that fills up dead space inside a wound cavity, a way off getting to market) they are $8.5m EBITA positive. So you could argue this is a medical device company is already profitable selling roughly on a PE of about 80. Still no one substantive (read sizable Fund Manager) at the present time will touch it.  All too scared.  Hence the current share price drift.   

The next 12 months will be critical, however it is not beyond possibility with demonstrated recurring sales and earnings growth ARX could well double in the next three years.  If not the downside should be limited, due to the established sales position, IP and earnings.   

I think the odds are currently in the investor’s favour, and it is a BUY