Polynovo FY20 Results
A good set of numbers out today for FY20, with sales inline with my expectations of ~$19m for BTM and another $3m or so for BARDA pre-pivotal trial.
Total loss after tax was a little higher than last year at -$4.3m which at first surprised me, but backing out some share based payments makes it a more palatable -$2.13m. Total cash outflows from operating activities was just -$427k, which was a marked improvement on the previous year despite a reduction in the BARDA portion of funding, and clearly signals a CF+ year in FY21 unless something goes horribly wrong.
Balance sheet remained relatively stable, and with $11m+ in the bank with a extra few million in the debt facility, I doubt we’ll see a raise again unless they went for an acquisition, but that looks extremely unlikely to me now.
A couple of expense related observations. Employee-related expenses skyrocketed to nearly double on last year at ~$15m from a 66% increase in staff numbers, reflecting how much hiring they did in the US prior to covid. It shows how easy it would have been to take the foot off the pedal and simply post a maiden profit.
The other was a drop in R&D spend, now that commercialisation of BTM and the new Hernia ‘Syntrel’ product is the priority. It might pick up slightly this year with the amount of products in the development pipeline though, something to keep an eye on.
Finally, the CFO commentated in the presentation that capex would remain low this FY, as the bulk of the cost of the Breast and Hernia facility is nearing completion. They used a significant portion of the debt facility to finance this, and I would expect they might draw down the rest to fully complete it, then start paying it back in FY22 after the Hernia product is fully approved & commercialised.
Looking ahead to this year, with a June quarter annualised sales run-rate of ~$24m, on the surface it’s not an explosive amount of YoY growth flagged, but given the June month was 36% or so above May – which was already another record sales month in the US – it’s clear the trajectory is only going one way. I have BTM sales forecast at ~$35m for the full year which is ambitious in this climate, but I think it’s possible given the way they exited FY20.
Add the one-off $15m BARDA funding and my top line estimate of $50m looks in sight. I would expect that we’ll see profit this year even if it falls short of my estimate, provided we don’t get any more curveballs.
The real prize is the Hernia and Breast products due in FY22 and 23. If they get that right and steal market share, then today’s price will look cheap in hindsight. My valuation reflects this, but I think on the balance of probabilities things will work out in their favour. Novosorb is a platform technology with wide-ranging approval around the world already, and so regulatory approvals don't strike me as an issue.
12 January 2021
Interim Trading Update
New Accounts – Direct Markets
07-Sep-2020: Victorian Government Grant for Hernia Plant
PolyNovo is pleased to announce it has received a grant from the Victorian Government, Department of Jobs, Innovation and Trade for up to $252,000. This funding is to support the purchase of equipment and the development of the hernia cleanroom which is in progress at our Port Melbourne facility. The hernia facility will manufacture our NovoSorb Syntrel hernia product.
Managing Director, Paul Brennan said, “We are grateful to the Victorian Government for their support of PolyNovo’s investment in local manufacturing capacity. This plant will produce a product that will change the way hernias are managed world-wide. It is a matter of pride that these products will be manufactured in Port Melbourne using Australian technology.”
This announcement has been authorised by PolyNovo Secretary Jan-Marcel Gielen.
Correction: Page 9 of the FY20 results presentation released to the ASX on the 26th August 2020 should read BTM product sales for the 2H FY20 are up 87.5% on the 2H FY19.
NovoSorb® is a novel range of bio-resorbable polymers that can be produced in many formats including, film, fibre, foam, and coatings. NovoSorb’s unique properties provide excellent biocompatibility, control over physical properties, and programmable bio-resorption profile. NovoSorb® BTM is a dermal scaffold for the regeneration of the dermis when lost through extensive surgery or burn.
PolyNovo is an Australian-based medical device company that designs, develops and manufactures dermal regeneration solutions (NovoSorb® BTM) using its patented NovoSorb® biodegradable polymer technology. Our development program covers Breast Sling, Hernia, and Orthopaedic applications. For further information and market presentations see www.polynovo.com
A NZ-based competitor, Aroa Biosurgery, lists today on the ASX. Aroa makes a biologic scaffold from sheep stomachs, reportedly at a very healthy 60-70% gross margin. There is some crossover with Polynovo on their target markets, so I reached out to our MD Paul Brennan and asked him what he made of their product.
To summarise our discussion, there doesn’t seem to be anything particularly new or innovative here that would supplant other animal variants. It’s still a biologic, and prone to similar infection rates the same as other collagen-based products.
Perhaps most concerning for Aroa is a rumour that they use a similar manufacturing technique to Lifecell, who in 2016 settled a lawsuit with TELA Bio over patent infringement. It’s possible that at some future date, Aroa could find themselves in court for similar reasons.
Having said that, Aroa are already generating NZ$20m+ in revenue, mostly from the US, so they have some penetration there. Given they’ll float with a m/cap of only $225m+, that also makes it a lot cheaper than Polynovo. But there’s nothing I can see in their technology or sales run rate (their top line was flat over the last two years) that suggests market dominance over the next 10 years.
To my mind, the key to any market dominance in this space is how disruptive each product is on the clinical practice mindset. Even an inferior product can dominate this space for years if surgeons are too comfortable with the procedures they know, and/or are unwilling to experiment. The only hope for a newcomer is to have a superior enough product that it forces surgeons to change their behaviour. I suspect yet another collagen-based competitor will not have enough going for it to knock Integra off its perch.
A synthetic product, however – and the only one in the market – could very easily take the top spot, especially if it performs significanty better in 3 key areas:
If the upcoming large-scale Pivotal Burns Trial for Polynovo backs up current studies that already demonstrate market-leading results in all three of these areas for Novosorb, then that will likely be the tipping point for surgeons to adopt it en masse. As far as I can tell, Aroa hasn't demonstrated a leading position on any of them as yet.
Aroa is one to keep an eye on, but for what it’s worth I’m not too concerned at this stage.
FDA Approves pivotal trial IDE
Some excellent news announced this morning ahead of today’s AGM. The FDA has finally approved the pivotal trial to commence after a brief detour into the ‘fast track’ planning phase.
If the pivotal trial results – now due for publication in CY23 or 24 – reflect the current set of smaller clinical study results (which so far demonstrate that Novosorb is an extremely effective product) then it will mark the beginning of the end for biologic competitors.
The pivotal trial will recruit about 150 patients over 20 sites and provide enough data points for surgeons to once and for all put its efficacy to bed. As always, it’s difficult to say with 100% certainty what upshot will be, but it’s hard to see how the pivotal results will vary too far from the plethora of results already in place by the pioneering surgeons in Adelaide and the US. On the balance of probabilities, I’d say there’s a >90% chance that we’ll sail through without any real difficulties.
Let’s not forget that this study is broadly funded by BARDA to the tune of US $15m, which looks like a lump sum payment though it is hard to say for sure. If so, it would have a material impact on this years results.
Lastly, just to focus once more on the ultimate prize here. If a synthetic material proves vastly more effective than a biologic after these results, it really could be a winner takes all market, representing an incredible opportunity for the first mover in this space. I would estimate revenue in the billions of dollars per year ultimately, given a suite of synthectic products to sell on the back of the Novosrob platform.
We're still very much in the early days of this incredible Australian success story.
PolyNovo appoints distributor for Finland.
PolyNovo is excitedto announce the appointment of Innova Medical Oy, in Helsinki, to sell NovoSorb® BTM in Finland.
Innova Medical Oy service a broad range of surgery; plastics, trauma, general and burns; already supplying a range of wound and second degree burn products.
There have already beenfour surgical applications of NovoSorb BTM with three surgeons on a chronic leg stump wound, burns and scar revision.
The surgeons have reachedskin graft closure stage on two of these with excellent results to date.
US FDA approves Pivotal Trial IDE
PolyNovo is excited to announce the US FDA has approved the pivotal trial investigation device exemption (IDE).
This approval allows PolyNovo to begin patient recruitment once the various hospital Independent Review Boards (IRB) grant approval. We will utilise 20 sites and recruit 150 patients. PolyNovo has prequalified the sites and we are in advanced contracting with these sites. Further details of thesites and study details will be released in due course.
28 October 2020
Taiwan FDA approval for PolyNovo
PolyNovo is excited to announce the approval of NovoSorb BTM by the Taiwan FDA for sale in Taiwan.
PolyNovo said it has also contracted with Evermed,a Taiwan based distributorto sell BTM.
Managing Director, Paul Brennan said,“This is an exciting developmentfor PolyNovo. Taiwan hasan advanced health system and has a population of circa 23 million concentrated in three regions. The dermal matrix market in Taiwan has good potentialfor us in reconstructive surgery, trauma and burns.”
Mr. Brennan went on to say that “Evermed is a very good partner and has 20 sales staff focused on medical devices. The company has well established relationships with hospitals and key opinion leaders throughout Taiwan.”
In order to start selling, Evermed needs to lodge reimbursement data with the health authority, typically a three-month process, to achieve billing codes for use by the hospitals. First sales are anticipated circa March 2021.
19 November 2020
PolyNovo enters Belgium, Netherlands, Luxemburg, Sweden
PolyNovo is excited to announce the Company’s entry into Belgium, Netherlands, Luxemburg (Benelux) and Sweden through an extension of our partnership with PolyMedics Innovations (PMI) in Germany.
PMI have been an excellent partner for us in Germany, Switzerland and Austria (DACH) with their sales exceeding projections to date and showing signs of further growth. PMI have recently placed their fourth stock order with PolyNovo since January 2020.
PMI’s strong key opinion leader network has been a key success factor. Their track record this year convinced PolyNovo they can quickly bring further growth to our European revenues through these four additional countries. The Benelux and Swedish region have a population of circa 39million people
10-July-2020: Trading Update
June 2020 was a new record sales month in the US. Since the record sales month announced on 7 April the company has opened 7 new hospital accounts. From July 2019 to 30 June 2020 there has been a 67% increase in hospital account in the US. Despite the adverse impact of COVID on many businesses, Polynovo has had success opening new accounts and achieving record sales. To achieve this, the company is using a number of tools to support surgeons where face to face meetings are not possible.
The company is pleased to announce its first sale in the UK. There have been six operations in England and Scotland and for this reason we expect additional new term sales.
There have been numerous applications of the BTM in the DACH countries (Germany, Austria and Switzerland) and sales are growing accordingly as we gain traction across the region.
The company repeats earlier guidance that product sales for FY20 are likely to at least double FY19.
Sales for the June quarter were 33% greater than the March quarter, but this includes a record US result for June.
Managing Director, Paul Brennan said, “These sales results for NovoSorb BTM are very strong given the difficulties faced with CoVid19. Our teams have maintained their engagement with customers, and we continue to see sales growth.”
Chairman, David Williams said, “Sales are still lumpy but there is a strong upward trajectory as surgeons embrace our product and the patient results it gives. While FY20 sales will show impressive growth over FY19, the sales run-rate is more impressive and should be a better indicator of the near-term future.”
05-May-2020: PolyNovo presents at Macquarie - presentation slides
That link is to the 28 page presentation to be given by Paul Brennan at the Macquarie small and mid-cap virtual investor forum today, Tuesday 5 May, 2020.
23-Apr-2020: First BTM use in Canada
PolyNovo is pleased to announce the first use of NovoSorb BTM in Canada. This case was initiated by one of Canada’s leading surgeons who is a key opinion leader in this field.
PolyNovo has not yet applied for regulatory clearance in Canada as the country has some unique requirements compared with the US, Australian and European regulatory processes. PolyNovo is working towards a Canadian regulatory filing in CY2021.
Product for this first case was supplied under an exemption scheme made on an individual case by case application. Health Canada’s Special Access Program (SAP) allows doctors to gain access to medical devices that have not yet been approved for sale in Canada. Special Access is requested in emergency use cases or when conventional therapies have failed, are unavailable or are unsuitable to treat a patient. All medical devices that have not been approved for use in Canada, require special access authorization prior to being imported and/or sold in Canada.
This first case was a child with extensive burns. PolyNovo is very pleased we could assist in the care of this child and from all reports the child progressing well. The PolyNovo family is proud to be able to improve the outcome for all patients but particularly when a child is involved.
PolyNovo’s CEO, Mr Paul Brennan said “Our US team have worked closely with the Canadian surgeon and the hospital to get NovoSorb BTM into Canada for urgent use last week and over the weekend. Canada is a very important market for us in the near term and seeing demand for our product in advance of market entry is a reflection of the strength of the global key opinion leader network and the high regard for NovoSorb BTM.”