Macquarie's take on the results / PNV :-PolyNovo (PNV AU)Growth...

Macquarie's take on the results / PNV :-

PolyNovo (PNV AU)
Growth through the (M)a(T)ri(X)

Key points
 Increasing sales staff expected to support further growth. New product
pipeline progressing with NovoSorb MTX filed for FDA 510(k).
 Our forecasts imply PNV to be cash flow positive in 2H23, supported by
improved operational performance.
 We remain positive on the medium-longer term outlook. Retain O/P.

Event
• PNV’s FY22 result.

Impact
• BTM momentum positive in the US: PNV BTM sales increased ~48% vs
FY21 to $37.6mn, largely driven by strong growth in the US of +55%. 135 new
accounts were added in FY22, with 75 of these from the US, 30 in ANZ and 31
in UKI. Sales momentum continues to build in the US, with PNV have noting
11 additional accounts were added in the US in July. Looking ahead, we
forecast FY23 sales growth of ~65% to ~$66m supported by significant
increase in sales reps (staff increased +43% to 153 in FY22).
• Cash flows weaker in FY22, but improvement expected in 2H23: Cash
flow from operations declined to -$2.1m, from -$0.3m, in FY21 reflecting an
increased investment in sales reps and R&D costs. Cash balance of $6.1m
was down from $7.7m in FY21. Further investment in growing sales staff, and
increased R&D costs (ongoing chronic wound trials) are expected in FY23. We
forecast a 1H23 cash outflow of -$4.9m, before recovery in 2H23, reflecting
initial increase in sales staff cost increases, but leading to increased BTM
sales. Our forecasts imply a closing cash balance of A$4.2mn at Jun-23.
• Pipeline products progressing: NovoSorb MTX 510(k) submission was
lodged with the FDA on 1-Aug-22, indicated for wounds that don’t require
temporizing or protection from contraction. The SynPath (chronic wound
product) reimbursement trial has commenced with the first patient recruited
(138 total anticipated). Launch of SynPath expected late CY23.
Earnings and target price revision
• EPS revisions of -101%/-34%/-34% in FY23/24/25E (low earnings base)
largely driven by increased cost base. TP increases, despite lower EPS
between FY23-25E, due to higher sales expected in outer years driven by
increased staff, new geographies, anticipated product launches, with terminal
growth rate now equalling RFR (2.83%). TP of A$1.90 (from A$1.60), pg 4.

Price catalyst
• 12-month price target: A$1.90 based on a DCF methodology.
• Catalyst: AGM.

Action and recommendation
• We see sequential increase in US sales as positive into FY23, with investment
in increased sales force expected to support sales going forward. More
broadly, we see PNV well positioned to grow share and diversify from burns.
Risk to our valuation is lower growth in sales. Retain an Outperform rating.