PNV recently did a presentation to Baillieu. Here's my summary:
Corona and supply - Impact is expected to be negligible (I guess that's why David Williams and Bruce Rathie have been loading up with the stock on sale). There is no threat to the supply of BTM. No materials are sourced from China. Some are sourced from Japan, but there are other suppliers in Europe. They have 6 months stockpile of BTM.
Surgeries and corona- Surgeries where BTM is used is mostly non-elective, so unless all the surgeons and patients are corona'd, they should continue to proceed.
The competition are soiling their panties - Integra is discounting its product down to BTM's price... and offering a 'free replacement' if there is an infection! ROFL! What do we think that tells doctors about Integra's product...? Why don't you just use BTM in the first place and not feed the bacteria? What do you think of the established player having to resort to these desperate sales tactics to maintain market share? I'd suggest Integra know they're up the creek without a paddle on this one.
Sales staff - Continues to ramp up, expecting 30-35 sales staff by end of FY21
Revenue - Guidance is unchanged, and revenue is expected to more than comfortably exceed $20m - I suspect they will overdeliver by some margin. $25 - $30m is my guess.
White island - All except one patient received BTM. Results are described as nothing short of miraculous. More presentations are coming. The word is getting out faster.
The only thing I am not so sure about is the optimism that the Northern hemisphere summer will halt the corona virus. Singapore has done extremely well in managing the virus, but there are few expects who have yet been certain that it is the heat that has helped manage the virus.
Below is taken directly from the Baillieu report. Bold and highlights are my additions for emphasis. They retain a price target of $2.75.
Presentation: Following the release of PNV’s 1H20 result CEO Paul Brennan presented at EL&C Baillieu. Main points follow.
Exposure to Coronavirus: Direct exposure viewed as negligible. PNV currently holds about 6 months of inventory in Australia and the US. PNV has significant raw materials on hand. No raw materials are sourced from China – some raw materials are sourced from Japan although this could be sourced from Europe in need. Most surgeries using PNV’s BTM product are non-elective. Also, the Northern hemisphere summer will likely halt the virus in that part of the world.
US market: Sales team will increase from 17 to 21/22 by end FY20 and will likely be 30-35 by end FY21. A new database tool (Definitive Healthcare) has been launched in the US which identifies the top surgeons and contact details in every hospital according to reimbursement data. Competitor Integra continues to undertake defensive action in the market by reducing its organic (bovine based) Pri-Matrix product to the same price as PNV’s BTM and offering a free replacement if there is any infection requiring another surgery. PNV views this as highlighting the potential waste of theatre time in using the Integra product
Sales trajectory: PNV expects FY20 sales to more than comfortably double– so the A$20m+ range. PNV is to start a second daily production shift from April to cater for increased sales.
ANZ: PNV’s product was used on all except one victim of the White Island volcano accident. The results for surviving patients were viewed as miraculous given the unusual array and severity of burns. A Sydney based surgeon will shortly do a presentation to the American Burns Association on the use of BTM on a volcano victim. PNV’s first procedure in Australia was 8 years ago and no procedure has ever required scar revision surgery which is inevitable in all organic procedures.
Hernia product: Works are continuing to prepare the hernia product for commercialisation in mid2021 in the US. Around A$4.5m of further capital works will be undertaken at the Port Melbourne production facility to ready for production. Machinery used in the production of the hernia product has been housed and tested offsite before relocation to Port Melbourne. Machinery used for production of the hernia product will also ultimately be able to be used for the breast reconstruction product. In terms of raw materials the BTM, hernia product and the breast product all use the same polymer. Whilst the sale of the hernia product will be to a different set of surgeons PNV will focus on large abdominal hernias which will likely also require the use of BTM as well. Competing products in the hernia market are largely biologic mesh based – this treatment is viewed as temporary and has also been the subject of litigation such as the recent J&J verdict. Hernia product likely to be launched in NZ shortly after US due to 510(k) recognition in that country – rest of world will be some time later due to the need to get regulatory approvals.
Betacell Type 1 diabetes solution: Human trials scheduled to start in 2020 following successful swine trials. The solution now works on the basis of BTM being implanted into a stem cell by a European manufacturer and then sold to a hospital.
Cash position: PNV had A$8.1m in cash at 1H20 which will be used for 2H20 capex of A$4.5m. PNV CEO stating that PNV does not require further capital as their modelling shows that cash rebuilds very quickly from sales, no major capex is planned in FY21 and a bank sourced line of credit will be available secured by the owned premises in Port Melbourne.
Our view: Remains a unique story with significant option value around new products. Comments around the absence of near-term capital needs could provide further support in a volatile equity market. Retain Buy.
PNV Price at posting:
$2.00 Sentiment: Buy Disclosure: Held
What do we think that tells doctors about Integra's product...? Why don't you just use BTM in the first place and not feed the bacteria? What do you think of the established player having to resort to these desperate sales tactics to maintain market share? I'd suggest Integra know they're up the creek without a paddle on this one.
(20min delay)
