IPO - Aroa Biosurgery Limited, page-7

Key highlights:

• 4 million procedures to date – range of five products used in more than 4 million procedures to date, focused on improving the rate and quality of healing in complex wounds and soft tissue reconstruction with regulatory approval in 37 countries
• Huge addressable market alone in the USA – existing and new product pipeline focused on US$2.5b total addressable market opportunity in the USA – established distribution with sales in more than 600 hospitals
• Large patent portfolio provides protection – Aroa’s leading products are covered by a patent portfolio that includes 10 patents and 25 pending patent applications across six patent families
• Delivered revenue growth with significant headroom to come – NZ$22m in product revenue FY20 (ending 31 March 2020) and EBITDA positive
• Attractive multiple on listing vs peers – lists on EV/Pro forma FY20 revenue 8.4x, where its peers PolyNovo (PNV) and Avita (AVH) are trading at significantly higher multiples
• Founder led business with strong management – CEO, Brian Ward, will own over 11% on listing
• Strong distribution in US – USA-based Appulse sales office, a sales-focused joint venture and NASDAQ listed partner TELA Bio Inc. TELA is a company dedicated to sales and distribution of Aroa only products across its 200 active hospital accounts in the USA. During 2020 TELA Bio expects to expand to 60 employees to cover the top 500 hospitals for soft tissue reconstruction in the USA.
• Significant demand – number of leading funds supported IPO with very high demand from new and existing investors

Cheers
Matt


Fundies flock to Aroa Biosurgery float

Yolanda Redrup
Jul 22, 2020 – 3.49pm
Investors ignored a pandemic-induced slump in demand for Aroa Biosurgery's products to clamour after its shares, suggesting the stock will be well supported when it begins trading on Friday.
Well known investment houses such as Ellerston Capital, Perennial Value Management, OC Funds and Regal Funds Management will appear on Aroa's share register.
However chief executive Brian Ward said no fund managers who bought into the June $45 million capital raising received the full allocation of stock that they had hoped for. That initial public offering, which delivers Aroa to the ASX with a $225 million valuation, was five-times oversubscribed, he said.
The New Zealand company has created a biological scaffold from sheep forestomachs, which is surgically implanted to help the body to grow new tissue that's been lost due to disease or injury.
It already has handful of products on the market using its Endoform platform, including scaffolds that can be used to help heal diabetic ulcers, hernias and wounds.
Washington H. Soul Pattinson portfolio manager Dean Price said the company had bought into Aroa's pre-IPO round and while it had received a decent allocation in the float, he would look to buy more when it started trading.
"There was some pretty heavy scaling.... We could see this would be well-supported," he told The Australian Financial Review. "This isn't something we imagine we'd sell. If anything we'll be adding early in the piece if prices don't run too hard."
The embrace of the Auckland-based company's float, came despite the COVID-19 crisis shutting down elective surgery and dampening demand for Aroa's products.
Mr Ward says Aroa's biological scaffolds are cheaper and at least as effective as any others on the market.
While there's been a dearth of floats thanks to the pandemic-induced market volatility and economic downturn, Mr Price said Aroa's IPO is something that would have been well supported at any time.
"Usually companies just tick a few boxes, but this is fast growing, has high margins above 70 per cent, a global addressable market and well-established customers," he said.
"It's also a unique product that once it gets going is very defensible. "
The company's listing was originally slated for July 30, but the date was brought forward after its strong support from institutional investors.
The advantage of Aroa's product over other biological scaffolds is that they are substantially cheaper and also stronger.
Mr Ward, who founded the regenerative technology company in 2008, said the firm had invested serious time and resources into perfecting its manufacturing process, which enables it to sell its products at a cost point that's 20 per cent to 60 per cent below competitors.
Aroa had made sure that everyone who expressed an interest received some shares.
Mr Ward said the 75¢ issue price had not been set at a level to generate a bounce in the stock price on its first day.
"We were really just thinking about what was the right time for us to list. We wanted to make sure we came away with a successful listing and had the capital to invest in the company and we are comfortable with where we landed," he said.
"It was priced with certainty in mind, rather than a first day jump."
Aroa's biggest market is the US, where it sells its products directly as well as through NASDAQ-listed TELA Bio.
The company will play in a similar space to fellow ASX-listed healthcare company PolyNovo, which trades at a market capitalisation of $1.56 billion.
Firetrail Investments equity analyst Eleanor Swanson said the fund had participated in a convertible note raise that Aroa had conducted prior to the listing, which will convert to equity.
She said the fund had surveyed US surgeons about Aroa's products prior to investing and these conversations had given her confidence the business would be able to boost its market share.
However, Ms Swanson said regenerative medicine products could fall in and out of vogue quite quickly, so proving that its products have staying power would be critical for Aroa.
"Aroa is early in its journey and is just starting to get penetration up. If they can increase that penetration, it'll likely get a good valuation," she said.
"But we do have to get confidence that it's the best in the market and that they can maintain that position for the long term.
"I don't think there will be much overlap with PolyNovo. It's more focused on burn wounds and while it's rolling out in the hernia space, my understanding is that it'll be at a higher price point and for more complex surgeries."