Interesting and insightful comments from one well-respected fund, Selector, in their latest quarterly report: "Our September 2019 Quarterly Newsletter presented the PolyNovo story to investors. It is available on our website here for those who wish to reacquaint themselves with the business. It followed on from our visit to the group’s head office based in Melbourne and the U.S. office in San Diego. Since then, the company has made substantial progress. Investors could be forgiven to think there is little depth to the business. We read with interest how one wellknown local fund manager regarded PolyNovo as a speculative investment. Such views reflect a lack of understanding of a management team committed to a global commercial rollout, based on a unique wound healing polymer platform technology initially developed by the CSIRO. The first product, the Novosorb Biodegradable Temporizing Matrix (BTM), is the group’s flagship offering. When we first visited two years ago, the business plans were in place but execution still a risk. Pleasingly, under the direction of CEO Paul Brennan and the group’s working board, the achievements to date are impressive. Operating within the group’s limited surplus funds, it has studiously reinvested all cash flows back into building out the manufacturing base and expanding the global sales force. Full time staff has just hit 100, 40 more than at the time of our last visit. Most significant has been the expansion of the U.S. sales force. Here the company has chosen to go direct, segmenting the country into four regions, with a team of 33 now on the ground, compared to the 12 on last count. This has led to both a steady stream of individual hospital wins and the signing of contracts with powerful Group Purchasing Organisations (GPO) covering aggregated healthcare providers. The result has been positive, with both top line revenue and regional growth despite the COVID impacts. In the U.S., revenues of $10.3m for the first half 2021 have more than doubled from the $4.8m recorded in the 2019 comparative period.
Elsewhere, a string of new distributors were signed. This has particularly been the case in Europe with a presence formed across Germany, Italy and other European Union countries, alongside direct operations in the U.K. and Ireland. Our tour of the new hernia cleanroom and film extrusion facility is a further illustration of the progress made. The company’s core market segment, covering burns and trauma injuries, are to be augmented by new platform products encompassing hernia and chronic wound injuries, including diabetic foot ulcers. The total addressable market for each is estimated at US$850m and US$400m respectively, with little competitor alternatives. Perhaps the most pleasing development is the skill set within the board and executive ranks. The board has been strengthened with the appointment of Christine Emmanuel, currently Executive Manager of Business Development and Commercial at the CSIRO, as well as her membership of the Chartered Institute of Patent Attorneys U.K. Joined alongside her is Dr Robyn Elliott with qualifications from Monash University and currently Senior Director for Strategic Expansion Projects at CSL Behring. Her involvement was instrumental in attracting the company’s Chief Operating Officer Dr Anthony Kaye, with specific manufacturing and operational oversight. Lastly, in May the company appointed Dr Joshua Cheetham to the new position of Director of Research and Development. This year the group is on track to pass $30m in sales, with most of the excess income reinvested into operational expansion. The business enjoys attractive gross profit margins in excess of 90% and strong clinician endorsement, evident by underlying annual growth rates exceeding 50%. To date, management have chartered a prudent path, reinvesting into manufacturing capability, strengthening the executive ranks and pursuing new platform extension opportunities. The results to date, while still in its infancy, point to a positive outlook and are far less speculative than some would suggest."
PNV Price at posting:
$2.11 Sentiment: Hold Disclosure: Held
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