Like I said, some brokers are forecasting a massive drop in...

Like I said, some brokers are forecasting a massive drop in revenue growth. They don't say why or how they reach that conclusion. Kind of sparse on reasoning or figures. Some of the comments seem odd.
Polynovo (ASX: PNV)
Business strategy
Polynovo earns most of its revenue from US sales of its NovoSorb Biodegradable Temporizing Matrix, or NovoSorb BTM. The product is a patented biodegradable synthetic scaffold to support the regeneration of skin when lost through surgery, trauma, burns, or other causes of tissue loss.

Polynovo’s strategy revolves around expanding its geographical footprint to increase access to its products and open new hospital accounts. With its geographical reach the firm estimates its products are available to 800 million people as of fiscal 2023, but highlights the global market is underserved. The firm entered several new markets in fiscal 2023 including India, France, Spain, Canada, and Hong Kong, Polynovo intends to enter more geographies with new regulatory approvals, particularly with a focus on China and Japan through distribution partners. While the US market is key for Polynovo, representing roughly 80% of sales in fiscal 2023, new geographies would diversify the sales mix.
To support its organic top-line growth in existing and new markets, the firm invests heavily in expanding its sales staff as well as its in-house R&D. Product sales are largely through direct distribution, but Polynovo appointed distribution partners in select geographies including Germany, France, Spain, and Canada. Its R&D efforts center around exploring and receiving regulatory clearances for applications of NovoSorb products beyond the dermal substitute market.

Polynovo launched NovoSorb MTX in May 2023 to complement its main product NovoSorb BTM. NovoSorb MTX is like NovoSorb BTM but without the sealing membrane outer layer, and used in broader applications where it is not required. This is expected to drive sales with existing customers as sales staff can cross-sell products, with surgeons able to carry both products. Near-term, the firm is aiming to receive regulatory approval for full-thickness burns in the US and planning to complete recruitment of 120 patients for its associated US pivotal trial in fiscal 2024. The firm is also conducting clinical trials to receive reimbursement support for chronic diabetic foot ulcers and wounds. We think these efforts are likely to support growth.

We expect Polynovo’s NovoSorb products to pose a significant challenge to the traditional skin graft. We believe Polynovo will be successful based on the technology’s clinical performance and ease of use backed by a growing number of surgeon-led research and publications.
Fair value
Our fair value estimate for Polynovo is AUD 1.00 per share and assumes the company is profitable from fiscal 2024 onward.

We forecast a five-year group revenue compound annual growth rate (“CAGR” of 25% forward to fiscal 2028 versus a trailing two-year revenue CAGR of 50%. This is driven by Polynovo’s key US geography where we forecast a five-year revenue CAGR of 21% for the region. We expect the firm increasing its sales staff to support market share gains.
In addition, we expect the recent product launch of NovoSorb MTX to increase penetration within existing hospital accounts given its broader applications. Our forecast five-year revenue CAGR for geographies outside the US is 39%. This is driven by recent entries in India, France, Spain, Canada, and Hong Kong, as well as planned entries into China and Japan. As such, we forecast revenue contribution from the US to drop to 66% of group sales in fiscal 2028 from 79% in fiscal 2023.

On the profitability front, we expect group midcycle operating margins to settle at around 35% by fiscal 2033. We forecast Polynovo’s maiden profit in fiscal 2024 and margin expansion from operating leverage. Our estimates deliver EPS growth of 18% at midcycle. We forecast average annual capital expenditures of roughly AUD 6 million over the next 10 years, or 3% of group sales. We also factor AUD 25 million in capital expenditure over fiscal 2025 and fiscal 2026 to fund a new manufacturing facility which has capacity to service an additional AUD 500 million in annual sales.