Wound healing products company Aroa Biosurgery (ARX: $0.86) continues to deliver consistent and strong top-line growth. Cash receipts in the June quarter were NZ$13.9 million (up 162% over the PCP). Net cash outflow was NZ$1.3 million from operations and investment in equipment, down from NZ$3.7 million in the PCP and down from NZ$6.5 million in the previous quarter.
The strong performance in the June quarter included a large shipment of product to the company's distributor, TelaBio, in the March quarter. The company is maintaining its revenue guidance of NZ$51 - NZ$55 million for this financial year (which ends 31 March 2023).
On a recent investment call Aroa CEO Brian Ward said that sales in the June quarter were up significantly on the first quarter. With respect to procedure volumes in the US, hospitals are operating at around 90% of pre-Covid levels, with Ward emphasising that is certainly sufficient for Aroa to succeed in the US.
Ward said the company is seeing some inflationary pressures in the current environment, however Aroa is well placed from increasing margins due to its changing sales product mix (i.e. selling more much higher margin products such as Myriad), which will see margins continue to improve in the current year.
The company has added five sales staff to its US team during the period which now totals 32. The company can be seen as selling three groups of products currently. The first is the established Endoform product for chronic wounds. However, the market opportunity here is only around US$80 million in the US.
The Ovitex products are sold by another company, TelaBio, and are used in tissue reconstruction procedures (such as hernia and breast reconstruction). TelaBio is forecasting sales this year in the US of between US$40 - US$45 million. Aroa supplies the product and receives 27% of sales. Aroa estimates the total addressable market in the US at US$1.3 billion. Ward said that the demand for the Ovitex products remains strong.
The third product line is the Myriad and Myriad Morcells used for soft tissue reconstruction and more complex wounds. This is the growth area for Aroa, which the company estimates the addressable market in the US at US$200 million a year.
The company increased its penetration by 32% into 92 active accounts in the quarter. A long-term target is to gain around 900 active accounts for this product in the US.
Future products under development include the ENIVO and Symphony. ENIVO combines the Aroa extracellular matrix with an external negative pressure pump. The exact value of the market is unclear. The product is expected to be filed for approval at the end of this year in the US. A publication on this product is expected to be released shortly (next three months).
The Symphony product is being developed for complex wounds and limb salvage. A pilot study has been completed in 10 patients with diabetic foot ulcers. A pivotal study (randomised controlled trial) is due to start in the December quarter in the US with the company seeking to enrol 120 patients. The trial will run for two years. The addressable US market for this product is estimated by the company at US$1.1 billion.
Aroa is also conducting a 300-patient registry study with its Myriad products. The first patient was enrolled in January with 48 patients enrolled so far. The study is expected to run for three years. Two of the 10 planned sites are currently open.
Aroa Biosurgery is capitalised at $293 million with cash of NZ$55 million at the end of June.
Bioshares recommendation: Speculative Buy Class A
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