Aroa Biosurgery (ARX: $0.52) expects to become cashflow positive in the second half of its financial year, which ends 31 March. In the June quarter the company increased receipts by 17.7% to NZ$17.8 million.
The cash outflow from operations decreased by 24% to NZ$3.6 million. This included large clinical trial expenses with the completion of enrolment into the Symphony randomised clinical trial which involves 120 patients. That trial is looking at the use of Symphony over 18 months for the treatment of diabetic foot ulcers.
Speaking at last month's Summit, CFO James Agnew highlighted that R&D costs were not expected to grow.
Myriad sales increased by 11% in the June quarter over the March quarter. The number of Myriad accounts also grew by 11%, to 242 in the quarter.
AROA maintains its FY25 revenue guidance of NZ$80-87 million, which represents growth of between 21%-32% for the year. AROA held NZ$23.9 million in cash at the end of June with no debt.
Summit Coverage
AROA's ECM advantages
AROA's extracellular matrix (ECM) biomaterial is derived from sheep forestomach lining. Once processed and purified, the tissue is extremely porous (allowing cells to penetrate) with over 150 proteins including a significant number of growth factors. At last month's Summit, Agnew highlighted that AROA's ECM has both structure and biology, with infection rates close to 0%. Synthetic equivalents lack the biological growth factors, and have a higher chance of sparking inflammation and infection. Another alternative, human amnions, lack an ECM structure and tend to disintegrate very easily.
The Symphony product sells for around US$60/cm2, compared to just $0.50/cm2 for the Endoform product used in the outpatient setting. "The pricing of our products is incredibly disruptive," said Agnew. "We're typically 30-40% less expensive than the key biologics in the market."
AROA's tissues are applied once and fill wounds in around 3-4 weeks, while its competitors take around 6-8 weeks according to Agnew and they must be reapplied often. Though AROA's products are cheaper than biological competitors, they're still significantly pricier than synthetics.
AROA's TAM
The Company develops four ECM product families, targeting the soft-tissue regeneration market. Its technology has been used in over six million procedures.
Aroa listed in 2020 with just over NZ$20 million in sales. That increased to NZ$68 million in FY2024, with Myriad generating close to NZ$25 million that year since being launched three years ago (more than 70% growth on the PCP). However the addressable market for Myriad in the US is around US$730 million. Agnew said that Aroa is just getting started with less than 2% market share.
Agnew emphasised that AROA is now narrowing its focus to lower limb salvage and traumatic wound care, having initially had a broad approach (US$525 million market).
Aroa currently has just under 60 sales staff in the US. To cover the whole US region, that will need to increase to 100-120 said Agnew. However the emphasis at the moment is to build penetration into existing accounts.
Aroa's distributor for the Ovitex product range (for hernia and breast reconstruction) in the US, TelaBio, has raised over US$400 million with its business only selling those Aroa products.
Outside of the US Aroa has 15-20 distributors. However the US makes up 98% of sales. The company has around 270 employees with just under 200 based in New Zealand.
Ongoing trials
Agnew said that all of its products on the market in the US have 510k clearance, however that does not require clinical evidence. But clinical evidence is required to drive product adoption.
When Aroa initially launched three years ago it had little clinical data around Myriad. So it decided to open a registry to monitor treatment outcomes. That registry reached 300 patients and will now be expanded to 800 patients. Publication of this data is expected to accelerate clinical adoption said Agnew.
An emphasis on the data from this registry will be the savings to hospitals from faster treatment outcomes and lower levels of infection. The company is expecting eight publications from different wound treatments with Myriad by the end of March next year.
Longer term, the company is focused on growing revenue but also profitability at the same time.
Aroa is capitalised at $179 million. It trades on a forward price-sales ratio of just 2.5 based on the minimum 21% sales growth anticipated for FY2025. Longer term growth will be driven by clinical data emerging from ongoing studies, and from studies due for publication.
Bioshares recommendation: Speculative Buy Class A
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