Aroa Biosurgery (ARX: $0.70) has confirmed that its full year revenue is expected to be within its guidance, and at the upper end, closer to NZ$100 million for its financial year, which ends in March.
Its normalized EBITDA is also expected within guidance, at between NZ$5 - NZ$8 million. The company is now not required to report quarterly, having achieved four consecutive positive cashflow quarters (from operations).
Reimbursement Change in US to Benefit Aroa
At the start of this year, CMS in the US confirmed that it was setting a new cap on reimbursement for skin substitute products used in the outpatient setting. The new maximum price is US$127/cm2. CMS spending on these types of products soared from US$256 million in 2019 to over US$10 billion due to 'abusive pricing practises', which Robert F. Kennedy Jr. believes was the result of powerful business groups targeting independent medical practices.
The benefit for Aroa is that its Symphony product, which is priced at around US$70/cm2, should gain better traction, with many of the high priced biologics expected to be removed from this market.
However what will also be a requirement for reimbursement is efficacy data from randomized control trials (RCTs). Aroa has completed a study with its Symphony product in patients with diabetic foot ulcers (but not venous leg ulcers), which is expected to be published in the next few months. The market for skin substitute products in the US in the outpatient setting should be between US$1-US$2 billion a year, according to Aroa.
US Sales Team
Aroa will build its outpatient sales force, which will be a hybrid using some Myriad (inpatient) reps. The company stated that its new sales staff in the US are taking less time to reach profitability (6-9 months) and the company is getting better at managing staff turnover. With the Aroa technology gaining adoption, the same level of technical competence in the sales reps is not required as previously. The company is also seeing larger accounts being formed in the US with the Myriad business.
Feedback from Clinicians
At an Aroa investor day last year, Aroa invited clinicians using the Aroa products to give their feedback.
Dr Alison Smith, a trauma surgeon in New Orleans, has used Aroa's Myriad products for the last four years. Her centre treats around 5,000 trauma cases a year. Dr Smith said that one of the benefits of the Myriad technology is that there are no complications, unless the patient is allergic to sheep.
Another benefit is that generally the Myriad product only needs to be used once, with a lack of infections. The biologic products are better than synthetics in her view.
However the challenge is the 'explosion of new products' on the market but without the clinical evidence from published RCTs. Dr Smith also noted that the cost of biologics can be prohibitive to uptake.
Dr Jason Brown is a trauma surgeon in Brisbane. Most burns patients die of infection, so limiting infection is a major objective.
He was using around 500-600 alllografts (donor transplant tissue) but Myriad has replaced all of those. He now can't see where he wouldn't use Myriad unless it wasn't available. And allograft tissue can be difficult to obtain. Dr Brown said that in his experience, the Myriad product had outperformed allograft in each measure. And if there was a fire at the allograft facility, it would result in nine months of no product.
Dr Brown has used Myriad in "unsalvageable" limbs and saved the limbs.
Another advantage of the Myriad product is that it is 'decellularised' whereas allografts are not. Dr Brown describes Myriad as a good product that represents good value.
Dr Brown also uses a lot of the Polynovo Novosorb BTM, which is not in competition with Myriad. Other benefits of Myriad include its simplicity of use, less stress involved for the clinician, and no training is required to apply it.
Summary
Aroa Biosurgery is capitalized at $242 million. The company has moved into profitability and should expect solid and consistent growth. Important progress for the company will be publications of randomized control trials with its products to support continued adoption.
Bioshares recommendation: Buy
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