PolyNovo ramps up skin graft push

PolyNovo reports 80pc rise in revenue as its cutting-edge skin graft technology is taken up by more European surgeons.

Paul Brennan is CEO of PolyNovo, whose synthetic skin is used to treat burns victims. Picture: Aaron Francis

Listed biotech PolyNovo has reported an 80 per cent rise in half year revenue to $10.18m as it applies its cutting-edge skin graft technology to its first patients in Germany, Switzerland and the UK.

Chief executive Paul Brennan is now expecting sales of its NovoScorb BTM product to double in FY20, as the company ramps up its sales force in Europe and the US.

“The past half year has been exciting for all of us because many areas of our business are experiencing rapid and dynamic growth,” Mr Brennan said.

Shares in the company surged more than 126 per cent in 2019 to become one of the decade’s best-performing stocks.

The company, which traces its beginnings to soon after the 2002 Bali bombings - increased its loss by 26 per cent to $2.42m in the six months to December 31. This compares with $1.92m for the same period in 2018 and includes an $880,000 share-based payment expense.

PolyNovo’s NovoSorb BTM product - a synthetic polymer used to treat major burns and skin trauma which temporarily closes the wound to help the body generate new tissue - is its lead product, with sales increasing 129 per cent to $8.57m.

The company treated its first patient in Germany on January 19 - a day after it showcased its technology at a burns conference for the DACHs region, which covers Germany, Switzerland and Austria.

“We attended the burns conference in Austria and that finished on the 18th and then we had our first surgery in Germany the next morning on the 19th, which was pretty impressive,” chief executive Paul Brennan told The Australian.

“Since then, our German distributors have done very well with multiple surgeons doing multiple cases. One surgeon alone has treated four patients in the past month.”

The NovoSorb BTM product has also been applied to two patients in the UK in the past month.

One patient was treated for necrotising fasciitis, also known as flesh eating disease, in an NHS hospital. A second patient was treated for a scalp defect.

Mr Brennan said several other NHS hospitals are in the process of selecting patients for surgeries.

“(In late January) I visited several surgeons with our UK sales manager and I was impressed by the excitement that NovoSorb has generated. The first surgeries in England so soon after registration are a reflection of doctor enthusiasm.”

To ensure PolyNovo can service an anticipated spike in demand following the early surgeries, the company has hired two extra sales representatives and a marketing manager, taking their total team in the UK and Europe to four staff.

“We’ve gone to four people very quickly. Our new marketing manager has a strong pedigree in medical devices and also will support the European market,” Mr Brennan said.

“Our plan is to consolidate these markets as we get revenue and rapidly expand into Western Europe as we can. There are multiple things we need to do to enter all these markets including deciding which ones we do direct or through distributors.”

For the DACHs market, PolyNovo has a distribution agreement with PolyMedics Innovations, a pharmaceutical company in Denkendorf, Germany. Whereas in the UK, PolyNovo goes direct to market themselves.

Outside Europe, the company is continuing to gain traction in the US. Revenue more than doubled from $890,000 in December 2018 to $2m in December 2019, while its US sales team employed an extra representative each month as it secured more major hospitals. This has all contributed to PolyNovo’s shares surging more than 126 per cent in 2019 to become one of the decade’s best-performing stocks.

PolyNovo’s chairman David Walliams said: “It is obvious that our customers and our staff are growing quickly”.

“We don’t want to lose momentum, but we want to step up our sales force, our new product development and the infrastructure needed to support them in a controlled way.

“Our model is to sell direct to surgeons to keep the profit in Australia, so we want good salespeople in Europe with experience in selling medical devices in to operating theatres.”

PolyNovo shares fell 13 per cent in lunchtime trade to $2.62, against a 2.13 per cent sell-off across the broader market amid concerns the coronavirus will hinder economic growth.

Macquarie Securities Analysts David Bailey and Rachel Harwood, who have an outperform rating on PolyNovo, said the company was on a “positive trajectory”.

“BTM sales for 1H20 and commentary in relation to the outlook for FY20 highlights the ongoing uptake of BTM in currently approved markets,” the pair wrote in a note to investors.

“We expect this to continue based on a differentiated product offering, with expansion into new geographies presenting additional upside.

“Further, we see potential for additional uses of the underlying NovoSorb technology in other indications with more sizeable addressable markets relative to acute indications, eg hernia (repair and) breast reconstruction.”

PolyNovo’s skin graft products are all synthetic, rather than the traditional animal-based products to treat burns and skin trauma.