PolyNovo Limited (PNV) Earnings Call Transcript & Summary

Well, good afternoon, everybody. I think everybody in this call should know who I am. My name is David Williams, I'm the Chairman of the company. And you will see on the screen that I have got three people with me, Swami, who is the new CEO and I'm hoping that many of you would have met him in my sort of introductory thing with Swami about a month ago. I've got Jan Gielen, who is our CFO and been with the company for many years. And I've got Max Johnston, who was a director for a number of years, and went away, probably was retiring and then we dragged him back for 3 or 4 months, till [indiscernible] up to Christmas till we find -- well, we found a new CEO, we found Swami, we didn't look have to look too far because I worked with him in Johnson & Johnson. But it's a little bit longer than the Christmas and Max has just got back from a month holiday, and will be leaving to go back up north to Byron Bay at the end of this month. So before I get started, I'd like to thank Max for holding the fort so well for the last probably 8 or 9 months. And I wish him well and I think he thinks he is escaping but we still have his phone number. I have 4 people on the screen for a reason and that's because we are in unusual circumstances, obviously, Max been here for 9 months and now going, and Swami has only just arrived. So normally, on a call like this, where we're just announcing our results, I expect to see the CEO and may be Jan making max of the presentation and me helping in entailing it. But I thought we'd try something different today because I don't think anybody on this call needs a proof that we're an unusual company in the sense that we're only still a start-up, but still cut over $1 billion. But there's so many moving parts in this company. We're not a steady-state company where we can come and make a presentation and just talk about the milk prices and what the [ power ] price is or whatever it is, there's a number of moving parts to do with sales, to do with new product developments, to do with M&A and so forth. And sort of in the spirit of openness that we might have a shorter number of slides and open the discussion to all 4 of us. It's unrehearsed, I should say. As I said, Max has just come back, but I wrote the slides up myself last night. And you'll see that they're just a replication of what's in the 4G anyway. So if you want a bigger presentation, there's one in the 4G. If you want a smaller presentation, it's one that's just been uploaded, which is only 3 slides that have really dragged out of that 4G plus final slide talking about things like growth and M&A and direct growth versus organic growth and so on and so forth. So I thought what I might do is hit what I think about the high spots of the sorts of things the company needs to do. And then I would pass some of it over with each one that I hit, I think I'll ask Swami to comment on it and perhaps Max and perhaps Jan as the case may be. Eventually, we'll take some questions and then I'll sort of hand those around a bit. But I think you might find it useful, especially in an unrehearsed way and especially in a growth company where a lot of these things are live and being considered. Just to get a better feel for how we are looking at the company and how the company is growing. So that's by way of introduction. And I think before I get started, in my own mind, this company is about sales, sales, sales, and probably new product development. But under sales, it's a lot more complicated than that. It's about people, how many people we got on and what jurisdictions. It's about which channels to market because at the moment, we're mainly hospitals. And it's about new channels to market, such as podiatry, plastic surgery and so forth. And of course, it's also about geography. And at the moment, of course, we've had our first sales, as you'll see in our annual report, in probably a dozen or more countries in Western Europe. And now we've finally started to [ hear ] our steps in the U.K. island. But you know Swami's background, you know his background with respect to India. Well, he doesn't need any introduction on the Indian side of it. But Indonesia, Japan, and he has some other ideas about China and the Philippines and Indonesia. So I think you'll find a different perspective from him on how we're going to tackle some of those things. And hopefully, a bit like the last conversation we had, which was a bit more chatty, it enables you to get a much better feel for the company itself. So with that said, I might just quickly just -- I'm not going to use the slides, but I just want you to know what's on them. So I'll just quickly go through them for 30 seconds, then get rid of them, and you'll see us -- the 4 of us take up the full screen, and you can go look at the slide some other time. So Chester, if I could just have the first slide. So I'm first of all, going to pick apart just what happened this year. We're not going to rely on what happened with COVID. We don't really care. We grew pretty well in the U.S. and we're still continuing to grow and we're still continuing to put on staff. So I just want to pick out a couple of these things. And in particular, I'm going to pick out a little bit about what's happening in U.S. sales, what's happening in ANZ sales, what's happening with BARDA and our relationship with BARDA. And I'm going to ask Swami and Max to just sort of comment on these things. Just the next slide. And then just moving off the -- some of the financial stuff. I want to talk a little bit about what's happening [indiscernible]. CapEx, some things to be interested in there in the sense that we haven't spent much this year, and it wasn't because we didn't want to spend the money, it's just a capital-light business. And it's not like I'm at Bega Cheese, -- you want to build a factory in California, okay, give me $300 million, and we'll see how we go. This is a capital light -- capital-intensive industry. Now talk a little bit about R&D. And in particular, I want to talk about new product development. I think one of my reflections is that people are worried too much about the timetable on hernia and breast, they are all good, they're going fine. But I want Swami and Max to give us a little bit of a taste about other things that are happening because there's a lot of things that are happening that are going to come to the market much quicker than hernia and breast. But I also just want them to give us a bit of a feel about how we're getting surgeon-led here. I've mentioned this before, but we're playing catch up all the time with surgeons and we'll give you a couple of anecdotes about sort of things that are happening in the market. And then finally, just the last slide. And I think you're going to find with this discussion that I expect that it's going to jump around a bit all over the place. But if we haven't covered things off, then I want to go back to the global footprint because Swami, if he could be, is more excited than we are about accelerating global growth. So I want to sort of get his perspective about how he's looking at other geographies that perhaps we haven't even looked at and would be a good one and so forth. So we'll sort of work our way through some of these. I think by the time I get to talking about what's on this Slide 3, we will have covered most of it anyway. But these are the important points, I think, in terms of understanding the company. So bear with us, I hope you enjoy this -- well, in some ways, a more casual approach, but in other ways, a more detailed approach, but where we can share with you our thought processes on things that are evolving. And I could have done different. We could have waited 5 months till Swami's worked with us on a new strategic plan and a new market entry and given it to you. So I appreciate that you're sort of getting a bit of a [indiscernible], but I think that's a good thing for you, and it's probably a good thing for us as well. So I'm going to ask Ches to do this, just get rid of the slides at the moment so that you can get the full impact of us on the screen, and I'm seeing something different to you. So I hope you can see that I'm wearing a new red jacket for the occasion. And let's get started. So the first thing I wanted to talk about, just going back to those -- that revenue growth that you'll see in the annual results today is that the U.S. alone grew 55.1% in FY '22. It went from $20 million sales to $32 million sales. And we're pretty happy with that. It was a patchy year in terms of COVID, there were certain states that were shut. There were certain states that were open, but the hospitals were shut. And so to get 55% in that sort of environment, we're pretty happy with. And so we see more of that. I've said in the past,that people need to realize that in many ways, this is a cookie-cutter approach. We've got a product that works. We've got a product surgeons want. And it's a matter of getting more people on the road. But be aware that not only are we getting more people, but be aware that we're only doing hospitals. And so I think first things first, I might just -- I don't want to keep talking all the time, but I think I'd just like to ask Swami's any comments he'd like to make on the U.S. growth. And what he sees for the U.S. in terms of the important points about accelerating growth in the U.S. market.

Thank you, David. Before I start, I just need to keep reinforcing what an amazing technology we have here starting out in Australia. Whenever I talk to surgeons, they keep reminding me it's simple, the design is elegant, but it delivers outcomes which are truly extraordinary. And I think that is something which we always need to keep at the back of our head. The other thing which I keep hearing from nurses is it's easy to apply. When they look at the amount of dressings and back and forth with the patient, you don't need to spend as much time. It's less complex than what they're traditionally used to. The third delighter of this technology is the cost. And the last delighter is the patient experience and how the technology performs in terms of restoring form function and how the patient looks and feels after the product -- after the procedure. So with such a solid technology, I'm really proud of the U.S. team in terms of what a disciplined execution they have been able to achieve. I always thought they could do more but it's amazing what they have been able to achieve during the COVID times. It's amazing the amount of talent that they were able to get. They have doubled the sales force in the last 6 months alone. Throughout last year, they have doubled the sales force close to 60% of the people came in the last 6 months alone, and they continue to keep hiring talent and they have sharpened the process of talent recruitment. I think U.S. has many more legs to go. It's a very profitable business, again, sharp execution, focused execution, profitable business, but it can grow multifold. And that is what I am truly, truly passionate about. They can take the trajectory up as they get that formula right. And I don't know, Max, if you want to add anything because you'll be with them much more.

Yes. Thanks, Swami. I'd just like to echo your comment. So I think Ed has done a fantastic job over there. And I'd have to say he's been an absolute delight to work with over the last 6, 9, 10 months, whatever it's been. Tremendous professional and a real guy who focuses on execution. A couple of numbers that I think are interesting is, I think last time I was on a webcast, the average territory was about 4 accounts per territory. That actually built up to 6.7 accounts per territory. But with the increase, we're back to 3.7 accounts per territory. So that gives an idea of how [ Ed ] is executing against having a solid territory, building that territory up, getting deeper penetration within those accounts and then repeating that exercise. A wonderful way to build a business. The second number is the proof in the pudding. And that is that existing accounts are up some 88%. So the existing account trajectory is actually much, much stronger than what the overall trajectory is because we're still in the acquisition phase. So enormously confident, Ed has been an absolute champion to work with, and I can only see it going from strength to strength.

Yes. I've got some numbers to add as well with respect to the U.S. But before I do, Swami, you were at the national sales meeting in California at our office, what, 10 days or 2 weeks ago. So would be interested just in terms of your perceptions about the enthusiasm of the sales force, the professionalism of the sales force and their experience. I mean, I'd be open about that. I'm asking you because you've come out of J&J. So you know what a good sales force looks like.

Yes, I love the sales force of J&J. But I would tell you that the excitement of PolyNovo was palpable. While it's new, they are mesmerized by the technology and the impact it can have on patients. And that is what gives the sales team so much of confidence. When I just looked at the people and where they came from, they came from Integra, they came from ACell and they were just amazed at the quality of outcomes, and they wouldn't wait to go back and start talking to their surgeons about how different, how simple, how cost effective BTM is. And how is it going to make a bigger impact for them, the complexity involved in an operation theater as well as for their patients. So just amazing excitement. It's almost the sense that you are at the beginning of something new, and you don't -- you're like just waiting to get started. So very new team but phenomenal excitement and that's a precursor of what's to come in the future. Ed detailed out the strategy of land and expand, and we're experimenting with changing the org structure a little bit to see how we can go beyond burns. We are very strong in burns but how do we now start getting into trauma and some of the other places where we can start involving surgeons and delivering better outcomes for other procedures. And that's, again, another exciting thing that I can see in U.S. Very profitable business, but I don't think it's a mature business. It still has ways to go from growth, and that's what excites me about U.S.

So just a couple of figures that people perhaps might appreciate is, Swami said before, they've added significantly to the sales force in the U.S. Just to reinforce my cookie-cutter approach, I can tell you that this year, they added 27 new salespeople, 9 of those, by the way, have started in the last 2 months, and there's 5 open positions. So that alone just gives you a sense and gives us complete confidence that sales is going to keep going because as each of these new guys start, after 6 months, we're expecting them to start watching their [ face ]. So I think that's really a good thing and there's another 5 to come on. It just reminded me, and I don't know if we've said any of this publicly before, but we are about to go into Canada. And I think, correct me if I'm wrong, gentlemen, just to prove we haven't rehearsed this. Correct me if I'm wrong, but I think we're launching in Canada in around about now. But we already have sales in Canada because we have surgeons buying it at their own risk and using it. Max or Swami, can you say anything about Canada?

We will be in Canada in the last quarter of this year. We have put in process our application and the license should come through pretty soon. And we have a sales team, which is raring to go. So we will be working on the training programs in advance of everything. So again, very excited about Canada and the procedures that we have done there with some surgeons have had tremendous outcomes. So Canada is going to follow the same path of U.S. and can't be more excited about Canada as well.

Yes. Thank you. Just staying on the U.S., again, a couple of numbers. As I said before, one of the big opportunities to expand outside the hospitals, but also to expand inside the hospitals. So in some hospitals where we're still only met, for example, selling to burn surgeons, we now have the opportunity to sell to oncology surgeons, guys doing amputations, guys doing diabetic foot ulcers and the like. So there's a fair bit of work to be done there. But I can tell you that in the last year, we've added another 80 hospitals. And some of these hospitals by the way are much bigger than we used to seeing at the Austin or Royal Melbourne or whatever. So they offer a substantial opportunity. And it's not -- I don't want to make too much of it because as you put on new salespeople in areas where we don't have anybody living, then we're going to get that naturally in any case. I think my final comment on the U.S. and Swami said it, but you should believe it, is that it is already substantially profitable even after Jan dragged some of it out in first period head office charges. There's only more of that to come, and it's sort of very exciting. We're not sure, by the way, whether COVID is over yet. I mean, there's still plenty of hospitals with patients, but we do have a much freer environment everywhere around the world for that matter. Which sort of gives me -- it's a nice segue into Australia because everybody knows that for several months there, the whole of New South Wales and Victoria shut down, and that did hurt us for once. Whereas in the U.S., we made good of the fact that we had webinars, we could go and have coffees with surgeons outside of the hospital setting. And so we still got pretty good growth at 55%. But the interesting thing I find about Australia is that if you look at the first half when we had a lot of lockdowns compared with the second half, we grew 66% in the second half over the first half in Australia and New Zealand, which just shows you that it sort of comes back pretty quickly. And Max, do you have a sort of perspective on that? I mean we're still missing about with Australia in terms of getting a second person in Queensland, getting our first person or tell our shareholders whether that's happened. But I know we're about to put somebody on full time in NZ.

Yes, David. And you probably think nobody works too hard. But I think we were probably making our Australian territory managers work a little bit hard. We had our main territory managers handling in excess of 30 accounts, which is a ridiculously large number of hospitals for them to be carrying. What we did notice is that we were under servicing regional areas, that we were under servicing some of the smaller accounts. And as a result of that, we've actually put associates with these people who also give us a pipeline of good people for the future. So if you have a look at Queensland, we've increased our intensity there. We've increased our intensity in New South Wales and Victoria. And in New Zealand, we now have people who are captive to New Zealand as opposed to Valerie who does a fantastic job. She's ultra active having to go over there and service that market herself. So Australia should be our most mature market. We're still seeing good growth there. When we look at how we can do a better job for our surgeons, support our surgeons better, we don't see it as a mature market. We just see it as a market that we can do more work, help more patients in by increasing the intensity.

David, if I can add a couple of points. So Australia is where we are a clear unequivocal market leader in burns, and that's what Australia should be really proud about. Now having said that, the opportunity for Australia is to again start going beyond burns. And we have the right people with the right experience in terms of going beyond burns. There is also an opportunity as we start getting into the regional centers into Western Australia to serve them with products which would help them with specific situations in those areas so that patients don't have to come back for a second dressing. And those are the things that we need to think through in terms of helping Australia start growing again. And as I said, I mean, I don't think it's a mature market. Our growth will be limited by our imagination and our ability to involve surgeons into different surgical problems that they want to solve using BTM.

Yes, good. Thank you for that. I mean one of the things you just touched on this, Swami, I was going to leave it to last, but it goes into new product development. And you just touched on it by saying we need some products that help people in certain situations. It's not necessarily geographies, but rather certain types of wounds and coverings where you don't need the laminate. And therefore, the surgeon might be able to do it in one fell swoop as it were. In other words, we have wounds that are a bit smaller when the surgeon can say, I want to use a foam, but I don't need to laminate because the wound will heal itself or the ability to put the foam line, again, in a small wounds and put the skin graft on at the same time and not have to do 2 coverings. Or in other things like bones and joints and so forth. So I think it's probably an ideal time, Swami, to say something about surgeon-led because this is really driven by the surgeons rather than for us.

Yes. As I have gone around meeting different surgeons, there are some unicorn surgeons who already have taken the product to more places than we have thought about. And the question for us would be how do we listen to their voice? How do we prove their thesis in terms of how the outcomes will work and at times change our technology, make it thinner, make it thicken, remove the laminate, change the sizes, so that they feel that they are able to give the patients the best possible outcomes without necessarily throwing off a big chunk of what's not needed. And that ability to listen to their voices, bring them into our R&D labs, make sure that we're able to follow through with changes, make sure that those are easy regulatory pathways so that we don't have to wait for too long to get the product back to them. That's how I think about how do I give them the access to products and solutions which they want in the quickest possible way? And MTX is a great example. It was started by Max. And that, especially in certain markets and certain areas would really do well because that's where surgeons want to do a graft, quickly apply a secondary skin graft on certain procedures where they believe that the patient won't come back or they don't have the time and send the patient home completely comfortable in the knowledge that the product will deliver the outcome that they have seen in so many other patients before.

Yes. Thank you for that. I just want to emphasize it to people because there is a section in the annual report, which you should read on what we used to call matrix, but we had some intellectual property issues registering it, and we've changed the name to MTX. But MTX is very useful derivative of our existing technology, but without the laminate on the top. And when I said before, don't just concentrate on hernia and breast and whether that's 2 years out or 3 years out, it doesn't matter. There's so many other things happening. And one of the most exciting ones I think is matrix or MTX which the surgeons have demanded. And we don't look at it as being cannibalistic at all. On the contrary, we think that surgeons are going to carry both. So for some wounds where you need to protect the body and it needs to be a 2-stage operation, come back, take off the laminate, put the skin graft on, fine. But there will be many others that the surgeons will have. And this product itself has, in my mind, the ability to double the size of our business because surgeons will carry both. And I think we've already -- unlike, for example, breast and hernia, we've already applied for FDA approval of that, and let's see what happens in the near term there. But you're going to find a lot more interesting things happening between now and when you see a breast product, for example, on the market. So that's -- there's -- as I said, the most exciting thing is that a lot of this is surgeon-driven. Now you might say, well, okay, that's great, put the product out. We're going to use it. And they will use it. And they are using it for things like, let's say, diabetic foot ulcers. But that's a certain percentage who will take it. And there's other surgeons who sit back and go, I see they're using it, but do you have any data? And so one of the catch ups we need to do with the surgeon is to really catch up with those who want to use it for a certain thing that is already being used for but need data to go with it. And that's why we're doing small studies. You saw we did a 10-patient diabetic foot ulcer study recently as not only as a precursor to the biggest study we're doing for reimbursement and so forth. But just to prove to ourselves and be able to give salesman the toolkit to be able to sell to surgeons themselves. So look, I started off in Australia, and I've sort of digressed a bit. One of the other points you'll see and it is just what's happened to our BARDA revenue. It seems to be 2/5 of BARDA but grown 4% this year. But I think you need to marry that up. That's a sort of in a sense of a historical one, you need to marry it up with the fact that BARDA subsidizing the trial that we're doing at the moment to the tune of $15 million. And if things go the right way, no promises, but we're likely to get a lot more money out of it. Now we make a small profit off it. So it's not -- but it's not a profit thing for us. It's a matter of not only getting more data. But more particularly, if these things work to the way in which BARDA wants them to work, and we're very confident because we know how the BARDA works. They will buy a substantial amount of stock to stockpile it for disasters and so forth in the U.S. And I think, again, I'm not sure we're going to have to wait until the end of the clinical trial to get to that stage. So again, there's some timing things here. Swami, you've been having a number of meetings even in the last few weeks with BARDA and Max before you and now. I'd just like you to maybe make some comments on what's happening about it. This is not like getting a government grant of off the current government. It's all cargo responsibility. These guys are all over us like a cheap suit, right? And I don't mean that just in the sense of having phone calls, we have sort of weekly accountability. They will pay to have an accountant on our team who monitors this stuff within each of its life. And we're comfortable with that. We'll make some money off it anyway. But the prize at the end of the day is magnificent. But I just -- would be interesting for people to hear who we're talking to, how we're talking and what -- whether they love us or hate us or...

David, if I can just interject probably first. What I'd like to emphasize is just what a wonderful partnership it is with BARDA. They're probably one of the most progressive government bodies I've ever had the privilege of actually working with. Very, very focused on what they want to get at the end. If they have a catastrophe in the U.S., they want to be able to respond to it in the best possible way and they take very seriously the way they spend taxpayer dollars to get to that outcome. And I think it's a great privilege for us to be selected as one of those partners, and they go to great lengths to emphasize partner in providing that underpinning to the U.S. population for disasters. And I will hand over to Swami in a minute. But I think what is so good about the BARDA relationship is they want us to succeed, and they will do anything possible for us to have a very, very successful pivotal trial. Their involvement with us, it's almost like they're an extension of the company in terms of getting these programs on track. But anyway, Swami, you've been talking to BARDA probably more than me in the last month.

What I would probably emphasize is dig into my past and I was involved in the vaccine trials with BARDA. I mean BARDA is an amazing agency with a purpose to help citizens of U.S. and military of U.S. with the right medicine, with the right stockpiles, and they are the driving force of innovation for U.S. as well. The resources that they put in that program and the resources that I see with the PolyNovo program are almost identical. So I don't see any let up in a $600 million program versus a $15 million program. And that, to me, is impressive. The commitment which they bring to the table, the attention that they pay to detail and they want to execute this program as quickly as we want to execute this program. So there is attention from both sides. We are looking at what mechanisms do we put in place to enroll patients faster. We are looking at when can we start releasing the data. And BARDA and our clinical team would approach FDA to make sure that FDA is a part of the process. And at the end of it, we get the outcomes which we want from a clinical perspective and FDA gives us those PMA approvals for deep second-degree burns, which is what the end goal is. But they're a phenomenal partner. And what Max said is right, we are -- we have one objective and that objective is how do we get to the endpoints of this clinical program together. And then how do we get the approval and then how does BARDA stockpile the right amount of product from their disaster preparedness perspective for all the U.S. citizens.

Yes, that's great. We may be getting into the detail too much here, but I think it's useful just for people to hear how many sites, how many university hospital sites we're using on the BARDA trial. And for everybody's benefit, we had a Board meeting this morning, I just learned for the first time that we're going to add 3 more sites and perhaps in Canada. Swami, can you comment on that?

So there are 30 sites in the U.S. and then they have agreed to add 5 more sites. We are having conversations with them, whether we should expand it beyond U.S. and Canada. But as I said, I mean, it's just a focus in terms of how involved they are. And the head of BARDA personally at times reaches out along with the infrastructure and the team which he has to all the investigators, making sure that you're all on top of our A-game in terms of enrolling the patients, tracking them through this study program. And while we have an endpoint which is December 25, we are all trying to see if we can bring it forward dramatically in terms of getting early read of the clinical trials, trying to see if we could fast track that approval with FDA as well. So tremendous partners, and we're constantly looking at how can we enroll faster without losing the quality of the program and the data.

Yes, yes. And it's probably not that relevant to most people, but the trial is being run by Tina Palmieri from California who is one of the most influential surgeons in the country and ex-head of the Australian -- American Burn Association. So that in itself, we hope, is dragging in a higher quality surgeon under her belt. And -- but it just goes to reinforce, I think, our image with the surgeons as well. So it's a quality trial. I mean even though the number of hospitals sounds large, and we may even do some offshore, we're only -- I'm just trying to think the size of the recruitment, is it 138 patients we're doing?

123.

Okay, so 123 patients. So we've got every right to try and think we might be able to bring this forward, but it's still a matter of recruiting patients. Well, before I move off revenue and growth, and we mentioned that the U.S. is now significantly profitable even after Australian charges. We perhaps just should emphasize again the margin in this product because if you look at some of the other companies in this space, people keep comparing us wrongly to Avida because it's not a compariosn, Avida U.S. is a skin product. But people like Aurora and Integra and so forth, our margin is so significantly higher that's why we're reaching profitability a lot more quickly. Jan, just to pull you into this, just give people -- we're cutting the salami because the margin is so high. But what is your current thinking on the margin of this product when we sell a product for $1?

Yes, it is very high by industry standards, but there is room for it to move even higher again. We did have an improvement over the year of 0.2% with our gross margin. But I guess where it will go in the future, it can increase further from 2 ways either higher pricing in a combination of increased throughput through the facility and more efficiency gains and so forth. And that's largely what we experienced this year. We had a slight increase, and it was a larger increase last year. So it helps enormously. I can't say more enough with cash flow and so forth in managing this business. I think there's one of the charts on the financial deck, where you'll see the growth in OpEx and the growth in revenue, but our net loss is only a couple of million underlying loss. So if you look at some of our peers, it looks very different. So having a higher gross margin certainly helps and comp with the second half. For example, we had a positive cash flow from operations and a similar result to last year at the same time.

So you're not being very specific, but we're used to seeing a lot of devices and in this industry, 50% to 60% margins. It's fair to say right that we're above 90%.

Absolutely.

And a long way...

95%.

When you're talking about increasing the margin, Jan, it sounds to me like you're trying to cut the salami too thinly. But it's extremely high margin. And you're quite right that given some of our competitors are way above us in terms of price, there's still the ability to get a higher price as we get more market share and so forth. But I don't know how much -- if the margin is 96%, I don't know how much it really changes it even if you double your price is my point. But I think one thing to keep in mind for everybody, and we have -- we might -- we have a debate internally, we might have it now as to whether you need organic growth or you need a distributor. And there's a whole lot of reasons why you might go with one versus the other. Margin is not the only one, perhaps not even the primary one. It might be just keeping control of your own destiny and so forth. But I think one of the interesting things is if you start off with a margin of 95% plus and you're selling a product that you would sell into the market for, let's say, $900, but you're selling it to a distributor for $450, the margin is still so high that your return, it might go from 95%, but it only goes down to 82%. And so you still make -- I've seen margins the wrong way, but you still make an unbelievable margin. So I think margin itself shouldn't be too much of a determinant about whether we go direct or whether we go organic with the distributor, I should say. So I think that's really a healthy position to be in. Now we have a continuing debate and it's a sort of geography by geography thing about whether we should go direct or whether we should go to a distributor. And it might be just worthwhile sharing a bit of that Swami and also just whether it's -- when you make a decision, whether you're making a decision for good.

Yes. David, if I can go back to the margin question. I mean the way I look at this entire category is it's today restricted because of the margins of the current competitors and they are largely restricted to U.S., a little bit Western Europe, Japan and China. . Honestly, burns happen across the world, big trauma happens across the world, and we have a potential to go across the world. So I see this as an opportunity for us to reach out and touch many more number of procedures than where the category lies today. So there are 1.7 million skin substitute procedures, which happen across the world in a geographically limited restricted space. I think PolyNovo and this Australian technology can go global. And when I look at the total potential, it's close to 10 million procedures. So I think about it more in terms of putting it in the hands of more surgeons, solving more patient problems, solving -- giving them more surgical solutions. And that's what excites me about how PolyNovo is structured, how the technology is structured and the sheer jobs that it can do going forward into the future. And that, to me, is exciting because as we look at the surgical challenges in the emerging markets, they are slightly different nature where cost is already a pressure and the surgical skills are not that high compared to the patient population and the challenges that the health systems face in those areas. So I see us as leaders in some of those markets compared to the current competition, which is kind of stuck where they are because of the construction of the product and because of the robustness of the product to survive in some of the emerging market operation theaters with all the hospital-acquired infections, which go with that. I think our technology is far more robust and we have every right to go to many more patients and give them those outcomes, which they deserve, and we can go there ahead of the rest of competition. That's the way I look at margin.

I guess if I could just add one thing to that, Swami, I hope I didn't interrupt you. The question of distributor versus going direct is really a question of how well are you going to service your product. And so we are fortunate that we have a robust margin because we also need to face into the fact that this is a very high service product after it's been manufactured and the opportunity it's created. And the reason we've done so well in entering the U.S., for example, is we can offer that service. We can get it into the hands of more surgeons, we can get into helping more patients. We could get wider distribution, greater accessibility by investing in those things. And there I say we've been very bold in that investment. The big difference between being direct or distributor. If you go into a distributor, that person has to offer the same high service that you can offer yourself. And where we've been less successful with distributors, and I've spoken about our difficulties in some of our distributor markets, is where the distributor thinks that it's a matter of getting it to the purchasing office and the job is done. The job is not done unless we're supporting the surgeons, unless we are supporting better practices. And I think that's the big question on direct and distributor. Can you give that high service, can you utilize your margin to create that accessibility for surgeons and patients.

No, that's great. Well, I mean just to round that off, we've talked about the U.S., we've talked about Canada. It's probably worthwhile people knowing that we're contemplating not going direct in Canada, even though we're direct in the U.S. So just to take your logic, Max, one step further, how would you justify not going direct in Canada versus going direct in the U.S.?

I think that speaks to the point of how you use a distributor. And again, top credit to Ed. The distributor model that he's putting in place in Canada is almost a combination of being direct and being with a distributor. So what we're doing is we're leveraging, I think it's 17 reps that a distributor has. We wouldn't want to put 17 reps on in Canada. That would be unaffordable even with our margin. What he's doing is utilizing that field force, but he is still within the company accepting the responsibility of helping with the clinicians, making sure that the clinicians are well serviced. Distributing it directly, we will be the people who actually distribute the product in. So it's a great combination. And I think, again, credit to Ed, he's utilizing the best of a distributor model, but not passing over responsibility for actually making it available to the surgeons and educating the market, if you like, on what is the best use of this product. Swami, you've been involved in this. Did you have anything to add?

Yes, if I can add. It's a terrific win-win solution because the people that the distributor has already have tremendous knowledge about this category and how to do in-service selling to the surgeons and they have relationships with those surgeons. The question is how do we train the distributors, 17 sales force infrastructure? With the fact that our technology is easier to handle and delivers better outcomes. So you can imagine that people who know the surgeons, people who know the ORs, people who know the nursing staff around, all they have to go back and tell them that this delivers better outcomes, lesser complexity, lower cost, and they're off to races. So I think that's a truly smart way of accelerating impact. And it's not a question of distributor versus direct. How do I accelerate my impact? And how do I create win-win solutions is where the focus should be.

Great. All right. Enough on that, I think. Before I go back to some of the things like employees and CapEx and R&D, I think given we're talking about Canada and the U.S. and global footprint. Swami, when I look at global footprint, I'm looking at U.S., I'm looking at the rest of the world, what we're doing in U.K., Ireland and Western Europe and ANZ, of course. You're the new boy in the block. And one of the things we found attractive about you is that you've had direct experience running, living, but in environments like India or Korea or Japan or China, and if not living there, supplying in there. Give us your early perceptions about where else you want to be in the rest of the world as a means of accelerating growth?

If I were to have a clean white canvas, it would be U.S., Japan, China, Western Europe. These 4 are must-do markets. India is a torture test market for many medical device companies. It's not an easy market for many medical device companies. But when I look at the technology, I look at -- these are the must-do markets. And if I can act also well in India, that would be a great solution for us across the globe. Then I can start expanding into the rest of world as needed. So I'm looking at the people. I'm looking at the opportunity. And then I'm thinking through how do I expand access in the fastest possible way quick and -- where do I pick and choose my battles? Where do I see the strength and capability in the people? And who do I partner with wherever we don't have that. Then it's a question of setting up the education between us as a company and the surgeons and not just us teaching the surgeons, but the surgeons teaching us and providing us an input and feedback into our pipeline. So it has to be a 2-way street of education for how can we help them do their jobs better by making this product even more versatile in their hands and giving them tools to deliver better outcomes. And the last thing which I would talk about is then we need to keep thinking about how do we keep scaling this entire category from the current procedures where it is to where it potentially can be. What are the regulatory pathways. And how do we try and make it easy by working with surgeons as well as with the regulatory body. So we need to have relationships in all those 3 areas and understanding of how to really scale this product globally and reach as many more patients as we can versus where we are today. When I look at the total size of the number of patients that we reached last year, it was around 10,000. And when I look at the procedures, it's 1.7 million. Now the question is not about getting greedy, but how do I start converting by leveraging the know-how in the system versus trying to build and grow everything organically. And that's how you build a great medical device business. You leverage the know-how and passion of the innovators, not just within our company but outside the company, bring the regulators into this conversation early on and start seeing how can we expand our pipeline and path to market and speed to market.

Yes. I think one of the things that I would say about Swami, if I had to summarize in the last few months, it's all about accelerating global growth. And we already pride ourselves, I think, on having grown this company quite quickly. And I was just saying to the Board this morning that I did an index of putting companies like J&J, Integra, [indiscernible] and ourselves all on 5-year indexes of $1. And by the time you get to year 5, where we are now, MVP had wiped the floor with them all. Like we were $1 turns into $5.40. And with many of the others, it's $1.30 and with people like Tela Bio, like Aurora, they're less than $1. So we've already prided ourselves on that. But I think one of the things we like about Swami is his commitment to accelerate growth in ways that perhaps we weren't even thinking about. And so India is a very good example. I'm interested, Swami, because people would be interested to know that we just had a Board meeting this morning, and one of the papers you presented to the Board was your desire to get into the Indian market, but quickly. And there's a big conference here in November, and I understand it's your desire and the Board is not getting in your way, that we launch India at that time. So give us your thoughts on -- I just want to emphasize to people that we're not going to write a strategy paper, and this is last for a year and then get McKenzie's in and then finally get there in a couple of years. We're prepared to bite the bullet and to push these things very quickly because we know the product works. But give us your perceptions on India because it wasn't on our radar nor was Japan yet.

Yes. I think the value of India is the fact that the sheer number of patients, which India presents is much more than the ability of surgeons to handle them. And at times, it's a very rough environment. It's also an environment where our competition will fail consistently because of the hospital-acquired infections and just the overall difficult challenging environment within which surgeons work and patients are presented. Now in this environment, our technology works. So where we have given it to surgeons, they have come back and have repeatedly told us how robust this product is. And they will want to have more variations of the product so that it's able to help them solve different surgical challenges and different patient and wound etiologic issues. So I see India as a validation of the robustness of this technology. And if it can work in markets like India, it has every right to go global. I see India also as another innovation hub for us in terms of how can we make things easier for surgeons, help them come into our R&D labs and tell us what are the other ways in which we can make things better for them. I'm keen to get into the market before the year runs out. And there is a big conference coming up in November. And if we can launch there, that would be a terrific thing to do because there are just so many plastic and reconstructive surgeons congregating for that conference. I would not want us to waste that opportunity. So that's why it's important for us to keep growing and we will navigate our way out of it. It's a no-brainer.

So the idea would be, we'd launch in any other way. We go to India. We take our KOLs from Australia and the U.S. We've got some lunches. We have a couple of demonstrations and already have on board several people. It's working capital, head of India and some salespeople and so forth. So I think for me, that's very exciting. And I think it's well known to some people, I think that we're also talking to some people in China. So -- but Japan and other things are still work in progress. But I want everybody to know that we're still going very hard on the U.S. We're going very hard and starting to get some traction now in the U.K. So I think there's -- the near term is very promising as far as we're concerned. Can I switch pace now and perhaps just talk about new product development and R&D. There are some numbers in the annual report and in the summary that R&D was up 57%, went from $3.6 million to $5.7 million. That's fine. We've got a commitment to growing the R&D department. And again, I might ask Max to start off in terms of just what we've done in the last 12 months. We've gone some sort of 1 person to, I don't know, 8 or 9 or something now.

Yes. Look, we've got a good critical map in the R&D department now. But I think the most significant thing that we've done, David, is -- and Swami's refined this even in the short time that he's been here. And that is we're focused on our advanced wound care area. And we've looked at the product that we currently have here and looked at how we can extend that for greater use by the surgeons. And again, we're probably repeating ourselves, but a lot of that was surgeon-led and then translated within our R&D facility into new products that perform specific jobs against specific indications. We then have what we call the implantables area. We're already advanced on 4 prototypes within hernia. We're obviously looking at breast sling. But the implantable products is the second, if you like, pillar that we've got. And then we've got the therapeutics and the work that a very good friend in the company, John Greenwood, and Julian are doing in that therapeutic area is of enormous interest. And hopefully, we can play a bigger role in supporting them in that. So if you like, we've got 3 pillars that we can build on. One is very advanced. We took a decision a little while back to concentrate on how many more indications and surgeon needs can we serve with that base platform. We've got the second, which is looking to the future, 4 prototypes in hernia, working feverishly, if you like, on the breast sling. And then external partnerships, which we hope we can do more with in the therapeutics area.

Very interesting. Swami, any comments on R&D?

David, I will not belabor what Max said, but more and more, we need to have the entire world as our R&D -- extension of our R&D team. And I think innovation is not just a company sport, but also involving our surgeons in that entire conversation. So the more we identify surgeons who are passionate about taking this technology into different surgical areas. And then we start engaging FDA upfront, along with those surgeons in terms of how do we do those experiments, how do we get all the ethical bodies aligned behind those experiments and how do we get faster approvals. Because there is an approval pathway, which is for skin substitutes, which might be a little bit easier. Let's make sure that we do everything that we can for speed to market. Then we get into the implantables, which has a slightly elongated regulatory pathway. Let's make sure that we are bringing the right people in from outside, whether they are surgeons and universities who are willing to host trials for us and who are willing to be our partners when we start opening conversations with FDA. This is where we need to open our aperture wider and make sure that we are engaging with a broader number of partners, bringing them into our company and expanding our pipeline. And the last would be therapeutic because then you also have to work with the drug regulatory channel in the U.S. which tends to be a little bit more complex. So a little bit more thought needs to go into that, but those 3 platforms is how I would think about R&D. But once switch, which I would want us to think about is how do we involve the external world much more into what we do in our R&D labs because that's when we can truly exploit the robust nature of what we have, but the versatile nature in terms of how it can be controlled and shipped to deliver multiple surgical needs, not just where it is today.

Yes, thank you for that. Just a couple of comments on new product development I think people might find very exciting. I've talked about -- everybody knows about hernia and breast. I've talked about MTX and essentially, the derivative of what we've got is that base tech and without the laminating where that can be used. We'll do more on that at the AGM, and I would plan to have Marcus Wagstaff, one of the surgeons give a very brief presentation at the AGM about how that expands our market and why surgeons will use it quickly. But just 2 quick anecdotes that I think will probably shock people, but there was a pediatric conference in Munich about 4 weeks ago, and they asked Professor -- it was in German, but they asked Marcus Wagstaff from Rural Adelaide to open it, just to give a history of BTM and how it came about and why it's used and so forth. He did that. And then it was a Friday night here, so he went away and had a red wine. And I was laying in my bed at 8:00 on Saturday morning trying to catch up on my sleep and he rang me. And he said, "David, you won't believe what happened at this conference." He said, "after I left to go and have a red wine, a surgeon in Germany gave a paper where she looked at one of her patients who was pregnant. And in the scan, she noticed that the spinal cord was not covered, and the baby is going to be born with Spina bifida. She makes a decision to go in utero into the womb and she puts our BTM on the baby's back. The baby is then subsequently born. He takes off the laminate. He doesn't do a skin graft because it's not needed, it's fully integrated, baby is fine." And he said, "everybody is just going holy hell." And so I give you this example because we're spending a lot of time talking about how we adapt this product for hernia and breast and what happens to laminate, what happens to the foam in that. We know how the foam works. But this has just taken the world by storm. So I'll just give you a sense of how quickly these things take on. So at one stage, I was on the Board of Monash IVF as the doctors rep. I ring up the busiest doctor who does an 800 women a year. And I tell him the story that Marcus has just told me. So now we're at [ 8:10 ] in the morning. And he said, so then give me the stats on with IVF in particular, how many Spina bifida are born. He says, you don't understand the [indiscernible]. He said, "Monash University is about to start a study on Spina bifida where they're going to try and cure Spina bifida or protect the babies from Spina bifida with stem cells." So he said, "I'll ring you back. I'm ringing up the professor at Monash." So he rings up the professor at Monash. He rings me back now at 8:25. He said, Professor at Monash says, "Why the hell do we need to do our study? This is unbelievable." So I ring Marcus back and Marcus says, "Don't tell him to stop the study, we'll put the stem cells in the foam. And -- so this is now 8:30 in the morning. But I just want to give you a sense of the excitement about, #1, we don't even know about this. These surgeons are taking these things and running with them. And who knows where some of it is going to end up. But when you get a few key surgeons and then they want to take that risk themselves, it's very, very exciting, I think. The second one, I would just want to share with people is -- and Max mentioned what John Greenwood is doing in Adelaide with Toby Coates, and that is impregnating the foam with diabetic islet cells. And so Swami and I were there last week. I'll ask Swami to comment on this in a moment. But I think they're just putting in their third and fourth patients, but they introduced us to their first patient who was a headmaster at school, very articulate guy, came in, had very extensive diabetics. And what they do, and I'll probably get this wrong, but just to give people a sense of it, he has got a wound, but they -- they cut -- they placed a patch, smaller than this actually in his arm. And then they -- with their fingers, close it together like that. So it's -- I don't know if anybody can see this, but anyway. And then they inject into that fold, like it's a fold in your arm, the diabetic islet cells. And over the next month or 6 weeks like our foam normally does, it disappears. But the question was, do the diabetic islet cells which stimulate the pancreas and so on and so forth, do they still stay there? And the answer is, yes. And so the guy comes in and because of this, his insulin need disappears, his sugar level has come right down. And he's now got very manageable -- well, I think the diabetes is essentially gone. But I'm just giving you a sense, again, we're supplying to begin for that, obviously. And -- but Swami give us your comments on what you saw the other day when we're in Adelaide with that patient.

Yes. I mean what struck me most was how the patient felt, how much less of insulin he used to give to himself compared to what it was in the past. And the hope that he felt that he would be going beyond diabetes type 1. I mean that's a difficult challenge for any company to take on. And most importantly, his personal story was , you know there is a guilt that all of us feel when our children have the same disease which we have. And he was trying to educate his daughter who had diabetes, type 1 diabetes, that there is a procedure which is coming up, which most likely will work for her. And she might have a better life, not necessarily titrating her insulin every now and then for those episodes. So it's more about how he felt and it's more about what a legacy he felt he was leaving for his daughter. That was the most touching moment for me.

Yes. It's very good. So again, just to emphasize, I think, where [ MVP ] is going and how much is happening outside the company as much as it is inside the company, which is a good segue, I think, in the clinical trials where -- as I said earlier, we're playing catch-up oftentimes with surgeons. And then we're selling -- the number of pieces we now sell for diabetic foot ulcers off the back at the original studies that were done with 6 [indiscernible] patients that were done with the person's surgeons, I think, out of New Orleans. But we still need to go and do some trials in order to either get insurance reimbursement, or more particularly just to convince surgeons who don't want to take any risk whatsoever. And so we're playing catch up. And so we've got a number of clinical trials going on. And I'm sure when we had this discussion in a year's time, we'll have many more still. But some of them are real clinical trials in the sense that we're doing them for BARDA or we're doing them for reimbursement reasons, or we're doing them for some other reasons, but some of them will be just to get good data to pass on to surgeons and our sales people. I won't spend any more time talking about clinical trials. Max, is there anything we need to talk about in clinical trials at all -- I don't want to go [indiscernible] something...

I don't think so, David. Suffice to say that during the course of discussing with Swami, we both recognize this is an area we probably haven't supported our surgeon population as well as we should have. It will be an area of focus going forward. We are very appreciative of the work that, to be quite frank, we've got gratis from enthusiastic people who are trying to help patients I think it's beholding on us to step that up. And I know Swami's got some big ambitions in that area.

Good. Okay. If anybody got questions on this, send them to us separately, and we'll answer them in a more technical way, but I don't necessarily want to spend any more time on it now. One thing that has come up since Swami and I and our sort of team together with shareholders a month or so ago is he mentioned just in passing mergers and acquisitions and acquisitions. And I noticed in a lot of the blogs that are around that people have grabbed on to that. And I just wanted to put a couple of things to bear, but I'll also ask Swami just to reflect on it. But first of all, I don't need any more shareholders ringing me up and saying, why don't you take over Avida right? We aren't going to do it today. We could have done it when it was worth $20 billion, and we're still not going to do it. And it's not because we don't like what they do. It's just another skin graft. It's complementary to us. It's not the same as us. So put that out of your mind once and for all. We're also not going to take over Aurora. We're rolling our own boat with SynTrel. We don't want a Biologic. We think our product is so much superior, so much more efficient and so much better in margins, it's not on our radar and won't be on our radar. So take those away. But just in terms of the things that so you get a better sense of it, that Swami would be thinking about, and maybe I'll leave this to you Swami, just conceptually, what sort of acquisition, do you think would interest us?

David, I'm thinking about this technology, and I'm constantly thinking about how do I access and scale it -- and how do I get it faster versus later, I -- and the reason why I want to do that earlier versus later is because there are so many patients who need this technology today, they don't have access to it. So if I can -- now this is where I need to be creative to identify the right company with the right access points with the right relationships where I can add this to the procedure and clinicians that they're covering. So my job is to come up with the right ideas for you. And then hopefully, we get to work on it and we are able to explore the access of this technology to many more patients, surgeons than we have today. And I don't want to wait for 5 years for that to happen. So to your point, I'm not asking for McKenzie to do the paper on this. we have to find a way of getting there faster. And hopefully, there should be some ideas for us to work on. But access will be the #1 idea versus a product which is at a similar stage of development like us. Because I'm thinking of access and scale first almost simultaneously.

So just to put that in a different way, if there was a company out there that had a 100 salespeople selling to podiatrists, and our product could fit into their bag, and we could get the right amount of airtime with podiatric surgeons, a very different market in the U.S. than it is here because of that reason. But that might be something that's at least worth contemplating. It's a channel access or a market access that might take us out of the hospital sooner with a base it could work, is that a fair comment?

That's a very fair comment. So thank you.

All right. We could keep talking for a while. Then we'll take a few questions. Just let me emphasize again, I think we'll probably do something different from the norm at the AGM as well. We'll do the normal AGM. But I think I'm contemplating that we get one of our surgeons a lot Marcus to talk about new products and how the products are being used and so forth. And we may well -- we've had him before, but we may well get Ed along as well who runs North America. And who knows like a show bag, we'll see what can do to make it a bit more interesting. Okay. So I think I'm done. Max, do you want to say anything else?

Yes. I was just going to say, and of course, part of the reason that Swami is looking at acquisitions is so that we've got some things for our Chairman to work on so that he's not creating too many show bags.

Thank you, very nice. Jan, anything you want to say about numbers?

David, you are wasting money on show bags for one. But look, results are very pleasing. It's good to see how we've grown through what was a couple of years of tough conditions with COVID. And with the year ahead with not many lockdown -- no lockdowns, we hope, that should give us some tailwinds with our growth numbers, so looking forward to FY '23. But I think they're pretty pleasing results given the circumstances over the last 2 years.

That's right. Okay. And Swami, any final comments?

No, I just want to thank Max and also thank the team of PolyNovo. It's doing incredible work. It's just not apparent, but an amazing people, amazing technology. I couldn't wait to get in the hands of more surgeons so that we're able to reach more patients. And I still feel that we are just getting started. I mean you're right, we are at a very early start-up phase. How do we acquire that maturity quickly without losing our innocence and speed and agility. That's what I'm concerned about. We don't want it to be too bureaucratic, and it is going to be of a sense if we have to do our job with patients. But pleased to be here. And thank you, Max, for bringing me in.

And for those who are interested in hearing this again if this hasn't been too boring, there are quite a number of broker presentations coming up. I know Bell's doing one. Macquarie is doing one, Bank of America is doing one. So I'm sure you'll find somebody that will let you in the door if you want to hear it and maybe we'll trip ourselves up and come up with a different story. But listen, while we're still here, and I don't want to keep people too long than that is it's already an hour and a quarter. But Jan, are there any obvious questions that we need to...

That's right. So we've got to hear from the analysts. So we've got all the covering analysts that have dialed in and going to ask a few questions. So if the operator, if you could patch them through, and we'll fire away.

[Operator Instructions] Your first question is from Rachael Harwood with Macquarie.

First, just on sales staff. I mean you've added a number of sales staff in the U.S. Could you maybe just talk to how long these sales staff take to ramp up? And then the proportion of those still in the ramp-up phase? Just trying to get an understanding of the conversion of sales staff to sales in FY '23.