PolyNovo Limited (PNV) Earnings Call Transcript & Summary

Well, good morning, everyone. My name is Seth Schwartz. I lead JPMorgan's health care investment banking business in Australia. And I'd like to welcome Swami Raote to come up and present in relation to PolyNovo.

Thank you, Seth, and good morning all. It's indeed an honor and privilege to present at the 41st JPM, and thank you for the invite. PolyNovo, for many of you who might not be aware, is an Australian-listed stock exchange company. We've been around in existence for about 19 years. We have about 180 employees across the world, primarily in Australia and in the U.S.A., but also growing in other parts of the world. Let me go through the disclaimer, and I would encourage all of you to read it. It's the standard notice. But there are three things which I would want you to take away from the PolyNovo presentation. One is, we have this amazing gem of a technology called NovoSorb. I call it a genius technology because throughout my 30 years of career, whenever I have thought about innovation, I have always added a lot of stuff to existing products to make them better; ingredients, features and more complexities with a view to make the outcomes better for the surgeons and the patients. This is the first time someone has gone back, revisited the first principles of what is the surgical job which needs to be done and actually simplified a lot of things to deliver better outcomes at a much lower complexity to the health care system as well as the clinicians, much improved cosmesis for the patient and at a very cost-effective economics. The second thing which you need to know is, we are playing in an extremely underserved market. We play in the advanced skin substitute market, which is about USD 2.4 billion. And we are specifically compared with biologics, which is a big chunk and a growing chunk of that market. And if you think about biologics and where they are available across the world today, about 800 million people in the global 8 billion population today has access to the advanced skin substitutes, primarily the biologics. Close to 7.2 billion people do not have access to it. So it's a vastly underserved market. And if you think about it, the burns and trauma and many of the unfortunate events tend to happen in the other part of the world much more than the developed world. Lastly, it's a story of capital-efficient growth and scaling. I joined the business 6 months ago, but the team, driven by management as well as the Board, has been extremely scrappy execution-focused and driven growth consistently through good times and bad times. Taking a step back, if you think about the company, it started because of the Bali bombing, and what a burns surgeon experienced when he was dealing with the aftermath of patients who did not have the support in Indonesia in Bali for treatment, and the Australian government repatriated them back to Adelaide and Perth for treatment. Professor John Greenwood, who was treating many of those burn patients, was frustrated with the treatment. And I've thought many times before using this word, but I thought it was important for me to reflect the feelings which he experienced when he was treating those patients. Those large, colonized wounds needed advanced dermal substitutes, and he used them, but many of them just would not take, and then he had to replace the dressings, he had to subject the patient through extra trauma and pain as he did that. And he had to do that, in some of the cases, many times over. And that got him thinking about what could be a simpler way of solving that problem. He's been -- he flew to Melbourne, where CSIRO, which is the NIH equivalent of Australia, is located. They had some amazing polymer chemists, and he worked with the polymer chemists in Melbourne to come up with a material which was biocompatible, which was biodegradable and which was immunological -- immunologically inert. And that combination, along with that polymer chemist, he has worked out with multiple form factors, done research for about 10 years or so before he could treat the first patient, which was around 2013. That was the first clinical study on a human. And that was an unfettered success. Our first patient was an Australian gentleman by the name John Weeks. He was almost 75%-plus TBSA burn patient, and a lot of his family had given up on him, but not Professor Greenwood. And he managed to revive him, resuscitate him and bring him back into the society. A quick look at the journey. We got the U.S. FDA approval in 2015. We got the Australian TGA approval in 2018. We got the BARDA support in 2019. We got the European CE approval in 2019. We got the U.S. FDA breakthrough device designation in 2019. BARDA partnered with FDA to support our clinical trial. And I just thought I would give out a word about BARDA, because as a U.S. taxpayer, many of you would be glad to hear that BARDA has been a very tough partner for us. They push us very hard from an execution perspective, but they have been a fair partner to us. And they have supported us with solutions. They have supported us with connections and have always got us back on the right path. We got the second product approved in 2022, which was NovoSorb MTX, which is the same product as BTM without the film. And today, we are in 27 markets globally. So as I said, we are innovating and disrupting this $2.4 billion advanced skin substitute market. It's a critical need, underserved category. It's a simple, yet transformative solution. We have approved products globally. We are rapidly scaling and increasing our global presence. We have an extremely attractive business profile. The product has over 95% GP. So the faster we are able to start putting resources behind clinical selling, the faster we are able to get clinicians to experience the product and take them through that first or second procedure, the more we'll be able to grow the revenue. And we've also discovered that the burn surgeons need about 2 to 3 cases for them to be really comfortable with the technology. The trauma surgeons, because they hunt in groups, they need probably 5 to 6 people -- patients before they get comfortable with the technology. And then it's the clinicians who drive the adoption of our technology. So it's a very attractive business model. It's capital efficient, profitable, and we have been on a hyper-growth pathway. And I'll take you through all these elements pretty quickly. Firstly, about the technology. It's simple, elegant, transformative. If you think about it, it's just a piece of foam covered with a laminate. And the foam has been engineered in such a way that it mimics the human dermis. It's, as I said, biodegradable, biocompatible and immunologically inert, so there is no foreign body response. And all the surgeon needs to do is debride the wound, clean it properly, cut NovoSorb to shape, staple it to the wound and then leave it alone. And over a period of 4 to 6 weeks, depending upon the patient profile, the skin or the neodermis regrows. And then he needs to remove that laminate on the top. That is just a protective laminate for protecting the patient from transepidermal water loss. He needs to remove that laminate, do a skin graft and the patient is as good as new. We have this technology now in multiple form factors as well. We are excited about the fact that it can be in a stent, it can be in a mesh, it can be combined with different monofilaments and polymers. It can go in as screws and nails for orthopedic applications as well. We have a pretty robust IP portfolio, which covers 10 families, close to 61 patents already approved, 28 under applications and for all kinds of uses from burns, trauma, hernia, breast reconstruction, orthopedic uses, et cetera. The team has done a terrific job of scaling the world in a very disciplined fashion. We started off in U.S. U.S. has been an unmitigated success for us, followed by Australia when we got the Australian TGA approval. Australia has done very well for us as well. And because the technology originated in Australia, we have almost a 45% share in Australia. So we are already the leaders in Australia and New Zealand markets. In the U.S., we are on the way to becoming leaders. Again, I have to give a special shout out to my U.S. team. They have been extremely lean, mean, focused, scrappy in terms of how they have built the business. They have gone to the right hospitals. We are now present in close to 90-plus burn centers in U.S. out of 120 and above. We are present in about 240 Level 1, Level 2 trauma centers. So between the two of them, we are in the right spot. We have created the buzz among the clinicians. And now the clinicians are taking us forward into more procedures than what we were originally intended for. And they are driving a whole lot of surgical innovation for us. We have launched in Europe as well. Two markets which stand out are U.K. and Germany. We are now on our way to becoming a leader in U.K., in Germany. And over the next 12 to 18 months, we will be displacing the current leader. We get different experiences from the clinicians in U.K., and many of the clinicians in U.K., as the transient nursing population is something which is hitting them, the traditional flaps, the free flaps which they used to do, which are time consuming, many of the surgeons are using BTM and replacing the free flap procedures at 30 -- within 30 minutes, they can do this procedure versus the 6 to 7 hours, which they used to spend in free flaps. So are we appropriate for all the procedures? No, but they have learned where to use BTM, and they're using us because of the constrained hospital environment in the U.K. So again, we are on the way to become a standard of care in U.K. and in Germany. We are present in many markets. We have now entered Canada. Since the middle of last year, we had special requests from Canadian surgeons, and under a special access scheme of hospital authority, we did provide BTM samples for them. They did a phenomenal job in terms of saving a young pediatric patient, who would have been in a very difficult situation otherwise. And since then, many of the clinicians have worked with health authority to get us a faster registration. So last November, we were at the Canadian Burn Association meeting, and we have started selling in Canada from December onwards. In just over 2 months, we have close to 700,000 revenue, including from the previous special access scheme. We are now looking at entering India. We were present in India with a distributor before, but we have decided to be a PolyNovo India company, and we have recruited 2 people who know how to do market development in those conditions. And so far, in 2 months that we have been in India, we have identified close to 25 large hospital systems who are going to be the centers of excellence for us in India. Because in India, the challenge for us is to establish this category. Market access is not an issue. Affordability is an issue. And when they realize the kind of outcomes that they can get with this technology, we have to make sure that we educate the market appropriately. And we are picking plastic surgeons in India who are going to be our trainers and really drive this market for us because India and China are the burns and trauma capitals of the world, and we want to make sure that we are able to provide the appropriate solutions, including education solutions for clinicians in both those markets. Japan is an interesting market for us because Japan is intrinsically very esthetically oriented. And some of the cases that Japanese surgeons have done for us in U.S., they are communicating the story of BTM's success back to Japan. And that's where we believe we can work with MHLW to get an early access and innovation -- innovative product access into Japan. And Japanese surgeons again do a terrific job in terms of helping us drive the adoption of new technologies across Asia Pacific. We have strong results. Starting off from a base of $5 million in 2018, we are now -- we closed last year at USD 30 million, roughly. And you can see that we were consistently growing our business, including through COVID. And many of our leaders have done a terrific job of hiring through COVID. Many of our reps have done a terrific job of working and introducing the technology through COVID and wherever possible they could go in and do the cases themselves. So again, U.S. business is a profitable business on a stand-alone basis. Even after all the corporate overheads, which we charge to them, that's a 20% EBITDA business. And the U.S. team has truly done a phenomenal job in terms of helping us get a business model which is profitable and scaling at this pace. The company has a market cap of $1.1 billion, today, that was last weekend. And we have had recently a very successful capital raise, wherein we were able to raise about AUD 53 million to support global growth. And we are looking at quick geographic scaling. We are looking at adding right sales headcount across all the new markets that we're entering. We have declared our intention to enter China and Japan because those are crucial markets for us. We have already entered India, Canada and Hong Kong, and we are seeing great success there. Starting off with burns. A lot of our U.S. market was first driven completely by burns. We closed last year at about 65% of our revenue coming from burns. But now we are driving the trauma penetration harder, and we expect that split to change over a period of time because the number of trauma cases are almost 3x the number of burn cases. And that's where we believe we can truly start spreading our technology for the plastic and recon surgeons. But it's not just about burns and trauma, this technology can go beyond burns and trauma. And we are very proud to have Dr. David McQuillan, who's our Chief R&D scientist, who was the father of Strattice, who was involved in AlloDerm's development with LifeCell. And he believes with NovoSorb, we can build great hernia products, we can build great plastic and recon products, and we have built out the entire pipeline of what the possibilities could be with NovoSorb. So we want to make sure that NovoSorb goes beyond the burns and trauma stronghold, that's where we were born, but it can actually deliver to many surgical solutions and many reconstruction solutions. Lastly, we have also embarked on the capacity expansion program because NovoSorb is designed for manufacturability. I came from the world of biologics, and there is a reason why biologics do not translate and do not go out across the world because the economics just don't work out. It's an extremely expensive process. It's an extremely expensive supply chain, where quality is always variable. You can never get the product that you want when you want it. Licensing regime tends to be very difficult. And in many countries across the world, there are those religious considerations as well. Now relatively, NovoSorb does not have any of those complications. And that's where we believe with its easy manufacturability and a very low cost of capital manufacturing footprint, we should be giving these solutions to people across the world so that we can start disrupting the advanced skin substitute market. So our focus, as PolyNovo, will always be burns and trauma because that's what we were designed for, that's what we have a pipeline today for. And that's a pretty large global market in itself. But we are also open to alliances for hernia as well as ab wall reconstruction, pelvic floor reconstruction because what we have is a unique substrate, which can be really -- which is an extremely malleable substrate, and we can leave it in different ways. We can have meshes, we can have foam, we can reinforce the foam in different ways, and it can go to solve the surgical site issues and problems across many surgical sites. And we believe it would be of significant value in hernia. We believe that it can be even better than some of the standard of cares, which exist today, including for complex hernia procedures. And the same thing for breast procedures as well. We do not have challenges, which many of the breast procedure products have in terms of the right size and the right shape and the right length. And that's where NovoSorb can truly win. And we believe we can win in orthobiologics procedures as well, which is where we are working with some of the global orthopedic companies. So that's our global strategy on a page. As a company, we'll be focused on burns and trauma. We are entering -- we will always continue to stay focused on U.S. We believe we have a long runway ahead of us in U.S. We are entering Japan and China. We will make our business in Hong Kong, India successful, and Canada. We're already on the way to be there. We are looking at alliance partners for hernia, ab wall reconstruction, breast reconstruction, augmentation or esthetics and orthobiologics. And you would have heard me say a lot of words like lean, scrappy, execution-focused. But that does not preclude us from being bold in terms of making really a transformative place as long as we go to the right plastic and reconstruction surgery-oriented businesses. So as I said, NovoSorb, the story so far has been scaling in the $2.4 billion advanced skin substitute market. But what we're looking forward to is how can we help NovoSorb truly become a soft tissue regeneration platform of choice because we believe that's where NovoSorb can be, should be. And given its low cost profile, given its easy availability, that's where we want to take the business to. I would just want to end by talking about the fact that if you really think about it, it's a magnificently engineered piece of plastic. But what transforms it is the clinicians who take this piece of plastic and really transform the lives of people that are impacted. And I would just want to leave you with a video of so many of the clinicians and some of the work which they do, which supports us. [Presentation]

So that's the story of Lowri. I mean we manufacture this brilliant piece of plastic with the clinicians who transform the patients, and we just wanted to be grateful for all of them. Thank you.