PolyNovo Limited (PNV) Earnings Call Transcript & Summary

Okay. Welcome, everybody to the PolyNovo Webcast. We've got, I think, about 150 on the line. So welcome to you all and good afternoon. I want to sort of punch through this pretty quickly. I hope this is not going to be an anticlimax for most of you because I was just reflecting on the fact that we've had an investor presentation for the capital raising at least and then a couple of broker presentations, we released the results pre the audit and now we've got the 4D, so there's a lot of the same information in it. But Swami has got some interesting things to tell you, I think in terms of sitting back in a helicopter and looking at our growth rates, not only just in the U.S. but the rest of world, which is very exciting. And I don't intend to take the sort of wind out of his sail. So I'm hoping he'll cover all that off. But one of the takeaway for me on this deck today, in particular, is to look at the different indicators of how we're growing everywhere in the world, for example, on not just sales, which are impressive enough in themselves, but I'll let Swami get on to that. The process today will be that Swami will give the front end of the deck, he will then pass across, at the appropriate time, to Jan, just to talk briefly about the financials, and then I'll make some editorial comments at the end and open it for questions. We've already got some questions. So hopefully, some of them will get answered during the process. And if so, we won't ask them at the end. But I'll leave that up to Swami and Jan to see if we can all cover that together. And I'd like to welcome our CEO, Swami Raote, who is also on screen.

Thank you, David, and good afternoon, everyone. We are indeed accelerating our global growth and our PolyNovo teams across the world are doing a fantastic job in terms of -- along with our customers in terms of reaching as many patients as we can and healing as many patients as we can. Just to give you an idea, we reached about 8,000 patients in the first 6 months of 2023 versus 10,000 patients through full year 2022. And we feel pretty good about it. We know there is a lot more that we need to do, but we are happy with all the steps that we are taking. We have a strong revenue growth across the world at $29.5 million, growing at 63% -- growing at 62% in the first half. Our global BTM product sales are growing at 67.5% with a very strong push coming in from U.S. with our U.S. revenue at $22.8 million, which is growing at 61%. The rest of world is also doing a fine job in terms of growing. We're almost doubling versus U.S. We're growing on a small base at USD 4.5 million in the first half, growing at 110%, and the BARDA revenue is coming along at $2.1 million, growing at 15.4%. We have accelerated our entry into Hong Kong, Canada and India in December '22. And in Hong Kong and Canada, we have also had the first sales. In India, we have represented ourselves in all the big conferences. We have hired the top 2 leaders in our -- in India for us. We are ready to go with our sales team. They're close to 20 who are waiting in the wings. We are literally waiting for our commencement certificate to come in, and we hope that the next time when we connect, we have sales to share with you from PolyNovo India. I just want to talk briefly about the strong partnership that we have had with BARDA and U.S. FDA. They are supporting us in terms of helping us enroll patients faster, giving us tips in terms of where should we be going. And they have been very supportive of our move to get into India to accelerate our enrollment for the Pivotal burns trials. So again, the next time when we speak for the full year, hopefully, we have had great results from the enrollment, and we have something more to share with you. Our capital raise of $53 million in December 2022 for geographical expansion, new indications, new products and building capacity is giving more momentum for us, and we look forward to sharing more with you as the time goes by. But let me pass on to Jan, who will provide more details about how fast we are growing, how hard we are growing, yet we are being very responsible about how do we touch lives of many more patients. So with that, let me pass over to you, Jan. Thank you.

All right. Thanks, Swami. So just touching on revenue, Swami has already touched on the overall growth, but there's some key takeaways from this graph. Strong growth rate going right through first half, '21 and '22 were impacted by COVID. You can see the growth tapered off from 64% down to 25%, back up 41%. But we've come home stronger this second half -- first half compared to prior periods with COVID lockdowns and all that was mostly behind us like in a near return to normal activities. And that's come through in the growth rate of revenue total, 62.2%. What's also driving the growth in revenue is the customer acquisition. So we've had a record customer acquisition rate for the past, 154 new customers added in the half. That's a growth rate of 43%, which is quite significant and nearly 1/3 of those were in the U.S. And behind that and making that all happen is employees. We can't grow the business without the efforts of all our employees. And we've added quite a few, over [ 21 ] for the half, but year-on-year, an increase from 122 to 173 staff. The large majority of those are in the U.S., and we do continue to expand the U.S. sales and marketing team, that being our biggest market and still representing the biggest opportunity for revenue growth. Moving on, just some other key highlights out of revenue. BTM sales themselves were up 67.5% to $27.3 million for the half. In the first half, we actually had 3 $5-million-months, which was good to see rather than -- it's occurring more quickly. And as Swami mentioned, total BARDA revenue up 15.4%, we now have 43 patients in the BARDA trial, which is driving that increase. Some other key highlights, U.S. sales -- BTM sales up 61%, and rest of world, up by 110%. These are sales from Hong Kong and Canada, as Swami mentioned. And we're seeing that really strong performance post the impact of COVID, it's still around, but we're not hindered by COVID as we were back in prior periods, and that's coming through in the numbers. Just moving on to the legacy overall result. And I think the key takeaway from this graph is the growth, the growth in revenue, the business expansion. There is an increase in costs, but at the same time, we're minimizing the loss. So it's pretty prudent cost management at the same time getting value for money out of the investments we're making in growing the business. And it's coming through the top line growth there while minimizing our cash burn. We've always done that, as you can see, we'll continue to do that at the same time being aggressive and growing our U.S. marketing team and entering new markets and penetrating those markets. So I guess the key takeaways, our operating expense is up 59%, we've entered new markets. It's also about a lot of costs entering new markets. You've got fees and so forth for setting up companies and professional fees. We've also got recruitment costs for the staff as we're hiring, they're one-off fees. So that will continue for a while as we continue to expand the business, but that's something to take into account. The overall impact, excluding noncash items, which is important to do, we do have share-based payments that we've excluded, which are the expensive share options. So excluding noncash items, net loss of only $2.2 million and EBITDA of $2 million. So looking forward, we're going to continue to do the same thing, and you'll see a similar pattern, but a lot of headroom in terms of market share to grab and we'll continue to go after that. Our cash flows, so we completed the capital raise. We ended the half with $50.5 million cash on hand and completed a director placement in January with an extra $3 million. The cash burn from operations decreasing on the prior half, it's not a big number in the grand scheme of things and in terms of what we get back in terms of revenue growth, 62.2%. CapEx, that's dropped off as we haven't had any capital expenditure plans underway at the moment, but you would all be aware from the capital raising presentation back in November, we are fitting out a new manufacturing facility next door and office. So the increase -- there will be an increase in CapEx spend over the next 2 years. And just moving on to sum up on, I guess, overall P&L highlights. Product sales, up 67.5%. Operating expenses, up 59%. And I think a key call out there is employee-related expenses, reported up 131%, but the underlying increase is only 50.2% because in the prior year, we had the reversal of the share-based payments with the resignation of the previous CEO and COO. So employment expense is only up 50.2%. Corporate admin and overhead expenses, they are up 105%. We've got to take into account what was going on last year in the last half. It wasn't a normal scenario in terms of running the business, we were in lockdowns in a lot of regions that we operate in. We've returned to near normal activity. So there's more travel, there's more marketing spend. We're getting in front of more customers and getting back to building those relationships online, but also in person and also what you'd expect with general business expansion. So not really comparing apples with apples there, but that explains the 105% increase. Overall, net loss for the period reported a loss of $3.8 million, but again, as mentioned, excluding noncash items, a net loss of $2.2 million. Maybe I'll hand that back to Swami. Thank you.

Thank you, Jan. So as you can see, we are trying to reach and heal as many patients as we can and we are having a good impact. And I believe we are uniquely situated to drive global growth. It's a genius technology, as I keep saying again and again, it's simple, it's elegant, it's designed for scale. The opportunity in front of us is an underserved market. And while we are talking about thousands now, what we need to talk about is millions in future. And I hope we are able to do justice to the job in front of us. And we want to be sure that we are capital-efficient in our growth and scaling and smart in doing that. Now what I need to warn you is our near-term results could be lumpy and up and down. But equally, they will be consistent from a long-term growth trajectory. And as we add indications, which take us beyond burns into trauma, we have to find a way of switching our sales team's efforts and training them to make sure that we're able to recognize the trauma opportunity and subsequently a whole lot of other opportunities as well. And we will be entering new geographies as well, which would create some degree of up and down as we anniversary from quarter-to-quarter. Our focus near term is to build a purpose-driven, engaged organization, build processes and technology backbone, which help us support and reach that scale of really touching as many customers as we can and through our customers, healing as many patients as we can. NovoSorb BTM is indeed redefining healing. And we also believe that we can be a soft tissue regeneration platform of choice. With our capital raise, we have started making the first few steps in that direction. But I'm pretty sure that we will get there soon. And I'm indeed very proud of the PolyNovo team and more importantly, our surgeons, who have reposed so much trust in us because at the end of the day, NovoSorb is an amazingly-engineered piece of polymer, but it's our surgeons who bring it to life. And they tell us where can we take that polymer and the NovoSorb technology. So I cannot do enough to thank them about their involvement and their engagement in PolyNovo. So I look forward to working with them. I look forward to working with our teams. And while we are happy and proud about where we are today, I'm really looking forward to realizing the dream of touching million more lives than what we could. David has been a strong supporter and we continue to look forward to David and the Board's support in helping us reach that goal. So with that, I would like to hand it back to David. Over to you.

Thank you, Swami, and thank you, Jan. I just wanted, before we move to questions, just to give perhaps my perspective looking at the business and perhaps you'll see it the same way, perhaps not. But it's fantastic, of course, at one level where we've got BTM sales up 67%. And hopefully, we're going to get more of that. Of course, there's 20 extra heads that I think Ed feels he'll have on [ board ] before 30 June in the U.S. alone, and we've got some incremental staff to put on into Hong Kong, into the U.K., Ireland and so forth. But before I go and give you a bit of light and color on some of that growth and what's happening in some of those markets, I just wanted to draw your attention to what Jan has put together in terms of the graphs now for staff, for the number of hospitals. And he doesn't have a graph yet for numbers of patients but for me, that was one of the most fantastic statistics to see. The whole of FY '22, we did 10,000 patients. The first half of this year, we've already done 8,000 patients. So the interesting thing is, if it's -- if the growth rate is sort of symmetrical, which it probably isn't because we're going to have more staff and therefore more patients, but if it's roughly symmetrical, we're 60% up in terms of numbers of patients. We'll do 16,000 patients this year on that sort of run rate. And hopefully, with more staff on, even more. I mean, can you imagine what impact that's having around the globe and certainly in the markets we're in. So we're not only roughly 60% to 70% up in sales, we're 60% to 70% up in hospital, we're 60% to 70% up in numbers of patients we're seeing and staff and so forth. So it's sort of -- I find it quite interesting that you look at our sales up 67%, but when you look at the other metrics, how many customers we've got in terms of -- and how many hospitals, how many staff we've got, and now how many patients we've got, yes, it's -- they're all pretty much in the same. So pick what you want, but they're all good, I think, signals for how the business is growing, and we'll continue to do that. I think just going forward, Jan will start mapping that for graphs in terms of numbers of patients and so forth. So really fantastic. Some of it's, of course, price-sensitive and not so much price-sensitive but competitively-sensitive. So we won't be breaking down, for example, I don't know, the number of patients in Germany and at the same time, reporting results of sales in Germany because we don't want our competitors cross checking, I suppose, what we're charging in different markets and so forth. But just a bit more light and color on that. I think that those patients, 10,000 to a run rate of 16,000, yes, that's got to be heartwarming in every way because not only is it a good indication about where our revenue is going, but just in terms of what impact we're having with surgeons and so on and so forth and we expect sort of more of that. I think one of the really interesting things is what's happening in the rest of world. And it's tempting for us to just dwell on the U.S. And the U.S. is the most important market at the moment just because we started there. But if I could just mention just to call out really to what's happening in Ireland and in the U.K., it started a little bit slowly even from our perspective. But I think we all need to keep in mind, this company really didn't have a product 4 years ago. And what we've seen just in the last 6 months is a real pickup in the U.K. Ireland, and it's not there yet, but it will be much bigger than Australia very shortly the way it's going. And so we're really kicking some goals in the U.K. Ireland. The other one, which started with a bang, which is our distribution arrangement we've got in the German countries, what I call Germany, Austria, Switzerland, Belgium and so forth. And that started with a bang, of course, because those guys are calling on the same surgeons that we want to go to. But a lot of that was stocking to start with, and it dropped off a little bit. We didn't -- the pace didn't sort of keep up. But now we're seeing some real traction in the German markets, and that's really fantastic. It's not just Germany, but as I said, Austria, Switzerland and so forth. And so that's going to be good. So in this last 6 months, as you see, the growth in the rest of world was 110%, and you can dismiss that if you like, and go, well, it's come off a low base, who cares. But I can tell you that the sales now in the U.K. and Ireland and Germany are real and much of that 110% is already from those 2 jurisdictions, if you like, the German countries and the Brits. We're getting some small orders coming in already and it will ramp up in places like Italy and so forth. But the rest of world is going to be good for us. And Swami touched on it, but we're about to go out and start selling in India. We have our 2 senior people there. Our company set up -- the hold-up is just getting the bank accounts set and so forth. And India can be quite bureaucratic, but I'm optimistic having been through this myself recently with another company that we'll have that done in the next week or 2. And once that's done, we've already -- as Swami said, we've already identified 20 salespeople to put on to, geographically, have a footprint that covers the major areas of India. So you all know the challenges there. We know the market's there, how we handle the pricing and all of that sort of stuff will be tested. But we all hold high hopes for what might happen in the Indian market itself. So I just wanted to give you that sort of -- Swami mentioned it still could be lumpy. Sure. We don't know whether this month will be $4 million or $5 million. We know where we are month-to-date, but when will the first $6 million month come, we don't really care. If you look at the graph, the trajectory is upwards. And as we get more people on, the lumpiness will come out of it. As we get more geography on, the lumpiness will come out of it. And as we get our reps going down each floor in the hospital, so they're not just selling to burns but they're selling to trauma and all sorts of other areas, we're going to get more lumpiness out of it as well. It will be -- continue to be lumpy for some time. So don't hold your breath. The trajectory is clearly up, and all of these signals that we're sending you show that. We're not going to give -- there's a couple of questions about sales updates and so forth. So I'll take the wind out of those sails. I mean, we're not going to give any directional change in terms of where we'll end up at the end of the year. You know what the run rates are. The graphs are pretty consistent. There's nothing -- there's no headwinds we're finding. So figure it out for yourself, and we'll come back to you closer to June. A couple of questions, and they've been persistent about the Ukraine. Some of you are aware that one of the U.S. surgeons took some product in there. There was difficulties just in terms of the way the hospital system works and the surgeon system works in the Ukraine for us getting a lot of traction on that. And so we've chosen, and we think it's much too easier for us to supply the Ukraine where people have been airlifted out. So the hospitals in Germany or the hospitals in the U.K., where we've had some -- a lot of war injuries taken into, be assured we're supplying in there. We're not shy about supplying it, by the way. It's just not the easiest place to go and release some of the stuff in field hospitals right close to the center. So that's really as much as we can do there for the moment. We're -- as everybody knows, because of Greece, because of New Zealand because of Bali, we're very sympathetic to supplying products and supplying product for free, if necessary and even supplying doctors, but we've got to have a willing audience and an audience where our people don't get shot on the other end. I could go on forever, but I just want to give you that perspective to look at this in terms of multiple signals about where we're going. Staff, numbers of patients, numbers of hospitals, not just revenue and the consistency between each of those signals, which should be not surprising. I also just want to leave you with a clear message that U.K. Ireland is -- tearing it up is probably a bit too strong, and ditto with Germany. So not just the U.S., hopefully, Edward delivering his -- another 20 people on board for sales, and that will be -- it will take on a life of its own, and Swami has got a lot of work to do in terms of making sure that the salesmen go to other places within the hospital, so we get more depth in the customers we've gotten -- [ surges ] we've got. But all good news as far as I'm concerned. So it's great. And I think we might just take a few questions, Jan. So can I...

Sure. I think we have covering analysts who are going to dial in. So if we can do those first, please, operator?

[Operator Instructions] The first question comes from Lyanne Harrison from Bank of America.

Very good growth that we saw in the first half. So congratulations on that. I know you're not going to give us any sort of sales updates or guidance going into the second half, but can we talk a little bit about, like, I guess, exit run rate? You called out there was 3 months of $5 million and more of sales. Is that kind of evenly spread through the first half? Or did we see that towards the second half and that helps sort of frame our expectations for second half '23?

Well, first of all, it wasn't evenly spread in the first half. There were 3 months. And I'll try and remember them myself, but...

Yes, September, October and December, Dave.

September, October and December. And we're not only hoping, and I emphasize hoping that we'll have -- you will see more not only $5 million months, but we're hoping that before we get to this year end, there will be $6 million months as well. So no promises, but as Swami said and as I've said all along, it's lumpy. So we might well have a month in there that's $4 million and we might have one that's $6 million. Hopefully, we're going to have $6 million because the way in which the rest of world is picking up, new heads in America -- I'm talking about 20 new heads before the end of June, by the way, Lyanne, but don't forget, we've probably got 10 that have been on for less than 6 months anyway. So there's a fair bit of growth to still come out of the new hires that we've got. So it probably doesn't make any sense, we've been sitting here 6 months previous, Lyanne, it probably wouldn't have made any sense to tell you when I think the next $5 million month is going to happen because, frankly, I don't know. And it may well be that we're going to have a big month in February. But one of the interesting things I think I revealed in the past is that when we sit here on 23 February as we are today and we look at the sales, sometimes we're disappointed they're not going as well as we think. But the very interesting thing is that the Americas, in particular, always coming in late in the last week. There's probably a lot to do with the hospital ordering systems and surprise us. And we can be sitting on 23 February with $2.5 million of the sales and still make $5 million at the end of the month. So anyway, I'm rambling on a bit, Lyanne, but thanks for the question and also thanks for your support.

Lyanne, the one thing which I would add here is we have largely been recognized as experts in burns. In Australia, we've got a 45% market share in burns. In U.S., we are growing pretty rapidly. We are getting accepted there. We are also now taking time to learn more about trauma and how to position ourselves for the plastic and recon surgeons in trauma and work the other floors harder, as David said. And that would take a little bit of training. How do we recognize the different things that we got after, [ necfasc ], hidradenitis, the degloving injuries, how do we help convert those plastic and recon surgeons because they act very differently from the burn surgeons, and we have to engage with them very differently from the burn surgeons. And there's a learning phase as we go through that. And that's why I said we will be touching more patients. The revenue per trauma on a patient side is a little bit lower, but the consistency and the growth would be much higher, the volume of patients would be much higher. So it will be up and down, but it will be consistently up is what I would share with you, and that would be one step as we start talking to more surgeons, in some cases, probably even general surgeons who do burns in other parts of the world. So we are going where our surgeons are taking us, and we will be training ourselves, learning from those surgeons and then making sure that we are able to do justice for the patients through them. Thank you.

And so since you mentioned rest of the world and obviously, you touched on India and how you're laying the groundwork there and looking to, I guess, launch or start first sale shortly, can you share your thoughts on, I guess, the strategy in that market, particularly around price point and how that might compare to the developed markets being, I guess, the United States and Germany?

I think firstly, when I think about India, we have to do a whole lot of market development work, which we have started already since last quarter of last year. So we were present in the APSICON which is the plastic and recon surgeons annual event in India. We have presented in the burns event in February. So we have already started laying down the work. We have already identified which are the key centers of excellence because we'll also have to start training surgeons in terms of how to use our product on their patients. And just because of the cost-effective nature of our product and the way it works, we believe we would get significant traction in India. The one big change versus U.S. is we are not positioning ourselves versus Integra because in U.S., it is more of a biologic versus synthetic and how do we work and how does our protocol differ from what they would expect from a biologic. In India, it's going to be a pure market development work. And we have already started working on that. So while PolyNovo does not register sales, we have a distributor in India, and we are drawing all the inventory away from the distributor. And we have started helping our surgeons there. We have started doing cases there. And this is one of the toughest markets, as I said, just from an infection prevention and infection control perspective, and the results that we have had so far have been terrific. And that's something which I believe would stand us in good stead. There are 3 centers of excellence that we have identified, and we have signed up with them. There are close to 25 centers of excellence that we are looking at in India. And these centers of excellence are going to train more surgeons on our technology, and these surgeons would help us reach many more patients, again, at a different revenue per patient, but we will be doing the right thing from a patient perspective. So you can expect that trajectory to keep exponentially growing into the future.

Okay. And you mentioned a different revenue per patient in India. So is it safe to say that your price point for BTM in that market will be materially lower than, say, what you sell into the United States and Germany?

Yes, it would be market-appropriate. That is exactly the way it happens across the world. The pricing will be different for different markets on the basis of what the expectations are. Yes. The answer is yes.

And has there been any feedback from your customers in both the United States and Germany or the developed world around price point as a result?

No. I think this is a market expectation in terms of how they compare and see the pricing across different categories. So it would broadly be aligned with all the pricing for different categories. So if you go to China versus U.S. versus Western European markets, there are differences in those individual markets, and we have to learn to respect those differences.

And just one last question for me, and it's just trying to think through what operating costs might look like over the next 6 to 12 months. You mentioned you're adding 20 new heads in India in that time frame. Where else can we expect additional heads? And so, what proportion or what number of heads that we might expect in the next 6 to 12 months?

Without being specific, we are investing in U.K. and Germany. And as I had indicated in the previous webcast that we had, we expect to be market leaders in U.K. and Germany over the next 12 to 18 months. And I'm hoping it is earlier rather than later, that's our wish. But I think we are pretty much on that trajectory. So the geographic expansion will be there in different markets, we'll pick and choose the markets, but we will be aiming towards leadership and impact in those markets.

Your next question comes from Rachael Harwood from Macquarie.

Firstly, just on the MTX product. Could you maybe just give us an update on how this product is performing? And have you been able to cross-sell this product into existing and new accounts?

MTX has been in what we call as a limited market release. It will start -- we'll that process from March of this year. We were not able to release the product because of certain validation issues that we had within our business. It's not yet gotten into the hands of surgeons, but we will be starting that process from March of '23.

Okay. Understood. And then just in terms of the chronic wound trial, I mean I understood that's ongoing and expected to complete in the second half of this calendar year. Do you just have any expectations just around the timing and then maybe the strategy for the launch of this product?

Not yet, Rachael. We will be working on that. We are making some adjustments to the protocol as we shared in our announcement, and we are simultaneously trying to work on the strategy for entry, but we don't have anything for you as of now.

No worries. And then maybe just keeping on the trial theme, how is the BARDA trial going? And do you expect to get any preliminary data that you'll be able to market to surgeons?

We will not market any data to the surgeons as of now, but what FDA and BARDA have indicated to us is that they are very supportive of acceleration. And in fact, they were the ones who came in and suggested opening up Canada and then subsequently suggested opening up India because of the prior experience they had with certain other burn products that they had in that portfolio. So we are in the process of engaging with 3 sites in India. We hope to complete the initial process of IRBs and the ethical committees and government releases and hopefully start to enroll the patients from June. Now that should help us bring the midpoint of this trial closer towards the end of this year. That's our hope, but we'll keep you updated as we go along. We're all excited about the trial. We want to try and bring it to a close as quickly as we can, but we want to make sure that we adhere to the protocol as well. So we are closely working with the authorities in this regard.

Your next question comes from Andrew Paine from CLSA.

Just on the BTM trial for treatment of severe burns, just noticed there's been pushback, the primary completion to March '25 from May 2023. Can you just give us an update there, please?

It was always '25. It was always June '25 to the best of my knowledge. And we are still planning to complete it by June '25. In fact, we're trying to see if we could accelerate that and bring it to a close a little bit earlier.

Okay. Got you, Chief. And just on previous commentary, you talked about the new manufacturing facility expected to support additional $500 million of sales and it's about 5x capacity. Just trying to think about your current capacity. Is that implying that it's around $100 million of sales per annum that you're currently running at, at the moment? Or can you kind of push through more of that? And then I guess, when the facility is coming online and is that going to be a gradual ramp-up or all-at-once completion?

We have 1 unit, which is close to AUD 60 million of capacity, we have Unit 2, which is coming up shortly by May, which would give us another AUD 60 million of capacity. And then we will have the third unit next door, which should come online in another couple of years, which should give us that capacity that you referred to. Jan, I don't know if you want to add any more flavor to that.

No, that's correct, Swami and where we do have extra capacity at the existing 2 units is if we went from a 3-shift scenario per day. So at the moment, we're just running 2 shifts. So there's always that option as well.

Okay. That's great. And just one last one, just CapEx and R&D expectations in second half and FY '24? Are you able to provide a dollar value of your expectations there?

In terms of CapEx for the rest of the second half, it will be at least $1 million. We're fitting out the office space in the new premises next door. That will be finished by around May, June. And then we're starting on the design phase of the new facility, just engaging some outside expertise as well as got an internal expertise helping with that. Once the design phase is achieved on the new manufacturing facility, which we hope sort of by mid financial year or early Q1, that's when we're looking at contracting builders and putting out a tender and sort of commencing construction. So there's still a bit to do. But as we said in the capital raising presentation, the bulk of the spend would be in sort of over FY '24 and the into FY '25 as well for CapEx for the new facility and R&D.

In terms of R&D spend, it's just more of a timing issue because we will start spending much more in the back half of this year, and you will see that reflected as we move forward.

There are no further phone questions at this time. I'll now hand back to see if there's any webcast questions.

Yes. We've got a few questions, David. Are you happy for me to make a start?

Go ahead.

First question, can you confirm that Integra have reduced prices in retaliation to BTMs entry? And how are surgeons responding?

Yes. Look, I don't know that there's a general answer to this, and I don't really want to talk about our competitors. We got a lot of anecdotal evidence about what they're trying to do with hospitals and surgeons in terms of pricing. I think the answer is probably obvious to most people, but we don't have -- I prefer not to comment on what Integra is doing. We're growing very well and we don't need to knife anybody in the back at this stage.

Thanks, David. Next question, how confident are we in a viable product for hernia or some other implant market? Is it still more of an 'if' than a 'when'?

I'll leave that to you, Swami.

I don't want to sound cheeky, but it is an 'if' and 'when' both because we believe that NovoSorb as the core technology can get into hernia and breast. We are sourcing the right expertise across the world to see us -- help us get there faster. And we believe at least some of the products should be in sight sooner, and there are some other products which might take more time for us to fructify. But this is always -- a research and development is never a slam dunk wherein I can say 100%, it will be true. We feel far more confident with everything that we have learned so far. And I'm personally feeling hopeful that as we source expertise from different parts of the world to help us solve this problem, we will get there. And that's at least our intention. Our intention is to try and make it work. But if someone were to ask me, will it work perfectly, I hope so. And we are learning everything that we can from our previous experience. With your blessings, we hope to deliver a good product for hernia as well as for breast.

Thanks, Swami. Moving on to the next question. What is the feedback between surgeons and our product development team, especially regarding surgeon ideas for new applications of NovoSorb?

I think it's our surgeons who are coming back and sharing with us what we could do in breast, what we could do in hernia. And if it was not for surgeons and the way they see our product behaving in burns and using it in different parts of the human anatomy and getting surprised by the results, we would not be going there alone. As I shared, if it is not -- it's our surgeons who bring our technology to life. It's our surgeons who help us understand where this product can go. And without their help and without their confidence, we would not even be experimenting the way we are experimenting today. And they are the ones who help us build the right protocols to help the other surgeons learn how to use BTM or NovoSorb in different parts of surgical sites where healing is needed. That's all I can say. I mean they are taking us into calvarium on skull closures, they are taking us into pediatric trauma, they're taking us into cancer resection, head and neck. It's our surgeons who are leading us in terms of where NovoSorb can go, and we can never be grateful enough for them because, as I said, we are an amazingly engineered polymer, but it's the surgeons who help heal patients and bring our technology to life.

Yes. I think it's worthwhile just emphasizing, gentlemen, that the surgeons are -- there's hardly a month goes by where you don't hear a surgeon is using an application that we've never thought of. And -- but I think in answer to the question specifically, quite a number of those things are happening without a dialogue with us. Surgeons just take it on their own. And I think most people have heard me tell stories about spina bifida where it's been applied to a baby without a spine cover, the [ in utero ], amputations, leg salvage, that sort of thing. It's really going in a lot of different directions. And the challenge for us, by the way, it's a good thing, is to keep up with the surgeons. And even though the surgeons might take it and run with it, we've got a different level of proof that's needed in the sense that if we're going to make it into a real product, then we need to do some testing and support the surgeons. But we've got to know better first, and that's not always the case.

Thanks, David. Moving on to the next question. With employee expenses rising rapidly by 131% compared to prior period, can you approximate the year-end cost run rate for employee expenses? If I can answer that one, in regards to that, it's not actually 131%. That's the reported number. The underlying increase is 50.2%. So in the prior year, we had that reversal, which I mentioned during the presentation, a $4.7 million in share-based payments, that was associated with the CEO and COO resigning. So we had to reverse that expense. So you really got to compare $17 million to $12.2 million. That gives you a 50.2% increase in employment costs. So hopefully that answers your question. And as to where it will land for the full year, a little bit more than double. We'll move on to the next question. When do you expect growth in revenue to start to exceed growth in expenses?

Well, look, the way we're traveling at the moment, and again, just going back to Lyanne's question, we're not going to give any guidance. But internally, we think we're going to be close to or best part a breakeven this year. So when will that turn into a profit? I don't know. I don't really care, to be honest. So we're growing. We know what our margin is. It's just a matter of time, and that really -- none of us really want to sacrifice growth for controlling the expenses.

All right. Thanks, David. Question on DFU trial. Can you talk about any early DFU results?

I can just share that -- I'll go back to the previous question wherein where are surgeons taking us. And surgeons have discovered as a terrific limb salvage option for all kinds of difficult cases that many of the podiatrists had given up on. And many of our surgeons have recovered and salvaged limbs and provided those patients more life because as you know, whenever there is an amputation, the life expectancy of the patient decreases dramatically. And that is the way in which we are getting into DFU and how we can work on the trial. What we are also discovering is surgeons and podiatrists are -- they work to a particular habit, and SynPath requires a different protocol. It's technique-sensitive, and we are working with our protocol and our expert panel to modify the protocol, make sure that we have a calibration process to ensure that the clinicians know how to use SynPath versus the standard of care. So it might take a little bit longer for us to get there, but it is important that we stay true to the mechanism of action of BTM or SynPath and truly heal the patient the way they should be healed versus trying to rush through the protocol. So that's the reason why we are taking a little bit of a break, working with our expert panel, making sure that we are training the clinicians to be sensitive to how the technology needs to be used on the patients, and then we will start enrolling for the trial again. But I think it will be a terrific product for DFUs as we have seen in Australia, as we have seen in U.K. as well. So for U.S., we are taking a pause. We are working with our clinician expert panel, but we will come back and complete the protocol by end of this year or early next year. Thank you.

Thanks, Swami. Moving on to another question here. As order volumes increase and some freight channels still have issues, are you considering building reserves of stocks in other distribution centers around the globe?

The answer is yes, we will start having hubs and inventories in different parts as we start expanding globally.

It's not really being driven by freight issues. I think a lot of those freight issues have now gone back to where they were, even though the costs are still up a bit. But it's more that as people start to use the product more, we think that, that won't be just in time any longer, but rather want to get it off the shelf. So we're expecting to build up -- we already have stock in the U.S. but we're expecting to build up our stocks in Europe and U.K. and the U.S.

All right. Thanks, David. A couple of questions, and then we're probably done. With regards to reps, how long before the current sales force base is producing $1 million a year in revenue on average?

Well, it's an interesting question, but -- and I think we've talked about it before, that the model in Australia got customized for the U.S so that in the U.S. -- and I've given the example, we have somebody that does, say, $3 million worth of turnover, and we've chosen that instead of turning that into 3 reps that we get him support staff so that, that person can continue to sell and that the people underneath him will do the follow-up -- underneath him and getting paid proportionately less, will do the follow-up with the surgeons. And so we're trialing a number of different models around the world, and that includes how to pay those people so -- and incentivize those people. So it's a work in progress as far as we're concerned.

A question on CapEx. So I'm happy to answer; $53 million in the first half, your first half '23 CapEx was well below the typical half year run rate, what led to the lower spend and what we can really expect in the second half? We answered that earlier. So CapEx has dropped off only because we finished building our Unit 1 clean room, which is going to be operational in May, and it's going to increase our capacity, will double our current capacity. So there's been really no spend required on that and very little maintenance. And that will change next year once the -- in FY '24 and '25 as we start construction of the new facility.

Maybe just add to that, Jan. It often gets lost on people is that this is a very -- when you think about it, a very capital-light company. When we want to double sales, we're not asking you for $100 million to go and buy a new factory or build a new factory. The cost of building a factory is, relatively speaking, very low. So even though we're going to build a new factory, compared with any one of my companies that I'm close to in the food industry, it's trivial, the amount of money. So this is a really powerful thing for a company, I think, is that not only do we have high margins, but we've got low capital requirements. So that's something to keep in mind when you're comparing us with others.

All right. Thanks, David. Second last question, with $50 million in the bank, how will that be spent on plant and equipment and over what time frame, which we've just talked about, but related question is, how will it also be spent on market expansion over what time frame? And can you split that into the relevant buckets? So I think the buckets will be -- and, Swami, you can add to this, it's what we presented in the investor presentation at the capital raise. But I mean, the 4 areas are geographic expansion, new products and R&D, expanding our current indications where our product is used and also some working capital and also fitting out the new facility next door. So they are in the -- all the 4 buckets. The largest chunk will go into fitting out the facility, but followed by geographic expansion and new products and R&D. So I don't know if you want to add to that, Swami or David in any way.

No.

No.

No problem. And through a bunch of questions here, I think we can end with this one. How big does the profit in the future need to be to commence paying a dividend?

Look, it's not worth answering, Jan, because the big driver for us as a Board will be the trade-off between losing cash and growth. And to the extent that we can have more growth with a 95-plus-percent margin, we'll take the growth every day. And that should be rewarded in share price as it has been already. And to the extent people want dividends, go sell a couple of shares. But look, it's a work in progress. And as we go from -- if India turns out to be successful, we've got quickly coming up behind it, Japan and maybe Indo and a lot of other countries as well. So we want that growth. And it's only a short matter of time between when we become profitable, which is extraordinary, again, I'd just emphasize, 4.5 years ago, there was nothing. And now we're talking about profits and dividends and so forth. But the growth on a capital-light, high-margin product like ourselves, you want to take that every day in my opinion. So I'm talking -- whether we pay a dividend or not is not for me, it's for the Board and for the audit committee to recommend. But just so you know what my sort of feelings are.

Just to add to what David has been saying is he's been pushing us constantly for what are the limits of the sheer number of patients that we can touch and heal with this technology and how many different kind of surgeons can we go and meet and work with to heal patients. So that is something which keeps driving all of us to keep moving. We can turn the profit tap anytime. But as long as we are growing responsibly and reaching more number of patients, the entire company is motivated by that objective.

Yes. Yes. I think -- and to put that in context, we talked about 10,000 patients for FY '22, we talked about 8,000 patients in the first half of this year. That number will be hundreds of thousands when we get -- when we start to hit our strides in the U.K. and Western Europe and new sales people in the U.S. So we haven't even -- even though we're doing very well and the margin is great and the sales are going to grow, we still haven't scratched the surface.

Absolutely. Thanks, David and Swami. That's the end of the questions.

Okay. Thank you for that, and thank you, Swami and Jan. But look, thank you, everybody, for coming. I hope it wasn't too much of an anticlimax today. But just to give you a sense of what's coming, it worked very well at the AGM meeting last year, having a couple of employees, offshore and onshore. We plan to do that again this year. And I think we might even extend it. We may even try and get a patient or 2 in. But I'm really keen for shareholders to see the breadth of our penetration. So I don't -- I mean I'm not promising anything, but we may have somebody out of the U.K., we may have somebody out of India. We may buy a Boeing jet and take all shareholders to India, who knows. But we plan to make the next AGM really with a [ bang ]. So you will know as much about the product as us and our growth prospects. But on behalf of the Board and management, I'm sure we thank you for staying with us. I mean it was only in May last year, it's not even a year yet, when the share prices had been [ shortened ] 11.5% down to $0.87 and one of the better Chairman on the ASX went in and bought $7 million worth of shares and now here we are back at [ $2.30 ]. So the shorts have gone -- nearly gone completely. So it just shows you that, that share price volatility you'll see, people will play with the share price, but the fundamentals are the fundamentals. And the company is going very well, and all of those signals that I talked about at the front, keep your eye on those because that's the exciting thing, not just to look at what our profits is or our revenue is, but look at what we're doing for patients and hospitals and hopefully stay with us. But anyway, thank you very much. And if not before, we'll see you at the AGM. I am presenting tomorrow, by the way, at Macquarie Bank in Sydney face-to-face. And I may have -- I don't think I'm going to have anything different to say but if I do, there will be an ASX announcement tomorrow morning preceding that at 10:00 AM. Thank you, everybody.

Thank you. Thank you.