PolyNovo Limited (PNV) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the PolyNovo FY '26 Results. [Operator Instructions] I would now like to hand the conference over to Bruce Peatey, Chief Executive Officer. Please go ahead.

Good morning, and welcome, everyone, and thank you for joining us. Since joining PolyNovo last in December, I've spent some time with customers, clinicians, employees and shareholders around the world while also reviewing the business in detail. My confident assessment is that PolyNovo is developing into a stronger, more capable business with a sustainable runway of potential for us to capture. Looking ahead, FY '27 is less about building capability and more about converting that capability into outcomes, reliable performance, broader adoption of the portfolio and milestone completion, leading to stronger returns and long-term shareholder value. And with that context, I will be sharing some key highlights from FY '26, the opportunity ahead and our key priorities for FY '27 before handing over to Jan to review the FY '26 financial results. If we go to the next slide. We have here the standard disclaimers. Move to the next slide. So the origins of PolyNovo are centered around large complex burns. The way NovoSorb BTM uniquely and specifically addresses the care needs of critically ill burns patients, providing surgeons with the time and control they need to address these complex cases has really truly redefined what is possible in this category. Increasingly, we are seeing NovoSorb BTM and now MTX used across trauma, reconstruction, limb salvage and other complex wounds, reflecting the versatility of the NovoSorb portfolio. As more surgeons are seeing positive outcomes in new procedures using our products, the potential for growth strengthens. Combined, these markets have an estimated total available market in excess of $2 billion. I want to be clear, BTM in large burns built PolyNovo's clinical credibility and will remain an important growth lever for the future. But the opportunity for NovoSorb is much broader. That matters because PolyNovo is fundamentally a platform company with a significant complex wounds business today and broader potential over time. It was important for me to include these images today. The patients' lives from around the world that we positively impact through our technology is a source of daily inspiration and pride for our entire team. So the next slide. During FY '26, we increased our focus on strengthening our foundations, while our commercial momentum continued with more cases covered than ever before in more types of procedures in more hospitals and countries around the world. The clinical study report for the U.S. pivotal RCT is now finalized, representing an important milestone for PolyNovo. We have successfully completed one of the largest and most rigorous burn studies conducted in decades. And we look forward to updating investors on the trial results as we progress through the next stages of regulatory review and commercialization. And we are pleased to share that BTM received regulatory clearance in 8 additional markets. MTX continued its commercial rollout, achieving close to 90% year-on-year growth in FY '26. We expect the momentum to continue as clinical evidence and clinician experiences continue to grow. The new manufacturing facility construction has been completed with transition plans underway, and our leadership team was strengthened with proven capabilities spanning science, quality, IP and governance. We also have invested in critical strategic marketing and market access capabilities to actively drive the next wave of growth. Each of these elements will make us more capable to scale the organization and power the financial growth trajectory. Next slide. Sharing some of the financial highlights here. FY '26 continued to deliver growth with the group, the U.S. and the rest of the world sales all growing greater than 21% in constant currency. We've added constant currency detail in response to the volatile forex landscape over the previous year and to give a more accurate reflection of the local market momentum. Importantly, EBITDA grew significantly versus prior year, while we continue to invest in the infrastructure and capabilities mentioned previously. We're very pleased with the improvement in operating cash flow in line with expectations communicated in the first half earnings update, generating $9.4 million in free cash flow for the year. Jan will take you through the financial performance and key drivers in more detail shortly. So next slide. I recognize there may be some questions around the trajectory of growth in the United States during the second half of FY '26. So let's address that here. This chart depicts the sales growth trajectory over recent years in the U.S., comparing revenue from large burn procedures to all other procedures. Large burn cases are lumpy by nature. The presentation of large burn cases are infrequent and variable in magnitude, which can impact sales variances more than other typical market forces. A good example is that we saw strong growth in large burn cases in the first half of FY '26 after a period of lower growth. We saw less of those large cases presented in the second half of 2026. Meanwhile, the deliberate expansion into procedures beyond large burns, including the introduction of MTX is paying off, with a 52.8% 3-year CAGR coming from an increasing number of complex wound applications. Now this is important because it demonstrates that complex wounds are not simply a future opportunity. They are already an increasingly important growth engine. Finishing FY '26 with a record sales month in June for the U.S. provides confidence that this is not a business that is running out of opportunity. It does suggest our growth drivers are rightly changing, broadening and maturing. And I'm pleased to share that we started FY '27 continuing the FY '26 momentum with a group sales record for July. Next slide. MTX is a good example of our ability to leverage the NovoSorb platform into new clinical applications and generate meaningful commercial traction. In FY '26, sales increased to $12.6 million from $6.7 million in the previous year, with MTX now commercially available across 6 markets and the regulatory pathway is well underway for the U.K. Most encouraging is what we are hearing from our clinicians about the positive outcomes they're experiencing using MTX either stand-alone or increasingly in combination with BTM. We just shared a few of the comments here on the right. MTX's versatility in combination with the NovoSorb credibility gained from BTM is enabling use across a broad range of reconstructive and complex wound challenges, supporting our confidence in the opportunity for further adoption. Next slide. Now the body of evidence supporting broader adoption of NovoSorb's portfolio across a wider range of clinical applications continues to grow, validating the credibility of NovoSorb technology. While there is still a lot to focus on BTM and burns, we continue to see significant growth in evidence outside of burns applications in an array of complex wounds. Another indicator of broadening clinical acceptance is the inclusion of NovoSorb BTM in academic textbooks, and this stat got me excited. BTM was included in 9 published textbook chapters in FY '26 alone compared to just 1 chapter across all of the earlier years. Next slide. So moving to a geographic perspective. All regions continue to experience strong growth with Americas exceeding AUD 100 million for the first time. There's no single growth lever in which our outlook depends. We have different opportunities at different stages of maturity across each region. In North America, the major opportunity includes PMA approval and the RCT clinical study report, entering outpatient care in FY '27 and deeper penetration of existing accounts and MTX. Outside of the U.S., there remains significant runway through new products and indications. In FY '27, we'll be about matching investment and commercial execution to the maturity of each market, deepening penetration where we're established while selectively building markets with a quantifiable opportunity for NovoSorb introduction. Next slide. So let me start here by confirming that our ambition as a growth company remains high. The focus of the leadership team is now to translate that ambition into clear direction and accountable actions. Our strategy starts with the strength of what we already have, which is a differentiated complex wound portfolio, established clinical leadership and a significant opportunity for deeper penetration in existing markets. The next phase is about leveraging the portfolio more deliberately to maintain strong growth in BTM, MTX and soon to come SynPath by prioritizing application opportunities where clinical need and potential commercial return are the strongest. By leveraging the platform, we commit to increase the velocity of our innovation engine. This includes next-generation products to fuel expansion in our core business and getting back to the science of our polymer technology to unlock potential new ways. Every company goes through evolutionary inflection points. PolyNovo has grown substantially over the several years. Our commercial teams are expanding. Our manufacturing output and capacity is increasing in a highly regulated market. So we plan to sharpen our focus on organizational capability and accountability during FY '27 to translate clinical leadership into sustainable long-term value. Next slide. Our opportunity is broad. So one of the most important things we can do as a management team is be clear about where we focus our resources. For FY '27, that means 5 priorities: advancing PMA to approval and sharing the RCT results when appropriate, launching SynPath into the U.S. outpatient market, accelerating MTX, increasing our innovation velocity, including adding business development capabilities and improving operating leverage as we scale. The common thread is execution, converting the capabilities and investments we have made into commercial outcomes, sustainable growth and stronger returns. So I'll hand you over to Jan now with these thoughts. The platform is proven and its full potential has not yet been realized. Burns remain an important foundation, while complex wounds, MTX, outpatient care and other applications substantially broaden the opportunity. This isn't simply an aspiration. Non-burn indications are already growing considerably faster. MTX is gaining traction, and there are multiple growth levers across geographies and care settings. The difference you should expect under the refreshed leadership team is focus and execution. Thank you. Over to you, Jan.

Great. Thanks, Bruce. Next slide, please. And thanks again, everyone, for joining the webcast today. I'll start with our commercial sales performance. NovoSorb product sales were $138.4 million for the year, up 16.7% on last year and in constant currency, up 21.3%, as Bruce just mentioned. In dollar terms, sales increased by $19.7 million. The year ended with a strong June result, including a record sales result in the U.S. This was backed up recently in July with group sales exceeding $13 million for the month, a new record. This is a good indicator of the momentum in the business as we progress into the new financial year. We experienced continued growth in the U.S., achieving sales of $102.1 million, up 15.6% for the year. There were significant FX headwinds in FY '27 due to the stronger Australian dollar against the U.S. dollar. Taking this into account, U.S. sales in constant currency were actually up 21.1%. The growth was driven by strong account acquisition, adding 200 new hospital accounts during the year and continued penetration of existing accounts with total accounts now over 880 in the U.S. In regards to the Rest of World result, we recorded sales of $36.3 million, up 20% on last year and up 21.9% in constant currency. This includes some exceptional results in a number of markets with growth rates well above 30%, which I'll highlight a bit later in the presentation. NovoSorb MTX sales for the group were $12.6 million, up 89.6%, recording sales not just in the U.S., but also Canada, Australia, New Zealand, India and Hong Kong. Next slide, please. Moving on to additional highlights for the U.S. As just mentioned, the U.S. achieved 21.1% sales growth in constant currency for the year. NovoSorb MTX sales in the U.S. were $12.2 million, up 92.7% in constant currency. Surgeon adoption of NovoSorb MTX continues to grow and will accelerate across the customer base as more clinical evidence is generated and shared. NovoSorb MTX has now being used in over 330 accounts in the U.S., doubling from the same time last year. We currently have 132 staff in the U.S., including 106 in the sales team. The average sales per sales team member continues to increase as we penetrate existing hospitals across a wider range of indications, also assisted by having additional product available being NovoSorb MTX. As a result, overall productivity of the U.S. team has increased, increasing operating leverage and profitability. Furthermore, the U.S. business continues to generate strong cash flows with debtor days well within our expectations. Next slide, please. So moving on to the Rest of World results. As mentioned, sales were up 21.9% on the prior year in constant currency. We achieved some exceptional results, both in relatively new and well-established markets. In particular, Australia, our home market, we entered several years ago, grew by 33.9%, which is an excellent result. Ireland grew by 38.3% is one of our best-performing markets on a per capita basis. Results in long-standing markets such as Ireland and Australia, as an example, is a good indicator of the adoption by surgeons using NovoSorb BTM, not just in large burns, but across a range of indications. Sales in Hong Kong continued at a strong rate, recording 49.9% sales growth for the year. Turkey's strong growth has also continued, up 79% for the year. India performed with a consistent growth rate, recording 52.8% sales growth for the year. Furthermore, following first sales in June last year in Malaysia, we have received monthly orders, each order increasing value, and we'll be investing in that market by hiring 2 sales reps this quarter. We have experienced similar growth in the Czech Republic following first sales late last fiscal year. Rest of World share of global sales now accounts for 26.2% of global sales, and we see significant opportunities for growth, particularly in Europe and the Middle East in the short term. Next slide, please. Moving on to the P&L. I want to start off by highlighting the underlying EBITDA performance for the year. After adjusting EBITDA for significant items being the impact of the R&D lab fire and unrealized forex impact on translation of the balance sheet due to the strong Australian dollar, adjusted EBITDA was $13.4 million, up 50.4% on the prior year. There are a number of one-off items impacting the reported net profit after tax result, which I will now explain. BARDA revenue is down on the prior year as expected. The pivotal burns trial is complete, and we are finalizing the submission for premarket approval to the FDA. In connection with the BARDA pivotal trial completing, the trial costs have reduced, which now -- which explains the lower R&D expense for the period. On to gross margin. You may recall in the first half of the year with inventory at comfortable levels after building them up during FY '25, we took the opportunity to bring forward attending to various tasks in our manufacturing facilities in preparation for the premarket approval submission and FDA audit that will follow in due course. To do so, we temporarily reduced manufacturing output in the first half, which in turn reduces the production recovery to cover manufacturing overhead costs. Despite increasing manufacturing output in the second half to 3.8x the output of the first half, we recorded a modest improvement in gross margin in the second half of 89.2% compared to 88.7% in the first half. The margin for the full year was 89.0%. At year-end, a number of adjustments are recorded to account for the underutilization of the facilities that occurred during the first half. As such, the underlying gross margin in the second half was much higher than 90%. Other income includes a $6.0 million insurance claim related to the R&D lab fire. This offsets the $4.7 million asset write-off recorded further below in the P&L. Employee-related costs were up 5.7% or 4.3%, excluding share-based payments, with employee headcount remaining steady at circa 300 employees at 30 June. Underlying corporate admin and overhead expenses were actually down on the prior year by 1.1% after excluding unrealized forex movement on translation of the balance sheet. This unrealized forex movement comes about due to the Australian dollar appreciating against the U.S. dollar during the period, resulting in an unrealized forex loss of $2.7 million for the year compared to $2.2 million unrealized gain for the year. And this particular expense gets recorded in the corporate admin and overhead line in the statutory P&L. So important to back it out and look at the underlying result there. In terms of operating leverage, it is increasing, and the bottom line is becoming more sensitive to sales growth, evident by the 50% increase to EBITDA after adjusting for significant items. Next slide, please. Moving on to cash flow and the balance sheet. We ended the period with $35.4 million cash on hand, an increase of $1.9 million on last year's balance of $33.5 million. Cash flow from operations was $23.1 million and improved significantly compared to the prior year result of $3.1 million with strong debt collections in all markets. We completed construction of the new manufacturing facility in Port Melbourne with CapEx payments of $12.4 million for the period. We also commenced reconstruction of the R&D lab and offices with progress payments of $1.4 million, which are fully covered by insurance. $1.5 million in CapEx remains outstanding for machinery for the new manufacturing facility, and this will be paid in the first half. Even after funding $13.8 million in CapEx, the business achieved free cash flow of $9.4 million, which is an important milestone achievement for the business. Finally, we ended the year with a strong balance sheet, free cash flow, which will enable us to focus on further investment, driving revenue growth and importantly, product innovation. Thank you. I'll now hand back to Bruce.

Thanks, Jan, and thank you all for joining us today and for your continued support of PolyNovo. As you've heard, we are entering the first half with strong momentum, a clear strategy and a deep commitment to execution. Our focus remains on delivering meaningful clinical impact, scaling globally and unlocking the full value of the NovoSorb platform. I'm incredibly proud of what the team has achieved and confident in the opportunities ahead. We look forward to updating you on our progress and appreciate your engagement today. So I'll now hand over to the operator to move to Q&A.

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

Can I start with your Slide 11 in terms of your 2027 opportunities? In terms of the PMA for BTM, can you tell us whether or not the submission timetable for the end of this calendar year still holds? Also what needs to happen between now and submission? And then following submission, what are your expectations on the FDA review timeline?

Lyanne, thanks for the question. Yes, so as far as time line is concerned, as we communicated earlier in the year, so we made the deliberate decision to take an opportunity to look at the scope of the program with the updated guidelines from the FDA, we took the decision to make our -- to bring some of those activities that were post -- going to be post-submission to pre-submission in the intent to make a more complete and compelling submission all in one go. Also, it allowed us to line up the clinical report outcomes at the 18-month period, the follow-ups with the patients. So all tracking well there. After the submission, I've always said our goal is a PMA approval, more than racing to a PMA submission. And we feel like we're in good stead for that as we've gone through this review time line. So once that submission is in, we -- then it's more appropriate to talk about the outcomes for the clinical study. And then we're more in the hands of the FDA as they go through their process over several months, including an inspection of the facility we expect.

Okay. So effectively, in terms of the approval for the FDA, the expectation is perhaps middle of next calendar year. Is that right?

So it's definitely months. And again, we go to the FDA time line. So we're prepared to work with them from experience and our understanding, it's around that 12-month mark from submission.

Okay. But that hasn't -- is it sped up because of your additional submission activity?

It's difficult for us to say. But what I can say is that what we'll have is a very complete submission, the work being done prior to the submission rather than originally planned to do some work after submission. For me, I'm more confident in how we would proceed in this sense.

Okay. And then if I can move on to SynPath. Can you give us an update on where you're up to in terms of that outpatient opportunity, particularly on perhaps trying to secure reimbursement and where SynPath is up to in terms of the launch?

Yes. So we're in preparations for commercial launch as we move forward. As far as reimbursement is concerned, SynPath has HCPCS code already. So we don't have any concerns there. But as I think most people know as following this space is that it's been a market in a fair bit of turbulence over the start of the year, getting used to the new policies through CMS. So we have added our market access capabilities to the organization to help us navigate through this very different space than the inpatient market that we currently are in every day. So not only is it about the product or the reimbursement, it's also about provider confidence and that they can get paid through this new system. And with all of the different movements, that turbulence has something that we've kept an eye on as we prepare for the launch into the market. So commercial readiness is underway. We're ready for our commercial launch. It's progressing well, I would say.

Okay. And what's your view then in terms of the ability to sort of penetrate that market, obviously, given the challenges the market currently has?

So very deliberate in how we're going to approach the market. We make sure that we have the right go-to-market strategy as well as -- which includes not just the sales team, but also what indications make the most clinical sense for us to be involved in and also has a significant commercial opportunity. So you're talking about procedures that are more single episode procedures rather than the repeat episodes that you might see in some of those chronic wounds. We see a lot of opportunity there and actually dovetails quite nicely with our current momentum in the inpatient space. Similar contact points, similar surgeons involved, just a different care setting.

Your next question comes from Shane Storey from Canaccord Genuity.

I think I might stay on the SynPath track just for a couple of more minutes, Bruce. Just thinking about the settings there, would I be right in anticipating that you'd probably look to the outpatient setting, more hospital outpatient department rather than going into, say, the broader private physician market at this point?

Yes, you got it, Shane. Thanks for the question. It's a logical first step for us. Like I say, there's that relationship that we already have with the surgeons in those hospitals. We've got over 100 reps now in more and more hospitals every day. I think over 800 was the last count and increasing -- so that makes the logical first step. The indications, if you look at some of the oncology repair type of reconstruction-type procedures, they can be further outside of the hospital. And we are looking at opportunities to address those markets over time as well. But you're right, logical first step in hospital outpatients.

And when you think about just where the evidence sort of stands right now, just your thoughts perhaps on what additional evidence development you think might be appropriate. And I know that's a bit of an open question to everyone in the category, but just interested in your thoughts on it.

Yes, it's true. And the evidence requirements also need to be established as we go forward. We are gaining more and more evidence across multiple indications. As I mentioned in the presentation, and so whether that's in the chronic wound space as well as the more acute setting, we're seeing that evidence that is applicable to this space. But we're also mindful if there needs to be more, I'd say, specific evidence generated that we're open for that. What I can say is that even the strategy to move into the procedures that are more applicable to our products' capabilities and advantages, I think we're well placed with the evidence that we have.

I've got one final question just for Jan. Jan, thanks for checking us -- talking us through the various moves in gross margin over the half. I suppose my question is really just around any of that sort of mechanics might reverse in FY '27, I suppose just with new facilities coming online, just how you expect that overhead to affect the margin over the next year or 2?

Yes, sure. The new facility isn't available for use at the moment. So it's not hitting margin. And we're not going to be transitioning to the new facility to around March next year, and we'll likely start with MTX moving across. We're in the middle of validating machines and so forth. So despite the facility being built. So we're not going to have that impact until sort of the fourth quarter. Before I talk about that, I'll touch on how margin is progressing, and we're sort of back to the normal levels now out of our existing facilities. So July, gross margin was just under 95%, and that's kind of what we're used to. And that comes about by strong sales exceeding budget actually in July. We had $13 million sales for the group, which was a record, but we also hit budget or target for our production output in July. So when that happens, you get a 95% gross margin. So with all that continuing as planned, and we hit our targets between now and, say, in December, our first half, our gross margins will be in that 90% to 95% range. The new facility comes on, that will have a 1% to 1.5% impact on gross margin once it's up and running, but our sales will be a lot higher than where they are now, too. So you've got to take that into account. But all in all, we're in a good spot in terms of being able to use that new facility and looking forward to sort of firing it up in the next calendar year.

[Operator Instructions] Your next question comes from Scott Power from Morgans Financial.

Just a quick question around some of the other research that you're doing. So you mentioned SynPath and the launch of that. But I'm just wondering if you could give a bit of commentary around hernia repair and some of the areas that you're looking at. And I guess the second question to that is with that R&D spend coming down in FY '26, what's the sort of anticipated percentage of sales that we can look forward to going forward?

Okay. Thanks, Scott. So just on the innovation pipeline in general, I think you'll recall at the half year, I spoke about the need of getting some velocity back into our innovation pipeline. And one of the first steps to do that is to bring in a Chief Scientific Officer, which we did. Wonderful to have Marthe D'Ombrain in the team now. And I can see really 2 months in, we can see that rigor and discipline to the pipeline visibility and approach is definitely improving. So we have that. In that mix, like you mentioned, we've got a number of products, hernia and breast recon, as we mentioned before, we've got products in that pipeline as well that are going through a very deliberate prioritization process. So we'll have -- my focus is to making sure that we have that velocity come back into the innovation pipeline and to be able to make the tough decisions. Unless there's a clinical differentiator, unless there's a very strong commercial need for the product as well, we'll make those tough decisions whether they stay in the pipeline or not. And I'm looking forward to sharing that more as we have Marthe has a bit more time under her belt. I think I am very happy also with her approach to start bringing in some voice of customer with clinician groups as well as she will be planning to establish more formal forums for scientific advisory over time as well starting in this calendar year. So I think for the most part, it's about making sure we have a disciplined process in place for our innovation pipeline to get that velocity back into our system. As far as the spend, I'll get Jan to speak about it. But I think as we shift away from the heavy lifting link to PMA preparation, we will see more of the investment going into R&D to help fuel this increase in velocity.

Absolutely -- just to add to that, in terms of R&D spend as a percentage of sales, will be sort of around 5% of sales next year, and that excludes the R&D costs, which have historically sat in that line in the statutory P&L. That's all come to an end now. So -- and to Bruce's point, though, Marthe, our new CSO, has only been in the role for a couple of months, and there -- she's getting a handle on things. And we do want to invest more in R&D. We do want new products to come out and line extensions. But so expect it to increase, but next year it will be close to sort of 5% of sales.

Right. Okay. And just a second question, if I can. You've called out a number of the regions in Rest of World that have done very well. Are there any regions that perhaps are underperforming and up for review?

So I think just to jump in on that one and the questions around rest of the world, I think it goes back to what we've learned, particularly around that evolution of the markets. And we talk about markets being at a different level of maturity. And again, as that mix between the large complex burns and the other complex wound applications, as that mix evolves until that evolves, we'll have some variability in those markets. So that's why I called out the deliberate approach for at least 2027, FY '27 is to go deeper in some of those high potential markets rather than more emphasis on going into more markets. So definitely, we think we've got some potential in particularly some of the European markets to go a little deeper and build up that momentum that we've seen in some of our more established markets like Australia, performing extremely well one of our most mature markets, and you can see how that mix is changing in the U.S. I'd like to see that happen more in some of the European markets. And Jan, I don't know if you have anything to add?

Nothing really further to add, but we've had some really great performances. We know what good looks like, and we know how to get there in particular markets. [indiscernible] are a driving force in supporting distributors. So we'll continue to do that. And anyone that's sort of dropping off, we managed to pick them up again. But there's no shortage of opportunity. Also in the Middle East, we see opportunities because we've had product going into that region since the war also occurred and all the activities have been going. Unfortunate activities have occurred over there. So that's another opportunity as well we're going to be looking at.

Your next question comes from Andrew Paine from CLSA.