PolyNovo Ltd (ASX: PNV) is an exciting name in the health-tech space. As you can see in the chart below, it’s been a volatile ride so far. Here are my thoughts on this up and coming ASX growth share.
The story so far
The origins of the technology behind PolyNovo date back to 1988 with research backed by the CSIRO. In 2004, PolyNovo was spun-off and became its own independent entity and patented its NovoSorb Polymer technology.
PolyNovo’s flagship product NovoSorb BTM is used for serious burns victims and helps regenerate human tissue where it has been severely damaged. BTM is currently approved in Australia under the Therapeutic Goods Administration, in the US under the Food and Drug Administration, and also in Europe.
The company invests heavily in the development of new applications, but one of its main current challenges is successfully distributing the BTM product on a global scale.
Current developments
Although PolyNovo does have FDA approval in the US, this is limited to treat acute wounds only. In order to be able to treat a broader range of chronic applications, the product requires approval for full-thickness burns.
Clinical trials are already underway and are being endorsed by the Biomedical Advanced Research and Development Authority (BARDA). In July, PolyNovo received US$15 million from BARDA to support the trial program. If successful, the company expects to launch into this market sometime in 2023.
I believe that much of the growth and excitement of PolyNovo is yet to come. The company is only just entering a relatively untapped customer base, with an estimated total addressable market in global wound care of around $1.2 billion per year. New developments are also on the horizon, moving into new markets including hernia and breast reconstruction, with a total market value of $5 billion.
In September this year, PolyNovo received a $252,000 grant from the Victorian Government to finance the purchasing of equipment for its hernia facility in Port Melbourne. This facility will manufacture its patented Syntrel product and aims to change the way hernias are managed around the world. This grant is not a huge amount of money by all means, but having some government backing is always a good indication in my eyes.
Objectives for FY21 include entering into new European markets, such as France, Italy and Greece. PolyNovo is also waiting upon regulatory approval from Korea, with the process being slowed down by COVID-19. It also hopes to continue the strong growth trajectory in US markets with an increased sales and marketing team.
Skin in the game
PolyNovo’s key management personnel appear to be well-aligned with shareholder interests.
In August this year, Chairman David Williams bought 500,000 shares at a price of $2.04 per share, bringing his total holdings to over 18 million shares. CEO Paul Brennan is also a significant holder with 4.1 million shares.
Potential headwinds
Much of the hard work has already been done developing the BTM product. Future downside risk will mainly involve failing to successfully distribute the product in new markets. This could either come from issues arising with regulatory approval or hospitals simply using other alternatives in wound care treatments. It can take years for hospitals to switch from old products and adopt new practices, so I think PolyNovo’s success could play out over the long-term if you’re patient enough.
As the company is extending its service line into hernia treatment, there is of course the hurdle of the development and manufacturing process, followed by clinical trials, then distribution. As a result, I don’t think the PolyNovo share price is going to shoot the lights out in the short-term. It’s going to take quite some time for newly developed applications to be successfully integrated into its offering.
Final thoughts
PolyNovo is backed by a strong management team that has significant skin in the game, which is always a good sign.
I would be happy to buy shares in PolyNovo today but only with a long-term outlook, as I think this company could be pretty volatile along the way. Trials or regulatory approvals that have a binary outcome can often result in extremely volatile movements in the share price.
To find out the names of three more ASX growth shares I’ve got my eye on, check out this article: 3 ASX tech shares I would buy today.
