PolyNovo soars on record quarterly sales

Up around 13% in mid-afternoon trade, shares in burns treatment specialist PolyNovo (ASX: PNV) received their first decent kicker today since tumbling from a year-to-date high of $2.22 mid-August to a low of $1.27 two weeks later.

What drove the price higher today were revelations the company had achieved its first ever $5m sales month during September.

First quarter sales were also a record $12.5m, up 73.3% over the previous period.

Underpinning the result was the US business, which reported record quarterly sales of $10.4m, up 71.3% over the previous period and aided by both a 61.3% increase in constant currency sales and a favourable exchange rate.

Lumpy sales

Management expects the company to emerge as a global leader in Soft Tissue Regeneration based in Australia.

But despite what CEO Swami Raote described as a "clear and exciting growth trajectory", he reminded investors today that month-to-month sales are still lumpy.

To the uninitiated, PolyNovo is involved in dermal regeneration solutions via its patented NovoSorb BTM technology.

Vindication

Raote believes today’s results provide clear evidence of surgeon and hospital system recognition of consistent outcomes, better patient experiences with the NovoSorb BTM, using its patented NovoSorb biodegradable polymer technology.

“I am pleased with how our teams are now beginning to translate our burn heritage and supremacy into trauma and other acute surgical soft tissue reconstruction opportunities,” Raote noted.

“PolyNovo has always been focused, responsible and capital efficient in delivering results and I look forward to accelerating our global impact.”

Recent developments

Today’s announcement follows revelations two weeks ago that PolyNovo had received US FDA 510(k) clearance for NovoSorb MTX, a major new product innovation for soft tissue regeneration for the management of complex wounds.

While PolyNovo was subject to some aggressive short-selling early July, the stock benefited from a late-July rally experienced by the sector at large, which saw the S&P/ASX 200 Health Care Index (ASX: XHJ) up more than 12% over the month.

A one-time member of the ASX200, PolyNovo's market cap of $1.1bn puts it just inside the ASX300.

What brokers think

While PolyNovo’s share price has gone nowhere over the past 12 months (0.61%), the stock has been on an upward trajectory since early-October.

Consensus on PolyNovo is Moderate Buy.

Based on Morningstar’s fair value of $1.60 the stock appears to be undervalued.

While the announced FDA clearance for NovoSorb MTX is complementary to the existing NovoSorb BTM offering, Macquarie reminds investors it will also allow for use in a wider variety of indications.

The broker expects MTX to broaden the depth of PolyNovo's product offering, which could lead to greater penetration into existing hospital accounts and potentially diversify sales into indications outside of burns.

The broker’s $1.90 target and Outperform rating are unchanged.

PolyNovo share price over 12 months.