Tribeca Investment Partners: Aroa Biosurgery

Based in Auckland, Aroa Biosurgery manufactures and sells surgical products to improve the healing of complex wounds and soft tissue reconstruction. The company’s proprietary platform, endoform, is derived from sheep forestomach and is supplemented with synthetic polymers, which gives it the ‘best of both worlds’ of both biologic and synthetic products. It comes as a ready to use structure that supports healing.

Since its founding in 2008, Aroa’s core technology has gained regulatory approvals in 37 countries (including from the US FDA). It has five patented products already selling in the US and over four million procedures have been performed with Aroa products globally.

Aroa is an exceptional growth story. It is at an early commercialisation stage of its product portfolio and has already delivered impressive revenue growth as its products gain a foothold in the large US market.

Aroa is currently generating revenue of $22 million which we expect to compound by at least 50% annually over the next three years. Aroa’s current approved products have a combined market opportunity of US$1.5 billion in annual revenue. With its strong distribution networks as well as a growing body of clinical data supporting the effectiveness of its products, our view is that Aroa will accelerate its market share gain in the coming years. Further, Aroa has more products in the pipeline which will grow the total addressable market opportunity to US$3 billion annually.

Aroa has performed very well since its IPO in July. Its list price was $0.75 and the share price is up more than 70%.  We continue to expect significant share price outperformance in the coming years as the group’s products make inroads into the large wound healing and hernia markets.

Compared to its larger listed peer, Polynovo (PNV AU), Aroa is only trading at a fraction of the valuation of its larger listed peer Polynovo (PNV) despite having a potentially larger market opportunity and established clinical data. We also would not rule out the potential for the company to be acquired by a larger player given the strength of its portfolio and the ultimate size of the opportunity.

Like many healthcare companies Aroa has been impacted by COVID-19. We view this as a temporary setback given the pandemic will have no long-term impact of the long-term demand for Aroa’s products.

This information has been prepared and provided by Tribeca Investment Partners. To the extent that includes any financial product advice, the advice is of a general nature only and does not take into account any individual’s objectives, financial situation or particular needs. Before making an investment decision an individual should assess whether it meets their own needs and consult a financial advisor. This stock pick was published on 15 October 2020 and is subject to change.