Ann: Half Yearly Report and Accounts, page-22

Latest update from Baillieu...............


PNV can even fix biotech cash burn


1H19 result: Net loss after tax of A$1.9m (1H18: NLAT of A$3.2m). Total revenue of
A$5.7m (+109% pcp) which includes reimbursements for clinical trials from BARDA*.
Sales revenue of A$3.75m (+344%) as previously announced. EBITDA of neg. A$2.0m
(1H18: neg. A$3.1m) versus our forecast of neg. A$2.5m.
Key takeaways: 1) A better result than we expected due to relatively modest
operating expense growth of 19% pcp, despite the commencement of scale
commercialisation and the establishment of access to multiple markets; 2) although
sales revenue of A$3.75m was previously announced, the accounts show that
A$847k was derived in Australia/NZ despite only receiving TGA approval in August
2018; 3) ROW sales modest at A$16k but have clear upside given new markets
announced; 4) GP margin of 74% (1H18: 72%) should continue to improve as scale
efficiencies are attained; 5) PNV citing that group headcount has only increased by
10 to 41 people v 1H18; 6) net cash outflow from operations remains relatively
modest at A$2.2m in 1H19: (1H18: A$2.9m); and 7) cash and liquid investments on
hand at 1H19 of A$20.8m (FY18: A$22.2m).
Outlook: 1) No numerical guidance for FY19 as is normal; 2) US sales team expanded
from five to eight, with further hires expected; 3) a second Australian sales hire has
been appointed; 4) UK/Ireland sales person now in place ahead of expected granting
of CE Mark in 2H19; 5) proposed hernia product expected to be developed during
FY20, with a potential partner considered; 6) proposed breast product to be in
testable form in late 2019, followed by regulatory trials through to 2022; and 7) type 1
diabetes human trials expected to begin in 2H19 by BetaCell.
Changes to forecasts: Increase to FY19 NPAT forecast by 12%, albeit from a low
base, post input of the 1H19 result. Nominal changes to outer year forecasts.
Investment view: BUY with revised DCF valuation (prev. A$0.68) and price target of
A$0.85 (prev. A$0.70). We have reduced our WACC to 11% (prev. 12.5%) due to
accelerating sales growth. PNV continues to tick many boxes: 1) product
commercialisation has been franked for burns, wounds and general surgery; 2) PNV
market disruption likely to attract M&A; 3) heavy commitments for R&D/trials
continue to be underwritten by third party sponsors/partners; and 4) other product
applications are in larger addressable markets than burns/wounds but are yet to be
considered in our forecasts and valuation. Accelerated growth from here will also
increase expenses, although we expect revenue outcomes to compensate for this.