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News.com.au
4 days ago
- Business
- News.com.au
Innovation isn't enough – why Morgans says profitability drives ASX healthcare success
Morgans' Scott Power says path to profitability is key to a successful emerging ASX health care company While innovation is important, Power says the market loses interest in companies which don't turn a profit Wound care company Aroa Biosurgery delivered its first normalised profit in FY25 since listing in 2020 What makes a successful emerging ASX healthcare company and a smart investment? It's the question with no single answer but according to the experts there are certain factors investors should look for, including combining innovative science with strong commercial potential, a path to market and profitability. Morgans' senior healthcare analyst Scott Power has been covering the ASX sector for more than 27 years. He said success isn't just about innovation, but strong sales execution and market delivery. Successful players secure clinical validation, navigate regulatory hurdles efficiently and target real, unmet needs to help not only patients but deliver returns for investors. Indeed it is this path to profitability that Power sees as crucial overarching requirement for success. "You can develop a product and put a lot of R&D into it but ultimately it needs to get to market and be sold with profits being generated if you are going to grow as a listed company," Power told Stockhead. "Our pool of funding over here is not deep enough to keep funding the next idea compared with the US where capital markets are deeper and can fund R&D right through to commercialisation. "The market loses interest in companies which continue to produce losses." Power said that in what has been a tough market for the last several years for the ASX emerging healthcare sector, having a clear path to profitability was imperative. "In the last month I have seen a turnaround in level of interest and rotation back to the sector with share prices starting to move," he said. "The companies that are profitable or have a clear path to profitability are the ones being rewarded." Case in point… Aroa delivers maiden profit for FY25 New Zealand-based soft-tissue repair company Aroa Biosurgery (ASX:ARX) surged into the black in FY25, delivering its first profit since listing on the ASX in 2020. Operating under the Kiwi financial year, which ends on March 31, Aroa reported a normalised EBITDA profit of NZ$4.2 million for FY25 – a sharp turnaround from the NZ$3.1m loss recorded in FY24. Total revenue for FY25 of NZ$84.7m was an increase of 23% on the previous year and exceeded guidance of NZ$81-84m. "For them it's a balance between how much money they want to continue to invest in R&D and how quickly they want to grow EBITDA," Power said. "Given their revenue is growing at 20% and they're holding their R&D in absolute terms stable they're getting there and could get their faster by pulling back on the R&D but then it becomes a question of how innovative do they want to remain at expense of profitability? "It is a tough question to balance because on one hand you have a bigger pool of investors, which will look at you if you're profitable and another smaller pool looking for the innovation, so the next ProMedicus (ASX:PME), Cochlear (ASX:COH) or ResMed (ASX:RMD)." Strength in innovation While the point's been made here that a strong path to profitability is critical to sustained success, Power noted Aroa's great strength lies firstly in innovation. Its products are derived from ovine forestomach matrix (sheep rumen) sourced exclusively from New Zealand. The matrix is processed and sterilised to remove DNA and cells, leaving a tissue scaffold called the ECM for new tissue to grow, which contains a dense network of vascular channels – a structure like human skin – and more than 150 proteins critical to healing. Aroa has developed several products using its ECM technology including Endoform, Myriad and Symphony – each designed to support soft tissue repair across a range of surgical and wound care applications. "They have a lot of peer-reviewed scientific studies which have been published," Power said. "Aroa's scientific know-how is very high and they have continued to innovate with new product offerings, with a strong R&D team." The company has a hybrid approach to selling its products with a direct sales force for selling Endoform, Myriad and Symphony. Hernia repair and breast reconstruction product Ovitex is manufactured by Aroa on behalf of its Nasdaq-listed business partner TELA Bio. Does the product fill an unmet need? Morgans' healthcare analyst Iain Wilkie reckons filling an unmet medical need or shortfall in existing standard of care is also important to success for an emerging ASX healthcare company. "It either needs to be better than the existing standard of care or perform the same but be cheaper," he told Stockhead. "You would probably say the easiest path to market is if it is an improvement or filling an unmet medical need." Wilkie said a good example was EBR Systems (ASX:EBR), which in April gained US Food and Drug Administration (FDA) approval for its WiSE CRT System – the world's only wireless endocardial (placed within the heart) pacing system in clinical use for stimulating the heart's left ventricle. "EBR has just started selling its WiSE and it has a very clear case of targeting an unmet medical need and fixing a problem which exists and being the only device which can do it," Wilkie said. He noted Nanosonics (ASX:NAN) was also a good example of a healthcare company addressing an unmet need in the healthcare sector. Nanosonics has been a leader in infection prevention with its flagship Trophon system – an automated ultrasound probe cleaner that uses sonically-activated hydrogen peroxide mist. Trophon has become standard of care for cleaning ultrasound probers in several countries, including Australia. In March 2025, Nanosonics received FDA de novo clearance for Coris, the world's first automated system specifically designed to clean the internal channels of flexible endoscopes. "They've already got one product which has been selling well for almost two decades and now they're launching their new product," he said. At Stockhead, we tell it like it is. While Aroa Biosurgery and EBR Systems are Stockhead advertisers, the companies did not sponsor this article.
National Business Review
29-05-2025
- Business
- National Business Review
Aroa shares surge on profit result
Investment 2 mins to read Aroa shares surge on profit result The ASX-listed bioscience company posted a strong second half and its guidance for 2026 is bullish. The company's investment in its core Myriad product is starting to pay off.
News.com.au
29-04-2025
- Business
- News.com.au
Health Check: We're a goer says Aroa, with US tariffs unlikely to be a ‘major headwind'
Aroa says the real impact from the 10% US tariff imposed on New Zealand goods will be much less than that Quarter time scores show companies are kicking with the wind Dimerix shares enter trading halt ahead of licensing deal Kiwi wounds management house Aroa Biosurgery (ASX:ARX) says it expects the US tariff imposed on its products will be 'substantially less' than the 10% general duty imposed on New Zealand. At Aroa's fourth quarter results briefing this morning, CEO Brian Ward said that's because of the company's tie-up with its US distributor, the Nasdaq-listed Telabio. Aroa makes its biologic products from the stomach foreskin of sheep – in NZ of course. 'Due to the commercial arrangement with Telabio - particularly in terms of how pricing and cost sharing works – we expect the net impact of this will be substantially lower than 10%,' he said. 'Don't feel this is going to be a major headwind for us in the coming year.' Selling mainly in the US, Aroa reported positive cash flow of NZ$1.1 million, on customer receipts of NZ$20 million (11% higher year-on-year). This is the second consecutive quarter of positive cash flow, with Aroa reporting a $1.2 million surplus in the December stanza. The company has reiterated revenue guidance of NZ$81-84 million for the full year to March 2025 – up 17-22% – with underlying earnings of NZ$2-4 million. 'We are finishing the year in a strong position,' Ward said. Management highlights sales of its key product Myriad, with sales up 32% on a pcp basis for the quarter. Sales for the month of March were also a record NZ$2 million. Myriad is used for general soft tissue reconstruction, and is utilised in a wide range of procedures, and increasingly for trauma. Distributed via Telabio, sales of Ovitex (for hernia and breast reconstruction) gained 17% year-on-year. This improvement comes despite difficult conditions for Telabio, which faces sales headwinds and stiff competition. This is reflected in the company's share price decline over the last year. Ward says Telabio has had up quarters and down quarters, which is not unusual. 'Over the last quarter we have seen good demand from Telabio.' He says that if Telabio weren't to remain viable, 'Aroa is well placed to be part of whatever takes place there.' Aroa will provide more detail on its performance when it releases its full-year numbers in May. Quarter-time scores Quarterly reports are flooding in like tardy voters to the polling booths just before Saturday's 6pm close. Artrya (ASX:AYA) says it is cashed up and ready to start selling its heart device Salix Coronary Anatomy, having recently won US Food and Drug Administration (FDA) clearance for the AI-enabled tool. Locally, Artrya secured three-year commercial contracts with Sonic Healthcare's local radiology arm, a well as Lumus Healthcare. Following a $15 million two-tranche placement, Artrya has $17 million in the bank, having burnt $4.6 million for the quarter. Salix Coronary Anatomy detects coronary artery disease. The company is also preparing a variant, Salix Coronary Plaque, for an FDA approval submission. This is a reference to thousands of doctors walking off the job over a government plan to increase medical student numbers – a measure the docs claim will not alleviate the nation's health crisis. The company had $780,000 of operating cash outflows. Shares in Medical Developments International (ASX:MVP) rocketed by more than 30% this morning after the company reported a 7% revenue improvement to $8.9 million. This was on the back of improved pricing and volumes for its key product Penthrox. A.k.a. the 'green whistle', the long-standing Penthrox is a front-line analgesic for temporary pain relief. The company recorded operating cash flow of $900,000, a turnaround on the big improvement on the deficit of $10.4 million a year ago. That's clever Formerly LBT Innovations, Clever Culture Systems (ASX:CC5) yesterday recorded a more than 700% surge in March quarter receipts to $2.14 million. The company has developed an automated plate assessment system (APAS) for labs – a welcome innovation at a time of acute pathologist shortages. Clever Culture also recorded positive cash flow of a tad over $1.1 million, its second consecutive quarter in the black. The company cites a sales pipeline of more than 40 'active and qualified customer opportunities', amounting to about $75 million in potential upfront sales revenue and $15 million per annum of recurring revenue. Cash flow was a positive $1.86 million. This revenue resulted from the manufacturing and wholesaling of medical pot and the psychedelic MDMA (a.k.a. Ecstasy), on the part of its subsidiary Breathe Life Sciences Receipts for the nine months surged 202% to $21.8 million Bioxyne's cash rose to $6.5 million compared to $750,000 previously. Bubs results are nothing to bleat about A purveyor of goat's milk-based infant formula, Bubs Australia (ASX:BUB) sneaks into the 'life sciences' category by a chin hair's width. The hitherto troubled Bubs showed a second consecutive positive cash flow of $500,000, compared worth a $10.9 million deficit a year ago. Revenue surged 52% to $23.2 million, with sales in its traditional Chinese market and new US market growing 48% and 185% respectively. In 2022, then US prez joe Biden praised Bubs for helping to fill a critical shortage of infant formula. But the glowing endorsement from the Commander in Chief did little to help founder Kristy Carr, who was ousted in acrimonious circumstances in 2023 Dimerix in suspense over licensing deal Dimerix (ASX:DXB) shares today entered trading halt pending news of a licensing agreement – presumably a geographic-based one. The kidney drug developer's shares soared in October 2023, after the company unveiled a tie-up covering Europe, Canada, Australia and New Zealand. This compact, with the UK-based Advanz Pharma, delivered $10.8 million upfront, $219 million of potential milestones and royalties. In May last year the company struck a deal with Taiba, for Iraq and the Gulf Countries. They're relatively small markets, but the deal delivers another $120 million of potential milestones. In January this year a Japan deal with Fuso delivered another $7.2 million upfront and $100 million of potential milestones. The missing link, of course, is the US and mainland China. In early April management said the company was discussing coverage of these geographies with potential partners. The shares are due to go off trading halt on Thursday, so presumably we will know more then.
