The coronavirus pandemic and the oil trade-war between Saudi Arabia and Russia have wreaked havoc across global markets over the last four weeks shedding over 25% from both the S&P/ASX 200 Index (ASX: XJO) and the Dow Jones Industrial Average.
Among those heavily affected is Australian biotech company PolyNovo Ltd (ASX: PNV), which has seen its share price fall a staggering 46% from its 52-week high of $3.28 to $1.78 at Friday’s close.
Although global economic sentiment remains grim, here’s why I think PolyNovo is a buy if the markets continue to fall.
Coronavirus: Little impact on PolyNovo
On 11 March 2020, PolyNovo released an announcement to ease investors minds in regards to the impact of coronavirus on the company’s operations.
On the supply side, PolyNovo does not source any raw materials from China and has multiple supplier redundancies built into their supply chain. Additionally, the company has enough finished product on shelves to meet anticipated sales for a significant time period with enough material inventory for the remainder of the year. As a result, the company currently does not anticipate any significant supply chain disruptions in its operations throughout Australia, New Zealand, the United States, and the United Kingdom.
On the demand side, PolyNovo does not sell into China. The main uses of PolyNovo’s flagship product NovoSorb is in emergency, traumatic, or extensive surgery applications. These surgeries are anticipated to continue regardless of the coronavirus as these procedures are generally not elective surgeries. Therefore, the nature of NovoSorb allows product demand to remain predictable going forward.
What is NovoSorb?
PolyNovo has used a base polymer created by CSIRO to create NovoSorb – a polymer with foaming processes and new formulations specifically for medical devices. These polymers work by supporting different functions of the body and then harmlessly biodegrading through absorption or excretion.
The main application of NovoSorb is NovoSorb Biodegradable Temporising Matrix (BTM), a man-made synthetic polymer designed to help surgeons treat traumatic wounds. NovoSorb BTM is used to temporarily close wounds and aid the body in generating new tissue.
NovoSorb has achieved regulatory approval in a substantial number of countries, with 5 additional approvals in process. Commercial revenues have skyrocketed over the last three years with H1 2020 sales amounting to $8.45 million – up 129% from the same period last year. These revenues are expected to continue growing with 2020 sales anticipated to comfortably double 2019 figures.
In addition to scaling NovoSorb globally, PolyNovo also has a strong development pipeline with expansions into hernia devices, breast augmentation/reconstruction, drug elution and beta cell technologies. These developments are on-track with manufacturing and trials to be completed by the end of the year with a total market value estimated at over $6 billion.
Investing in a time of huge volatility is always risky. However, markets falling provide a fantastic opportunity for long-term growth in great companies. With the impact of coronavirus on PolyNovo’s operations minimal, PolyNovo is a great company to invest in long-term at these prices.
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Motley Fool contributor Jordan Liu has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.