High-tech wound-care company Aroa releases first product in own backyard

Aroa Biosurgery founder and chief executive Brian Ward. Photo / file

After a decade concentrating on the US, Auckland-based Aroa Biosurgery is close to releasing its wound-care product on the local market.

The med-tech uses stomach lining from sheep to create a "bio-scaffold" that helps soft-tissue repair in humans for everything from bad cuts to hernias and breast reconstruction.

Local clinical evaluation of Aroa's products is underway in Auckland, Northland and Taranaki, founder and chief executive Dr Brian Ward says, with Bay of Plenty and Wellington in talks. A mix of DHB and community health agencies are involved.

Its basic wound-care products will be available first, with its reconstructive products to follow.

The medical technology company has recently been tipped for a stock market listing across the Tasman, which will value at A$300m.

Ward said that an Australasian non-deal roadshow to raise awareness of the company among institutional investors was well received, but also that with the Covid-19 outbreak roiling markets, the timing of a potential listing is unclear and the company is keeping its options open.

In the meantime, there is headroom. Aroa broke into the black last year, Ward says, making a profit "in the single-digit millions" on revenue that increased 118 per cent to $24.2m.

Certainly, there are no signs of pulling its ears in. Aroa's 150 staff are mostly located in a 1700sqm building on the light industrial estate outside Auckland International Airport. The company has just leased a neighbouring building that will quadruple its floor space.

Aroa was supported in its early days by Industrial Research Limited (IRL), a Callaghan Innovation precursor, and works with two local freezing works to source its primary product from the rumen (forestomachs) of sheep.

So why the focus on the US, up to this point?

"We began in the US really, because it's the largest healthcare market in the world," Ward says. "It sets the standard in terms of the regulatory regime. It certainly sets the standard in terms of clinical evidence. So if the company was going to be successful, we felt we had to be there."

Aroa got US Federal Drug Administration (FDA) approval for its basic wound care product, Endoform, in 2013, and more approvals followed over the years that followed for more advanced products as some $50 million was invested in product development, growing the company, and patenting its intellectual property.

The company's soft-tissue repair and reconstruction or "extracellular matrix" products have now been used in more than five million procedures.

Ward sees Aroa sitting in the emerging category of regenerative medicine, in parallel to stem cell research, which he sees as a $5 billion a year market. Down the track, Ward sees whole organs being regenerated with the help of artificial or implanted tissue, rather than being propped up by medical devices and drugs.

The CEO shares pictures of a young man who lost most of the skin from the top of his left foot in a trauma - possibly a machete attack - then progressive photos as Endoform helps to close the gaping wound and new healthy skin emerge.

A sheet of Aroa Biosurgery's Endoform - a "bio-scaffold" that helps soft-tissue regeneration. Photo / Supplied

But a more common patient would be older, with a less dramatic wound - but one that is making no progress.

The aging, heavier population in the US and other western countries means more people with conditions like diabetes or poor circulation that slow the body's ability to tend to wounds on its own.

"The longer something's open, the more things are going wrong," Wards says. "So the quicker you can heal it, the better. And the problem now is people are old. They're obese; diabetic, they just don't heal very well."

Aroa has competitors. But Ward says its products have two differentiators. One is that they're an all-natural product (at least across most of its range; some products use around 5 per cent synthetics for strengthening). Endoform is naturally subsumed by the body's own tissue after it's done its job (something that will reassure people who have read horror stories about lingering surgical mesh).

The other is mass market pricing. A small square of Endoform costs US$10. More advanced products for hernias and breast reconstruction cost in the region of US$3000 to US$9000 per sheet - which Ward says is still relatively low-cost next to alternatives.

There have been two key US partnerships. The first was with Illinois-based Hollister, which bought global rights to Aroa's wound-care product around the time of its initial FDA approval. In 2018, Aroa bought the rights back. Ward says the arrangement brought in substantial funds at a vital time. There were licensing fees, plus the power of Hollister's sales team to get its product into the market.

Aroa Biosurgery founder and chief executive Brian Ward. Photo / file

Aroa then teamed with a Hydrofera, a second company that had also just bought back rights to its wound-care product from Hollister, to create a sales joint venture called Appulse, which has around 30 staff. Aroa is also in the process of setting up its own direct-sales operation in the US, selling into hospitals to complement Appulse.

The second US partnership, which is ongoing, is with Nasdaq-listed Tela Bio, with which Aroa is collaborating on the higher-end OviTex, used for hernias, abdominal wall reconstruction and breast reconstruction.

Aroa has been tipped for A$50 million IPO at a A$300m (NZ$311m) valuation. Ward earlier told the Herald his company was aiming to raise in the order of tens of millions, by the of this calendar year.

The med-tech's current share register includes a who's who of the New Zealand venture capital scene including Phil McCaw, Sir Stephen Tindall, Movac and NZVIF. Ward is one of the largest shareholders, with a 16 per cent stake.

The reported A$300m valuation might seem a rich multiple, but brokers spruiking Aroa can point to another hot Kiwi medtech with similar early-stage financials: Volpara - which after a muted start on the ASX recently been on a bull run, reaching a market cap of A$390m by February 5. It's since been knocked back to A$292m amid the coronavirus turmoil that has hit tech stocks particularly hard.

Ward says once it comes in, the new money will be used to further expand Aroa's sales team in the US, and other territories, while manufacturing and R&D remains in Auckland.

How does Aroa's technology work?

Q: What is your core product?

A: Our technology is called Endoform and that's a specific layer of tissue that's isolated from the forestomach of sheep. So what we do is we isolate that layer, and then we purify it in a way that removes all of the cells and the cell contents but conserves the scaffold or the structure of that tissue, and other molecules that are attached to that," Aroa Biosurgery CEO and founder Brian Ward says.

Q: How is it used in surgery?

"Endoform is used to provide a scaffold for cells to move into, and they then lay down new tissue, and over time that completely replaces the patient's own tissue. So it provides a framework for regenerating new tissue," Ward says.

Q: What are the main applications?

A: It's used in a wide range of different wounds and soft tissue reconstruction procedures, for example, and really hard to heal wounds like diabetic ulcers and venous ulcers. It provides a way to build new tissue and those wounds, but we also make devices that used for abdominal wall reconstruction, breast reconstruction, in soft tissue reconstruction after trauma. So it's a wide range of different types of applications. We have five products that are commercial in the US now, they all use that same underlying technology.

Q: What happens to Endoform after a patient heals?

A: As the patient heals, it builds up more and more tissue and the cells naturally replace the Endoform tissue that's been implanted into them. So after some time, it really turns into new patient tissue.