RCEL - NASDAQ

Good day and thank you for standing by. Welcome to the AVITA Medical’s First Quarter 2022 Earnings Conference. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Caroline Corner with Investor Relations. Please go ahead.

Thank you, Operator. Welcome to AVITA Medical’s fiscal first quarter 2022 earnings call. Joining me on today’s call are Mike Perry, Chief Executive Officer; and Michael Holder, Chief Financial Officer. This call will include forward-looking statements within the meaning of the Private Securities Litigation and Reform Act of 1995. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements, including statements regarding the markets in which AVITA operates, trends, demand and expectations for its products and technology, its expected financial performance, expenses and position in the market, and the impact of COVID-19 on its operations and its customer’s operations. These statements are neither promises nor guarantees and involve known and unknown risks and uncertainties that could cause actual results, performance or achievements to differ materially from any results, performance or achievements expressed or implied by the forward-looking statements. Please review AVITA Medical’s most recent SEC -- filings with the SEC, particularly the risk factors described in AVITA Medical’s S-3 and 10-K filing, and in AVITA Medical’s quarterly report on Form 10-Q for the first quarter ended September 30, 2021 for additional information. Any forward-looking statements provided during this call, including projections for future performance are based on management’s expectations as of today. AVITA Medical undertakes no obligation to update these statements except those required by applicable law. AVITA Medical’s press release for the first quarter results is available on its website, www.avitamedical.com under the Investors section and includes additional details about its financial results. AVITA Medical’s website also has the latest SEC filings, which you are encouraged to review. A recording of today’s call will be available on AVITA Medical’s website by 5 p.m. Pacific Time today. Now, I’d like to turn the call over to Mike for his comments on first quarter 2022 business highlights.

Thank you, Caroline, and thank you everyone for joining us today. We are encouraged by our recent commercial performance and remain extremely excited about the opportunities ahead with our pipeline indications. Here at AVITA Medical, we are driven by our primary goal of commercializing our proprietary technology to enable healthcare providers to successfully address skin defects to save lives and improve quality of life for our patients. As we grow from treating burns to trauma to vitiligo to cell and gene therapy, and to aesthetic and beyond, our focus is on delivering leading edge therapeutic skin restoration solutions to our patients. While the company was founded with burns treatments in mind, our team is working to leverage our point of care autologous spray on skin platform across many markets and indications. I’m very pleased to update you today on our latest developments. With that, I’d like to turn to our burns business. I’m pleased to report that our commercial revenues were $6.9 million in the first fiscal quarter compared to $6.7 million in the previous quarter and to June 2021. Last Tuesday, the Centers for Medicare and Medicaid Services or CMS approved [Audio Gap] medicals application for a Transitional Pass-Through Payment device category C code that will provide separate payment for RECELL used in procedures that are performed in hospital outpatient facilities and an ambulatory surgical center. The TPT device category code, which is intended to facilitate the adoption of new technology for Medicare beneficiaries by offsetting the cost of the device to facilities will be effective January 1, 2022. This new code expands RECELL burn treatment to a new care setting with existing customers and lays a reimbursement foundation for our soft tissue repair indication that we are working towards. As a quick update on the product development front, at the end of June, we submitted to the FDA a PMA supplement application for our new version of the RECELL device with improved ease-of-use, which we hope will allow us to approach our future markets more readily. We anticipate FDA approval in the first half of calendar 2022 and a commercial launch thereafter. The improved ease-of-use device will allow AVITA Medical to better address our burn outpatient market facilitated by the new TPT code issuance, as well as our soft tissue repair indication once approved. More specifically, the ease-of-use device allows for improved surgeon and staff handling by only requiring one set of hands in the sterile field, as well as a reduction in device handling steps by one-third. We’ve been building our burns focus salesforce for three years, and believe we have the largest and most experienced burns dedicated sales force in the market. However, at this time, due largely to COVID, our sales force is selling into a system, which is experiencing staffing shortages. Our surgeons rely heavily on their experienced nursing staff and high turnover and early retirements are impacting RECELL procedures. In response to the situation, we have prioritized our training and education efforts, and hope to see improvement in procedure rates as the pandemic continues to abate. Our commercial focus is on driving utilization and broadening penetration within our footprint of over 100 hospitals and over 250 trained physicians. Revenue from our top 20 accounts increased approximately 7.7% in fiscal Q1 over fiscal Q4, driven by growth in the top five accounts, which saw 18.3% growth. Our top five accounts have been less impacted by the staffing shortages being larger and with dedicated burn staff, which has enabled our growth here. It’s clear that nursing training has a tremendous impact on the hospital’s ability to perform procedures, and the nursing staff therefore has a substantial influence on the use of RECELL. Well, we are continuing to train physicians were approaching our training efforts with a strong focus on advanced practice providers. Training includes local, regional and national events for both surgeons and their staff. In addition, in the last quarter, we have held almost 550 hands on trainings in the field and we are currently performing approximately 200 in-hospital training sessions per month. Last weekend, we presented 10 abstracts at the ABA Southern Region Burn Conference, the largest ABA region and the largest U.S. burn conference next to the Annual ABA Meeting in the spring. The presentations covered topics such as small burns, pediatric burns, that topics of integration of RECELL into practice, such as synergistic combinations with RECELL and health economics. Additional later this week, we will have to RECELL presentations at the Northeast Region Burn Conference. Interest in RECELL remains high and despite the pressure on procedure rates, we are completing cases and delivering on our mission to save and improve patient’s lives. In the first quarter during Hurricane Ida, a family suffered severe burns when their gas grill they were using due to power outages exploded. The pregnant mother, her husband and their toddler were all burned. The family was taken to University Medical Center in New Orleans, where they were treated by three different surgeons. All were successfully treated with RECELL. Today I’m very pleased to tell you that all family members are recovering and the mother who suffered burns to her legs is able to climb the stairs to her third floor home and to carry her toddler. While our commercial focus to-date has been in burns, another area of important impact for us is injuries not originating from burns. The reopening of the economy and the corresponding increase in accidents meant that in our fiscal fourth quarter and first quarter, enrollment in our soft tissue reconstruction trial materially accelerated. This trial involved injuries such as the resection of necrotizing, soft tissue infections and degloving injuries, which are wounds that commonly present at the same trauma centers where we are currently treating our burden patients. If you recall, we had our first patient in this pivotal trial enrolled in March 2020 and we saw slow enrollment for the first year due to the pandemic. Today we have 19 of the 20 plan sites up and enrolling with 58 of 65 subjects enrolled to-date. In October alone, we enrolled 10 new subjects spanning broad geographies. Since the close of the June quarter a resounding 40% of the required 65 subjects have been enrolled. Assuming current trends continue and allowing for the typical slowdown in clinical research during the holiday season, we now plan to complete recruitment by Q1 of 2022, well ahead of our last update. With a six-month follow-up for patients in this trial, we’re aiming for an approval by the end of 2023. As a reminder, based on our internal calculations, we foresee a serviceable addressable market or SAM for trauma and soft tissue injury of $450 million. Patients presenting with a requirement for skin grafting and RECELL, whether for burns, trauma or other skin repair are routinely treated by the same surgeons within an institution. We plan to address this market through our existing hospital accounts and with the addition of 220 Level 1 and Level 2 trauma centers. After we have U.S. FDA approval, we plan to quickly leverage our existing trauma and burn center sales relationships to launch into trauma and acute wounds and we will incrementally expand our salesforce to address this opportunity. Moving on now from burns and trauma to our continued progress in vitiligo. For those unfamiliar with the condition, vitiligo is a skin disorder characterized by deep pigmented areas of skin that appear as white spots or patches, and which are primarily attributed to an underlying autoimmune disorder in the patient. There are an estimated 100 million sufferers of vitiligo worldwide, including up to 6.5 million Americans. Of those in the U.S. we estimate approximately 1.3 million have stable vitiligo, our target population, meaning that their underlying autoimmune disease is being well-managed and that their disease is not continuing to spread. On October 22nd, the Global Vitiligo Foundation and the online community My-Vitiligo-Team hosted a public web webinar on clinical trials for patients with vitiligo. As a proud sponsor of the GVF, our trial was featured and we’ve been very pleased with interest levels. Today, all 15 sites are up and running and eight of 23 subjects have been enrolled. We continue to plan for completion of enrollment at the end of this calendar year and approval in 2023. To support the vitiligo opportunity, our products team is developing a new fully automated version of the RECELL System tailored for the dermatology setting. Dermatologists see high volumes of vitiligo patients, and this version of RECELL will automate some steps, and specifically, the skin scraping step to make best use of physician and nursing staff time. Work progresses in our collaborations with the University of Colorado, Gates Center for Regenerative Medicine in epidermolysis bullosa or EB and with the Houston Methodist Research Institute for rejuvenation. Both groups have preliminary proof-of-concept experiments ongoing. The work to-date gives us confidence that the methods developed will yield successful proof-of-concept in animal models by the end of this calendar year. I’d now like to walk you through the growth drivers we see ahead. We continue to drive forward on provider engagement and education, whether in-person or virtual. Our discussions have shifted from whether or not to use RECELL and today our focus is on optimizing the use of RECELL, as well as training and refining the expertise of support staff. Our commercial team will be continuing to drive penetration into our burn center accounts. We are VAC approved in what we believe is a critical mass of burn centers, and with that, we are focused on penetration within those accounts. We have shown that our strategy of driving into smaller burns results in overall broader RECELL usage. To underscore our approach, today over one-third of RECELL procedures involve burns that are less than 10% TBSA or total body surface area and these smaller burns represent about three quarters of burn admissions. On November 2nd, CMS published the 2022 Medicare Outpatient Prospective Payment System, with payment going into effect in January of 2022. Based on this, a C code will be assigned to RECELL, which we anticipate will cover the cost of the device for all Medicare patients. We plan to then commence a pilot launch at key sights to ensure coverage with commercial carriers before proceeding with a broader nationwide launch in mid-2022. Our pipeline initiatives are continuing to move forward. More specifically, we are excited about progress within our vitiligo trial, which should complete enrollment at year end, as well as our soft tissue trial, which now has 58 of 65 patients enrolled with the uptick driven by the recent increase in trauma-related accidents. We continue to be optimistic about our preclinical pipeline work in epidermolysis bullosa and rejuvenation, and we are on track to demonstrate proof-of-concept by the end of the calendar year. We are determining our future steps and path forward with the FDA. Our next goal is to review the GLP data requirements to submit an IND application for first in human treatment and once timelines are clear, I will update you accordingly. Moving to our last growth driver, we plan to broaden our geographic footprint over the coming years. COSMOTEC, our commercial partner in Japan has revised its approval strategy to focus on burns initially, based on Japanese Health Authority or PMDA feedback. The Japanese Health Authority is working through a backlog of applications and we have been advised to expect approval in the first half of 2022. Upon approval COSMOTEC will meet next year with the Japanese Ministry of Health, Labor and Welfare or MHLW to present RECELL for reimbursement review, which we anticipate will occur in June. COSMOTEC will then launch to burn customers shortly thereafter. Once we have vitiligo and soft tissue data from our U.S. pivotal trials, COSMOTEC will seek regulatory and reimbursement approval for those indications as well. In summary, despite continued pressure on procedures largely due to recent hospital staffing challenges, we have made substantial progress across our business. While we anticipate continued staffing headwinds in the near-term, I’m pleased with how our commercial team has responded, driving advanced practice training and keeping RECELL front and center in the minds of burn care practitioners. Finally, and looking further ahead, the substantial progress in our clinical trials for vitiligo and soft tissue trauma reflect a groundswell of interest in and the potential of these larger market opportunities. With that, I’ll now turn it over to Michael for details on our financial performance in the quarter. Michael?

Thank you, Mike. Total revenue for the three months ended September 30, 20 21 was $7 million, an increase of $2 million, or 39% over the $5.1 million reported for the same period in 2020. The increase was largely driven by broader utilization among our customer base, as well as deeper penetration within individual customer accounts. Gross profit margin for the three months ended September 30, 2021, was 85%, compared to 82%, reported for the same period in 2020. Higher gross margin was driven by lower shipping costs and increase production at our Ventura facility. Total operating expenses for the three months ended September 30, 2021, was $12.3 million, a decrease of $2.7 million or 18% over the $14.9 million reported for the same period of 2020. The decrease in operating expenses is primarily attributable to lower stock-based compensation and higher cost in the prior year related to the AVITA Group’s redomiciliation to the United States, along with severance costs associated with a former executive. This was partially offset with higher travel costs in the current year due to fewer COVID-19 related travel restrictions. Lower stock-based compensation was driven by higher share-based compensation expenses in the prior year associated with certain performance milestones being met. Net loss for the three months ended September 30, 2021, was $5.9 million, a decrease of $4.3 million or 42% over the $10.2 million loss recognized during the same period last year. The decrease in net loss was driven by the lower operating expenses described above and the higher revenue during the three months ended September 30, 2021. As of September 30, 2021, the company had $60.4 million in cash and cash equivalents, and $49.5 million and short-term and long-term marketable securities, as well as no debt. Moving on to guidance for our second fiscal quarter, we expect total revenue in the second fiscal quarter to be approximately $7 million. This guidance reflects the anticipated impact of hospital staffing challenges, as well as uncertainty with the pandemic. I would also like to announce that the company will change to effective December 31, 20 21, a calendar year basis for financial reporting. With that, we thank you for your attention and now I will turn the call back over to the Operator for your questions.

Thank you. [Operator Instructions] Our first question comes from Josh Jennings with Cowen. Your line is open.

Hi. This is Eric on for Josh. Thanks for taking the question. I was hoping to touch on guidance for fiscal 2Q, you’re expecting $7 million now and we’re almost halfway through the quarter. I was hoping if you could just talk about the trends that you’re seeing through October and early November here that is driving your guidance and what is baked in for the remainder of the year?

I’m going to toss that one over to Erin, our Chief Commercial Officer to respond to. Erin?

Sure. Sure. There’s a lot of things that are going on in the market. Some are seasonal, which we anticipate and some are kind of relating to the staffing challenges. So typically in the fall, we see a seasonality, right? And so we’re just coming out of that seasonality where you see a bit of a depression in terms of procedures and then you see a kind of usually in the November, December timeframe really starting to pick up. So November, December, January is very high and then the several months of July, it’s also quite high. So we have seasonality in kind of coming out of that. And then, as I mentioned, into the holidays, we certainly see kind of an uptick in terms of procedures. We have at the end of our year a rebate scheme where we often see customers kind of buying up at the end of year for the rebates. On the flip side, though, we are dealing with some staffing challenges, nursing staffing challenges. And just to kind of get into that a little bit more, what we’re encountering right now is there are burned procedures ongoing. Many burn procedures are getting rescheduled on time, such as, night times or weekends. There’s a lot of what we’re calling traveling nurses going around. It’s covering kind of the gaps and at times or at times there’s just not the necessary staff needed. So a lot of stuff surgeons are not comfortable doing a RECELL procedure without someone there on staff that is has done many, many procedures before. So, we’re there trying to fill in the gaps and do a lot of training. But at the end of the day, we can’t provide care. And there’s just certain times where the surgeon wants to have someone there that’s on their team that has done a case before and that we’re running into some challenges. And so that is kind of the two dynamics that are kind of contradicting, I guess, each other.

Thanks, Erin. That answer your question Eric?

That does. That’s great. Thank you.

Yeah.

And then maybe if I could ask one more, just on the vitiligo trial, you have eight of 23 subjects enrolled, just thinking about any headwinds that we could have towards the end of the year in terms of scheduling. Just -- where’s your confidence that that’s going to make the enrollment goal, is that all 15 sites are up and running and that’s going to accelerate? Is there any reprieve from your soft tissue enrollment as things pick up that -- perhaps that would somehow apply to your vitiligo trouts, trying to understand just where those additional patients are going to be picking up? Thank you.

Yeah. So we have a number of patients in the queue that are being evaluated. And for specific detail on that, I’m going to pass it over to Andy Quick, our Chief Technology Officer. Andy?

Thanks, Mike. Thanks, Eric, for your question. So, soft tissue and vitiligo are different, because with vitiligo we can drive recruitment. We have mentioned, I think, before our multimedia, online, et cetera, recruitment effort, including radio that has enabled us to fill a pipeline. So beyond the eight who are enrolled today, eight more are scheduled and an additional 10 plus have met the criterion and are in process of consenting and scheduling. So, obviously, that puts us over the 23 and that’s really the basis for our confidence with soft tissue. It’s more of a waiting game for someone to turn up with an injury.

That’s helpful. Thank you, guys.

Yes. Thanks, Eric.

Thank you. Our next question comes from Matthew O'Brien with Piper Sandler. Your line is open.

Thanks so much. Just a quick clarification for Mike P, the commentary about soft tissue being Q1 2022 enrollment completed but then the approval by the end of 2023. Is that calendar or fiscal? I just want to make sure I’m clear on that?

The calendar.

Calendar. Got it. Okay. And then just to follow-up a little bit on Eric’s question on this dynamic about staffing shortages and these strange times are some of these cases are scheduled? I’m just wondering when do you think some of these issues may have bait a little bit more, is it really Delta variant driven, so maybe it continues here in this calendar or sort of this fiscal quarter and then less so next calendar year or is this something that may be a headwind for the next several quarters?

It could last longer. I’m not sure if it’s going to be several quarters. But I really don’t believe that it’s specifically the Delta variant. It’s really the dynamic of what’s happening relative to vaccination requirements and some nurses not necessarily wanting to take the vaccination, as well as, as Erin mentioned earlier, these traveling nurses, they’re getting paid substantially more than the regular nursing staff. And then the regular nursing staff are either becoming traveling nurses or taking early retirement, because they just don’t see the viability or the fairness in the situation. Anything you would want to add to that, Erin?

No. I think that’s -- unfortunately, yeah, we don’t have a crystal ball. I agree with you. It’s not necessarily Delta related, I think burn -- the nurses are just burnt out. I think, it was interesting on the BTIG, on Ryan Thurman’s call this morning, right, that some have just, they’re being lured away to other industries. Some of them have felt that nursing was just not for them. At the last week, Southern ABA, the average age of a burners is 59, right? So that’s much older and so some of them are retiring, and also nursing is a specialized field. So it takes six months to 12 months to kind of -- really kind of do a preceptorship and it gets specialized in that particular area to really be kind of to accel. So, I think, there’s just so many variables. I hope it doesn’t last a long time and things kind of settle down. But I certainly don’t think it’s going to be…

Not going to go away in a quarter.

Yeah.

For sure.

Yeah.

Okay. But to be clear, though, you guys aren’t losing accounts, you’re still have those accounts? They’re just not…

Yeah. Absolutely.

… as often. Okay. And then…

You are correct.

… just one more quick one. On the…

Fair, Matt.

… outpatient side, you certainly great to see the pastor update, just wondering if you can give us a sense for how impactful that could be to the business, as we enter calendar 2022? Thanks so much.

Sure, Matt. So the CPT code is very valuable to us, especially in the long run. In the short-term, it really has to do with the adoption curve, and as we’ve said, many times, the surgeons start out on larger burns, and in combination, in full thickness burns, with a mesh split thickness skin graft. It’s at the end of that adoption curve that they go to the smaller wounds and then burns that could be treated in the outpatient setting. So initially with only burns approved at this point, the impact is going to be relatively modest. But as we get soft tissue approved, that’s really going to be a very important component of our revenue. So, Erin, anything to add on that?

The only other thing I would say is, of our serviceable addressable market, the 260 million, 60 million of that is for burns underneath 10% total body surface area.

Right.

Which outpatient is a big chunk of that, right? So with COVID it’s a little murky in terms of how many are inpatient versus out, because a lot of them have transitioned more so heavier to outpatient. But that’s kind of the size of the segment that we’re running after that TPT will help us with.

Got it. Thank you.

Thank you, Matt.

Thank you. Our next question comes from Lyanne Harrison with Bank of America. Your line is open.

Good morning, all, and thank you for taking my question. I’m just going to follow on from the conversation that was previously had about the nursing staff and trying to understand if the approval or launch of RECELL 2.0 will help alleviate I guess some of that nursing staff issues, particularly with ease-of-use and reduction in the handling of the device?

Yeah. Thank you, Lyanne, for your question. I think that the new device will help somewhat. Certainly, one only needs a single pair of hands in the sterile field, and as I mentioned, it’s cutting down the number of steps by approximately a third. That said, there are still issues relative to burn nurses that are qualified that have experience in doing the procedures and having the burden surgeons comfortable that they have staff that are going to accurately utilize the device and have been trained sufficiently, because generally the surgeons like to take the initial skin sample, as well as do the spray on, but they try to dedicate the other elements of the RECELL procedure to other practitioner nurses and advanced care specialists.

Okay. Thank you. And just one more question on the Japanese markets, obviously, some delays there with respect to approval. Can you give us an indication of the size of the Japanese market if you break it down in terms of burns versus the other indication, so that we can just get a handle on how we think revenues my ramped up over time?

Sure, let me start off and then I’ll pass it over to Erin. But, generally, as a rule of thumb, we generally look at the Japanese market as one-tenth of the U.S. market. So you can look at that on indication-by-indication and take our numbers and calculate it that way. Erin, any additional that you would talk about their about Japan?

Yeah. So, Lyanne, we’re going to have an updated corporate deck on our website in about half an hour that has a funnel for Japan for the burn segment on there. And just to give you kind of a bit more data on there, that’s correct, there’s about 10% -- about 10% of the size now. So there’s about 6,000 patients that have severe burns, meaning, they’re admitted and they may require grafting. And they’re saying that there’s about 1,400 patients that they will be targeting with RECELL and so that’s kind of the size of the population that COSMOTEC will be going after to begin with. But what we don’t know is kind of what the reimburse price will be. But, again, that will be on the updated deck will be posted on our website in about half an hour.

Right. Thank you very much. Very Helpful. Thank you.

Sure, Lyanne.

Thank you.

Thank you. [Operator Instructions] Our next question comes from Brooks O'Neil with Lake Street Capital. Your line is open.

Good afternoon, everyone. I’m hoping you could just amplify a little bit. Obviously, when I think about the burn business, burns are happening there, I assume the patients are getting treated. So in some ways, it comes down to a question of, are we going to do old fashioned skin graft or are we going to use RECELLs? And are you saying that the phenomenon you’re seeing out there is that the nurses and doctors are opting for sort of the old fashioned treatment now, because they don’t really know how to use your system or how -- what are you seeing out there?

Yeah. It’s -- Brooks, thanks for the question, first of all. It’s -- really it’s not the surgeons. The surgeons are, yes, there’s a number who are retiring, as well as a number who are moving from one center to another. But that’s not really of substantial impact. What is the nursing staff and when a physician or burn surgeon feels that they don’t have the right competency in the nursing staff, they will opt for a split thickness skin graft and because that’s what they’re taught, that’s what the nurses know how to do, and to be honest, there’s not a whole lot that the nurses necessarily need to assist with in the procedure, as opposed to the after care, where the nurses are really involved in a -- in the old model, if you will, with a thickness skin graft. So does that answer your question?

Yes. I mean, I totally get the way the world worked out. There just seems a little surprising to me, given the obvious benefits of RECELL and for the patient, and frankly, from a clinical perspective, it seems to be a huge improvement over the old approach where we’re putting less trauma on the body of a already traumatized patient, you would think that that would be a direction we want to go even in an environment like we’ve been in the last year or so.

Yeah. You’re absolutely right. I -- let me transfer the call over to Erin to give you a little bit more detail that she’s getting from our field force. Erin?

Yeah. So it’s unfortunate…

Great.

… because I think it’s -- so when you look at our top 20 accounts or the accounts that are bigger accounts that had dedicated burn teams, that they’re more -- they’ve got a higher chance of having someone there that has experience with RECELL, because they’re not -- they bought that dedicated team. That’s when we’re seeing them, we’re seeing the strong growth in our top 20 accounts, because they have that stable team and they’re always having someone there that’s familiar with RECELL. When you look at kind of the smaller accounts that have rotating teams or that they have someone in there, the surgeon just doesn’t want to try something new. They’re nervous to try something new, because RECELL is still perceived as new in many of these accounts, without having staff that’s familiar with it and I think there’s just some nervousness there.

Sure. Maybe then...

And then…

So -- go ahead.

And this is Michael. Yeah. Just to put this in perspective. I would say that this has impacted our caseload certainly less than to the degree of 10%, maybe 5% to 7%. So in the overall scheme of things, it hasn’t made a tremendous impact. We spent a lot of time describing this qualitatively, but its overall impact is not that terrific.

Great. Then I was going to ask you just a little bit about how big an opportunity do you see in the outpatient market, and I think, Mike Perry, made a comment that the TPT passed-through payment will facilitate reimbursement for soft tissue. I am just curious for a little extra color on sort of what you’re seeing there?

Sure. So the C code that CMS has approved and that will go into effect in January of next year, January 1st, is actually indication agnostic. So when we look at traumatic wounds and individuals presenting to trauma centers, with relatively small wounds that can be treated in the outpatient setting, yet they do require skin grafting. That’s where this C code is really going to give up to our revenues.

Great. Makes total sense to me. And then just one final one, we’ve talked over the last year or so about the opportunities in cell and gene therapy, but I’m just, since I’m not really a scientist, can you just talk a little bit about some of the things you see as exciting opportunities for the company in that broad area?

Sure. So, number one, we’ve started with an orphan disease and so far as correcting genodermatoses or genetic diseases of the skin inborn errors and we’re started with epidermolysis bullosa and that is moving along well. And we anticipate having preclinical proof-of-concept that in general to generalize from EB, that utilizing the RECELL System, we can take genetically modified cells, skin cells and use the spray-on technology to create new skin and that would be newly corrected skin, right? And there are a lot of other…

Yeah.

… diseases in addition to EB and that’s generally in negotiation with FDA as to how many orphan diseases does one need to actually show clinical proof-of-concept in to get a broader label than just the ones that you’ve studied clinically. And that’s -- they’re-- generally they want you to study three, four various, I would say, gene mutations to show that the platform that you’re utilizing is robust enough. And then it opens up another these genodermatoses another $1 billion opportunity, while just for the, yeah. And then rejuvenation, where we’re using RNA telomerase, that is assuming we get our proof-of-concept and we do believe that we’re almost there. So it’s working well. We are getting telomerase to the skin cells and we’ve identified that. And if that comes through, obviously, that’s a multi-billion dollar opportunity. And would -- we’d be looking at just describe how we would develop it. We would be looking at a real indication beyond rejuvenation to start and get the safety data. So, solar elastosis, for example, where their skin damage due to a lot of sun and sunburns, and those types of things.

Okay.

There are other indications as well, but we would go into a real disease as opposed to just wrinkles and people who are looking to look younger, generate the safety data and then move as Botox did. And Erin headed up marketing at Allergan for Botox, Juvéderm Lutece. So we’ve got a pro sitting right here…

Okay.

… and everything’s looking good. So I have to say, I’m very, very excited about the opportunities ahead.

Sounds great. Thank you very much.

Thank you, Brooks.

Thank you. Our next question comes from John Hester with Bell Potter. Your line is open.

Good afternoon, Mike. Just the quick question first, actually it’s for Erin, just in relation to cut, just in relation to the hospitals? I mean, you’ve talked a lot about the nursing shortage there. How much of a focus of the hospital’s putting on correcting their problem or is this something that’s, I mean, you said it’s not going to go away in a quarter or two. But it’s just a focus area for them do you think?

Oh! Yes. Definitely. We’re hearing about it in other contexts as well. It’s not just with the RECELL platform. It’s, overall, there is a problem with a shortage of nursing staff and hospitals are really running their nursing staff to the bone right now and we’re hearing a lot about it in the general news media, as well as from other companies reporting. Erin, anything else that you would want to add to that?

Yeah. I mean, I think, Andy, might have something as well, it’s just -- it’s not -- definitely not burned specific or retail specific. It’s across the Board. And it’s not even nurses, it’s other support staff as well as janitorial administration. It just, overall, shortage across all resources and…

Yeah. And a lot of it is burnout of those individuals…

Yeah.

… who work through the pandemic didn’t get a break and then, finally, you see that, what life’s just not worth this job and they’re rotating out. So it’s something that the hospitals are going to have to deal with. It won’t be an overnight correction. But I’m sure it will correct. Andy, anything to add?

Yeah. Just we had the privilege of keynote presentation by the President of the American Nursing Association at last week Southern Region of the ABA. They held their Annual Research Meeting. And the ANA is also taking an active role in combating this issue. Part of it is engaging with hospitals to make sure there’s clear understanding that it’s not the case that nurses and nurses and nurses and nurse. Nurses are specializing and the ANA is working on an accreditation program specifically for burn nurses. So that will help and they’re engaged on Capitol Hill to make sure that their voices heard with respect to what’s needed to improve the situation. So there’s really a lot of work ongoing from a number of different angles to remedy the situation.

Thanks, Andy.

Okay.

John, any…

I think…

Did that answer your question?

Yeah. Yes. I mean, to the extent, just sort of more or less confirm, so it’s going to be a little while before you have this. Then you got to retrain the new nursing staff and I think it’s -- and then there’s still that issue there as Erin sort of alluded to earlier that, doctors don’t want to use RECELL device -- devices, whether it whether or not supported by nursing staff or they don’t have vast experience in it. So that’s sort of going to continue to be an issue for a couple of quarters or so, is that correct?

Yes.

Just had a quick question for Mike Holder, if am I, Michael just in relation to the sort of follow-up on your earlier scripted comments, just with the allocation of expenses there, particularly in relation to R&D, that sort of 3.4 number for the quarter, is that about right for the rest of the year do you think or is that likely to increase, decrease or anything you may add?

Yeah. Thanks for the question. We actually would expect that to increase somewhat, as we launch into the actual clinical trials for soft tissue and vitiligo. So that number will be going up somewhat for the balance of the fiscal year.

Okay. That’s fine. And just in the footnote there you’ve talked about the share-based compensation. You’ve amalgamated that line into the other expenses? I mean, did that sort of follow the trend from the prior year and all that expense pretty much falls into the September quarter?

No. I would say that it’s spread out throughout the year. I don’t have those numbers in front of me. But it just depends largely on when we hit various goals that are triggered in the stock compensation plan. So, again, that will vary by quarter.

Great. Thank you very much. That’s all for me. Thank you.

Thanks, John.

Thank you.