RCEL - NASDAQ
AVITA Medical, Inc.
RCEL·NASDAQ
$4.16
-5.0%HealthcareMedical - Devices
AVITA Medical Inc. operates as a commercial-stage regenerative tissue company in the United States, Australia, and the United Kingdom. It offers regenerative products to address unmet medical needs in burn injuries, trauma injuries, chronic wounds, and dermatological and aesthetics indications, including vitiligo. The company's patented and proprietary platform technology provides treatment solutions derived from the regenerative properties of a patient's own skin. Its lead product is RECELL System, a device that enables healthcare professionals to produce a suspension of Spray-On Skin cells using a small sample of the patient's own skin for use in the treatment of acute thermal burns in patients eighteen years and older. The company has a research collaboration with the University of Colorado School of Medicine to establish pre-clinical proof-of-concept for a spray-on treatment of genetically corrected cells; and a research collaboration with Houston Methodist Research Institute to explore molecular reversal of cellular aging through a novel cell suspension delivery system. The company was formerly known as AVITA Therapeutics, Inc. and changed its name to AVITA Medical Inc. in December 2020. AVITA Medical Inc. was incorporated in 2000 and is based in Valencia, California.
At a Glance
Live SnapshotMarket Cap$103.35M
EPS-1.7400
P/E Ratio-2.39
Earnings Date08/06/2026
Earnings Call Transcript
RCEL • 2023 • Q3
Operator
Good day, and thank you for standing by. Welcome to the AVITA Medical Third Quarter 2023 Earnings Call. 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. I would now like to turn the conference over to your first speaker today, Jessica Ekeberg, Director of Investor Relations. Jessica, please go ahead.
Jessica Ekeberg
Thank you, operator. Welcome to AVITA Medical's third quarter 2023 earnings call. Before we begin, let me remind you that this call will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are neither promises nor guarantees and involve known and unknown risks and uncertainties that could cause actual results to differ materially from any expectations expressed or implied by the forward-looking statements. Please review AVITA Medical’s most recent filings with the SEC, specifically the risk factors described within Form 10-Q for the quarter ended September 30, 2023 for additional information. Any forward-looking statements provided during this call are based on management’s expectations as of today. AVITA Medical’s press release for the third quarter 2023 results is available on our Web site, www.avitamedical.com under the Investor Relations section. A recording of today’s call will be available on our Web site by 5:00 PM Pacific Time today. Joining me on today’s call are Jim Corbett, Chief Executive Officer; and David O’Toole, Chief Financial Officer. I will now turn the call over to Jim for his comments.
Operator
Thank you. At this time, we will conduct a question-and-answer session [Operator Instructions] Our first question comes from Joshua Jennings of Cowen.
Joshua Jennings
Congratulations on all the progress on multiple fronts. Jim, I wanted to just ask about the international expansion plans and I was hoping you could just remind us about CE mark and the label. I mean, is PolyMedics initially and other partners down the line kind of have a broad indication to go after? And then the follow-up on this question is just that will you ultimately pursue CE mark for RECELL GO as well? My understanding is you have approval for the standard RECELL kit now.
Jim Corbett
We do. Josh, those are good questions, though, let me try and line them up here. First, we are MDR compliant. So we will be submitting the technical file for RECELL GO and expect a midyear timing July availability for European RECELL GO availability, so that's the one. With respect to the labeling, the labeling is identical to, burns, full thickness skin defects, and vitiligo. So the labeling for -- that's reflected in the US market is reflected in the European Union. And so therefore, we've fully enabled to sell with our ease of use '19 and '20, January 2nd. So we're, I think, ready for Europe.
Joshua Jennings
And then I wanted to ask about the 2023 guide and the implied fourth quarter revenue performance and just thinking about that nice sequential growth that you're expecting to deliver. Can you just remind us about seasonality in burn cases, and if there is any seasonality tailwinds in the fourth quarter? And then is the majority of the sequential revenue growth 4Q over 3Q coming from the full tissue skin defect indication? Thanks for taking all the questions.
Jim Corbett
The seasonality question, we did a in-depth claims review of this and we looked back three years, and it's really rather remarkable. If you took all the claims for burns and calendarize them into -- a calendar year and not separate fiscal calendar, the spread is 25%, 25%, 26%, 24%. So virtually no seasonality from burns. So that's kind of a good news thing. There is a -- and the answer of your question, our underlying growth still is very heavily, burns is growing. We are gaining share in burns unquestionably. In full thickness, we're gaining momentum also. So they are building on each other, but of course, full thickness started in July, which at zero, right? So it's got a ways to go to catch up to the burns revenue growth rate. So no seasonality do we expect. The full thickness is gaining momentum. It's a little bit like a wave coming ashore, Josh, if you think about it that way, right? We started quite a number of new accounts at, so to speak, time zero and they all progress forward going through that committees doing additional cases. And as I mentioned during my prepared remarks, we are finding many more people to influence physicians within the hospital, because there are so many types of skin grafting procedures that are on label. So practice is good.
Operator
Our next question comes from Matthew O'Brien with Piper Sandler.
Unidentified Analyst
This is Phil on for Matt. Thanks for taking our questions, and congrats on all the progress this quarter. Just kind of in the same vein as Josh on the international expansion plan. Can you walk us through the thought process of going international versus further penetration into the US market, as you just launched into that new indication? And then a follow-up, how quick can that international revenue start to ramp in ‘24?
Jim Corbett
So first of all, we're really all about the fact that we are the premier wound treatment that is available in the world. So US is a huge market but so is Europe and Australia and Japan in our view. So that sequential growth that you have noted during the call, and I think David highlighted 40, 42, 51, and now we're expecting to grow between, 64 and 73 in the fourth quarter. So the international for us would have been a different decision if we were doing it ourselves. That would have required an additional cash investment that would probably not go positive for three to five years. Doing it the way we're doing with established partners really leverages their local expertise and causes us in those markets to make a contribution margin that is positive and is one of the reasons why, and during the February call, we're going to be providing guidance on the quarter in 2025 that will be profitable. So this is a contributor to it. So we're doing so without having to spend a lot of cash, without having to add a lot of manpower, but it's going to contribute from an operating margin point of view. So that's how we are thinking about that.
Operator
Our next question comes from Brooks O'Neil with Lake Street Capital Markets.
Brooks O'Neil
I have a couple of questions. I guess I'm going to start off, Jim, you were just talking about the accelerating adoption in the core burn market, and I've always believed that your product is so superior to the current standard of care. It's been a little surprising that penetration in the burn market was somewhere in the range of 20%. And I'm just curious what you're finding as adoption is growing. Why did it take some of these doctors' time to adopted and what do you think you need to continue to penetrate that large burn market?
Jim Corbett
I think there's two factors that are happening. RECELL is a first in category type product and those do take time sometime in the early phase, that's just one fact. What has really changed the ballgame, I think, for us was, as you know, the burn sales team and the full thickness sales team are the same sales team. So what we've done is we've given those burn centers now and those sales territories are now smaller in geography, smaller in revenue size. And so they're not just selling full thickness, they're selling burns where we already were selling burns, but we have a smaller call pattern. So I think that's really making the difference for us is that you can look back and say, maybe we should have invested heavier sales force earlier, but certainly, we're getting the payoff of doing it now.
Brooks O'Neil
So second question I have is, as you have thought about the significantly larger indication in the full thickness skin graft area that goes beyond acute injuries that I think are generally treated in the trauma centers and the burn centers and whatnot, two include the chronic wounds or chronic full thickness skin defect. Have you given a lot of thought to what it's going to take to penetrate the kinds of facilities and get to the kind of doctors who treat chronic wounds?
Jim Corbett
We have done a fair bit of work with that in mind. What we're thinking about though first, because their patients are getting treated now, we're getting case reports of RECELL with a chronic wound, for example, a venous leg ulcer or such. What we note is clinical data is what we're thinking about first as opposed to access. And so we're in the process of assembling case studies where we can. We have a couple of early stage planning for some specific indication clinical studies, like tumor excisions come to mind as another one that is quite large. And so I think, we're going to lead being the company that AVITA is, which is we're going to focus on the consultive care that the physician is attempting to provide for their patient, we're going to bring to them case examples, clinical data examples, small case series. In some cases, we're planning some bigger studies and that's really how our sales team operates and that is in a very technical, scientific and consultative manner. So that's what we're thinking about right now and it will certainly mean that we'll learn some new things.
Operator
Our next question comes from John Hester of Bell Potter.
John Hester
Just a couple of questions from me. Jim, you just talked about some price strategies and places in venous leg ulcers, tumor excision, that's encouraging. Have you seen a trend emerging now for the sorts of labels, the sorts of wounds that surgeons are initially using the expanded label indication?
Jim Corbett
Well, by the way, you're up early, John.
John Hester
Well, I'm a lot closer to the weekend than what you are, Jim.
Jim Corbett
I appreciate that. John, I think trend is a little bit too strong of a word, but they're coming to us with the cases. And in many cases, we've got some historical experiences from other parts of the world where RECELL was used in earlier years, and we share with them what we know and what we don't know. And there has been a number of cases that are quite unusual. For example, there's some sacral skin grafts that are essentially bed source, so we've had a number of those get treated. The trend is too strong but it's certainly more than one, it's happening. And so we're trying to get ourselves out ahead of that, so we can act as a resource to our customer. Because it's clearly, they are having trouble treating some of these chronic wounds and RECELL does appear to provide quite benefit to many of those patients.
John Hester
Well, it sounds like it's still early days there. Just switching to Europe. Obviously, average selling prices are going to be a lot lower in Europe. Can you sort of give us any guidance there on what you are expecting for average selling price relative to the US market? And of course, you know even you've got a distribute a margin there as well.
Jim Corbett
That's right. We will have a lower realized sell price, because, of course, distributor, we have an average selling price sharing model with them. However, you may also recall that our cost of manufacturing is very heavily fixed cost. And at the rate of our volume growth, we're talking still an accelerated growth line as we go into Q4, which has been happening all year, 40%, 42%, 46%, going to be 64% or better in Q4. That is eating up the cost of goods problem. So we're still going to get a nice contribution margin. We will get a lower ASP. That said, it will contribute to our march towards profitability. So some volume won't hurt us and we won't spend as much.
Operator
The next question comes from Ryan
Unidentified Analyst
This is Izzy on for Ryan. Congrats on the quarter and thanks for taking the question. So last quarter, you guys noted that uptake of RECELL in key burn -- you were seeing strong uptake of RECELL in key burn accounts without adding new burn centers. I was just wondering if this was a similar trend that you're seeing this quarter or if you're starting to see increased penetration within new accounts?
Jim Corbett
Well, yes. The point I was making actually during last quarter was that we had not added burn centers in over a year, because we're in all of them virtually. And so what we're seeing is penetration in the burn centers that's related to the full thickness launch. Half of those burn centers are trauma centers and with a smaller sales territory, because we expanded the sales team a lot. We are seeing both of those phenomena. We're seeing penetration in burn centers is going up as a consequence of a smaller sales territory but we're also seeing an uptake in utilization of RECELL in the various and many full thickness skin defect indications. So it's a -- where there's a burn center, there's a double opportunity for us.
Unidentified Analyst
And then just a follow-up on that. So who are the early adopters that you guys are seeing for the full thickness indication? Is it mostly burn surgeons, are you seeing trauma uptake or is it kind of a combination of everyone?
Jim Corbett
Well, for certain. In terms of new users heavily dominated by trauma surgeons. Now, of course, by definition burn surgeons are trauma surgeons, but not all trauma surgeons are burn surgeons, if you then can put that then diagram together. So the new surgeons we're adding principally are trauma surgeons but we're getting new indication utilization by burn surgeons who now have a more open label. So there's a lot of opportunity out there for us right now. That's why we really expect this rate of growth issue to dominate the headline here for our company on the boundaries of the coming quarter, right. We're looking at 64% type growth, which will be our 4th consecutive acceleration into another decile. So we're really quite bullish at the moment.
Operator
Our next question comes from Ross Osborne of Cantor Fitzgerald.
Ross Osborne
Maybe just one for us on OpEx. Now that you've had full thickness out for a handful of months, how do you feel about the number of reps you hired ahead of that expanded indication? Do you foresee the need to increase headcount next year or no?
Jim Corbett
Straight away, Ross, we feel very good about the number we hired. Having said that, when we foresee the average territory size approaching 2 million, we will be expanding, because that -- there is so much opportunity out there. I happen to be traveling and had dinner with some physicians and one of our CTSs, which are -- they are commissioned, but they do a lot of the case coverage. We were in New Orleans and this particular very good rep of ours was talking about covering consecutive days in Jackson, Mississippi, New Orleans and Memphis. So we are far from being geographically populated. So I'm sure that during next year -- and you might recall in my comments during the script, we do project that next year we’ll increase again our commercial team.
Operator
The next question comes from Madeline Williams with Wilsons.
Madeline Williams
I was just wanted to ask, you sort of mentioned that with the label, extended label indication that there's sort of a longer, I guess, sales effort there. Is that in regards to sort of more education for those new sort of trauma surgeons that you're bringing on in regards to the retail device?
Jim Corbett
In a sort of indirect way, Madeline, if you think about it this way, and the burn center was real straightforward. There's a head burn surgeon in every hospital, you go right to that person. What we find with full-thickness is there is many constituents with many different indications. And so when you go to the value analysis committee, you find yourself being asked about many different indications. So there is what I would describe as a time element that slows us down a little bit but it's benefited by the expanded opportunity. So it does cut both ways.
Madeline Williams
And then so I guess with the Q4 expectations, I mean, is there any sort of color as to what you expect for the rest of world, I guess, opportunity? Does that sort of come through straight away or is it mainly just growth in those soft tissue and/or the full thickness and burns?
Jim Corbett
I think for the fourth quarter, we're really focused on what happens in the US in full thickness and in burns. Rest of the world will start to take some time to develop, but it'll become more meaningful as 24 rolls on.
Madeline Williams
And if I can just ask one final question in regards to the vitiligo. I mean you're obviously doing the studies now and importantly the TONE study. But just sort of maybe a comment around what your expectations are for sort of pricing in regards to vitiligo and reimbursement? And knowing that it's sometimes difficult to get those commercial payers, I mean, have you already started those conversations? And I guess, what has been the feedback if you have?
Jim Corbett
Well, first, it's a little bit early for us to answer those questions, because you need the data from TONE, you need the healthcare economics data that we're working on with the healthcare economics firms. So you really need those inputs. So with respect to ASP, what kind of adoption one might expect, I think, we're a good nearly 18 to 24 months away from being able to really give that type of level detail in terms of guidance.
Transcript from November 9, 2023
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