RCEL - NASDAQ

Good day, and thank you for standing by, and welcome to the AVITA Medical, Inc. First Quarter 2021 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jessica Ekeberg, Director of Investor Relations. Please go ahead.

Thank you, operator. Welcome to AVITA Medical's first quarter 2024 earnings call. Joining me on today's call are Jim Corbett, Chief Executive Officer; and David O'Toole, Chief Financial Officer. Today's earnings release and presentation are available on our website, www.avitamedical.com under the Investor Relations section. Before we begin, I'd like to remind you that this call includes 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 our most recent filings with the SEC for comprehensive descriptions of the risk factors. Any forward-looking statements provided during this call are based on management's expectations as of today. I will now turn the call over to Jim for his comments.

[Operator Instructions] And our first question comes from Brooks O'Neil from Lake Street Capital Markets.

Great. Let me ask you a second question. I'm curious, you didn't mention it specifically in the prepared remarks, but do you see any evidence that accounts are waiting for the approval for RECELL GO before ordering product? Or do you think that was not much of a factor in results in Q1 and your early looking Q2.

Brooks, this is Jim. It's a good question. And I did thoroughly look at that. And I don't think so. I don't think there's accounts that are waiting for that. That said, there is strong anticipation for it in many of our larger accounts.

Sure. That makes total sense. Okay. I'll ask the last one and then I'll turn it over. Obviously, you expanded the size of the sales organization in anticipation of the launch for full-thickness, and I'm just curious if you would assess whether there was significant disruption among your entire sales organization related to that expansion, or do you think that wasn't much of a factor in the results this quarter?

So answer first and then the analysis. That's a great question because I studied that. One of my possible things that I wanted to understand better. When you look backwards, you would take the burn accounts that existed prior to June, which then some of them kept the same rep and some of them changed reps, right, a good majority. And in the group -- and the group that actually went with a new rep performed over the last 9 months, actually slightly better than the legacy group that had stayed with their accounts. So that didn't turn out to be a cause of our challenge.

Okay. So you really say if I'm listening, and I apologize for sneaking in one last little tidbit, you would say the issue really relates to the time it's taking to get through the back committees and at this point, you're optimistic about your ability to begin to make real progress on that process as we move into the back part of the year.

Simply stated, yes. We feel better about it. We've had to learn how to do something that -- this is, of course, not a good reason, but the fact is we had not submitted to a VAC committee in the virtually the previous 2 years organizationally. And so when you -- when full-thickness came, it is more complex, and we had a lot of them. And so we had to basically learn and develop new capabilities and skills. So we do feel better about that. We're expecting to have a very significant quarter in approvals here in Q2. So we shall see because we'll be disclosing that.

Our next question comes from Josh Jennings from TD Cowen.

This is Eric on for Josh. I appreciate the commentary around guidance for 2Q. With that in mind, how would you have us think about the ramp in the back half of the year to ultimately reach that full year guidance range? What do you think the sequential steps up in 3Q and 4Q could look like?

Well, ultimately -- well, they do get pretty -- they do get steeper, of course. We had a light first quarter. Our second quarter we're recapturing our momentum. I think when we look at Q3 and Q4, we have committed to the lower end of our guidance, $78.5 million. And so you're correct in identifying that. But what comes with that, of course, is we'll have RECELL GO launch, which will undoubtedly give us some additional growth energy. We'll also have -- be in full launch with the PermeaDerm wound dressing. So we have some good additions coming aboard that will add a lot during the second half. But we haven't guided specifically to the ramp, yes.

Understood. And then on the topic of VAC approvals, just out of curiosity, once the VAC committees in your customer accounts grants approval for the expanded label, how quickly are those accounts ramping RECELL utilization? Is that something that happens within a few weeks, or is that something that happens right away? Just curious.

Once you get approval, then there is a process of training and uptake and selling to additional positions. So the -- this is a new first-in-category product. And these trauma centers are seeing it for the first time, contrary to the burns who've been using it for a few years. So there is a process where we get initial order relatively quickly. But then, of course, the real selling starts to happen with the different specialties and helping the physicians identify the appropriate patients. And that's where our medical science liaisons actually have a big impact because their role is pure education and helping physicians think about how to treat their patients with RECELL and how they can get the results that we've seen in burns. So there is a process in terms of expanding adoption over time.

And our next question comes from Ryan

Jim, I appreciate all the color on the components, particularly in the back half of the year. You're including PermeaDerm. I think I'm wondering, first, can you just elaborate on kind of maybe the contributions from RECELL GO, what you're assuming for full-thickness skin defects in the back half of the year? Are you going to pick up accounts at a faster pace in the back half of the year. Just help us understand kind of your confidence in this ramp in the back half of the year. And then I think also if you throw in some of the international distributor agreements that could certainly help offset some of this ramp. That's kind of the first question. And then you're talking about becoming a wound care company more, Jim. And so do you need more salespeople? Are you directing your current sales force to pursue new call points? Just help us understand how you're thinking about those initiatives as well.

Okay. Let me try and make sure I get them all. If I don't, come back at me. It is a compound question. So first of all, let me just kind of start at the end. Our vision of being a broad wound care company; a, we don't anticipate needing additional salespeople. So that's first issue. The second is all of the product areas, as I illustrated in that particular slide, they actually go with the treatment of these type of wounds. So while our RECELL salesperson is sitting there, they can get into wound preparation, they can get into scaffolding, and they can get into a sophisticated dressing like PermeaDerm. That's all on the same patient, same doctor at the same time, same wound. So that is a pure leverage and portfolio expansion around our existing treatment sites and physician sites. So it's synergistic to be sure. In terms of the ramp in the back half, let me comment on a few things, we don't -- we haven't broken it out in terms of how we're giving guidance yet. We will, as we gain a little bit more experience. But suffice to say that you can intuit that there's going to be a meaningful contribution from PermeaDerm, first of all. Second of all, RECELL GO, and this is again the 180 days ends May 30. So we are actually -- have built inventory and are prepared for a positive news. And that has a lot of energy for the second half of the year because of 2 things. Let me differentiate them for you. In the burns world, it is a -- it is often we use between -- it's often that between 1 and 2 RECELL kits are used for patients. So that means somewhere greater than 10% TBSA, as much as 20%. And so they often have to use them in sequence, and that is a process, right? You take a biopsy, you process it in the manual method and then you spray it on. And then you take another biopsy and go through the same process for the second kit. Particularly, for the burns surgeons, they're imagining bringing 2 RECELL GO instruments into the room and processing simultaneously and cutting OR time by a material amount. So they're really quite motivated by the prospect of RECELL GO. Secondly, what goes with that is also same benefit for full-thickness because in burns case, they will use less manpower doing it because it takes a technician to assist the physician -- an extra technician or nurse to help the physician prepare the current version. You don't need that extra person in the case of RECELL GO. So it has a double effect. It helps in -- as you can imagine, the burns making case shorter and less work for less people. And also in the full-thickness, you don't need that extra technician and decreases the training requirements really significantly. So we have an expectation that we get an upsurge of adoption as a consequence of it being simply easier to do. So that's what we're believing is going to happen. So does that -- did I get them all? Ryan?

And our next question comes from Matthew O'Brien from Piper Sandler.

I guess the guide for Q2 is predicated on you guys getting back to kind of 15 new center ads per month versus kind of 7 is what he did in Q1. Are you seeing that so far in April and maybe early days of May?

Could you repeat -- are you talking about the new additions of -- what we have is the -- without disclosing sort of the month by month, in the quarter, we have specific dates for all 46 of those expected approvals of when they meet and when we expect them to be approved. So that's a...

What you expected? Are you expecting all 22, or are you expecting 25 and got half?

Well, the -- we wanted more than 22. 22 is what we got. But they didn't come to committee. So that was a different problem. It wasn't a turndown where we went to committee and got turned down. So we've been rarely turned down. So these 46, we expect to happen because we have...

Got it. And then the back half ramp, it's just big. I don't know how to say it. I mean, what is it that gives you guys the confidence, I don't know if it's PermeaDerm maybe you get all $6 million in the back half, but it's just even to the low end of the range is a massive ramp. And there's going to be skepticism about your ability to get there. So just how can you help just calm some of those fears that you can get there? And then I do have one more quick question for David.

Sure. Well, first of all, PermeaDerm pays a role, but RECELL GO plays a bigger role. We'll get -- RECELL GO is going to transform our business model very fundamentally. RECELL as it sits today, you have to constantly train and always be present almost from most cases. So that hurts you in utilization in burn accounts relative to having RECELL GO. I mean so to speak, slows down the adoption of full-thickness. Both of those will get significant energy from having the work being done and the process of creating the RECELL spray on skin in a way that doesn't require a person. So that will make a big difference. The market is quite huge. So getting a product that is easier to learn, easier to use will make a ton of difference.

Okay. And that launch is late Q3, is that right?

No. It is -- we expect approval May 30, and we have inventory.

And our next question comes from Chris Kallos from MST Access.

Jim, I just wanted to ask about a little more color around the international expansion, in particular, the CE mark and your plans of launching the products into Europe?

Yes. Well, first of all, the -- one of the -- as we've been evaluating our different distributor choices, one of the things, of course, is we've done some tests -- not test, the wrong word. We've done some cases with some distributors that we have not signed as a way for them to get familiar with the technology. And of course, what's happening is we're about to head into summertime, which is not the perfect time to launch into Europe. And then it will coincide with the readiness of RECELL GO for with under the MDR sometime in September, October. One reason we've given a broad window is, clearly, a couple of the distributors we're talking about have identified that they prefer to launch with RECELL GO then switch after 2 or 3 months. So that's one of the factors. But our goal is to get that done this year. And the same is true -- and you may know, Australia recognizes the MDR this year. So we'll be doing the same with Australia.

Great. And also, understand that the disappointing quarter was largely due to a lower burn rate in January, if I heard correctly. What was the reason for that? And has that now normalized? Are you comfortable that's going to return to historical norms going forward?

It seems so, Chris. It seems like that is -- the only one we had facts on, if you recall, was January. February and March, we don't have facts on. But January by itself was down enough that you can see it right away. And we're not seeing that same effect currently.

Great. I guess I'm just echoing everything the other questions have come around the aggressive growth rate in the back half of the year. How much of that is going to be driven by traditional burns accounts versus the new accounts in full skin thickness defects?

Well, through this year, burns will remain the bigger part of our business. The faster growth part of it will be full-thickness. But through this year, burns is going to grow still and still will be the majority, more than half our sales even in the fourth quarter. But the fastest-growing part is the biggest market, which is full-thickness.

And our next question comes from Madeleine Williams from Wilsons.

Jim and David, I'm just wanting to understand in regards to things of putting up the -- a little bit more color to the VAC submissions. In regards to rejections, I just wondered if the hospitals or trauma centers that have rejected RECELL if they have certain characteristics or you can notice a certain trend in those that do reject and whether or not you can kind of get color on the approvals going forward?

Madeleine, thanks for the question. There's -- it's 8 out of almost 178 submissions, and they didn't seem to fit any pattern to be candid. There were reasons here and there. Sometimes it was related to how they perceive their patient load that was a case, for example. Another case was whether they thought for the indications that particular trauma center saw, whether it was going to be economic or not for them to use it. But they were all -- there was no trend or a pattern because it's a very small sample to try and detect a pattern unless it was for all the same reason, which they weren't.

Okay. And I guess more broadly, just thinking about do you have in mind the kind of rate at which you think rejections will continue to occur, assuming that some centers will reject and whether or not that's included in how you're thinking about the forecast for the rest of the year?

Yes. We think they occur almost randomly. So they don't happen at a high rate. So we don't think the amount of rejections will have a material effect on our ability to reach our guidance.

And our next question comes from Hannah Mitchell from Bank of America.

Jim and David, this is Hannah Mitchell on for Ron Harrison. Just wondering if you can provide any more color on the BARDA National Preparedness arrangement, including what quantities BARDA might be considering and over what time frame?

Yes. So we've entered into a -- or in the process or -- let me speak in all over. Our fundamental BARDA agreement is over. It has expired. What we're entering into is a first call on an amount of inventory that they would get on first call up to a certain maximum, which we haven't -- we have made public, right? And it's 1,000 units. And so the -- in the event of a national disaster, BARDA has a call to purchase 1,000 units and -- as a first priority. So we're managing our own inventory. They don't own any of it, and this would only occur in the event of a national disaster where they needed to call upon that inventory.

And I am showing no further questions. I would now like to turn the call back over to Jim Corbett for closing remarks.

I'd like to thank all of you for listening and getting the latest update from AVITA. We look forward to talking with you again next quarter. And thank you again. Buh-bye.