Here’s why Avita Medical Ltd shares have gone gangbusters this month

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It has certainly been a great month to be a shareholder of regenerative medicine company Avita Medical Ltd (ASX: AVH). Its shares have rocketed higher by over 11% today to 14.5 cents, bringing its return in October to an incredible 45%.

The cause for the rampant buying of its shares is largely the result of a promising announcement from the company last week.

That announcement revealed that the U.S. Food and Drug Administration (FDA) has approved a further increase in the number of patients that can be treated in the United States with its ReCell regenerative medical device under special compassionate use protocols.

ReCell is the company’s lead product and is used in the treatment of a wide variety of burns, reconstructive, and cosmetic procedures.

This is the third expansion the FDA has given the company and allows it to treat up to 48 patients who have insufficient skin available for the standard skin grafting treatment of their injuries.

As well as increasing the patient numbers, the FDA has also increased the number of hospitals that can use the product to 15.

Avita CEO Adam Kelliher was evidentially pleased with the development. He stated:

“We welcome this compassionate use expansion, which will allow surgeons to further deploy our devices in the U.S. for patients who suffer extensive injuries, and are in a life-threatening condition. It underlines our key proposition, that ReCell is a safe, powerful and effective means of facilitating healing. Most of the cases to date have been in burns, indicating the growing interest we are seeing within the U.S. burns community for our unique approach.”

Avita is seeking pre-market approval for ReCell and its fully enrolled clinical trial has involved seven leading US burns centres. Management expects to submit its clinical data package in early 2017, with an anticipated market approval later in the year.

According to biotech research firm BioNap, the potential worldwide market for ReCell is over US$1 billion per year in sales. Clearly Avita and ReCell have a bright future if all goes to plan, so it’s no surprise to see its share price rocket this month.

It is of course early days and a quick look at its cash flow statement would indicate a further capital raising may be necessary in the year ahead. But I would suggest keeping a close eye on Avita, as it could well have the potential for significant growth in the future.

If this is a little too high risk for you then I would suggest taking a look at Sirtex Medical Limited (ASX: SRX) or Nanosonics Ltd (ASX: NAN) instead.

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Motley Fool contributor James Mickleboro has no position in any 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 Bruce Jackson.

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