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Why the Avita Medical share price rose 8% on Friday

Avita Medical Ltd (ASX: AVH) shares were up 8% on Friday, following a 60% increase in sales of its RECELL System, quarter for quarter. 

As reported by the Australian Financial Review, broker Bell Potter on Friday upgraded Avita Medical from a ‘hold’ to a ‘buy’, prompting a surge in the share price.

A closer look at Avita Medical

Avita Medical is a regenerative medicine company specialising in spray-on skin therapy for dermal applications. Avita Medical’s lead product, the RECELL System, is currently used to treat burn wounds but is also being assessed for use in the treatment of vitiligo, traumatic wounds, scar reconstruction, and for dermatological aesthetic indications.

Following approval for use in the United States (US) in September 2018, sales of the RECELL system reached $4,583,000 in the September 2019 quarter.

The company reported that 56 of 132 US burns centres have placed orders for the RECELL System, with $10.8 million in US sales recorded. More than 50% of US burn surgeons and burn centres have now been trained on the system.

Three research papers were published during the quarter examining the efficacy of the RECELL System in treating vitiligo, scars, and acne scars. US FDA Investigational Device approval of pivotal study protocol was also received to evaluate the use of the RECELL System in soft tissue reconstruction, inclusive of traumatic wounds.

Total revenue in the September quarter was $7,900,000, an increase of 165% over September 2018 revenues of $2,972,000. In FY20, Avita Medical plans to commence trials establishing the safety and efficacy of RECELL in paediatric treatment, and for soft tissue and traumatic wounds. Pilot studies using the RECELL system for the treatment of vitiligo are to commence in anticipation of clinical trials in FY21.

CEO Mike Perry commented:

[W]e are pleased with the robust uptake of the of the RECELL Sytem by US burn surgeons nine months into our commercial launch. We look forward to maintaining our growth trajectory by sustaining a keen focus on US growth activities in tandem with growth of our development pipeline.

Future cash requirements are anticipated to be funded through existing cash reserves and potentially the issuance of equity and debt financing. Cash and cash equivalents at the end of the September quarter were $22.6 million.

Foolish takeaway

Avita Medical’s RECELL System has shown promising results in the treatment of dermal injuries. Positive results in the use of the system treating skin injuries opens the door to possible future aesthetic uses, which is a potentially significant secondary market.

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Motley Fool contributor Kate O'Brien has no position in any of the 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 Scott Phillips.

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