The Avita Medical Ltd (ASX: AVH) share price is up 5.52% today (at the time of writing), following the release of its half year report and sales figures. Total product sales were up 434% to $9.7 million for the half from $1.8 million in 1HFY19. Avita Medical also reports consistent demand for its RECELL system, particularly in the US where the majority of sales took place.
Avita Medical's business
Avita Medical is a regenerative medicine company focused on therapeutic skin restoration. Its RECELL system uses spray on skin technology to treat burn and scald wounds as well as traumatic wounds and soft tissue reconstruction. Avita Medical believes there are many adjacent applications for its technology, including the treatment of vitiligo, chronic wounds, dermatological diseases and potentially skin rejuvenation.
The RECELL system
The RECELL system was approved by the FDA for use in treating acute thermal burns in patients 18 years or over in September 2018. The system is used to prepare spray on skin cells using the patient's own skin in as little as 30 minutes. The system provides a new way of treating severe burns while significantly reducing the amount of donor skin required. The system can be used alone or in combination with grafts, depending on the depth of the injury.
Data from clinical trials conducted at US burn centres and real-world use in more than 8,000 patients globally show the RECELL system is a significant advance over the current standard of care for burn patients, offering both benefits in clinical outcomes and cost savings. The system is TGA registered in Australia and has received CE approval in Europe. Internationally, the system is marketed to promote skin healing in a wide range of applications including burns, chronic wounds, and aesthetics.
Avita Medical's results
Avita reported a 742% increase in product sales in the US where the RECELL system is approved by the FDA for treating acute burns. US product sales grew to $9.27 million in 1HFY20 from $1.1 million in 1HFY19. "Early 2020 sales performance has highlighted the commitment of burns specialists to the RECELL System," Dr Mike Perry, Avita Medical's CEO said.
The RECELL system was also sold on a limited basis in certain regions of the world in which it is approved for sale, including Australia, China, and Europe. International product sales amounted to $410,000. Gross margin for the half year was 76% compared to 69% for the same period in 2018, and the company expects gross margins to improve as sales ramp up in the US.
Avita Medical also received funding of $3.5 million from the Biomedical Advanced Research and Development Authority in the US, down from $5 million in the prior corresponding period. The reduction in funding was due to the wind down of activities associated with supporting US FDA approval of the RECELL system as well as compassionate use and continued access programs.
Total revenue of $13.53 million was reported for the half, up from $6.93 million for the prior corresponding period. Operating costs for 1HFY20 were $32.18 million, up from $21.93 million for 1HFY19 as a result of investments in commercial, manufacturing, and system capabilities to support the continued growth of the RECELL System in the US market and related initiatives.
Avita Medical reported a loss for the period of $20.98 million, up from $15.58 million in the prior corresponding period.
The cash and cash equivalents balance at 31 December was approximately $124.7 million, thanks largely to Avita Medical's November capital raising.
Capital raising
Avita Medical conducted a capital raising in November where it raised $120 million via an institutional placement. Shares were issued at 59 cents per share representing a 7.2% discount to the 30-day volume weighted average price and a 14.5% discount to the last closing price. Avita Medical shares are currently trading at 86 cents.
Funds from the capital raising will be used to fund trials on the use of the RECELL system in treating soft tissue and traumatic wounds, paediatric scald wounds, vitiligo, and genetic skin defects, as well as securing marketing approval and reimbursement of the system in Japan.
"With our strong balance sheet, buoyed by our successful financing in November, we are also exploring opportunities to advance our existing clinic programs as well as potentially commencing additional late-stage studies," CEO Dr Mike Perry said.
Outlook
Avita Medical reports its goal of expanding utilisation of the RECELL System to 25 new burns centres in calendar year 2020 is well underway, with 2 new centres ordering as at the end of January. Although the rate of in-patient burns admissions is inherently variable, Avita Medical is confident that site expansion and broader RECELL system usage will result in incremental revenue growth across the entirety of calendar year 2020.
Additional RECELL system uses
In the near term, Avita Medical is focused on advancing the use of the RECELL system in treating trauma and soft tissue injuries such as lacerations and gun shot wounds. In September, it secured an Investigational Device Exemption (IDE) to pursue FDA approval for soft tissue reconstruction. The study will assess the safety and effectiveness of the RECELL System in a minimum of 65 trauma patients. Three sites are screening patients with the first patient expected shortly.
In December, Avita Medical received FDA IDE approval for a feasibility study with 10 vitiligo patients to determine the optimal concentration of cell suspension prepared using the RECELL system. Avita Medical is considering trial designs that could accelerate the commencement of a full pivotal study into the use of the RECELL system in vitiligo.
Avita Medical is also continuing to explore opportunities for using the RECELL system to address genetic and cellular disorders. In November, the company entered into a sponsored research agreement with the Gates Center for Regenerative Medicine at the University of Colorado. The focus is on proof of concept and development of a spray-on treatment of genetically modified cells for patients with the genetic skin disease epidermolysis bullosa, with potential applicability to other genetic skin disorders. Avita Medical hopes to see the first in-human studies commence in the middle or second half of 2021.
