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How do Avita Medical (ASX:AVH) shares stack up against Polynovo and Aroa Biosurgery?

medical asx share price represented by three doctors in a row
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ASX mid-cap healthcare company Avita Medical Inc (ASX: AVH) released its second-quarter FY21 results to the market last week. Despite recording positive revenue numbers, the Avita share price has continued to slide lower over the last five days. At their current price of $6.40, Avita shares are now more than 30% below their 52-week high price of $9.58.

What does Avita do?

Avita is one of a number of biotech companies currently trading on the ASX specialising in skin tissue repair, particularly relating to serious burns or other traumatic injuries. Its competitors in this space include Polynovo Ltd (ASX: PNV) and New Zealand-based Aroa Biosurgery Ltd (ASX: ARX).

Avita’s flagship technology, its RECELL System, uses a sample of the patient’s own skin to create “spray-on skin cells” which can then be applied to wounds or other affected areas on the patient’s body. The company claims its technology harnesses the skin’s own regenerative properties to help heal severe wounds.

What was in the company’s results?

Avita reported a 57% year-on-year jump in revenues to $5.1 million for the December quarter. However, it’s worth noting that this result was actually flat against the previous quarter, ended 30 September 2020. Procedural volumes for the December quarter were also slightly lower than the prior quarter.

The company’s inability to provide any firm earnings guidance for the remainder of FY21 may have also scared away some investors, driving the Avita share price lower. Avita revealed that nearly half of its revenues came from just 20 accounts, all of which are exposed to the effects of COVID-19.

How does Avita stack up against its competitors?

Avita’s December quarter results were actually surprisingly similar to those of Aroa Biosurgery. Aroa, whose flagship product is a biodegradable tissue repair device originally derived from a sheep’s forestomach, reported revenues of NZ$5.9 million for the December quarter.

This is also similar to Polynovo. In a first-half trading update released to the market in January, Polynovo stated that sales revenues were up 31% versus the first half of FY20, despite slow months in November and December. This would imply first-half sales of a little over $11 million (1H FY20 sales revenue was $8.57 million), or about $5.5 million on an average quarterly basis. Again, this puts it roughly in line with both Aroa and Avita.

All three companies are also trying to expand their global footprint. Avita recently redomiciled to the United States, as this is where it generates the overwhelming majority of its revenues ($5 million of its $5.1 million December quarter revenues came from the US market).

Polynovo has been expanding rapidly into new European markets, most recently Poland and Turkey, and already has a presence in the US and Taiwan. And Aroa has recently received regulatory approvals to start distributing its products in India.

At the moment, it’s difficult to tell which of these companies will end up on top. The next 12 months may be a crucial period for Avita, Polynovo and Aroa. It will be interesting to see whether all three companies can deliver on their competing growth strategies.

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Rhys Brock owns shares of Avita Medical Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Avita Medical Limited and POLYNOVO FPO. The Motley Fool Australia has recommended Avita Medical Limited. 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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