One much-hyped ASX share has given little joy to investors over the last 12 months.
But The Montgomery Fund portfolio manager Joseph Kim has told holders of the healthcare stock to be patient, as the numbers still look pretty good.
Regenerative medicine maker AVITA Medical Inc (ASX: AVH) has seen its stock price plummet 40% in the past year.
"Price-agnostic index selling in October, a cash-burning business combined with a surprise capital raising in February that helped kill short-term price momentum, topped off by an uninspiring share price chart," Kim said on the Montgomery blog.
"It was relatively easy to paint a negative picture."
The shame of it all is that Avita shares were doing so well before the COVID-19 crash struck markets in February last year.
"COVID-19 and lockdowns in the US have stymied [its flagship product] RECELL roll-out just as it was gaining steam, as well as preventing recruitment for its various label extension plays in vitiligo, paediatric scalds and wound care."
Retesting the investment thesis for Avita
The sinking share price had Kim's team continually re-examining the investment worthiness of the US company.
One of the big reasons why The Montgomery Fund originally invested in Avita shares is the prospect of RECELL becoming the dominant player in the treatment of large burns in the US.
"While this remains some time away, there have been a couple of encouraging developments in June which we view as positive signposts along the journey," said Kim.
"In June, the company received FDA approval for expanded use of RECELL for pediatric patients. Included in the approval was expanded indication for treatment of full-thickness burns exceeding 50% total body surface area."
In the middle of last month, the company lifted its revenue forecast from a range of US$8.2 to US$8.6 million to a range of US$9.5 million to US$9.7 million.
"We understand the upgrade in guidance reflects both an increase in movement in the US – which unfortunately has led to greater burns incidents – as well normalisation of activity as the US 'exits' the pandemic given its advanced vaccination programs relative to other regions."
Remaining optimistic on Avita shares
Kim said the increased sales will assist Avita address two priorities.
"We anticipate improved sales should help the company fund its various label-extension opportunities in vitiligo and soft tissue, and alleviate some concern around the company's level of cash burn (which we note is an investment for future revenue growth)."
While not declaring a price target, Kim's team is holding onto Avita shares with high hopes.
"We remain optimistic the company will expand its addressable markets through both label extension and geographic expansion given the extensive evidence of real-world cases in its targeted indications, while also growing its current burns business for years to come."
Avita shares were down 2.39% on Monday, to trade at $5.32 in the afternoon.
