AVITA Medical, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparative period is Q1 2022. AVITA develops and commercializes the RECELL System, an autologous skin-cell therapy device. Figures below are in U.S. dollars; financial statement amounts are converted from thousands to millions where applicable.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $10.55 million | $7.54 million; up 40% |
| Gross profit / margin | $8.88 million / 84% | $5.76 million / 76% |
| BARDA income | $0.63 million | $0.73 million; down 15% |
| Operating expenses | $19.42 million | $15.98 million; up 22% |
| Operating loss | $(9.91) million | $(9.49) million |
| Net loss / diluted loss per share | $(9.22) million / $(0.37) | $(9.46) million / $(0.38) |
| Cash used in operations | $(9.07) million | $(9.37) million |
| Cash and cash equivalents | $28.05 million at March 31 | $18.16 million at December 31, 2022 |
| Marketable securities | $49.59 million, current and long-term | $68.11 million at December 31, 2022 |
Commercial revenue was $10.46 million, up 40%, driven by deeper sales within customer accounts and the start of sales through Japan distributor COSMOTEC. Operating expenses grew faster than revenue, so operating loss widened, while net loss narrowed modestly, helped by other income of $0.73 million versus $0.03 million. The filing does not clearly reconcile the sources of the increase in other income.
At March 31, current assets were $82.76 million and current liabilities were $11.49 million. The company reported no significant external borrowing. Investing cash flow was positive $18.79 million, principally reflecting maturities of marketable securities; it should not be read as cash generated by operations. Stock-option exercises provided $0.17 million of financing cash.
Material changes versus Q1 2022
- Gross margin improved eight percentage points, which management attributed mainly to increased production and lower shipping costs.
- Sales and marketing expense rose 35% to $6.54 million, principally due to higher salaries, benefits and sales commissions, including preparation for a planned soft-tissue launch.
- General and administrative expense increased 10% to $8.30 million, reflecting deferred compensation expense, severance for two former executives and higher professional fees, partly offset by lower stock-based compensation.
- Research and development expense rose 27% to $4.59 million, mainly for RECELL GO development and medical science liaisons; lower clinical-trial follow-up costs partly offset the increase.
- Japan contributed $1.02 million of revenue, compared with none in Q1 2022.
Outlook, risks and notable items
- Management said available cash and marketable securities were sufficient to fund operations for the next 12 months, while noting that further capital may be needed and spending could be curtailed if capital cannot be raised. The company continues to use cash to fund operations.
- The company planned to submit a PMA supplement for RECELL GO by June 30, 2023. It anticipated a soft-tissue repair launch in July 2023, subject to FDA approval, and a vitiligo launch after approval and anticipated in-office reimbursement, expected by January 2025. These are forward-looking plans, not assured outcomes.
- The FDA had accepted the soft-tissue repair PMA supplement and vitiligo PMA application submitted in December 2022. In April 2023, the company confirmed RECELL GO retained Breakthrough Device designation.
- On April 14, 2023, the company established an at-the-market offering program covering up to 3,799,164 shares; no shares had been sold under it as of the filing. Sales could dilute existing stockholders.
- In May 2023, the company signed a 60-month Irvine office lease with average monthly rent of approximately $25,000.
- AVITA reported that its cash deposits were accessible after Silicon Valley Bank’s failure and that it incurred no loss. It nonetheless added a risk disclosure concerning uninsured deposits and potential bank failures. It also cited possible recession, inflation, supply-chain, labor-market, reimbursement and geopolitical pressures.
- No material pending or threatened litigation was reported. Management concluded disclosure controls were effective as of March 31, 2023.
Important facts for investors to verify
- FDA review timing and outcomes for the pending soft-tissue and vitiligo applications, and the planned RECELL GO submission.
- Whether planned launches and reimbursement arrangements occur on schedule and translate into sustained commercial growth.
- Operating cash burn, cash and securities available for operations, and the timing and extent of any ATM share sales or other financing.
- Whether gross-margin improvement continues as production scales, and whether rising commercial and development expenses produce expected returns.
- Customer adoption in the United States and Japan, including the durability of account-level growth and distributor sales.