AVITA Medical Limited Form 20-F Summary
Business context and reporting period
Avita Medical Limited is an Australian regenerative medicine company developing and commercializing the RECELL System, a point-of-care autologous skin-cell harvesting and delivery device. The audited consolidated financial statements cover the fiscal year ended June 30, 2019, with comparative periods ended June 30, 2018 and June 30, 2017. Financial statements are presented in Australian dollars under IFRS as issued by the IASB.
The FDA approved RECELL in September 2018 for treatment of acute thermal burns in U.S. patients aged 18 and older. The company began U.S. commercial shipments in late 2018 and launched nationally in January 2019. RECELL was also approved or cleared for certain indications in Australia, China and Europe. The ADSs began trading on Nasdaq under the symbol RCEL on October 1, 2019; each ADS represents 20 ordinary shares.
Key financial metrics
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Sale of goods | A$7.705 million | A$1.199 million | Up 543% |
| Gross profit | A$6.008 million | A$0.687 million | Up 774% |
| Gross margin | 78% | 57% | Up 21 percentage points |
| BARDA income | A$8.259 million | A$10.104 million | Down 18% |
| Total other income | A$8.716 million | A$10.173 million | Down 14% |
| Operating costs | A$50.064 million | A$28.765 million | Up 74% |
| Loss for the period | A$35.160 million | A$16.519 million | Loss increased 113% |
| Total comprehensive loss | A$33.377 million | A$15.956 million | Loss increased 109% |
| Basic and diluted loss per share | A$2.78 cents | A$1.77 cents | Loss per share increased |
| Net cash used in operating activities | A$27.486 million | A$16.372 million | Cash use increased 68% |
- U.S. RECELL sales were A$6.215 million in FY2019 versus nil in FY2018 and represented the principal driver of revenue growth.
- Sales and marketing expense increased to A$17.577 million, primarily reflecting the U.S. commercial organization and launch activities.
- Product development expense was A$14.362 million, including A$3.379 million of research and development expenditure.
- Corporate and administrative expense increased to A$15.398 million, up 187%, as the company invested in commercial, manufacturing and corporate infrastructure.
- Share-based payment expense was A$2.689 million.
- Cash and cash equivalents were A$28.983 million at June 30, 2019, compared with A$14.826 million at June 30, 2018.
- Total assets were A$36.738 million, total liabilities were A$6.949 million and total equity was A$29.789 million.
- The company reported no significant external borrowing. Finance lease liabilities were A$65,369, including A$48,265 current and A$17,104 non-current.
- Net cash provided by financing activities was A$41.297 million, primarily from equity issuances and option exercises. Capital raising expenses were A$4.193 million.
Material changes versus the prior comparable period
- Commercial activity shifted materially toward the United States following FDA approval and the January 2019 national launch.
- Revenue increased sharply, but operating expenses grew faster than gross profit, resulting in a substantially larger net loss.
- BARDA income declined as activities supporting FDA approval and compassionate-use and continued-access programs wound down.
- The company completed substantial equity financing. During FY2019, proceeds from issuance of shares and options totaled A$45.037 million, and 593.9 million new ordinary shares were issued, increasing shares outstanding to 1.871 billion at year-end from 1.277 billion at June 30, 2018.
- U.S. sales and marketing, manufacturing capability and administrative systems were expanded to support commercialization.
- Manufacturing control of the Ventura, California facility transitioned to the company effective July 1, 2018.
- A temporary interruption of EU sales occurred in March 2019 due to administrative and procedural non-conformities. The notified body closed the open items and fully reinstated the EU certificates on June 12, 2019; management stated the financial impact was immaterial.
- The company identified a material weakness in internal control over financial reporting concerning the application of tax legislation across jurisdictions and tracking accumulated tax losses. Remediation efforts had begun but were not yet complete.
Guidance, outlook, commentary and risks
- Management expected gross margins to increase as U.S. sales ramped, while also expecting operating expenses to rise because of commercialization and research and development investments.
- The company expected to use cash reserves until product sales were sufficient to fund ongoing operations and stated that additional financing would likely be required if profitability was not achieved.
- Management stated that available working capital was sufficient to support committed programs and other activities for the following 12 months, but the business remained loss-making and dependent on future sales, BARDA receipts and potential capital raises.
- The BARDA contract was valued at at least US$50.4 million and was scheduled to terminate September 28, 2022, subject to earlier termination by BARDA. It included a potential vendor-managed inventory procurement of approximately US$7.6 million, but timing and recognition of that revenue were uncertain and margins could be lower.
- Key development plans included pediatric burn studies, donor-site treatment, trauma injuries and potential vitiligo applications. Additional U.S. indications require FDA PMA supplements and successful clinical and regulatory outcomes.
- Principal risks include continued losses, dependence on BARDA, the need for additional potentially dilutive financing, uncertain market adoption and reimbursement, regulatory delays or failures, manufacturing and supply-chain constraints, clinical-trial execution, product liability, intellectual-property challenges, competition and foreign-exchange volatility.
- The company had 111.5 million employee options outstanding at June 30, 2019, and reported 113.7 million options outstanding as of the date of the annual report; equity incentives may increase future dilution.
- IFRS 16, effective for the company from July 1, 2019, was expected to materially increase reported lease assets and liabilities, based on management’s assessment of approximately A$1.600 million and A$1.726 million, respectively.
Most important facts to verify
- Verify the pace, sustainability and geographic mix of U.S. RECELL adoption after the initial commercial launch, including hospital value-analysis approval cycles and reimbursement.
- Reconcile the filing’s inconsistent disclosures regarding cumulative BARDA payments: one section states US$20.24 million, approximately A$26.75 million, while another states A$20.24 million.
- Assess cash runway against the FY2019 operating cash burn of A$27.486 million and the company’s stated expectation that additional financing may be needed.
- Monitor whether the material weakness relating to tax-loss controls has been remediated and independently tested.
- Confirm progress and regulatory status of pediatric, trauma, donor-site and vitiligo programs, which are not covered by the principal U.S. approval.
- Evaluate dilution from the large increase in ordinary shares and outstanding options, as well as the company’s ability to raise additional equity under ASX and Nasdaq issuance limitations.
- Review BARDA contract milestones, potential termination rights, procurement options and the portion of future income that is reimbursement-based rather than product-sales revenue.