AVITA Medical, Inc. — Form 10-Q Summary
Business context and reporting period
The filing covers the quarter ended December 31, 2020, AVITA’s fiscal second quarter of fiscal 2021, and the six months then ended. The company is a commercial-stage regenerative tissue business; its lead product, RECELL, is FDA-approved in the U.S. for acute thermal burns in adults. It is pursuing clinical studies for expanded indications, including pediatric scalds, soft tissue reconstruction and vitiligo. The company changed its name from AVITA Therapeutics, Inc. in December 2020; its Nasdaq ticker remains RCEL.
Financial results and liquidity
| Metric | Three months ended Dec. 31, 2020 | Six months ended Dec. 31, 2020 |
|---|---|---|
| Revenue | $5.1 million; up 57% year over year | $10.2 million; up 56% |
| Gross profit / margin | $4.3 million / 84%, versus 74% | $8.4 million / 83%, versus 77% |
| BARDA income | $0.45 million | $1.05 million, down 57% |
| Operating expenses | $10.4 million, down 23% | $25.3 million, up 16% |
| Operating loss | $5.6 million | $15.8 million |
| Net loss / loss per share | $5.6 million / $0.26 | $15.9 million / $0.74 |
| Cash used in operations | $13.4 million for the six months, compared with $9.5 million in the prior-year period |
At December 31, cash was $59.8 million (plus $0.2 million restricted cash), down from $73.6 million at June 30, 2020. Total assets were $69.3 million and shareholders’ equity was $59.6 million. The company reported no significant external borrowing; operating lease liabilities totaled $1.9 million. Management stated it believed available resources and operating revenues would meet working-capital needs for at least 12 months, while also noting reliance on cash reserves and that future capital raising may be needed.
Material changes and management commentary
- Quarterly U.S. RECELL revenue growth drove higher gross profit; management attributed margin improvement to extended product shelf life, lower shipping costs and increased production at its Ventura facility.
- For the quarter, lower sales and marketing and general and administrative costs contributed to a reduced net loss. G&A included a reversal of previously recognized share-based compensation related to an executive officer’s resignation. For the six-month period, however, operating expenses and net loss increased, reflecting higher R&D and other costs and lower BARDA income.
- R&D spending rose as the company expanded clinical trials for pediatric scalds and vitiligo and advanced its pipeline. Management expects operating expenses to increase in future periods, partially offset by higher RECELL sales.
- Remaining performance obligations were $9.6 million, most of which related to a July 2020 BARDA contract for RECELL systems for the Strategic National Stockpile, including purchase, delivery and storage over three years.
Outlook, risks and contingencies
The filing provides no specific revenue or earnings guidance. COVID-19 restrictions affected hospital access, product promotion, clinical-trial enrollment and burn-procedure volumes; further disruptions to customers, trials, suppliers or manufacturing could adversely affect results. The company said COVID-19 had minor effects on its operations and financial position during the reported periods, but future effects remained uncertain. It also noted that about half of revenue came from 20 accounts, making sales sensitive to disruption at those hospitals and physician accounts.
No material litigation was outstanding or threatened, and the company reported no material off-balance-sheet arrangements. The interim financial statements received an independent accountant’s review, not an audit. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported.
Important facts for investors to verify
- Whether RECELL sales growth and improved gross margins continue, and how much depends on U.S. hospital access and concentrated customer accounts.
- Cash consumption and the basis for management’s assertion that resources will cover at least 12 months, especially if operating costs rise or sales disappoint.
- Clinical-trial enrollment and timing for pediatric scalds, vitiligo and soft tissue reconstruction, including the continuing effects of COVID-19.
- Timing and collectability of the $9.6 million in remaining performance obligations, particularly the BARDA stockpile contract.
- The effect of the executive-related share-based compensation reversal on quarterly expense comparisons and the distinction between quarter and six-month trends.