AVITA Therapeutics, Inc. (formerly AVITA Medical) — FY2020 Form 10-K
Period: Fiscal year ended June 30, 2020, with FY2019 comparisons. The request labels the period “2019 Q4,” but the filing is an annual report for FY2020. The filing also reports unaudited quarterly results, including the quarter ended June 30, 2020. Amounts below are U.S. dollars unless noted.
Business context and reporting period
AVITA is a commercial-stage regenerative medicine company whose lead product, RECELL, prepares a spray-on suspension of a patient’s own skin cells. In the U.S., RECELL was FDA-approved for acute thermal burns in adults and launched in January 2019. The company is pursuing additional indications, including pediatric burns, trauma wounds and stable vitiligo. On June 29, 2020, it completed a redomiciliation from Australia to Delaware; shares began trading as AVITA Therapeutics on Nasdaq under RCEL on July 1, 2020. Historical share and per-share amounts were retroactively adjusted for the transaction’s 1-for-100 exchange.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $14.3 million | $5.5 million |
| Gross profit / margin | $11.3 million / 79% | $4.2 million / 77% |
| BARDA income | $3.9 million | $5.9 million |
| Operating expenses | $57.9 million | $35.7 million |
| Operating loss | $(42.7) million | $(25.5) million |
| Net loss | $(42.0) million | $(25.1) million |
| Basic and diluted loss per share | $(2.07) | $(1.56) |
| Cash and restricted cash at year-end | $73.8 million | $20.4 million |
| Net cash used in operations | $(22.7) million | $(19.3) million |
U.S. product sales were $13.8 million in FY2020 versus $4.4 million in FY2019. Cash and cash equivalents were $73.6 million at June 30, 2020; total current assets were $78.4 million and current liabilities $7.7 million. The company reported no significant external borrowing at year-end. It raised $81.7 million gross, or $76.6 million net, through an equity placement during FY2020. The filing says working capital is sufficient for committed programs and other activities over the next 12 months, while noting that future financing may be needed if cash generation is inadequate.
June 2020 quarter: Revenue was $3.9 million, gross profit $3.0 million, BARDA income $0.5 million, operating loss $13.0 million and net loss $12.9 million. Quarterly revenue was approximately unchanged from the March 2020 quarter; quarterly net loss narrowed from $15.0 million.
Material changes versus prior period
- Revenue increased 161% year over year, reflecting the first full fiscal year of U.S. commercialization; gross margin rose from 77% to 79%.
- Operating expenses increased 62%. Share-based compensation rose to $16.5 million from $1.9 million, primarily reflecting higher grant-date award values as the share price increased. Sales and marketing grew 21%, general and administrative expense 34%, and research and development 7%.
- Net loss increased by $16.9 million, or 67%, despite higher product revenue, because expense growth outweighed gross-profit gains and BARDA income declined 34%.
- Operating cash use increased by $3.5 million. Financing cash flow rose to $77.1 million, principally from the equity placement; year-end cash and restricted cash increased by $53.5 million.
Outlook, management commentary and risks
- Management expects operating expenses to increase as U.S. commercialization and clinical development expand, with higher product sales and BARDA funding expected to partly offset costs. The filing provides no numerical revenue or earnings guidance.
- FDA-approved pivotal studies were underway for trauma and pediatric burns; the FDA had approved an IDE for a vitiligo pivotal study in July 2020, with enrollment expected in the second half of calendar 2020. The company was evaluating whether to pursue pivotal studies in chronic wounds.
- BARDA’s contract was valued at at least $53.4 million; cumulative payments received through June 30, 2020 were $24.4 million. After year-end, BARDA agreed to a $7.6 million vendor-managed inventory plan and added $1.6 million of emergency-deployment funding. Deliveries were expected to begin in the second half of calendar 2020. Funding and procurement remain subject to BARDA options and government priorities.
- Management reported minor COVID-19 effects on FY2020 operations and did not expect a negative impact on near-term revenue or operations, but emphasized that future effects were uncertain.
- Key risks include continued losses and possible future financing and dilution; failure or delay in clinical trials or additional regulatory approvals; reliance on U.S. burn sales and BARDA; reimbursement and adoption delays; manufacturing and single-source supplier constraints; competition; and intellectual-property protection. The company noted that U.S. patents covering RECELL composition of matter expire in 2022; a requested patent-term extension, if approved, could extend one patent to 2024.
- The filing reports no significant legal proceedings or material off-balance-sheet arrangements. Management concluded disclosure controls were effective and stated that a previously reported internal-control material weakness had been remediated. The auditor issued an unqualified opinion on the financial statements and did not provide an internal-control audit opinion.
Important facts for investors to verify
- Whether U.S. sales growth and hospital adoption continue, including the effect of COVID-19 on burn-center activity and purchasing decisions.
- Progress, enrollment and outcomes for pivotal studies, and the timing and likelihood of FDA approvals for additional indications.
- Actual BARDA funding receipts, performance of the vendor-managed inventory arrangement, and the remaining contract scope and options.
- Cash burn relative to the $73.6 million year-end cash balance, future financing needs, and potential dilution from equity compensation or new share issuance.
- Reimbursement developments, including the pending outpatient Medicare transitional pass-through application, and the company’s ability to maintain gross margins as sales scale.
- Patent-term-extension status, supply continuity for critical components, and any subsequent developments affecting regulatory compliance or product commercialization.