AVITA Medical, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Financial amounts below are in U.S. dollars; millions are rounded. AVITA develops and commercializes the RECELL System, an autologous skin-cell therapy platform. The filing was signed November 9, 2023.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $13.6m | $9.1m | $35.9m | $25.0m |
| Gross profit / margin | $11.5m / 84.5% | $7.6m / 83.2% | $30.0m / 83.4% | $20.3m / 81.2% |
| Operating loss | $(9.3)m | $(5.7)m | $(30.4)m | $(21.6)m |
| Net loss | $(8.7)m | $(5.6)m | $(28.3)m | $(21.3)m |
| Basic and diluted loss per share | $(0.34) | $(0.22) | $(1.12) | $(0.85) |
- Q3 revenue rose 50%; nine-month revenue rose 44%. Commercial revenue was $13.5m for Q3 and $35.7m for the first nine months. Growth reflected deeper penetration of customer accounts, the June U.S. launch for full-thickness skin defects (FTSD), and, for the nine-month period, Japan sales through distributor COSMOTEC.
- Gross margin improved year over year, which management attributed mainly to higher production and lower shipping costs. Operating losses widened as operating expenses grew faster than revenue.
- Q3 operating expenses were $21.1m, up 48%; nine-month expenses were $61.7m, up 40%. Sales and marketing increased substantially, including launch-related staffing and higher commissions and travel. R&D rose with RECELL GO development and FTSD launch support.
- Other income was $0.6m for Q3 and $2.1m for the nine-month period, versus $0.2m and $0.3m, respectively, in 2022. Interest expense remained small before the October borrowing.
- Cash and cash equivalents were $50.9m and marketable securities were $9.3m at September 30, 2023, versus $18.2m and $68.1m, respectively, at December 31, 2022. Current assets were $73.9m and current liabilities $11.8m. The company reported no funded debt at September 30; a secured loan was entered into afterward.
- Operating cash use was $27.1m for the first nine months, compared with $15.7m in 2022. Investing activities provided $58.9m, principally reflecting maturities of marketable securities; financing provided $0.9m, mainly option exercises. Cash increased $32.7m to $50.9m.
- Management said it believed available resources were sufficient for operations over the following 12 months, considering the financing described below. It also stated that further capital could be needed if cash generation is inadequate and that spending might need to be curtailed.
Material developments, outlook, and risks
- Product approvals and commercialization: FDA approvals in June 2023 expanded RECELL use to FTSD and stable depigmented vitiligo lesions. The FTSD commercial launch began June 8, 2023. To pursue vitiligo reimbursement, AVITA planned a 100-patient post-market TONE study and a health-economics study, both expected to be completed by the end of 2024. Payor discussions were expected to begin in Q1 2025; initial coverage was anticipated as early as Q3 2025, subject to coverage development.
- RECELL GO: The FDA requested additional information on the PMA supplement on September 29, 2023 and placed substantive review on hold pending a response, including additional in-house testing. Management expected to respond by February 28, 2024; its stated timing implied a possible May 31, 2024 launch. This is an expectation, not an FDA-approved launch date.
- Post-quarter financing: On October 18, 2023, AVITA closed a five-year senior secured credit facility of up to $90m and borrowed $40m, net of certain fees and expenses. Two further $25m tranches are discretionary and subject to revenue requirements. Interest is the greater of one-month term SOFR or 4%, plus 8%. If specified trailing-revenue targets are missed, quarterly repayments equal to 5% of the funded amount may be required. The facility is secured by substantially all company assets. A lender affiliate also received a 10-year warrant for up to 409,661 shares at $10.9847 per share.
- Other operating considerations: BARDA income declined as reimbursable clinical trials wound down. The BARDA emergency-preparedness contract was scheduled to run through December 31, 2023, subject to earlier termination. Management cited inflation, healthcare budget pressures, labor-market conditions, possible recession, geopolitical uncertainty, and potential supply-chain constraints as risks. The company noted it had worked to add suppliers for some key raw materials.
- Unusual items and legal matters: The nine-month results included higher deferred-compensation expense, professional fees, and severance costs related to two former executives. A settlement and release agreement with former CEO Michael Perry was disclosed after quarter-end; the company stated it made no admission of allegations. The filing reported no pending or threatened litigation expected to materially affect the financial statements.
Important facts for investors to verify
- Whether commercial revenue growth and gross-margin improvement continue, particularly following the FTSD launch and expansion of customer accounts.
- RECELL GO’s response submission, FDA review timeline, and any effect of additional testing on the anticipated launch.
- Progress and results of the vitiligo studies, payor discussions, and the timing and scope of any reimbursement coverage.
- Cash burn and runway assumptions, including the net proceeds and cost of the OrbiMed facility, applicable revenue tests, repayment provisions, and capacity to service secured debt.
- The end of the BARDA contract and the extent to which commercial sales replace related income or support ongoing operations.
- Potential supply interruptions, reimbursement or hospital-budget changes, and other macroeconomic risks identified by management.