AVITA Medical, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted. AVITA develops and commercializes the RECELL System, an autologous cell therapy platform for skin restoration.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $9.1 | $7.0 | $25.0 | $26.1 |
| Gross profit | $7.6 | $5.9 | $20.3 | $20.8 |
| Gross margin | 83% | About 85% | 81% | About 80% |
| Operating expenses | $14.2 | $12.3 | $44.1 | $38.8 |
| Operating loss | $(5.7) | $(5.9) | $(21.6) | $(16.6) |
| Net loss | $(5.6) | $(5.9) | $(21.3) | $(16.7) |
| Basic and diluted loss per share | $(0.22) | $(0.24) | $(0.85) | $(0.69) |
- Q3 commercial revenue rose 30% to $9.0 million, supported by deeper sales within existing accounts and the start of sales through COSMOTEC in Japan. Nine-month commercial revenue increased 35% to $24.7 million.
- Total nine-month revenue fell 4% because the prior-year period included $7.6 million of BARDA product revenue from delivery into managed inventory. No BARDA product sales were recorded in the first nine months of 2022; BARDA service and research funding income was reported separately.
- Q3 operating loss narrowed modestly, but the nine-month operating loss widened as operating expenses rose 13%. Sales and marketing costs increased with added field staff, selling activity, and pre-commercialization work.
- Cash and cash equivalents were $23.6 million at September 30, 2022, versus $55.5 million at December 31, 2021. Marketable securities totaled $64.6 million, giving cash and marketable securities of approximately $88.2 million, excluding restricted cash.
- Operating cash use was $15.7 million for the nine months, compared with $13.1 million in the prior-year period. Investing cash use was $16.2 million, primarily reflecting purchases and maturities of marketable securities. Financing provided only $1,000; the prior-year period included $64.1 million net proceeds from an equity offering.
- Total liabilities were $11.7 million. The company reported no significant external borrowing; operating lease liabilities were $1.1 million. Current assets were $91.7 million and current liabilities $9.5 million.
Material changes and business developments
- Q3 revenue growth was accompanied by lower gross margin, down about two percentage points year over year. For the nine months, gross margin improved to 81%, with management attributing the prior-year comparison to lower-priced BARDA inventory deliveries.
- BARDA income increased to $0.9 million in Q3 and $2.2 million for nine months, principally reflecting funding for the pivotal soft-tissue reconstruction trial.
- Japan approved RECELL for burns in February 2022 and commercial sales began in September after reimbursement pricing approval. The filing says future Japanese applications for soft tissue repair and vitiligo are planned after relevant U.S. trial data become available.
- Enrollment in the U.S. pivotal soft tissue repair and vitiligo trials was complete, and topline results had been announced. The filing describes these results as intended to support pursuit of FDA approval; it does not provide the topline efficacy values in the supplied text.
- Cash and marketable securities declined from $104.9 million at year-end 2021 to about $88.2 million. The company’s nine-month loss increased despite higher commercial revenue.
Outlook, risks, and other items
- Management stated that available cash reserves were sufficient to fund operations for the next 12 months. It also said the company expects to use cash reserves until U.S. product sales reach a level sufficient to fund ongoing operations and may need to reduce spending if unable to raise capital when needed. No specific revenue, earnings, or cash-flow guidance was provided.
- Key stated uncertainties include commercialization and market adoption, obtaining further regulatory approvals, clinical outcomes, future capital needs, COVID-19 effects, inflation, and changing economic and regulatory conditions. The filing says COVID-19 had not materially adversely affected results through Q3 2022, but future effects remained uncertain.
- The company reported no material changes to the risk factors in its prior transition report, no material outstanding or threatened litigation, and no off-balance-sheet arrangements. It reported no dividends and no committed plans to issue additional shares.
- Disclosure controls and procedures were concluded to be effective as of September 30, 2022; no material change in internal control over financial reporting was reported during the quarter.
Important facts for investors to verify
- Whether commercial revenue growth and the Japan launch continue, and how much sales depend on a limited number of accounts or customers.
- Whether the stated 12-month cash runway remains supportable given operating cash use, commercialization spending, and the company’s continuing losses.
- The full topline results and subsequent FDA status for the soft tissue repair and vitiligo programs, and the timing and terms of any additional approvals or launches.
- The comparability and sustainability of reported margins, including the impact of the prior-year BARDA inventory delivery and ongoing inventory replacement obligations.
- The sensitivity of available-for-sale securities to market interest rates: the filing reported a $0.6 million net unrealized loss on marketable securities at September 30, 2022 and no recognized credit losses.