20-05-2025
Biocurious: Avita Medical gets skin in more games with its wider wound care push
From its spray-on skin treatment origins, Avita has developed products for wider burns applications and other traumatic wounds
The company will not be afraid to drop prices to win US market share
Nonetheless, management promises the loss-making company will be in the black by the end of the year
Avita Medical (ASX:AVH) has been synonymous with its spray-on skin burns treatment Recell, developed by legendary Perth burns surgeon Professor Fiona Wood and first used on Bali bomb blast victims in 2002.
In the ensuing years, Avita painstakingly commercialised Recell to become a staple tool for US burns surgeons.
Recell addresses only a small share of the burns sector, while traumatic wounds open a more capacious market.
In essence, Avita is transforming from a single-product company to an 'integrated, multi-product platform' for acute wound care.
The company expects its new dermal matrix, Cohealyx, to triple its share of the US burns market – and has put its bigger rivals on notice that it will drop prices to gain market share.
'We are ready to go,' says Avita's US based CEO Jim Corbett.
Reflecting Avita's US focus, the company is listed on the Nasdaq as well as the ASX.
Avita's legacy Recell product involves taking a small skin sample from the body and mixing the cells into a liquid spray.
Recell competes with traditional skin grafts – the main difference being one battery-operated Recell kit can cover 80 times the area of a graft.
European regulators approved Recell in 2005, followed by the US Food and Drug Administration (FDA) in 2018.
The FDA later extended approval to wounds and full-thickness skin defects.
As is typical for device makers, Avita gleans its revenue from the more economically attractive US market.
Avita's new variant, Recell Go makes the process more automated, so that surgeons don't have to spend precious time scraping the skin.
The company claims it will reduce the time it takes to train a user, from 50 minutes to five minutes.
Recell Go applies to burns covering up to 10% of total body surface area (TBSA), or up to 1920 square centimetres.
The company expects FDA approval for another iteration, Recell Go Mini, for smaller burns up to 2.5% of the body (up to 480 sq cm).
Enter The Matrix
Launched on April 1 - but not foolishly - Cohealyx is a collagen-based dermal marix that acts as a 'scaffolding' for new tissue.
Designed to be used with Recell for regenerating full-thickness wounds, Cohealyx pits Avita against rivals including Integra Lifesciences and Organogenesis, as well as the ASX-listed PolyNovo (ASX:PNV).
(Polynovo's $950 million market valuation eclipses Avita's $280 million, even though they have similar revenue).
Avita also holds the exclusive US rights to market, sell and distribute Permeaderm, a biosynthetic wound dressing that goes on top.
Permeaderm has 'microporous variability', meaning it can be stretched to make it bigger or smaller while ensuring the pus exits the wound (a good thing).
In the meantime, Avita has throttled back on developing a product for Vitiligo, a common skin condition, for commercial reasons.
Go low to go high
If Avita's management is cowed by having so many rivals, it's not letting on.
'We believe Cohealyx will be the real winner for the company,' chief financial officer David O'Toole says.
'We are going to price it to gain market share'.
O'Toole says rival products typically sell for US$15 ($24) per square centimetre.
'We will sell it for US$10 if value analysis committee wants it that low,' he says.
'But we don't think we have to go that low because it is a superior product.'
Naturelement!
Avita envisages a consignment model, by which product is shipped to the hospitals and then only paid for when used. While not good for the company's cash flow, the hospital bean counters should love it.
Avita also is undertaking post-market clinical studies to demonstrate the product's efficacy and economic relevance.
That's code for 'we need data to help hospitals justify buying this stuff'.
In the black by Christmas?
Avita reported March quarter revenue of US$18.5 million, 65% higher year-on-year, with a loss of US$13.8 million compared with an US$18.6 million deficit previously.
Avita shares were birched 16% post results, because revenue fell short of consensus expectations of US$20.5 million.
Turnover was also flat on the December quarter.
Patient investors are hankering for a turnaround may not have to wait too much longer.
Why? Management has affirmed calendar 2025 revenue guidance of US$100-106 million – 55-65% better than previously.
The company expects to be profitable by the end of 2025, as per generally accepted accounting principle (GAAP) measures.
Avita had US$14.8 million of cash at the end of quarter, but also has a US$40 million loan from healthcare investor Orbimed.
'We expect to accumulate cash through 2026,' O'Toole says.
From burns to bucks
The US$100 million revenue target sounds like a stretch in the context of the US$18.5 million first quarter tally.
So, too does the profitability target: Bell Potter forecasts negative calendar 2025 earnings before interest tax depreciation and amortisation (ebitda) of $25 million.
Given Avita has three quarters of cash runway at current burn rates - excuse the pun- investors expect a capital raising.
O'Toole has a different take, noting Avita products have a presence in every one of the approximate 125 US burns centres.
'Our salespeople know these centres very well and we should be able to convert those surgeons to Cohealyx," he says.
O'Toole adds most of the wounds treated are 10-20% TBSA and thus suitable for Cohealyx with the Recell Go overlay.
If the company obtained only a 10% of the cases suited to a dermal matrix, that would amount to more than US$40 million a year of revenue.
Tiger in the tank
On management's reckoning, Avita soon will have something to show for the US$373 million of losses accrued along the winding development path.
As well as the Cohealyx "game changer', O'Toole cites an almost US$1 billion a year addressable market for Recell Mini.
'We haven't scratched the surface yet, its early days," he says.
O'Toole adds that Avita has converted its sales team from being oriented to serving existing clients to a 'sales machine'.
Armed with extra tiger in the sales tank and testimonials from grateful burns victims, Avita is ready to roar in the US.
'It's a heavy lift for the rest of the year, but we have all of the products ready to go now,' O'Toole says.
In the meantime, investors will be watching cash burn like a hawk with a calculator - and if consistent profits emerge investors will be in raptors, that's for sure.
