What we think about Avita Medical (RCEL)
Avita Medical in Three Words: Skin, Progress, Vitiligo
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Background
Avita Medical is a medical device company and emerging drug developer. To be clear, my investment thesis focuses entirely on the opportunities for the company’s novel medical device. The emerging drug pipeline, comprising two preclinical cell therapy programs as of March 2022, does not influence my thesis at this time and should be viewed only as a source of future potential upside (and risk).
The company’s flagship product is a medical device called the ReCell System, which is best described as a kit for preparing a patient’s own skin cells to be reapplied to their body. The ReCell System comprises a physical device and enzyme solution that can be used to treat skin injuries, diseases, and conditions. A small sample of a patient’s own skin is harvested from a healthy site on the body, placed into the device, separated into its individual components (there are roughly one dozen unique types of skin cells) by the enzyme solution, and then sprayed onto the patient’s wound or another prepared site of skin. The entire process takes less than 30 minutes to provide treatment.
The ReCell System has earned international approvals to treat burns, soft tissue injuries, stable vitiligo, chronic wounds, and other dermatologic disorders. The company was founded in Australia and maintains a listing on the Australian Securities Exchange (ASX). In 2020, the company completed a redomiciliation process and relocated to the United States. Despite boasting global approvals, Avita Medical has refocused all near-term efforts on markets in the United States. As a result, the company currently has limited revenue generated only from the United States in a single indication.
The product was developed in clinical trials with the financial support of the U.S. Biomedical Advanced Research and Development Authority (BARDA). In 2018, the ReCell System earned its first U.S. Food and Drug Administration (FDA) approval for the treatment of acute thermal burns in adult patients, which marked the first new premarket approval (PMA) for a medical device used to treat burns in almost 20 years. PMA is the strictest regulatory designation for a medical device and serves as a barrier to entry for competition. By late 2021, the ReCell System had earned full FDA approval to treat acute thermal burns of any size in pediatric and adult patients.
Avita Medical has initially focused on treating burns by building commercial infrastructure for inpatient burn centers (meaning a patient is admitted for treatment) within the United States. As of late 2021, the company had a presence in 78% of inpatient burn centers and 87% of burn surgeons were trained to use the ReCell System.
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