What we think about Avita Therapeutics (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. 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.
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 September 2021, the company had a presence in 78% of inpatient burn centers and 87% of burn surgeons were trained to use the ReCell System.
AVITA is looking to build upon its early progress by expanding into deeper layers of the skin. Its Cohealyx system -- which goes beyond the surface-level of the wound to improve tissue integration -- was approved in December 2024 and has already successfully been used on its first patient in a hospital in Ohio.
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AVITA was upgraded from ______ to ______ on February 17, 2025. Join 7investing (free for your first week!) to get access to this section
AVITA is continuing to show signs of progress.
This 4Q in my opinion was a bit of a step back. Revenue grew only 30% as compared to 44% in the previous Q3. And that was much lower than the 40-50% growth rates in 2023.
Inventory similarly grew 30% y/y. The company mentioned in Q3 that they had "an adjustment of $5 million based on hospitals working through year-end inventory." This is still a small company, and even a $5 million order delay is a big deal and caused the stock to sell off (40%) in January. The balance sheet revealed that AVITA is still sitting on that inventory and even added more finished goods inventory in 4Q. These year-end adjustment orders still haven't come through. Worth keeping an eye on whether they fall within the upcoming Q1.
Still, I don't want to be too short-term focused here. Looking farther out, AVITA reaffirmed very strong Fiscal 2025 guidance of $103 million in revenue. That would represent 60% year-over-year growth; double what they just reported this last quarter.
The reason is because...
Thoughts on Current Valuation and Capital Allocation
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