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Avita Medical Preps For Enlarged US Opportunity

Small Caps | May 17 2023

This story features AVITA MEDICAL INC, and other companies. For more info SHARE ANALYSIS: AVH

Brokers review first quarter results and pending regulatory approvals for Avita Medical.

-Avita Medical awaits near-term regulatory approvals
-Potential Recell launch in the US for soft tissue repair
-Early 2024 launch of Recell Go will reduce procedure time
-Morgans assesses strong first quarter results

By Mark Woodruff

First quarter results for Avita Medical ((AVH)) provided a timely reminder for investors of the planned July launch of the Recell medical device for soft tissue repair in the US.

The launch is ‘planned’ because investors keenly await June approval from the US Food and Drug Association (FDA) for soft tissue repair and vitiligo, a chronic autoimmune disorder that causes patches of skin to lose pigment or colour.

By June 30, the company is also expecting approval for Recell Go, an evolution of the existing Recell technology.

At present, Recell is FDA-approved for the treatment of second and third degree burns in paediatric and adult patients and competes with traditional skin grafts for burns victims. 

The product’s competitive advantage, according to Ord Minnett, is its pricing and the speed at which the Spray-on Skin can be applied to the burn site.

Recell currently addresses a market of 25,000 burns patients, but soft tissue would expand this to 150,000 potential subjects.

Avita has made a strong start to the year, assesses Morgans, hitting quarterly guidance and maintaining full year revenue guidance of US$49m-US$51m. Ord Minnett forecasts the company will be cash flow positive by fiscal 2026.

The reported -US$9m loss for the first quarter compares to a -US$5m loss in the fourth quarter of 2022. This outcome was largely expected by Ord Minnett, as the company expanded its US sales force by 39 people to 69 (target 72) in anticipation of the launch for soft tissue repair.

The sales force will be targeting the 70 level 1 trauma centres co-located with existing burns centres in the US, explains Bell Potter. Each of these trauma centres are expected to employ multiple trauma surgeons yet to be trained in the use of Recell kits for burns and soft tissue.

Approximately one third of the total burns market volumes in the US are managed in level 1 and 2 trauma centres, which up to this point have not been selling targets for the Recell team, explains the analyst.

The broker’s FY23 forecast allows for additional unit sales in the second half, following the anticipated label expansion into soft tissue and vitiligo. 

Reimbursement support for soft tissue will be immediate upon regulatory approval, given it uses the same reimbursement codes as burns, explains Bell Potter. Reimbursement is not expected for vitiligo until 2025 and self-pay is not expected to materially contribute to revenue. 

The development of Recell Go

As can be seen by the above-mentioned costs incurred to hire a sales force, training potential users of Recell is an expensive undertaking. 

Hence, a significant growth driver for Avita is the development of Recell Go which will automate the cell disaggregation, explains Morgans, reducing the time of the procedure.

Recell is used to disaggregate cells from a patient’s skin sample and to collect those cells into suspension for reintroduction to the patient.

Bell Potter expects management will submit Recell Go for approval by June 30, which it expects will result in a launch in early 2024 and increase the pace of adoption among clinicians. It's expected the device will facilitate faster adoption amongst new clinicians with little to no experience in use of the device.


Competitors such as Polynovo ((PNV)) and Nasdaq-listed Vericel have near full-penetration of US burn centres and an over-reliance on treating greater than 30% body surface area (BSA) burns, according to Wilsons. Hence, they remain subject to the variability of large burn episodes. 

Avita somewhat benefits in this regard, as its focus on treating less than 10% BSA burns represents around 65% of the volume in a specialist burn centre, notes Wilsons.

Following first quarter results, Avita Medical’s average target price in the FNArena database jumped to $5.78 from $5.22, suggesting 56% upside to the latest share price.

There are two Buy (or equivalent) ratings (Bell Potter’s Buy rating is designated Speculative) and one Accumulate recommendation in the database, which is one step below Buy in the rankings used by Ord Minnett.

Outside of daily coverage, Wilsons has a Market Weight rating and $1.88 target, but hasn’t updated research on the company since November 14 last year.

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