AVITA Medical Half-Year Financial Report for Fiscal 2020

VALENCIA, Calif. & MELBOURNE, Australia–(BUSINESS WIRE)–AVITA Medical Limited (ASX: AVH, NASDAQ: RCEL), a regenerative medicine company with a technology platform positioned to address unmet medical needs in therapeutic skin restoration, announced that it filed today with the Australian Securities Exchange (ASX) its Appendix 4D – Half-Year Report for the six month period ended 31 December 2019.

Revenues of RECELL® System for First Six Month Period Ended 31 December 2019

 

Six Months Ended

(In thousands of Australian Dollars)

31 December

 

2019

2018

U.S. product sales

A$

9,274

A$

1,102

International product sales

 

410

 

711

Total product sales

 

9,684

 

1,813

Other income (including BARDA)

 

3,846

 

5,113

Total revenue

A$

13,530

A$

6,926

We continue to be pleased with early RECELL System utilization as we progress our ‘go deep’ strategy within the in-patient burn setting. We are focused on driving incremental growth within existing accounts, together with broadening our commercial footprint via the addition of 25 burns centers throughout calendar 2020. Early 2020 sales performance has highlighted the commitment of burn specialists to the RECELL System, particularly among our group of super users,” said Dr. Mike Perry, AVITA Medical’s Chief Executive Officer. “With our strong balance sheet, buoyed by our successful financing in November, we are also exploring opportunities to advance our existing clinical programs as well as potentially commencing additional late-stage studies where we believe we have achieved a significant level of de-risking via our substantive body of clinical evidence and peer-reviewed publications. As an example, we will be working with the FDA to explore the possibility of using an adaptive pivotal study design for vitiligo in place of, or adjunctive to, the currently approved IDE in this indication. We plan to provide updates on these opportunities over the next few months.”

U.S. RECELL System Update

2020 is off to a pleasing start with consistent demand for the RECELL System, especially among our super users, and notwithstanding the 43rd Annual Boswick Burn & Wound Symposium being held in late January and our National Sales Meeting (“NSM”) being held in early February. At our NSM, we spent a significant amount of time consulting with our burns surgeons, including our most experienced users, with a view to improving on best practices for use of the RECELL System. These activities included a specific focus around optimal usage and teaching methodology for the RECELL System, with a particular focus on the use of the RECELL System with smaller burns and as a standalone therapy.

These efforts, and our broader efforts to promote awareness of the RECELL System, will extend into the forthcoming Annual Meeting of the American Burn Association which will be held in Orlando, Florida, 17-20 March. At this meeting, there will be 8+ presentations highlighting RECELL focused on decreased length of stay, cost savings, use on small burns, and other potential uses.

Looking ahead, we will also be attending financial conferences to further educate investor and analyst audiences about RECELL and the potential of the platform. To this end, we will be attending the Cowen Annual Healthcare Conference in Boston, Massachusetts, 4 March. Our presentation will be webcast and a link to the audio track and the presentation will be available on our website, at https://avitamedical.com/investors.

Market Acceleration / Expansion Update

Our goal of expanding utilization of the RECELL System to 25 new burns centers during the 2020 calendar year (CY 2020) is well underway, with two new centers ordering as of the end of January. While the rate of in-patient burn admissions is inherently variable, we are confident that site expansion and our broader RECELL System usage will result in incremental revenue growth across the entirety of CY 2020. Consistent with this goal, we are keenly focused on our “go deep” strategy of (1) broadening our burn utilization from large, full thickness, wounds, or “big burns,” to the much higher incidence of smaller or partial thickness burns which is consistent with usage patterns demonstrated by our most experienced burn specialists; and (2) educating and training other burn surgeons within our customer base.

The nearest term opportunity we are advancing is in trauma and soft tissue injuries where, similar to the burn market, surgeons graft skin to repair defects from accidents (e.g. degloving, lacerations, gun shots, etc.). In 2019 September, we secured an investigational device exemption (IDE) to pursue FDA approval for soft tissue reconstruction (i.e. trauma) and we presently have three sites screening patients with our first patient expected shortly. This study will assess the safety and effectiveness of the RECELL System in a minimum of 65 trauma patients. In addition, we are pursuing incremental reimbursement avenues within the out-patient setting as we believe this will be important to support adoption of the RECELL System.

Within the broader “burn market,” we are also seeking FDA approval for a pediatric scald indication. We have FDA investigational device exemptions for our two pediatric scalds studies and plan to commence these studies soon, with enrollment slated to start in mid-2020.

As previously disclosed, in late December 2019, we received FDA IDE approval for a feasibility study with 10 vitiligo patients to primarily determine the optimal concentration of the cell suspension prepared using the RECELL System. While we remain committed to the 10-patient, single-site pilot study, we are presently considering adaptive trial designs that could lead to an acceleration of the commencement of a full pivotal study for the RECELL System in vitiligo. Our depth of clinical experience with patients internationally makes us confident that such a strategy would address this unmet need, have a high likelihood of success, and could allow us to get our technology to patients more quickly and efficiently.

We are also continuing to explore large opportunities for the RECELL System as a delivery platform to help address cellular and genetic disorders. As previously disclosed, we entered into a sponsored research agreement with the Gates Center for Regenerative Medicine at the University of Colorado in November 2019. This relationship is focused on proof-of-concept and development of a spray-on treatment of genetically modified cells for patients with the genetic skin disease epidermolysis bullosa (EB), with potential applicability to other genetic skin disorders. It is early days in this program, but we are hopeful of first in-human studies commencing in the middle or second half of 2021. In parallel, we are well-advanced with discussions to secure a rejuvenation application for the RECELL System and hope to have further details available in the middle of this year.

Lastly, with our successful capital raising in November 2019, we have additional resources that may allow us to advance into a potential FDA registration study in an area where we have existing strong, and deep, clinical evidence. These opportunities are all presently under re-assessment, and we hope to provide more clarity, including details regarding the potential commencement of an additional registration study, on some of these opportunities over the coming months.

Further information on AVITA’s current and future opportunities may be found in our recent operating review contained in the ASX Appendix 4C, dated 31 January 2020, together with the Company’s revised corporate presentation which was lodged with the ASX today.

Half-Year Fiscal 2020 Financial Results (Unaudited)

A copy of the Appendix 4D – Half-Year Report for the six months ended 31 December 2019 is attached. A summary of the financial results for the half year are as follows:

 

Six Months Ended

(In thousands of Australian Dollars)

31 December

 

2019

2018

Sale of goods

$

9,684

 

$

1,813

 

Cost of sales

 

(2,326

)

 

(570

)

Gross profit

 

7,358

 

 

1,243

 

 

 

 

BARDA income

 

3,549

 

 

5,009

 

Other income

 

297

 

 

104

 

Total other income

 

3,846

 

 

5,113

 

 

 

 

Operating costs

 

(32,185

)

 

(21,935

)

 

 

 

Loss for the period

 

(20,981

)

 

(15,579

)

 

 

 

Foreign currency translation

 

(2,775

)

 

1,374

 

Total other comprehensive loss

$

(23,756

)

$

(14,205

)

The increase in current-year sales occurred in the U.S. as a result of the commencement of the U.S. national market launch of the RECELL System in January 2019. Gross margin for the half-year ended 31 December 2019 was 76% compared to 69% for the same period in 2018, and the company expects gross margins to improve as sales ramp up within the U.S. market. BARDA income declined as a result of wind-down of certain activities associated with supporting the U.S. FDA approval of the RECELL System as well as the compassionate use and continued access programs. As the result of investments in commercial, manufacturing, and system capabilities to support the continued growth of the RECELL System in the U.S. market and related initiatives, operating costs and net loss for the half-year ended 31 December 2019 increased compared to the same period in the prior year.

During the six months ended 31 December 2019, the Company completed an institutional placement in which it issued 203,389,831 shares at a price of A$0.059 per share and received gross proceeds of A$120,000,000. The cash and cash equivalents balance at 31 December 2019 was approximately $124.7 million.

Authorized for release by the Chief Executive Officer of Avita Medical Limited.

ABOUT AVITA MEDICAL LIMITED

AVITA Medical is a regenerative medicine company with a technology platform positioned to address unmet medical needs in burns, chronic wounds, and aesthetics indications. AVITA Medical’s patented and proprietary collection and application technology provides innovative treatment solutions derived from the regenerative properties of a patient’s own skin. The medical devices work by preparing a REGENERATIVE EPIDERMAL SUSPENSION™ (RES™), an autologous suspension comprised of the patient’s skin cells necessary to regenerate natural healthy epidermis. This autologous suspension is then sprayed onto the areas of the patient requiring treatment.

AVITA Medical’s first U.S. product, the RECELL® System, was approved by the U.S. Food and Drug Administration (FDA) in September 2018. The RECELL System is indicated for use in the treatment of acute thermal burns in patients 18 years and older. The RECELL System is used to prepare Spray-On Skin™ Cells using a small amount of a patient’s own skin, providing a new way to treat severe burns, while significantly reducing the amount of donor skin required. The RECELL System is designed to be used at the point of care alone or in combination with autografts depending on the depth of the burn injury. Compelling data from randomized, controlled clinical trials conducted at major U.S. burn centers and real-world use in more than 8,000 patients globally, reinforce that the RECELL System is a significant advancement over the current standard of care for burn patients and offers benefits in clinical outcomes and cost savings. Healthcare professionals should read the INSTRUCTIONS FOR USE – RECELL® Autologous Cell Harvesting Device (https://recellsystem.com/) for a full description of indications for use and important safety information including contraindications, warnings and precautions.

In international markets, our products are marketed under the RECELL System brand to promote skin healing in a wide range of applications including burns, chronic wounds and aesthetics. The RECELL System is TGA-registered in Australia and received CE-mark approval in Europe.

To learn more, visit www.avitamedical.com.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This letter includes forward-looking statements. These forward-looking statements generally can be identified by the use of words such as “anticipate,” “expect,” “intend,” “could,” “may,” “will,” “believe,” “estimate,” “look forward,” “forecast,” “goal,” “target,” “project,” “continue,” “outlook,” “guidance,” “future,” other words of similar meaning and the use of future dates. Forward-looking statements in this letter include, but are not limited to, statements concerning, among other things, our ongoing clinical trials and product development activities, regulatory approval of our products, the potential for future growth in our business, and our ability to achieve our key strategic, operational and financial goal. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Each forward- looking statement contained in this letter is subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statement. Applicable risks and uncertainties include, among others, the timing of regulatory approvals of our products; physician acceptance, endorsement, and use of our products; failure to achieve the anticipated benefits from approval of our products; the effect of regulatory actions; product liability claims; risks associated with international operations and expansion; and other business effects, including the effects of industry, economic or political conditions outside of the company’s control. Investors should not place considerable reliance on the forward-looking statements contained in this letter. Investors are encouraged to read our publicly available filings for a discussion of these and other risks and uncertainties. The forward-looking statements in this letter speak only as of the date of this release, and we undertake no obligation to update or revise any of these statements.

Appendix 4D

Half-Year Report

31 December 2019

AVITA MEDICAL LIMITED

ABN 28 058 466 523

Results for announcement to the market

 

 

 

 

 

 

Financial Results

 

 

 

December

2019

December

2018

Sale of goods

Up

434%

to

A$

9,684,214

A$

1,813,195

Other income

Down

25%

to

 

3,845,573

 

5,112,763

Total other comprehensive loss for the period

Up

67%

to

 

23,755,659

 

14,205,247

Dividends

Amount per Ordinary

Security

Franked amount per

security

2018 interim dividend

Nil

Nil

2019 interim dividend

Nil

Nil

 

Record date for determining entitlements to the 2019 interim dividends

N/A

 

Net Tangible Asset Backing

December 2019

December 2018

Net tangible asset backing per ordinary security

A$ 0.0566

A$ 0.0189

Other explanatory notes

The Australian Securities and Investments Commission has stated that it considers the right of use assets arising from the application of IFRS 16 Leases as a ‘intangible assets’, requiring to exclude such assets from Net Tangible Asset calculations. The following table shows the calculation for net tangible asset backing per ordinary security.

December

2019

December

2018

Net Tangible Assets:

 

 

Net assets

A$

123,870,042

 

A$

31,247,284

 

Plant and equipment – Right of use assets

 

(3,449,611

)

 

 

Patents-in-progress

 

(507,496

)

 

(93,775

)

Total net tangible assets

A$

119,912,935

 

A$

31,153,509

 

 

 

 

Number of ordinary shares on issue

 

2,117,474,277

 

 

1,652,425,340

 

Net tangible asset backing per ordinary security

A$

0.0566

 

A$

0.0189

 

 

The information required by listing rule 4.2A is contained in both this Appendix 4D and the attached half-year report. This half-yearly reporting information should be read in conjunction with the most recent annual financial report of the company.

AVITA MEDICAL LIMITED

A.B.N. 28 058 466 523

HALF-YEAR FINANCIAL REPORT

31 December 2019

Corporate Information

ABN 28 058 466 523

This half-year report covers the consolidated entity comprising Avita Medical Limited (“the Parent Company” or “the Company”) and its controlled subsidiaries (collectively, “the Group”). The Parent Company’s functional and presentation currency is Australian dollars (A$). A description of the Group’s operations and principal activities are included in the Review and Results of Operations in the Directors’ Report on page 4. The Directors’ Report does not form part of the financial report.

Directors

Mr Lou Panaccio (Non-Executive Chairman)

Dr Michael Perry (Executive Director)

Mr Jeremy Curnock-Cook (Non-Executive Director)

Mr Louis Drapeau (Non-Executive Director)

Mr Damien McDonald (Non-Executive Director)

Professor Suzanne Crowe (Non-Executive Director)

Company Secretary

Mr Mark Licciardo of Mertons Corporate Services Pty Ltd

Registered Office

c/o Mertons Corporate Services Pty Ltd

Level 7, 330 Collins Street

Melbourne VIC 3000, Australia

Principal Place of Business

28159 Avenue Stanford, Suite 220

Valencia, CA 91355 USA

Share Register

Computershare Investor Services Pty Limited

Level 11, 172 St Georges Terrace

Perth, WA 6000 Australia

Solicitors

K&L Gates

Level 25 South Tower, 525 Collins Street

Melbourne VIC 3000, Australia

Auditor

Grant Thornton Audit Pty Ltd

Level 17, 383 Kent Street

Sydney, NSW 2000 Australia

Principal Bankers

National Australia Bank Limited

1238 Hay Street

West Perth, WA 6000 Australia

Stock Exchange

Avita Medical Limited’s ordinary shares are listed for quotation on the Australian Securities Exchange (ASX:AVH). In addition, the Company’s American Depositary Shares are listed for quotation on the Nasdaq Capital Market in the U.S. (NASDAQ: RCEL)

DIRECTORS’ REPORT

FOR THE HALF-YEAR ENDED 31 DECEMBER 2019

Your Directors submit their report for the half-year ended 31 December 2019.

DIRECTORS

The names of the Company’s Directors in office during the half-year and until the date of this report are as below. Directors were in office for the entire period.

Mr Lou Panaccio (Non-Executive Chairman)

Dr Michael Perry (Executive Director)

Mr Jeremy Curnock-Cook (Non-Executive Director)

Mr Louis Drapeau (Non-Executive Director)

Mr Damien McDonald (Non-Executive Director)

Professor Suzanne Crowe (Non-Executive Director)

REVIEW AND RESULTS OF OPERATIONS

Avita Medical Limited (“the Company”), together with our subsidiaries Avita Medical Americas, LLC, Avita Medical Europe Limited, Visiomed Group Pty Ltd, C3 Operations Pty Ltd and Infamed Pty Ltd (collectively “the Group”), is a regenerative medicine company with a technology platform designed to address unmet medical needs in patients with burns, chronic wounds, and aesthetics indications. Our patented and proprietary collection and application technology provides innovative treatment solutions derived from the regenerative properties of a patient’s own skin. Our lead product, the RECELL® System, uses a small amount of a patient’s own skin to prepare Spray-On Skin Cells at the point of care in as little as 30 minutes. This autologous suspension of skin cells is then sprayed onto the areas requiring treatment.

The RECELL System, was approved for sale in the U.S. for the treatment of acute thermal burns in patients 18 years and older by the Food and Drug Administration (FDA) in September 2018. We initiated our U.S. national market launch of the RECELL System in January 2019, although the Company did commence commercial shipments in the U.S. during the half-year ended 31 December 2018 in response to pre-launch demand from certain burn centres. During the half-year ended 31 December 2019, the RECELL System was also sold on a limited basis in certain regions of the world in which the products were approved for sale, including Australia, China and Europe.

Sale of goods of the RECELL System totalled A$9,684,214 for the half-year ended 31 December 2019, an increase of A$7,871,019 or 434% over the A$1,813,195 recognized during the same period in 2018. The increase in current-year sales occurred in the U.S. as a result of the commencement of the U.S. national market launch of the RECELL System in January 2019. U.S. sales during the six months ended 31 December 2019 totalled A$9,274,060 compared to A$1,101,991 in the prior year. Gross margin for the half-year ended 31 December 2019 was 76% compared to 69% for the same period in 2018, and management expects gross margins to improve as sales ramp up within the U.S.

Other revenue totalled A$3,845,573 for the half-year ended 31 December 2019, a decrease of A$1,267,190 or 25% over the A$5,112,763 recognized during same period in 2018. As in prior periods, the majority of other revenue consisted of funding from the Biomedical Advanced Research and Development Authority (BARDA), under the Assistant Secretary for Preparedness and Response, within the U.S. Department of Health and Human Services, under ongoing USG Contract No. HHSO100201500028C. Under the BARDA contract, income of A$3,549,020 was recognized during the half-year ended 31 December 2019 compared to income of A$5,009,137 during the same period in 2018. The decrease was the result of wind-down of certain activities associated with supporting the U.S. FDA approval of the RECELL System as well as the compassionate use and continued access programs.

DIRECTORS’ REPORT

F
OR THE HALF-YEAR ENDED 31 DECEMBER 2019

REVIEW AND RESULTS OF OPERATIONS (CONTINUED)

As the result of investments in commercial, manufacturing, research and development and related initiatives, operating costs increased during the half-year ended 31 December 2019. Sales and marketing expenses totalled A$10,338,441, an increase of A$3,407,200 or 49% over the A$6,931,241 recognized during same period in 2018. The increase was primarily attributed to the recruitment, hiring and training of U.S. sales force and the associated product launch, sales and marketing materials and activities. Product development expenses totalled A$7,039,601 a decrease of A$40,441 or 1% over the A$7,080,042 recognized during same period in 2018. Corporate and administrative expenses totalled A$9,298,049 an increase of A$2,432,799 or 35% over the A$6,865,250 recognized during same period in 2018. The increase was primarily due to higher legal and staffing costs. Total operating costs for the half-year ended 31 December 2019 totalled A$32,184,528, a A$10,249,494 or 47% increase over the A$21,935,034 recognized during same period in the prior year and were in line with management expectations.

Net comprehensive loss after tax for the half-year ended 31 December 2019 was A$23,755,659, a $9,550,412 or 67% increase compared to A$14,205,247 incurred in the same period in the prior half-year. The increase in net loss was driven by the higher operating costs described above, partially offset by the higher sale of goods during the six months. As a result of the national launch of the RECELL System in the U.S. in January 2019, and the expansion of research and development, operating costs will increase in future periods. These expenses are expected to be partially offset by increased commercial sales of goods as well as income under the BARDA contract.

During the half year ended 31 December 2019, net cash provided by the issuance of shares under institutional placements of shares to Australian and international institutional and sophisticated investors was $111,938,578. Cash and cash equivalents held at 31 December 2019 was $124,658,116.

SUBSEQUENT EVENTS

From the end of the reporting period to the date of this report, no matter or circumstance has arisen which has significantly affected, or may significantly affect, the operations of the Group, the results of those operations or the state of affairs of the Group.

DIRECTORS’ REPORT

FOR THE HALF-YEAR ENDED 31 DECEMBER 2019

AUDITOR’S INDEPENDENCE DECLARATION

A copy of the auditor’s independence declaration as required under s307C of the Corporations Act 2001 is included on the following page.

Signed in accordance with a resolution of the Directors.

Contacts

U.S. Media:
Sam Brown, Inc.
Christy Curran

Phone +1 615 414 8668

christycurran@sambrown.com

O.U.S. Media:
Monsoon Communications
Rudi Michelson

Phone +61 (0)3 9620 3333

Mobile +61 (0)411 402 737

rudim@monsoon.com.au

Investors:
Westwicke Partners
Caroline Corner

Phone +1 415 202 5678

caroline.corner@westwicke.com

AVITA Medical Ltd
David McIntyre

Chief Financial Officer

Phone +1 661 367 9178

dmcintyre@avitamedical.com

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