AVITA Medical Inc. Q1 2023 Earnings Call
Speaker 1: with Salesforce Pace for itself quickly.
Speaker 1: Given this update, we maintain our expectation of a full commercial launch of soft tissue on July 1, 2023 assuming June approval. For the Vidal IGO indication, we are in a process of pursuing reimbursement to allow free in-office use of resale. As mentioned on our last call, it is at our goal to secure reimbursement by 2025. During the interim period, we will be implementing cash pay for Vidal IGO patients and physician sponsor studies to build our podium presence. Now an update on our automation device. Last month, we confirmed that this device now branded as resell go, maintains the FDA breakthrough device designation for the treatment of acute wounds. Resel go represents an evolution of the existing resale technology and is designed to automate the process of cell disaggregation. Automating the cell disaggregation process will substantially reduce training requirements, allowing us to leverage selling time more effectively. Additionally, it will ease the burden of additional training required by physicians and operating room staff to manually perform disaggregation, leading to increased adoption.
Speaker 1: We still go is a critical component of our platform and we believe it will greatly accelerate our growth We plan to submit our PMA supplement application to the FDA by June 30th of this year
Speaker 1: Under the Breakthrough Device Program, the submission will receive a Prioritized Interactive Review within the expected January 24 approval.
Speaker 2: in smaller burn procedures, along with a commencement of commercial sales with our partner Cosmetech in Japan.
Speaker 2: Total revenue, which includes water revenue, increased by 40% to 10.6 million, compared to 7.5 million in the same year in 2022.
Speaker 2: The body income decreased as reimbursed clinical trial expenditures decreased in the current period. As felt tissue and pediatric trial prisons, larger completed fall visits in 2022.
Speaker 2: gross profit margin increased by 8% to 84% compared to 76% in the same period 2022.
Speaker 2: The increase in growth profit margin is largely driven by increased production and low up to 0 a short period of planning for?ossip.
Speaker 2: Total operating expenses for the quarter increased by 22% to 19.4 million compared to 16 million in the same period in 2022.
Speaker 2: The increase in operating expenses hit a triveled to increase research involvement, salaries and benefits.
Speaker 2: Sevens costs and telling scriptures.
Speaker 2: Higher research and development expenses will result of ongoing development of the research of the device for the Plan FTA submission in June 2023.
Speaker 2: Additionally, we had higher costs associated with the deployment of a team of medical science leasons in anticipation of our soft tissue launched in July of 2023.
Speaker 2: As Jim noted, the expense of our Salesforce team will result in additional operating expenses that will peak as a percentage of revenue in 2-3 2023. In the quarter, we incurred seven's costs related to two former executive officers. Lastly, higher selling costs are attributable to commissions driven by the increase in our revenue. Net loss decreased by 3% to 9.2 million or 37 cents per share compared to net loss of 2.5 million.
Speaker 2: or 38 cents per share in the same period in 2022. Adjusted EBITDA, the loss stayed flat at $6.4 million.
Speaker 2: A table reconciling non- GAAP measures is included in today's press release for reference.
Speaker 2: Lastly, I wanted to provide you with an update in regards to our former commercial bank, Silicon Valley Bank.
Speaker 2: We did not encounter any loss of cash or assets as a result of the bank failure.
Speaker 3: With that, we thank you for your time, and now we'll turn the call back to the operator for your questions. And thank you. As a reminder, last question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by, we'll compile the Q&A roster. We do ask that you limit yourself to one question and one follow-up. Again, that's one question and one follow-up. And one moment for our first question.
Speaker 3: And our first question comes from Joshua Jennings from TD Cowan. Your line is now open.
Speaker 4: Hi, thank you. Thanks, Jim and Shawn. Congrats on the strong start to the year. I was notably impressed by the rapid hiring process and filling all those positions. Those reps typically have their finger on the pulse of opportunity. It's like a validating signal. Can you just talk about-
Speaker 4: I think we talked about it on the last earnings call, but the quality of the reps, where they're coming from, for one. Two, do you think it's a validating signal to fill the positions so quickly? And then three, just in terms of guidance and the potential, I'm going to opening up of the 30 percent of the burn market that you don't have access to, where your reps are currently situated.
Speaker 4: to just pull anything forward in terms of that effort in 23, should we think about that more impactful in 2024. And I have one follow up.
Speaker 1: Thanks, Josh. First of all, to your first question in terms of the quality of reps, we actually had a very enthusiastic response from the market. And the typical profile came from some other wound and surgical.
Speaker 1: technology companies and we had multiple candidates for every single role so we we had we had a lot of work to do in a very compact time so it was really exciting to
Speaker 1: It was very validating. With respect to the Burns market and getting access to it, 30%, I think it's a little bit early for us to project in terms of a tangible way, although we will. We have organized our team such that they've started to make those calls now. As we have put them, since we hired them a bit ahead of schedule, we've been able to train them and then they have been able to start making those calls at those level 1 trauma centers.
Speaker 4: Thanks for that. Just on Resell GO, it seems like that program has been fully, almost fully derisked. Nothing has ever fully derisked the FDA. Can you just talk about your confidence in terms of the upcoming filing and the timeline for one? And two, just remind us of their gross margin benefit or pricing premium associated with Resell GO. Thanks again for taking all the questions. Yeah, it's a really good set of questions. So we're inside six weeks from filing approximately.
Speaker 1: So we are really in the final validation testing phase. There is a room somewhere that I will not disclose, filled with resell go instruments running cycles, so that we can validate the cycle time. In terms of how many uses per instrument we'll be able to expect. With respect to the financial way to think about this, I'll give you a...
Speaker 1: But the instrument itself that $3,500 we project will last approximately 300 use uses. And if you just do a little quick math, you would come to the conclusion that that's about $15 per use on a $6,500 product with an 83% gross profit. So the next thing you would come to the conclusion is that each time we place one, its lifetime revenue is approximately $2 million. So the name of the game here is to...
Speaker 1: Make reselbe easy to use for customers
Speaker 1: to focus on adoption for more and more patients.
Speaker 1: Last year's gross profit, approximately 83%, half of that gross profit, so our half of our cost is fixed overhead. So over the next year or more, we will double volume. And when we do that, our cost will fall 25%. So 83% will go to something materially higher. So we see we still go as the enabler of adoption, the enabler of greater profitability.
Speaker 1: and the enabler of helping more patients get treated with Resell and live their lives in a more productive way. That's great. Thanks for all the details, Jim. Thank you, Jim.
Speaker 3: And thank you. And one moment for our next question.
Speaker 4: Hey, this is Phil on format. Congrats on the quarter and thanks for taking our questions. Just for starters, can you touch a bit on how Japan on how much contribution from Japan is based into guidance here? And I understand this might be a bit further off, but any update on getting the process started for label expansion into soft tissue and vitiligo there? Great set of questions. So we haven't carved out specific guidance with Japan yet. That said, you can see that we're selling to them in consecutive quarters now.
Speaker 1: We are going through a process with them where we're going to go shading the fiscal year for most Japanese businesses is April 1, April 1.
Speaker 1: And the original contract, which was negotiated years ago.
Speaker 1: was rather loosely framed in terms of a lot of the performance parameters and we're in the process of working with them to create our dependable forward business model where expressing guidance will be
Speaker 1: more transparent to us and therefore allow us to provide that to you. We do only have burns now.
Speaker 1: to us and therefore allow us to provide that to you. We do only have burns now. We have...
Speaker 1: dates when we will be delivering to them the clinical modules from S soft tissue repair and from Vidal IGO. And the only thing that you can almost predict the timing because we wanted to have the FDA...
Speaker 1: Scrub first and the bimo-audis that we experienced for the leido.
Speaker 1: already completed so that when we sent them the data it would be basically adjudicated data by FDA. So there is a schedule and underway to do that within the next 30 to 60 days.
Speaker 1: that will be their projected filing date. So when we have that, which will certainly be...
Speaker 4: sometime in third quarter, we'll be providing that guidance. Super helpful, thanks so much. And just a two-parter here to end things on Biddle Igoe. First, what are your expectations for the cash pay market post June approval, and then the cash pay market post resell go approval in January 2024? And then the second part of that is, can you go into more detail on the path to coverage when you can initiate the conversation with CMS? Thank you so much. Yeah, so in both cases, I think the cash expectations
Speaker 1: post-approval and post-resale go are actually going to be quite modest until we have reimbursement. Most enough that we won't provide guidance to them.
Speaker 1: The reason is that what we're preparing for is reimbursement. And reimbursement has two phases associated with it. One is through the AMA and through CMS and the other is through private payers.
Speaker 1: So just to highlight for you about that process, give you an expectation why we're projecting 2025 as when we will have coverage.
Speaker 1: and payment for the LIGO treatment in office is we're faced with a couple different things. So with respect to AMACPT process, we're bound by confidentiality to speak about how that process is going because that is part of their requirement, not ours, actually, but it's theirs. And of course it's in our interest to respect that.
Speaker 1: That said, getting CMS payment.
Speaker 1: That said, getting CMS payment, although important.
Speaker 1: the beneficiary who will be treated on average with vitiligo will be about a 40 year old person. So it is the coverage policy of private payers that will matter the most and we are commencing a post-market study that we have planned.
Speaker 1: that we think we can complete and have ready for that timeframe that will help private payers understand the health benefits of these patients who are suffering from the disfigurement, particularly the perceived disfigurement, the experience with Bidoligo and the associate health impact from that because that quality of life is really where the benefits lie medically and from a cost point of view. So Bidoligo has got some steps to go through.
Speaker 1: But we're on the track because our FDA approval is the, it works and it's safe. That said, we did use the patient as their same, as the control. And so that's why we're.
Speaker 1: we're on the track because our FDA approval is the it works and it's safe. That said, we did use the patient as the control. And so that's why we're implementing the.
Speaker 1: post-market study with Vidaligo where it will not be.
Speaker 1: the patient being treated partially on part of their body with resell and another part with
Speaker 1: the patient being treated partially on part of their body with reshell and another part with the control.
Speaker 5: Is that helpful?
Speaker 4: Yep, super helpful. Thanks a lot, Jim.
Speaker 3: And thank you. And if you would like to ask a question that is star 11, again, if you would like to ask a question that is star 11. One moment for our next question. And our next question comes from Ryan Zimmerman from BTIG. Your line is now open.
Speaker 4: Hey, Jim, Sean, Jessica, thanks for taking the questions. Do you hear me okay?
Speaker 6: Jim, Sean, Jessica, thanks for taking the questions. Do you hear me okay? Very well Ryan, how are you?
Speaker 6: Good, good. I hope you guys are doing well as well. It's not a follow up on a couple of questions here. So, just thinking about kind of the near term and the burn market and soft tissue. My first question is just as we think about you moving in the soft tissue trauma, of the burning surgeons trained today that are using resale, do you think it's the same for the...
Speaker 1: soft tissue, revenue, as we move, think about the back after the year. Okay, let me give that a shot because I'm going to try to break up your question in pieces so I get it more clearly.
Speaker 1: Burn surgeons.
Speaker 1: who also function a good part of their time handling other trauma cases and
Speaker 1: There are in those same centers that are level 1 trauma.
Speaker 1: There are in those same centers that are level one trauma, trauma surgeons who do not treat burns.
Speaker 1: in the ER and places where these patients come who are accustomed to using resale and will be very helpful in that case. I think that's one of your questions, is that right? That's exactly right Jim. That's very helpful. Yeah. Okay and of course when we go to level one trauma
Speaker 1: We'll be going to hospitals where the trauma surgeon is not usually an exclusive burn surgeon, but treats them often, but generally smaller TBSA.
Speaker 1: injuries. And those physicians will need to be trained and we are very ramped up to provide that training. That's one of the certification processes of our new more than double field sales organizations that they are able to support and train a physician.
Speaker 1: and support a case in real time. So they're actually doing that. We have a buddy program as part of our training where the new reps will travel parts of the week with one of our more veteran team and get the opportunity to.
Speaker 1: both be taught, trained, and coached, and actually support the case.
Speaker 1: both be taught, trained, and coached, and actually support a case in one of the accounts where we already are presently.
Speaker 1: performing resale cases. So we value the support that our...
Speaker 1: field team provides. So the standards quite high. And I recently did a survey on another purpose. And I was only 10, but they were blind at interviews. They didn't know it was us. And by far and away, our field sales team got such high marks from any other company that the Burns Surgeons interact with. So that standard is one we intend to keep.
Speaker 6: That's great to hear and kind of dovetails into my next question.
Speaker 6: of the burns treated today, what's your sense of the composition between inpatient versus outpatient burn, if you're comfortable sharing and just how you think about the guidance, either for second quarter for the year, given the variability of the burn market and a kind of, you know.
Speaker 6: as a result of just trying to understand the stability and what the state of the burn market is, in your view today.
Speaker 1: just because it can change so rapidly. Well, let me see. First of all, a couple different questions. Let me break them apart again. I want to make sure I answer them. In fact, we monitor.
Speaker 1: the admins of burns nationally. We buy the...
Speaker 1: quite consistent, notwithstanding our increasing sales line and we're not adding accounts at this moment, right? We have always been targeted just at the Burn Centers.
Speaker 1: They seem to be quite consistent. There's no evidence of seasonality and there's no significant increase nor significant decrease. It's quite a steady market.
Speaker 1: So I think looking forward, and it will be a little bit harder for us to capture precisely, as we start sewing in a level one trauma center where we're getting resale used in many applications, one of which will be burns.
Speaker 1: that we will get an increasing amount of burns opportunity.
Speaker 6: then we have access to today. And I'm trying to think about whether I got your answer fully or not. So feel free to add. Yeah, you hit. No, that's great. I apologize for the multi-part questions this evening. But the other question was just kind of the composition of the business today between in person and I'll pass them.
Speaker 6: And maybe how that's kind of ebbing and flowing as you open up the market. Yeah, you asked, actually, it's a very interesting question. We, of course, have the transitional pass-through code for use in outpatient. But in fact, the more severe burns that can apply to kids with a disability, more kissing is easier for kids with psychos TW4. So we've Nonetheless, overall, quite a bit more if not most of our lif Fonts and
Speaker 1: that go to the burn centers.
Speaker 1: that go to the burn centers do not
Speaker 1: get much of the outpatient activity. There isn't a big signa- I wouldn't call it a material part of our business today. That said, those smaller burns-
Speaker 1: that are in the Level 1 trauma centers, we fully expect that.
Speaker 1: outpatient activities have increased significantly because that is, in essence, you get a really bad burn, you get a burn center, and if you get a less, you know, a second degree burn, perhaps you end up at level one trauma center. So I think we'll see that the outpatient points
Speaker 1: for four burns increase, but of course that's also where a lot of the soft tissue cases will go too.
Speaker 3: Yeah, that's very helpful, Jeremy. And pretty good. It'll be a little bit difficult to count for that reason. You know, I'm just... Yeah. Thank you. Most welcome. And thank you. And I am showing no further questions. This concludes today's conference call. Thank you for participating and you may now disconnect.