AVITA Medical(US:RCEL)2023-02-22 16:00Part I Business AVITA Medical is a regenerative medicine company focused on skin restoration through its proprietary RECELL® System - AVITA Medical is a regenerative medicine company commercializing the RECELL® System, a technology that creates an autologous skin cell suspension (Spray-On Skin™ Cells) to regenerate skin17 - The company's core strategy includes increasing penetration in the U.S. burns market, commercializing RECELL for soft tissue repair and vitiligo following anticipated FDA approvals, and expanding internationally, particularly in Japan30 - In December 2022, the company submitted a Premarket Approval (PMA) supplement application to the FDA for the use of RECELL in soft tissue repair and a separate PMA application for its use in treating vitiligo5159 RECELL System Clinical Benefits | Indication | Key Benefit | | :--- | :--- | | 2nd-Degree Burns | Used 97.5% less donor skin compared to standard care | | 3rd-Degree Burns | Used 32% less donor skin when combined with autograft | | Pediatric Cases | 56% fewer mean surgical procedures compared to NBR | Estimated U.S. Addressable Markets | Indication | Estimated Annual Market Size | | :--- | :--- | | Burns | ~35,000 patients annually | | Soft Tissue Repair | ~$1 billion | | Vitiligo | ~$5 billion | - The company has a contract with BARDA valued at approximately $53.3 million to support the development of the RECELL System and for emergency preparedness8687 - The company's core U.S. patent (No. 9,029,140) covering the RECELL System is in force until February 6, 2024, with a Patent Term Extension (PTE) application filed to extend it to April 9, 20247678 Risk Factors The company faces significant financial, operational, and intellectual property risks, including a history of losses and dependency on regulatory approvals - The company has a history of significant losses, reporting a net loss of $26.7 million for the year ended December 31, 2022, and has an accumulated deficit of $262.6 million108 - Future growth is highly dependent on obtaining additional FDA approvals for the RECELL System in new indications, such as soft tissue repair and vitiligo110 - The company faces manufacturing risks at its Ventura, California facility and relies on single-source suppliers for some components, making it vulnerable to supply chain disruptions127131132 - A core U.S. patent for the RECELL System will expire in February 2024, which could allow competitors to introduce similar products and impair the company's competitive position150 - The business is subject to risks from unfavorable pricing regulations and third-party reimbursement policies from government or private insurers121162 - Macroeconomic risks, including the ongoing effects of the COVID-19 pandemic, supply chain disruptions, inflation, and potential economic recession, could adversely affect customer demand and operating results165171 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments191 Properties AVITA Medical leases its corporate office and production plant in California and does not own any real property - The company's principal corporate office is a 17,500 sq. ft. leased facility in Valencia, California, with the lease expiring on October 31, 2026191 - The production plant is a 27,480 sq. ft. leased facility in Ventura, California, with a lease through September 30, 2024191 Legal Proceedings The company is not currently a party to any material pending legal proceedings - As of the report date, the company is not a party to any material pending legal proceedings192 Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable193 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock and CDIs trade on Nasdaq and ASX respectively, and it does not anticipate paying cash dividends - The company's common stock is listed on the Nasdaq Capital Market (ticker: RCEL) and its CDIs are quoted on the ASX (ticker: AVH)196 - As of January 31, 2023, the company had approximately 23,190 unique stockholders of record197 - The company has never paid cash dividends and does not intend to in the foreseeable future, planning to retain earnings for business use198 Management's Discussion and Analysis of Financial Condition and Results of Operations Total revenue grew 4% to $34.4 million in 2022, driven by commercial sales, while the net loss widened slightly due to increased operating expenses Results of Operations (Year-Ended Dec 31) | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $34.4M | $33.0M | 4% | | Commercial Revenues | $34.0M | $25.1M | 36% | | Gross Profit | $28.4M | $26.9M | 5% | | Gross Margin | 82% | 82% | 0% | | Total Operating Expenses | $59.1M | $53.6M | 10% | | Operating Loss | ($27.5M) | ($25.1M) | (10)% | | Net Loss | ($26.7M) | ($25.1M) | (6)% | - The 35% increase in sales and marketing expenses in 2022 was driven by higher selling costs, pre-commercialization activities for planned new launches, and an increase in field personnel212 - Research and development expenses decreased by 12% in 2022 as pivotal trials moved into less costly follow-up phases215 Liquidity Position as of Dec 31, 2022 | Item | Amount (in millions) | | :--- | :--- | | Cash and cash equivalents | $18.2 | | Marketable securities | $68.1 | - Net cash used in operating activities was $19.1 million for the year ended December 31, 2022, an increase from $18.0 million in the prior year233 - Critical accounting policies include revenue recognition under ASC 606, accounting for government grants from BARDA, and share-based compensation243254257 Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, AVITA Medical is not required to provide this information - The company is not required to provide this information as it qualifies as a smaller reporting company265 Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements for fiscal year 2022 and prior periods - The financial statements were audited by Grant Thornton LLP, which issued an unqualified opinion396 Key Financial Statement Data (as of Dec 31, 2022) | Metric | Amount (in thousands) | | :--- | :--- | | Balance Sheet | | | Total Assets | $98,264 | | Total Liabilities | $12,967 | | Total Shareholders' Equity | $84,740 | | Statement of Operations (FY 2022) | | | Revenues | $34,421 | | Net Loss | ($26,665) | | Statement of Cash Flows (FY 2022) | | | Net Cash Used in Operations | ($19,090) | Controls and Procedures Management concluded that the company's disclosure controls, procedures, and internal controls over financial reporting were effective as of year-end 2022 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022268 - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022, based on the COSO framework (2013)269 - No material changes were made to the company's internal control over financial reporting during the three months ended December 31, 2022271 Part III Directors, Executive Officers and Corporate Governance The company details its board of directors and executive team, committee structures, and compliance with gender diversity targets Board of Directors | Name | Position | | :--- | :--- | | Lou Panaccio | Chairman of the Board | | Jeremy Curnock Cook | Non-Executive Director | | Professor Suzanne Crowe | Non-Executive Director | | Jan Stern Reed | Non-Executive Director | | James Corbett | Executive Director and CEO | Executive Officers | Name | Position | | :--- | :--- | | James Corbett | Chief Executive Officer | | Sean Ekins | Interim Chief Financial Officer | | Erin Liberto | Chief Commercial Officer | | Andrew Quick | Chief Technology Officer | | Donna Shiroma | General Counsel | - The company has achieved its gender diversity target, with the Board of Directors being 40% female and 60% male293 - The Board has three standing committees: Audit, Compensation, and Nominating and Corporate Governance, each composed of independent directors304305 Executive Compensation Executive compensation comprises base salary, performance bonuses, and long-term equity, with CEO James Corbett's 2022 total compensation at $1.5 million 2022 Summary Compensation for Key NEOs | Name and Position | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | | James Corbett, CEO | 156,992 | 100,726 | - | 1,232,747 | 1,495,584 | | Michael Holder, CFO | 430,128 | 184,900 | 178,672 | 82,524 | 925,212 | | Erin Liberto, CCO | 421,999 | 180,812 | 178,672 | 82,524 | 906,293 | | Michael Perry, Former CEO | 461,512 | - | - | - | 804,498 | - Employment contracts for executive officers provide for severance payments, typically 9-12 months of base salary and a pro-rated target bonus, upon involuntary termination326335 2022 Non-Employee Director Compensation | Name | Fees in Cash ($) | Stock Awards ($) | Option Awards ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | L Panaccio, Chairman | 126,250 | 87,494 | 31,248 | 244,992 | | J Curnock Cook | 90,833 | 87,494 | 31,248 | 209,575 | | S Crowe | 95,000 | 87,494 | 31,248 | 213,742 | | J Reed | 92,500 | 87,494 | 31,248 | 211,242 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters No beneficial owners hold over 5% of common stock, while all executive officers and directors as a group own 4.21% - There are no known beneficial owners of more than 5% of the company's common stock as of January 31, 2023347 Beneficial Ownership of Management (as of Jan 31, 2023) | Holder | Percentage of Class | | :--- | :--- | | Michael Perry (Former CEO) | 1.01% | | All executive officers and directors as a group (13 persons) | 4.21% | - As of January 31, 2023, the company had 25,296,086 shares of common stock outstanding, with a significant portion held as CDIs on the ASX356 Certain Relationships and Related Party Transactions, and Director Independence The company reports no material related party transactions and confirms the independence of all board members except for the CEO - The company has not participated in any related party transaction involving more than $120,000 since January 1, 2021375 - All members of the Board of Directors are considered independent, except for James Corbett, who serves as the company's Chief Executive Officer376 Principal Accounting Fees and Services Total fees billed by auditor Grant Thornton LLP for 2022 were $740,013, covering audit and tax services Principal Accountant Fees (Year-Ended Dec 31, 2022) | Service | Fees ($) | | :--- | :--- | | Audit Fees | 652,732 | | Tax Fees | 87,281 | | Total Fees | 740,013 | - All audit and non-audit services provided by the independent registered public accounting firm were pre-approved by the Audit Committee380 Part IV Exhibits, Financial Statement Schedules This section lists all documents filed with the report, including financial statements, material contracts, and corporate governance documents - This item provides an index of all financial statements, schedules, and exhibits filed with the Form 10-K382 - Exhibits include corporate governance documents, material contracts (including the BARDA agreement), lease agreements, and executive compensation plans and agreements384385 Form 10-K Summary This section is noted as 'None', indicating no summary is provided - No Form 10-K summary is provided387