Thank you very much for joining us, and I'm gonna start off with the normal research disclosure. So you can see it on the Morgan Stanley website, and that is www.morganstanley.com/researchdisclosures. If you've any questions at all, please reach out to the Morgan Stanley sales rep. With that out of the way, I wanna welcome Jim Corbett from AVITA, and, you know, welcome you to the conference today. Excited to hear more about the story and the progress that you've made and how you see the opportunities going. But I guess maybe I'll take a step back, and you're nearing your one-year anniversary with the company. So, you know, what made you attracted to join and lead management there?
Well, you know, it's actually a great question. September 29th, so it's almost here. But in fact, I was on the board for the year previous, and I had a chance to really get to know the technology and the company, and what I saw was something really rather extraordinary. And it was, you know, this whole concept of how wound healing happens, and AVITA invented this technology called RECELL, which commonly known as spray-on skin.
What we do, if you think skin grafts, you know, we disaggregate the cells, we suspend them in an enzyme, we prepare the wound, and we spray them on. It's amazing. It has, you know, less tissue that's required for the graft. It heals more evenly, less scarring and the patients get out of the hospital 30% faster.
Wow!
This is like one of those rare new technologies-
Yeah
... that comes along that actually all the constituents benefit from. So really, I was so excited to have the opportunity and to take that opportunity.
Awesome. You know, you had an extraordinary June with two FDA approvals. Can you tell us a little bit about these approvals, and what do they mean for your business over the medium and long term?
Sure. And previously, we had done a PMA for use of RECELL in burns, and of course, that's really the result of starting at the worst possible wound. We're really a wound care business. Burns is our first indication. But it has a market opportunity of about 35,000 cases a year in burn centers, which are 145 hospitals. The approval we got on June 7th is for full-thickness skin defects.
A nd it is an extraordinarily broad label. It increases those 35,000 to something in order of 321,000. So the market opportunity for RECELL really expanded, and the place where those grafts occur are in level one, two, and three trauma centers. So that expansion of our TAM, and we have reimbursement in the hospital through a DRG and through a transitional pass-through code, it really supercharged the company's ability to grow. The second approval is for the treatment of vitiligo which is actually not a wound treatment, although you create one to use it. You do a dermabrasion. You're essentially doing a pigment transplant.
Yeah.
Same exact procedure. You take a biopsy, disaggregate it, but what you're spraying on that dermabrasion are melanocytes. Now, vitiligo is a different case because the study we did was for essentially safety and efficacy. And what the payers need is the, also the benefit, the quality of life benefit. And vitiligo, it's not. It doesn't kill you. It's not infectious, but it really contributes to a dysphoria that of mental health problems of disfigurement. So we are running a post-market study for that technology for up to 100 patients to prove that quality of life. So it's probably a 25 launch for us.
In the meantime, we've got everything we can imagine to grow the company with these, these two. We also, just for whatever it matters in June, submitted under a Breakthrough Device Designation, the automation program for disaggregating those cells with automated, with an automated device called RECELL GO. We've submitted that June thirtieth. June was a really big month.
Really big month. And I guess as you reflect upon your success within burn, kind of as where you guys started, what are the key reasons why you've had so much success with that, and how does that kind of translate as you think about this expansion that you've, you know, you have underway and are starting on that journey?
Well, you know, first and foremost, what we did is we invested in the underlying clinical research. Part of that is the culture of the company. We sell using science. We sell using clinical literature that has been developed by, with RECELL. We sell with case studies. And so one of the reasons I think that we got the adoption that we have, and I think we are somewhere in the order of 20%-25% of burn cases in burn centers today, is that consultative approach added credibility to what we're doing. We helped physicians think about how to treat their patients differently.
Yeah.
When you translate that to full thickness, we have that same philosophy of bringing that consultative approach to this really fabulous, you know, spray on skin. It, it gets people's attention-
Yeah
... all the time.
Yeah. And, I mean, there's a lot of trust that you have, right? With the physicians themselves, and your sales reps are there, kind of, side by side, shoulder by shoulder. So how do you think about expanding your sales rep force over time, and how do you see their productivity evolving?
Well, it's an important thought. So we expanded our sales force. Our field team was 30 when we exited Q1, and my intent and what we did, we expanded it to 70 during Q2, ahead of approval. Over time, it's essential that you keep. We're going through a very high growth phase.
Yep.
Our last three—what we ended last year to, you know, 34% over prior year, and then 40% up in Q1, and 42% in Q3, Q2, and we're guiding to 50% in Q3. So we're, we're expanding.
Right.
Keeping that sales force with small sales territories with, in both geographically and by revenue, with incentive focused on growth that is an essential part of keeping that growth engine going.
Yep.
They have to meet our standards on the clinical selling.
Right.
So I expect we'll expand again next year, and as we grow and sales forces, the sales force average reaches a certain level.
Gotcha. Okay. I mean, you touched on this a little bit, you know, over the next 12-18 months, how do you expect that growth trajectory to evolve?
Well, let me say it this way: We haven't given guidance for 24-
Yeah.
But I just gave you the 40, 42, the 50.
Yeah.
Our implied guidance for Q4 is an exit growth rate of about 86% over prior year. I think we will grow well in excess of 50% next year without giving guidance.
Yep.
So that momentum will carry us through because that will fuel another sales force expansion. We have additional products in our portfolio that we're developing that will, again, fuel that same growth.
Okay, great. You know, last quarter, your growth margins were 81%. You gave guidance of 83%-85%. Can you unpack a little bit of, you know, how Q2 growth margins shook out, and where are the areas you can see that line of sight to the expansion?
Yeah, it's a great question. So what happened last quarter is something rather simple. We were qualifying a number of our components for second source to protect our supply chain. The consequence of that is we had lower finished good production during the month, during the quarter. Now, to unpack our cost of goods at 5,000 units a year, which was last year. Half of our cost is fixed. So that means when we double, we cut that in half, we lower our cost by 25%. When we double again, it grows, it cuts it by another 12.5%.
Yep.
So we are right now in the place where we are very onfident that we're going to continue our growing and absorb that fixed overhead and continue improving our gross margin. Getting us up into the upper 80s is where we expect to be next year.
Got it. How do you think a bout the product launches in terms of any investments you need to make on the manufacturing, on the supply chain side? Are you, are you kind of ready to go on that front?
Well, we are ready to go. One of the things we've done is we looked at our manufacturing operations, and we have five different biologic tests that occur during the production process.
Yeah.
Moving it, not a really great idea.
Right.
We had a couple of events happen in the last year that freed up space. The consequence of that is we're redesigning our physical layout of our manufacturing in order to accommodate 10x our volume of next year.
Yeah.
So we think 100,000+ will allow us to stay in that facility for a long time.
Okay, great. Look, you, as you mentioned, you gave guidance, you raised it in Q2. What led you to do that raise?
Well, two things. First of all, when we went for the expansion, we wanted to have it all in place by July 1. In fact, we were fully in place by May, and we therefore reconfigured ahead of schedule and ahead of the approval. So the sales force was fully in place-
Yeah
Fully trained. Then the indication came in with, from the FDA on schedule, June 7th, b roader than we had anticipated by a significant amount, by about 3x.
Right.
So with that combination of things w e felt very confident and comfortable moving up our guidance about 4%.
Okay, great.
There you go.
You know, you obviously had a lot of exciting new products that were approved. I guess if you could give us a little bit of how should we think about the evolution of the company, you know, future product indications, product portfolio overall, where do you wanna go and take it? A bit of guidance around that would be helpful.
You know, there's probably three big things, and in the near term, we've been guiding that we're going to roll out our international expansion strategy i n the Q3 call, which will be in November. So that is a growth driver that's not in anybody's accounted for, to this moment-
Right
... 'cause we haven't given them information to do so.
Yep.
That is one. Number two is how we prepare and ultimately launch for vitiligo . Right now, for the next five years, we, so to speak, are not dependent on the revenue of it-
Right
... and yet the market opportunity of it is bigger than our current TAM. So it's a big opportunity. And the third is products commonly known as scaffolds, extracellular matrix, dressings. They all are intended to perform the purpose of advanced granulation for cells prior to applying RECELL on a skin graft. We're investing in some of those programs, and we expect that, be able to bring them to market in the coming year. Those will bring us into a market that all of our customers need all the patients we serve need.
Yep.
And we're gonna do it with a product that we think will fulfill the needs even better. So a number of growth drivers-
Yeah
...still ahead for us.
Okay, great. I'd love to unpack one of them. You mentioned a little bit about international expansion. You have your partner in Japan. You know, curious how you guys are thinking about blocking and tackling Japan expansion or any international, kind of, broadly.
Yeah. Let's talk about international broadly. I think that's a-
Yeah.
There's a couple of filters. The filters for RECELL is that, first and foremost, you have to go where there's adequate population an adequate healthcare system, and the ability to pay. This is not a product you can just basically ship out, and people will learn to use it and use it properly and make it worthwhile for patients. It just requires more than that. When we apply those filters, that puts us on focus for Australia, Japan and a good part of Western Europe. And so it, that's kind of the initial layer of the strategy.
Yep.
Given all that we have, momentum-wise, and all that we have in our pipeline, because remember, RECELL GO comes in January the automation.
Yeah.
And so that's gonna transform our business, but it also enables the international business. Today, 70% of our selling time is training.
Yes.
We have to do it. You know, hospital staffs, they turn over, different shifts.
Right.
It's a constant event. A physician without having the... whoever supporting him or her-
Yeah
Have training, could direct them with RECELL GO by himself or herself.
Right.
Like, it's simple. When we go international, either we or our partner would have to provide that support.
Okay.
So we are timing international to coincide with we are MDR compliant. So by the time RECELL GO is ready for international, it'll be midyear.
Right.
Midyear, and so we'll be expanding into those Western European markets and Australia with RECELL GO during that time.
Okay, great. And, I mean, give us a little bit more on, on RECELL GO. You know, how much time does it take? It sounds like it's super automated, so even somebody without any healthcare training, such as myself, could use it, hopefully.
For sure, you could do it.
Okay, great.
For sure. For sure. So let's talk about the what is and what, you know-
Yeah
... present state. Present state is the biopsy is taken.
Yep.
And then the physician spends about 30 minutes scraping the skin and disaggregating the cells into a capture plate. Once you capture it, you mix it into the buffering enzyme, where it is then loaded into the spray-on applicator. That scraping time is not the highest value of that physician.
Right.
That these patients are ill. They've got things. The physician can add so much more value-
Yeah
...for that. So with RECELL GO, what happens is there's a cassette that will come as the disposable. It has reservoirs. You'll pour in the enzyme, you open the little lid, the same biopsy is taken, physician puts it in, they put it in the RECELL GO-
Yeah
They close the door, and they press go. Yeah, honestly.
How long does the machine need to?
31 minutes.
31 minutes. Okay. So that's, I mean-
Imagine being in a burn operating room.
Yeah.
Okay? In a burn operating room, whether there's... You might be doing two or three RECELL procedures-
Right
Because the patient has 40% total body surface area.
Right.
What temperature do you guess it is in the operating room?
Really hot, probably.
It's really hot.
Really hot.
They lose their ability to regulate-
Yeah
-their body.
Right.
They'll get cold. It's 98.6 or better.
Mm-hmm.
Instead of sequentially doing that-
Yeah
... the physician can take all three biopsies, bring in the durable device RECELL GO machine, three of them, take three, and do them all simultaneously. In the meantime, staff with the physician-
Right
can get the patient ready, and they're all ready, spray away.
Right
and greatly reduce OR time.
Yep.
This is like-
Game changing.
Totally game changing.
Yeah. No, I mean, in a time when everyone talks about workflow solutions, staffing shortages, you know, physician fatigue, et cetera, these are all huge, huge things that our overall healthcare system is facing issues around. And you found a real interesting way to solve this problem, and frankly, it keeps the patient out of the OR for a very long time, right? I mean, the procedure time has probably come down materially in the example that you just gave.
Oh, it for sure will.
Yeah.
It's it's rather exciting. You know, who really gets excited? It gets excited our customer our employees.
Yes.
When you get those two, the shareholders get happy.
Yeah.
Right. That's the way it is.
Yep. I guess, you know, if you think about your time as you're coming up on your one-year anniversary, as we mentioned, what are the parts of the story that you feel investors don't have their heads around, that you think they should really kind of think about a bit more or look to understand a bit better?
Well, actually, overall, I have high regard for investors.
Yeah.
I think they're seeing what we're doing.
Great.
What I think they see is that we're creating a very accountable message. We communicate what we're going to do, and then we do it. We're highly precise about it. This idea of we're gonna get approval in the second half and see how it goes, is translated into, we're going to get approval on June seventh. We're gonna build up the sales force beforehand, and we're gonna launch. That's a very different culture for our company to project and for our company to be.
Yep.
Shareholders and potential investors all want to gain confidence. That's something we have to earn.
Yep.
And so I think they see it. The questions I receive are insightful. The level of, and the rate of growth that we're having-
Yeah
is something they're not accustomed to.
Yep.
Three quarters is not enough. You know, 10, 12, 14, 16 quarters, that would be fine.
Right.
Then they'll believe.
Yeah.
Right? So, you know, I, I think, I think those are things that we keep our game plan keep the strategy focused on the patient-
Yep
Make sure we make a difference for our, our customer and physician. Keep delivering that high-quality interaction between our organization and the healthcare practitioner. Those are the elements that will make us a-
Right
A great company and a great investment.
Yeah. Okay, great. I think you guys are doing a great job blocking and tackling. You mentioned, you know, the employees and the positive vibes that they have and the excitement they have around the technology, so that's one part. But the other part is also making sure they have a good kind of strategy that they're following from a commercialization standpoint. So you actually increased the number of sales territories recently to kind of make it more manageable for them to go deeper within locations. How has that strategy change, or I should say, evolution, kind of panned out?
Well, so far it's panning out really quite well. We're in the early days of the launch, where you have to go through Value Analysis Committees-
Yeah
... engage physicians, start new cases and new indications in new hospitals.
Yep.
What I found particularly positive in August, which is really you've hardly had time to get through VAC. Without getting through the number of cases we did, which were double the prior month we did it in seven different indications.
Oh, wow!
Right?
Yeah.
We've been operating in one indication since the company was commercial.
Right.
Seven different indications in a month-
Yeah
...you know, what that describes is the conversations that are happening are consultative, they're clinical. T hey're scientific, and they're about the patient.
Yeah.
Those are things that make us different, and it's working.
Okay. And as you've, I mean, you've expanded your sales force, how long does it typically take for a new rep who's coming online to get fully, you know, up to speed on, within their territory that they're serving?
Well, let me come at that question a couple different ways.
Sure.
The first is, when are they ready, so to speak, to fly solo-
Yep
-support a case in the OR? We had them all certified before the end of May. The 40 additional?
Yeah.
All of them.
Okay.
Okay, so they were ready to fly alone-
Yeah
...on that time. We then have a mentor program. W here each rep is assigned an experienced mentor who travels with them, regularly-
Yeah
...to help them develop their engagement with physicians. How do you get into the clinical conversation? How do you help them solve the problems they're facing? You know, and kind of a simple one, it's so easy. You walk into the OR, you know, they have a big whiteboard and they have cases, and the sales rep should show up there, and you have to teach this sometimes.
Yeah.
You see the case and you say, "Ha, ha! That is a candidate for RECELL.
Yeah.
You have to be able to go and have that conversation.
Right.
That takes-
A little time.
... It takes a little time, but they're doing it now-
Great
Judging by August.
Okay. Well, that's, that's phenomenal. I mean, look, I think part of it is having a great technology and also having that reputation within the marketplace that they can then, you know, utilize to their benefit and go off and have these conversations with folks. So it's all a bit of an ecosystem that you're, that you're building up. And now with, you know, the new indications, and the new approvals that you have, that really does create for a lot of positive momentum. I guess, you know, if there is anything that you'd like to leave us in terms of messaging, things to focus on as we continue to track the progress of the story, you know, what are the, the few takeaways?
I think the takeaways is what I think the outside world is seeing. They're seeing a transformation of culture. That translates into really execution.
Yeah.
You know, our culture is one of accountability. It's what we care about. No one ever says it. It's a joke.
Yeah.
If somebody says it's in June, they know that means June first.
Right.
Right? And that culture is what we're bringing also in our messaging to investors.
Yep.
I think what investors should expect from us is strong execution, and God help me, one of these days, we're gonna miss one of these. And I can tell you, we won't be talking about it being the pandemic or the hurricane or any of that stuff. It'll be on us. I think investors should be capturing not just the uniqueness of this technology which brings really big value to the patient, to the physician, economically to the hospital, is unique. It's paid for. Right? That is an unusual combination.
Yeah.
What we're bringing to it is a culture of execution to make that realizable-
Yeah
-and tangible. So investors should hold us to that standard. That's what I'd like to leave them with.
Okay. Yeah, no, I mean, you, you serve an important market, right? These are burns. They're life-changing. It's something that's a very scary thing for patients, and I think having that, you know, that kind of stoic approach and real accountability is important for technology. I think it's what also physicians probably value when they, when they have conversations with your clinical team and your commercial team.
You know, I'd like to leave you with one. We had a patient about several months back, and she worked for a brewery in Virginia, and she had 85% total body surface area burn. And her husband was told, "With luck, we could keep her alive for a year in the ICU." In six months, she walked out of the ICU.
Wow!
She'd been treated by RECELL over her whole body. She quit her job to create a burn patient recovery foundation.
Wow! That is... I mean-
Okay
... that's impressive.
I got a letter from a patient yesterday, two days ago who had been treated full-thickness skin defect for tumor excisions in her scalp at Massachusetts General. She described her experience healing so fast, and she was just ecstatic. You can probably find her on TikTok. And she was telling her story.
Yeah.
And so when you think about what we do, what do we do? We build companies and technologies to try and make a difference, right?
Yeah.
These are real people, and these are-
Right
... these are what differentiate what we do-
Right
... from other companies and the way we do it and the way we care about it.
Yeah.
So our employees, this drives their moment every day.
Yeah.
That, I think, is gonna carry our future. That's also what potential investors should think about us.
Okay. Perfect. Well, look, I, I think that summarizes it well and leaves us a lot to, to be excited about the story. So thank you so much for taking the time today and walking us through that.
Thank you. Thank you for having me.