Monsoon Communications. Joining us today are AVITA's CEO, Jim Corbett, and CFO, David O'Toole. Jim Corbett and David O'Toole are in Australia for their quarterly Sydney-Melbourne Roadshow this week, following last week's results. This roadshow and webinar provide Australian investors with the chance to be briefed directly and ask questions on AVITA's progress. Now, let me point out, you can submit questions using the Q&A function, and we'll get to them after the presentation. I'll now hand over to Jim Corbett to begin the presentation.
Good morning, Melbourne. It's really great to be here as usual. We have a little rain this morning, but let me begin the update for you. Now, we just finished our Q3 results, and for those of you who might be listening for the first time, AVITA is a commercial stage regenerative medicine company. What we do is care for acute wounds, and as you'll see, we're broadening our mission to that effect. We're building out our portfolio to provide more of the needs our physician and patient customers need, so we're looking forward to sharing that with you today.
Our management team is very experienced, and we recently had a new addition on the far right, Robin Vandenberg. Robin comes to us from Smith & Nephew, and she is the Senior VP of U.S. Commercial Sales, a very experienced executive. We're really excited to have her aboard.
Let's take a look back and think about what our strategy changes have evolved, how they have evolved. In the center of all things is RECELL. Now, RECELL takes a split, takes an extremely small biopsy. It's skin-sparing, as the expression. So, for example, to treat a 2,000 square centimeter wound, a burn on your back, for example, you'd need a biopsy about the size of a credit card. Now, this technology has been performed at bedside, where you disaggregate the cells, you soak them in an enzyme, put them, when they're disaggregated, into a buffering solution.
They receive in that buffering solution a pH that allows for longer cell life, and they receive sustenance. They get fed with glucose so that they live longer. And then those cells are sprayed on the wound with a split-thickness skin graft and expand that credit card-sized biopsy 80 to 1. It's extraordinary.
Now, in recent years, and as recently as this year, we've developed a processing device that does all the work of that preparation for the clinician. That product is known as RECELL GO. So what has evolved here is we have a regulatory boundary for RECELL itself that would require three to five years of clinical research, regulatory time to get to market if someone was to just have it. At the same time, RECELL GO has created a whole family of intellectual property that now surrounds RECELL. With that in mind, we now view RECELL as somewhat like a castle with a moat around it of regulatory and intellectual property. It has caused us to think about what other needs our physician and our patient customers need.
They use other products on these patients on the same wound that are very meaningful to provide something even better than the products they use today. You can see those across this adjacent market expression of the products used for treating these significant wounds. Two we'll talk about today are dermal matrices and specialty dressings. So in this case, PermeaDerm, which we have begun promoting, and CoHelix, which we co-developed and contract manufactured with a partner that we have exclusive rights to, of course. And CoHelix, I will share more about during the presentation. They happen to be the two largest segments that are adjacent to the use of RECELL. So the way you can think about this is when you're temporizing the wound bed, you could use PermeaDerm. PermeaDerm, just for reference, a few feature benefits.
It's transparent, so you do not need to lift it and disturb the wound to check it or check if it's over a skin graft. It's porous, and you can adjust the porosity by stretching it, and that porosity allows for air to come in and exudate to exit. For lack of a better expression, the effluent, the goo that comes from the wound as it heals can come out through those pores, and air can come in. It's a particularly effective dressing used under the right circumstances. CoHelix is a collagen-based dermal scaffold.
Currently, we're waiting regulatory approval by the end of this year, and it's got very unique qualities. I'll share some histology and some animal work with you of our preclinical results. That said, it is essential that the behaviors maximize in terms of shorter time to graft.
In a two-stage procedure, you put the dermal scaffold into the wound. That dermal matrix or scaffold, interchangeable words, will cause for vascular ingrowth. And what you want to do is have that happen optimally fast. Too quickly, if it integrates too quickly, it's inadequately developed. And if it takes too long, it elongates the period at which time the patient's in the hospital. I'll expand on that with our preclinical data. RECELL GO is an epidermal replacement. You spray on skin. And it is the center of all we do.
And post the second procedure, in a two-stage procedure, you would cover the RECELL GO and the split-thickness skin graft, so the RECELL spray on skin and the split-thickness skin graft with PermeaDerm. Now, the big development of the year is Go. And RECELL GO is ready. It's on the market. We launched in June.
Let me describe it for you. There's two components. There's a multi-use RECELL Processing Device. That device is good for 200 uses. The disposable part of it is a RECELL Processing Kit, which comes with the buffer and enzyme and the spray-on devices, etc., in a cartridge format. That is the disposable used. The conversion of RECELL GO is progressing extremely well. In just four months, 75% of our revenue base is using RECELL GO, and we expect that to be 100% by the year end. Now, RECELL GO covers 10% total body surface area.
For example, of the 35,000 RECELL-eligible burn cases in the United States, on average, 10%-20% of the patient is treated, which means RECELL GO would be used one to two times on average with each of those patients. However, there's also a need, particularly in a full-thickness skin defect.
When we go to trauma, a lot of those wounds that need skin grafting are smaller. They're 2.5% total body surface area or less. We have submitted RECELL GO Mini to the FDA. We expect approval by the year end, so another addition to our RECELL GO family. Now, let me share with you some real-life experiences with RECELL GO. To your far left, you can see two of them processing simultaneously. In the middle, you can see three. And on the far right, six. Let me describe the cascade of benefits of RECELL GO, so first and foremost, this would be done in a consecutive sequence with the manual RECELL device. So you would do one, and then you do the second one or the third one, and then the fourth one, and then the fifth one.
If you look at anything with two or more, you're talking about saving a minimum of 45 minutes of operating room time because you can process while the healthcare team is attending to patients' other needs. This case on the far right with six RECELL GO devices being used possibly saved as much as three to four hours of operating room time. Cascade of events here is that what this allows for is it gets the patient out of the OR faster, number one. Number two, less anesthesia time.
These patients are seriously injured. Anesthesia is their enemy. They need to get out of anesthesia. So having shorter anesthesia time puts less risk on their life. Third, the healthcare team, the physicians and his or her staff, they are able to focus on the patient more, use less OR times. It's very warm in a burn OR.
It's not 37 degrees Celsius, so they get out of the hospital sooner. This leads to a sooner result of the patient getting out of the hospital. You may be familiar. A few years ago, AVITA published a study, retrospective, of patients of common total body surface area who one group had been treated with RECELL and another group treated in a normal standard of care, and the RECELL patients exited the hospital 30% faster, so there's no other explanation than they healed faster, so the cascade of RECELL GO is just unbelievably good for the patient.
Let me take a minute and describe one of the other elements of our portfolio, which is the PermeaDerm Biosynthetic Wound Matrix. As you can see it on the left, it's bilayer, and the outer layer is slitted, so these slits comprise the porosity.
And when it protects the wound barrier from bacteria and at the same time lets in oxygen and out the exudate. This is adjustable to many different sizes of wounds, from smaller full-thickness skin defect wounds to very sizable 2,000 or 4,000 or 6,000 square centimeters burns. It is a great addition. We spent a good part of this year building the clinical data case for it. When we started the post-approval and post-gaining access to the product on an exclusive basis, we put our efforts into developing case studies, physician-initiated studies, other clinical experiences to help promote the device. And we're well able to do that at this time. Now, CoHelix is really unique. We looked very hard to find the right dermal matrix. CoHelix is described as a collagen dermal matrix, which serves as a dermal replacement scaffold.
So you put it into the wound, and it causes revascularization to get the wound graft ready. It has to integrate from a histologic point of view. It has to help granulate cell growth and revascularization. Too fast of an absorption doesn't give it adequate time, and too long delays the treatment for the patient. If you look here, what we did is we took, and as we did, as I mentioned earlier, we looked at 10 platforms, 18 formulations.
And what we're looking at here is when graft take is ready and how long that is and how long the skin graft take is successful. Our hypothesis here was seven days. Now, competitor A normally takes 8 to 11, I mean, excuse me, 11 to 14. And competitor B normally takes 18 to 21. We, in our other preclinical testing, had CoHelix at seven.
As you can see, it's got a rich red wound bed at seven days post-CoHelix. Competitor A has a bit of infection, not quite ready. Same with competitor B. However, we proceeded to skin graft them to test that seven-day thesis. You can see that CoHelix is nearly 100%. Competitor A is about low 80s, and competitor C is, I mean, competitor B, rather, is somewhere in the low 60s. So when you gain those days, the next things you measure are closure, right? So you want to get time to skin take, skin graft take, and closure. So in our clinical work that we plan to do in January, we'll translate this kind of design to prove CoHelix performance in humans.
With this experience, we believe we will be treating patients and closing their wound as many as five to seven to as much as 12 days faster than other dermal matrices. This, as similar to RECELL, gets the patient out of the hospital sooner, and that has enormous value for the quality of life of the patient and the cost of treatment. Let me give you a little bit of description of what this does for the addressable market for RECELL. Now, there's two big segments to think about when you think about our addressable market. One is you can think about the full-thickness skin defect market, which has 400,000 patients. And/or you would look at it through the eyes of the burn market, which is our tradition, where there are 35,000 annual RECELL-eligible cases.
In any event, we're going to just look at the burn market only as an example because it's a little bit less complex. If you look at the bottom and you note, the answer is the amount of opportunity economically for the company is between $28,000 and $55,000 per case. Historically, you would go to the light blue level and know that on a single case, our market opportunity was $6,500-$13,000 multiplied by 35,000, and you get nominally $400 million. However, CoHelix, as you can see, is $20,000-$40,000 per case. And PermeaDerm is $2,000-$4,000 per case. And these are average cases. This takes our burn opportunity alone, which is in approximately 120-140 hospitals, to $1.5 billion of market potential versus our previous $400 million or so with RECELL only. So this transforms our market.
Now, if you go to the next slide, you would take the same math, and you would apply it to all the possible indications for full-thickness. And what you're seeing here are different diagnoses and the number of cases per year. And if we just took the same math, what you do is you take a 500 sq cm wound, 480 sq cm wound, and you'd have one RECELL kit would be $6,500. You'd have one dermal matrix of about $5,000.
You'd have one PermeaDerm use of about $500. And then you would multiply by 400,000. So to do the math easy for you, this is a well over $2 billion market opportunity for us. So with this strategy of building out our adjacent markets for the same patient, same doctor, same wound, we are creating a different opportunity for AVITA.
Let me take a minute and talk about our international strategy. Today, we announced the appointment of an Australian distributor. Previously, we had 14 established in the European Union and, of course, our Japan distributor. All of these are third-party distributors, and we intend to operate through those entities for the foreseeable future, so as you can see, we're ready to expand, and during 2025, this will largely be a market education activity.
Although we will sell for sure, we won't have the big uptick as we'll be establishing new capabilities and new markets with new partners, solving new reimbursement challenges, and at the same time, we will be bringing RECELL to the world, so looking forward to Q4 and our priorities for the quarter, we really want to continue our expansion into trauma centers, noting that we already have over 150.
One of the facts of the matter is there's about 700. Like all things, there's an 80/20 event. The value of the large trauma centers is way more than the value of small. One for one is not equal. At this point, we've converted a good many of the really large ones. We've got more to go. The fact is there's not the same return as you continue to expand. Our product portfolio expansion is well underway. Between CoHelix and PermeaDerm, we have incredible opportunity.
During Q1, although we'll be approved with CoHelix, we'll be engaged in developing clinical data. RECELL GO Mini, which will treat the full-thickness skin defects because it treats 480 square centimeters or less versus 2,000, that will be expected to have approval by the end of the year. We're already building inventory. I've mentioned our international expansion.
Consistent with our previous communicated guidance for profitability, we still expect to get there and achieve GAAP profitability by Q3/25. Now, David, why don't we provide some financial updates here?
Sure. Thanks, Jim. Good morning, everyone. Nice to be here in Melbourne. Just a couple of comments that I'd like to make. We had a fabulous, fantastic quarter, $19.5 million, which was sequential growth over Q2, which was one of our record quarters also at $15.1 million. We had sequential growth of 29% and year-over-year growth of 44%. Just an amazing quarter for us. Our gross profit margin did decrease a little bit from where we expected it to be, but it's temporary. There was some ongoing validation and engineering that we needed to do for RECELL GO and the cartridge and the durable. And so that's a temporary blip.
We expect to be in the 85%-86% gross margin range for the remainder of the year. We had cash and cash equivalents of $44.4 million as of the end of September, and we think we have enough cash to meet our goals and reach profitability that Jim mentioned. A couple of comments on our debt facility with OrbiMed. We did enter into an amendment with OrbiMed, a mutually beneficial agreement.
We had discussions with them during the quarter, and they asked us to waive our rights to the two $25 million tranches that were available to us. We had previously signaled, if you recall, that we weren't going to take those two $25 million tranches anyway, so they wanted to basically have us waive them so that they could go out and use that money for other sources or other loans.
And so we did that. And in exchange, they waived the negative revenue covenant for the period ending December 31st, 2024, which was at $67.5 million. And so it was mutually beneficial. Even though we have our guidance at $68 million-$70 million, there had been some discussion overhang from some of our investors around that negative revenue covenant. And so we just took it off the table, even though we're going to meet that $67.5 million. Going to guidance for Q4 and the rest of the year, we still are reaffirming that our revenue guidance for the full year is $68 million-$70 million, which would be, again, a significant growth rate over the previous year in the range of 40%.
For the Q4, our revenue guidance is $22.3 million-$24.3 million, which would represent at the midpoint a 19% sequential growth from Q3 of 2024 and somewhere around 65% growth year over year. We are still discussing, or we are still reaffirming that we will be cash flow break-even and GAAP profitability by the Q3 of 2025. And with the impressive revenue that we generated in the Q3 of 2024, we see that path to profitability and cash flow break-even even clearer now. Next slide. So this is the revenue for the last 10 quarters. You can see that we'll have at the midpoint of $23.3 million for Q4. This is a very impressive chart of revenue growth over the last 10 quarters.
And we will be, again, at 65% year over year in the Q4 when we reach the $23.3 million that we're guiding to for the Q4. And that's all I have to say. At this point in time, we can open it up to questions.
To Jim and David, we'll now move on to the Q&A. If you have any questions, you can continue to submit them using the Q&A function. I'll now hand over to Jessica Ekeberg to run the Q&A.
Thanks, Rudy. Let's go to Jim. Can you clarify what 7`5% of revenue base refers to in context of RECELL GO?
Sure. It mean`s that of the hospitals where we receive 75% of our revenue, are RECELL GO users. So that naturally, we started with our largest customers and where we would get the most benefit from that adoption sooner.
And also, from a market leadership point of view, the big customers wanted to be first. So that's what it means.
Thank you. And in terms of same-store sales growth for prior RECELL users, can you provide any information how that compares to those that have now converted to RECELL GO?
It's quite fluid, and the time horizon here is rather short. We did have an experience where we analyzed five of our biggest customers who were early conversions. And in each of those cases, their volume, their utilization of RECELL went up really significantly. We do see, particularly in the burn market, where we presently have around, depending on how you measure, about 20% of those 35,000 cases, we see the path to get to 40%-50% penetration in coming one to two years. So we really see the change from RECELL to RECELL GO in terms of utilization.
On that same topic, are there any plans to publish the economic savings using RECELL GO, or is it easy enough for hospitals to rely on the ease-of-use savings?
Yeah. Remember, ease-of-use is the name of our prior product. So the answer is it's very easy for hospitals to understand it. The paper I referred to earlier in my comments, published by AVITA, which demonstrated this, did so with the manual kit. So the automated RECELL GO just makes it more apparent. So they're not having trouble understanding this idea at all.
Great. Let's get to some financial questions. How confident are you in meeting your Q4 revenue guidance?
I'll take a shot at that. And Jim, you can also chime in with some of your comments. We're confident is all that we can say. We had an amazing quarter in Q3, and we're going to build on that. Everything that Jim talked about in his presentation is doing that, getting conversion to 95%-100% RECELL GO, where we have seen increased adoption and increased usage in all of those burn facilities will allow us to achieve the revenue guidance of $22.3 million-$24.3 million.
We'll keep this with you, David. How should we think about operating expenses over the next three to four quarters on the road to profitability, and how focused are you on controlling expenses?
Yeah, we've stated we are at a point right now for OpEx where we aren't going to be increasing headcount. We aren't going to be increasing our commercial team over the next 18 to 24 months. Very few additional headcounts in 2025.
I will comment on the total operating expenses, specifically G&A for the Q3. There were some one-time expenses in that number, which caused it to be higher than Q2. Q2 is more normalized, and that's what I would say for G&A going forward, with maybe a small increase from Q2, but Q3, there was recruiting expenses.
There was also some additional severance costs that are all one time, and related to the severances, there was a significant, not a significant, there was an increase in the amount of non-cash stock comp that was charged to G&A, so R&D is going to stay flat, relatively so, for the next year. Even though we're going to be doing some of these studies that were talked about with CoHelix, much of the work around tone that was in the R&D budget this year is not going to be recurring in 2025.
From an OpEx perspective, there will be very little increase over the next three quarters. And that's one of the reasons why we believe we can get to cash flow break-even and profitability by the Q3 of 2025.
Thanks, David. Let's turn it back to Jim. For CoHelix, do you think it could be possible for BARDA to reimburse costs associated with the potential CoHelix, RECELL, and PermeaDerm clinical trials?
Well, we have not discussed that idea with BARDA. And so I'd have to just say, certainly, therefore, it could be possible. We don't have an intent to seek that path of funding with BARDA.
And as it relates to international, do you believe Japan sales will pick up? Do you believe that the EU, UK, and Australia sales will be more successful than Japan?
So in the case of Japan, our distributor only pursued the burn indication. And largely, their first year was building out inventory for the market because there's a market structure, a two-tiered market structure where the primary distributor has a secondary location for inventory. And therefore, the amount of utilization that can come from Japan will be reflective now of actual case utilization versus filling their distribution channel. They didn't get approved. They did not pursue.
Our distributor did not pursue full-thickness skin defect approval. And therefore, they have a limited market. We're working on an alternative strategy for that, which at the proper time, I'll share. In the case of Europe, in the case of Australia, we'll have broad indication for burns and full-thickness. And I think it will expand to be much more valuable than our single-country Japan business because, of course, there are bigger populations in multiple countries.
So our international is a work in progress from an economic point of view in the short run. We want to keep it as a contribution-positive initiative. So we're not investing heavily. And that's why we're using third-party distribution. So it will take some time to develop, but it will develop. We're quite confident.
Great. And as it relates to the CE mark, once approved, how long will it take to launch RECELL GO in those markets?
Yeah, good question. Well, we're actually ready to ship today. We have inventory of the proper electronics for the RECELL Processing Device in inventory. And the kit doesn't change much. So we're ready to ship upon approval. There's a technical review we expect this month. There's a one- to two-month administrative process that follows that. So we're expecting early Q1. That said, it is very dependent on the notified body.
They do not have statutory requirements on review timeframes. The timing of launch will occur very quickly after receiving the CE mark within the week, I can say.
This question, I think, came in a little bit before the press release went out today. Any updates on RECELL GO in Australia for those that might have missed it?
Yes. Check the news. We signed our Australian partner, Revelation Surgical, yesterday, in the last week, I should say. We announced it this morning. We're preparing to enter the Australian market now.
Thanks, Jim. Turning back to David, do you anticipate having sufficient cash reserves for the foreseeable future to fund the company's goals and reach profitability?
Simple answer is yes. We, again, are looking. We had a cash burn from Q2 to Q3 of less than $10 million, which, during our commercial expansion, is the least amount of cash that we've burned in any given quarter. And we expect that number to go down in Q4 as we generate more revenue. And the one-time expenses that we incurred in Q3 aren't happening in Q4. And so we believe we have enough cash to get through to Q3 of 2025 when we are projecting that we'll be generating cash, free cash flow. And for the H1 of 2025, we expect to be generating free cash flow in each of those Q3 and Q4 and going forward. So the answer is we have enough cash on our balance sheet at this point in time.
In that same regard, how are you feeling about OrbiMed's revenue tests throughout 2025?
Yes. Those revenue covenants are still in place. We only waived the one for the 12/31/2024. And what that did was really take off the Q1 of 2024 where we had a revenue miss, which we've talked about and we're trying to put behind us. And we have by the impressive growth that we've had in Q2 and Q3. The next revenue covenant is for the trailing 12 months, March 31st, 2025. And it's set at $75 million.
And if you do the math for Q2, Q3, and Q4 using the midpoint of the revenue guidance for Q4, we would only need to generate somewhere around $17 million worth of revenue in Q1 to exceed $75 million for the trailing 12 months. The next one is in June of 2025, and that is set at $90 million. And our operating plan is to grow sequentially every quarter.
That's how we're going to get to cash flow break-even and profitability in Q3. So these revenue covenants, now that we've knocked off the Q1 of 2024, are going to be easier to make, primarily with the significant revenue growth we have quarter over quarter.
Thanks, David. Turning back to Jim. Are you willing to provide a rough idea on how long you think it may take to get to 40% of the market share in the burns business?
You know, I think it's a little bit early for that. I think the comment I made about the RECELL GO enables that is very spot on. So do I think we get there? Yes. Do I, after four months, have a good forecast about the timing of that? I think that will become more clear in the next probably one to two quarters in terms of how long it'll take us to do that.
Great. There looks like there's one more question. Have you completed the facility expansion for the 10 times production upgrade? And can you expand on what it looks like in terms of the number of kits or the number of years with this new renovated facility you envision to meet the demand?
Well, I can. So first of all, the Ventura renovation, internally known as Project Phoenix, is complete. And what we were doing was remodeling, renovating a 1960s-era contract manufacturing facility. So it was modernizing in a substantial way because how factories were built and operated in the '60s is quite different 50 years later or 60 years later. Now, what does it look like?
At the time, we were looking at an 8,000 RECELL kit production capacity at that time. So 10 times that is 80,000. And that is at one shift, by the way. So at 80,000, we'll be at $500 million. So that's a substantial expansion. Now, on the other hand, we've done some things that have come in and come out of that facility that are worth noting. We used to have cold pack shipping, which was protecting the temperature of the enzyme in a buffer. And the box itself was like an ice cooler. It was huge. And we would have to keep an inventory of those. And we don't need to keep that were empty. And we don't need to keep that any longer.
We also housed about a year's worth of inventory, about 7,500 RECELL kits, as part of the BARDA agreement, which is now no longer in force. We have an agreement with BARDA, but it has more to do with a first call on inventory rather than a unique inventory for them. So that's a second change. A third change is we put the production of the RECELL processing device, which is an electronic device. So that's really kind of a new technology to introduce into a medical device assembly operation.
That is being manufactured and assembled in Ventura now. And we, of course, also, therefore, opened a service center to requalify units that might need service from the field, repair them from a quality system point of view, prepare them to ship back to a hospital. So those are new additive capabilities for the Ventura operation. But we see no threat to needing space over the coming three to five years. So we're quite pleased with the outcome. And the team did a terrific job building the Project Phoenix for us.
I see one last question. Let's see. In regard to PermeaDerm, what type of clinical evidence are you accumulating? And can you provide an update on how the VAC approvals are going?
Let me describe it three ways in terms of clinical evidence. We are developing a library of specific use cases that are case-driven. We also are sponsoring some investigator-initiated trials that they initiated, and we are supporting. And third, there was a study that had been completed, which we are reducing to state where it's publishable, that looked at PermeaDerm on a broader clinical basis, a broader number of hospitals, etc. So all of that is underway and usable now. And so there's another part of the question. Could you repeat?
Sure. It was the VAC approvals.
Oh, the VAC approvals. Although we're tracking the VAC approvals, there's a lot of them. And I will say that the activity for the VAC approvals has increased substantially. And it's a different process than it is for RECELL GO. PermeaDerm is a dressing. VACs deal with dressings all the time. So the hurdle, the complexity, and their ability to understand what a dressing is, simpler. With respect to RECELL GO or RECELL itself, spray-on skin with disaggregated cells suspended in autologous cell suspension, that's like going to the moon or Mars preparatively from a skin graft point of view. So it was a much, it is and remains a much higher hurdle. So the VACs are not a big obstacle for us with PermeaDerm. We have a lot of evaluations.
I reviewed them this morning. So I'm pleased with the uptick in activity and expect next year to have PermeaDerm to be a meaningful part of our revenue.
Thanks, Jim. That is all for the questions today.
All right. In that case.
That concludes the webinar, and we thank you for your participation. Thank you very much.