Good morning, good afternoon, good evening, wherever you are. We've been having some technical difficulties. Just as a test, as I restart, could one of you confirm on your Q&A that you are hearing me? Then I will proceed and begin again. Somebody just four through four.
Oh, yep. Perfect.
Perfect. Sounds like you can hear me and my apologies for that. My name is Jim Corbett, CEO of AVITA Medical, and I am here to talk, help have experience and will know some of the things I'm gonna talk about, but I am for sure going to be communicating some new information that constitutes our plans for growth in the future. As we move through, you'll capture those. I look forward to capturing questions at the conclusion. With that, let me begin. For those of you who are not familiar with AVITA, what are we and what do we do? We're a regenerative medicine company, and we've developed a very novel skin grafting technology called RECELL. It's very unique.
What we do essentially is we take the autologous sample from the patient, which is about 20% or so of what normally would be taken for a skin graft.
No.
We got confirmation that, I'm gonna continue, I think. So we've been having that little bit of transmission problem. But what we do is we take that RECELL technology, we take the autologous sample, we disaggregate the cells and buffer it in enzyme and turn it into a spray-on graft so that you spray onto the wound. Now, that spray-on graft, treating that wound, you can imagine the prior method is you take a layer of skin, you lay it on top. And the spray on, where the disaggregated cells suspended in that enzyme buffering solution promotes healing and graft adoption. It's really transformative in the field of skin grafting. We have a number of new indications. We've been working on two of them in particular. One of them is soft tissue repair, the other one vitiligo.
Soft tissue repair is a little bit deceptive. It looks like one indication. It actually is an array of different indications, which I'll share with you later in the call. To give you some background on AVITA. Now, AVITA, 18 granted patents, 25 pending applications. With that said, it was invented actually here in Australia where I am today. One of the more transformative moments was when the Bali bombings happened over 20 years ago. 26 or so patients were transported here for treatment, and most all of them survived as a consequence of this technology and really created the foundation for AVITA. We also conducted a clinical trial in the United States for burns. It was the first PMA approval in over 20 years for treatment of burns.
We have a very strong reimbursement position. For burns, for example, we get reimbursed in hospital for under the DRG method. The DRG method is worth understanding if you're not familiar with the US reimbursement system. It's a global payment. When the patients respond better and get treated more effectively, they get out of the hospital earlier. The hospital benefits economically. When it takes longer and they're not treated as well, they the hospital has to carry that cost.
In the case of RECELL, we have the most developed healthcare economics data that demonstrate that despite needing to buy the RECELL kit, the actual global payment allows for that patient to get the hospital to get economic advantage because the patients heal faster and they exit the hospital sooner. This is better for the patient, most of all, it's better for the hospital economically, and it's better for the physician because the physician's goal is to treat the patient. We've had some recent accomplishments just to update you on some of them. Q3 growth was $9 million from the U.S. government, but really $9 million on a commercial basis. We are guiding to a $33 million-$34 million revenue year, which corresponds to about a 33% growth over prior year.
We introduced earlier in the year, a product we call the ease-of-use device. It's the same RECELL technology, but there's many steps in the RECELL experience, and ease of use reduces those by about a third. A very important efficiency for the time in the OR, the work of the operating room team and the work for the physician. It made a meaningful impact on the execution of the RECELL skin grafting procedure. During the year, we received approval from the PMDA for it working in Japan for burns with a very favorable reimbursement. During Q3 we respect. During the year, line results met both co-primary endpoints of statistically superior skin sparing and statistically non-inferior healing rates. We received also FDA Breakthrough Device designation. Omitted on Breakthrough Device designation.
There's really three big issues related to that. FDA provides that designation when there is an unmet clinical need. It is meant to help a new technology get to market more quickly, more efficiently, and achieve reimbursement. The benefits of that designation include a real-time review. One of the things we can expect is, since we plan to submit for the final stage approval in December, there's a 180 day clock. That 180 day clock would occur June of 2023. We expect absent a material deficiency, which we do not expect, approval in June. That would prepare us for a July launch for soft tissue repair. I will elaborate more on that later in this presentation. Separately, we also had another clinical study underway for vitiligo.
Vitiligo as you may know, or if not new, it is an autoimmune condition that it results in lack of pigmentation on parts of the body and has many variations. This lack of pigmentation shows up as essentially white blotches without pigment. It is a disfiguring condition. It causes significant psychological impact on the patient, which has downstream healthcare problems as a consequence, psychologically and medically. RECELL for vitiligo also received a separate Breakthrough Device designation, and the trial with vitiligo also met its endpoint. Both of those applications will be going in during December. Vitiligo as well with the same issues, same benefits through the FDA Breakthrough Device designation, and we should expect approval in June.
If you just look at the past of how burn business has gone for us, we've continued to develop the burns adoption. You can see quarterly, we progressively are growing our burns business. The burns business is very unique. In the United States, 146 or so hospitals are designated burn centers. If you have a burn that exceeds 30% total body surface area, you're required to be treated in those hospitals. So that is a very specific market, and it's a growing market in terms of our penetration into it. As you'll learn, there's also 25% of the burns that need treatment that do not end up in burn centers, which end up in Level I and II Trauma Centers.
I will share with you how that is a synergy for our commercial activities here ahead of, in the next few slides. We introduced early in the year what we call the ease of use device. The ease of use device is really a kit that takes the multiple steps that are required to execute RECELL and reduces the workload by about a third. That one-third really matters to all parties. Time in the operating room, the staff who are performing the procedure, the doctor who's performing the procedure, and of course, the patient who is really wanting to get on with their therapeutic intervention and their healing. In Japan, a little more detail here. Our commercial partner is a company called COSMOTEC. They're part of the M3 organization. The indication we received was burns.
We got the approval in Q1, 2022, and we received the initial stocking order in Q3, 2022. It's a very solid indication market in Japan and lays the foundation for future indications, which we'll be applying for. In essence, in October was our first commercial month, without the final numbers that I've already seen. We've seen that COSMOTEC's been very effective at their initial launch. We're really looking forward to the future results from Japan. Let's talk about our growth profile, and this is important. I'll refer to it a few different times, but it's really quite critical. First of all, we continue with burns, and burns has two forms of reimbursement. One I've mentioned, which is the DRG.
We also got a Transitional Pass-Through code, which is for outpatients, which allows the patients to be treated outpatient and to pass through that code. You know, so that burns has those two reimbursement elements in place. Soft tissue, we have the FDA submission in December, and that we expect a June approval and a launch in July. One of the benefits of soft tissue is that we will launch July 1 with the same reimbursement that burns gets. We'll have reimbursement from the outset for soft tissue, soft tissue repair for both inpatient and outpatient application. Vitiligo, submission in December and reimbursement, excuse me, and approval in June. Reimbursement will be applied for because it's a different site of service.
That different site of service is going to be the physician office. We'll be applying for that. We expect January 2025 reimbursement approval. Let's take a minute and talk about soft tissue repair. This is a large market. It exists in Level I and II trauma, and these wounds have a very significant benefit from the RECELL replacing other forms of skin grafting. If you look at this slide, you can see the intent to use and the different types of applications that would be used with RECELL's soft tissue repair approval. You can see a whole range of possible applications. That indicates a broad label. That broad label is easier thought about in the following way. There's the things that physicians do and there's the things that physicians repair.
The things they do might be, like removing necrotizing bacterial infection, where they cut out part of the skin and tissue, and then you need a skin graft to close it, others would be treating a traumatic injury. That's an easier way to think about it, and that happens in the Level I and Level II Trauma Centers. What happens in that Level I and Level II Trauma Centers is the other 25% of the burn market, it gives us a real opportunity. You can see the overlap that the sales team will be targeting nearly 1,000 centers, it's in essence a tripling of the market opportunity for RECELL and for AVITA. We're expecting a quite, an expansion in our market opportunity and our revenue growth.
We are going to be preparing for that during the early part of 2023, implementing an expansion of our sales team so that we are prepared for that July 1 launch. Now, one way to think about this investment, and it's an important way to think about it, about five cases a month pays for a sales territory expansion. The sales rep who expands, when they get to five, they're breakeven on a contribution margin basis. As we think about that, we compare it to our burns experience, where nearly 25 cases per month are done by one of our sales team. We know that this is a rather a tried and true formula, and we'll be executing in that form. The indication for soft- tissue repair, we met, as I mentioned earlier, statistically significant donor sparing, so much less tissue.
This is much better for the patient, much more achievable for the physician to execute. Of course, by doing that, we are also disaggregating a smaller amount of tissue, and we've achieved statistical non-inferiority for healing versus the control. In the case of vitiligo, I wanna point you to the massive market. The reimbursement is something we're gonna be working on, as I mentioned, during the period of 2023 and 2024, and we expect to achieve the in-office reimbursement, which is targeted to physician by January 2025. Nearly 438,000 patients are seeking treatment. The market is big and ready, and there is actually not a treatment that actually reestablishes pigment through transplantation into a patient's skin with vitiligo. This is something that has you know, evaded medical treatment in the past.
As we look forward to vitiligo, we'll be spending the next year and a half on reimbursement, but we'll also be focusing on building our podium presence, conducting some studies to indicate the most appropriate patient selection. We're looking primarily for stable vitiligos, whose autoimmune condition has been stabilized. Unfortunately, there's drugs that are coming to market whose principal purpose is not to cure vitiligo, but to stop the spread of that condition. That, in fact, will continue to expand this market opportunity. We intend to execute both of these technologies through a automated device that we have in development, and I will be telegraphing when that will be approved during the February conference call.
That will be really a kit that goes into a, so to speak, a desktop device that will disaggregate cells instead of the physician doing it manually. It really is a time saver. It's really important for the development of the soft tissue repair and burns market. It's also necessary to be in existence by the time we get to the vitiligo reimbursement, because that will be a physician office environment. If you look at our pipeline for growth, we have burns, and it's gonna continue to grow. In fact, because of soft- tissue repair, we're gonna access a third more market, 25% of the total, so we're in 75% now. A third more of the market as we launch soft tissue repair. RECELL in Japan is underway in the early stages of adoption.
As I mentioned, soft tissue repair will be in full launch by our expectation based on that, PMA approval July 1, 2023. Vitiligo, which is going to get PMA approval around the same timeframe, June 2023, and reimbursement expected January 2025. We'll get the revenue growth that we need to fuel the future of AVITA through soft tissue repair. When you look at our market opportunity, it continues to expand, and it's expanding in a tangible way. It's expanding with clinical data. It's expanding with reimbursement in place and with patients continuing to benefit. Let me take a moment, and I will just give you a review of our most recent year-over-year quarterly results and annual results. You can see we continue to grow, the RECELL adoption, growing the top line.
That will really accelerate because one of the challenges with 146 burn centers is the sales team is spread by a broad geography, that broad geography inhibits efficiency. When we go to Level I and Level II Trauma Centers, we will have a sufficient market opportunity to have smaller sales territories. Smaller sales territories translate into higher growth. We're really looking forward to that in the coming years. Our management team, very experienced, very capable, know the market, know the business, are very experienced at executing new product launches. The management team is poised and ready for this expansion. With that, we're looking forward to it. We will look for any Q&A that you may have.
Yeah. Thank you. We've had several questions that have been submitted, and we encourage you to keep submitting questions, and we'll do our very best to answer and address them, Jim.
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Jim, one question comes in. Basically, pleased to see that the annual revenue guidance for 2022 has been raised. Can you provide a little color around what's driving that revenue increase, and what does that foreshadow or tell us about the future?
well, first of all, the revenue increase is currently reflective of increased adoption, where quite simply, physicians begin, you know, using it more. You know, rather simply, it's driven that way. When we launch soft tissue repair and we have broader coverage, that will continue in the burn centers. What will also happen is we'll access the bigger burn market in Level I and Level II Trauma Centers. We expect our burn adoption to continue accelerating along with our focus on soft tissue repair.
As far as 2023 revenue guidance, Jim, do you have plans as to when you will announce that guidance?
Yes, we do have plans to announce our guidance in our February 22 conference call. What we'll be doing, we'll be changing our revenue guidance in the following manner. First of all, we're gonna provide it quarterly and annually on a every quarter basis. We'll give guidance for the current quarter. We'll give guidance for the year at the same time. You'll have much more transparency in our progress during that time.
Thank you. Focusing in on your sales team, Jim, do you have plans to add significant additional sales staff or field force? Or do you think that your current sales force can largely address the opportunities you've identified?
Actually, it's a great question. We are going to expand our sales force, definitely. In February, during that call, we will be describing that in detail. There is a guiding principle to it. There's two of them. First of all, this is an investment in revenue growth. What we know is that around five cases per month on a contribution margin basis, the sales rep that we hire breaks even. Our experience in burns is we're at about 25. We know the model of expansion. Even in our current model, the geographies are rather large, and therefore, the sales team is not as efficient as they would be able to be in a smaller sales territory.
A direct benefit of the expansion will be that we access more market of soft tissue repair and the 25% of the burns market that are in those hospitals we don't call on. Also result in smaller sales territories that were in our primary burn business, which will now be mixed as an acute care type of approach in terms of there'll be burns and soft tissue repair salespeople. We will be expanding, and we have the resources to do it, and especially considering what we know about the crossover, you know, about the, you know, contribution margin cost of adding a salesperson. We get much more out of growth from hiring one in the right territory, and it, of course, does not impact the use of cash as significantly.
With your addition of soft tissue reps, Jim, do you plan on adding those post-approval over time, or will it be more front-end loaded?
We're planning an expansion during Q2. One of the things that facilitates this in Q2 is the fact that as we hire them, although the indication will not yet be approved, the 25% of the burn market that exists in those accounts will be immediately accessible. The Value Analysis Committees of those hospitals that we approach will have a chance to start that process, so when we get approval, RECELL will be approved in a hospital. We get a lot of synergies by this approach occurring ahead of the indication approval.
Do your plans to add the additional soft tissue repair field force, in the manner that you described, make the company's pathway to break even faster or perhaps make it slower because of the investment?
Actually, it actually makes it quite faster. The path to profitability at a company of this size as AVITA is today, is actually higher growth, not lower growth. When you are growing more slowly, you actually consume more cash. Given the fast break-even for a sales territory in terms of contribution cost, this will move our crossover path to profitability sooner than it would otherwise occur. In fact, if we would not increase our growth, it might not occur. Therefore, growth is the path to profitability.
Thank you. Does the company expect R&D expenses to drop now that the bulk of the vitiligo and soft tissue studies have been completed? Do you perhaps have similar investment with your automated device technologies and follow-on studies and things of that nature?
First of all, the specific R&D expense will go down, but you're correct. We will be investing in the automation program, but it won't be near the cost. We will be of course, spending additionally in terms of investment in the commercial organization. What you should expect is for expenses as a % of revenue to peak in Q3 2023 and decline notably every quarter thereafter. We, in fact, we will be able to forecast profitability crossover absent vitiligo by during our February conference call.
Thank you. Will the company consider partnerships, either in burns or soft tissue repair or vitiligo, or, will it definitely, go it alone in the future?
Well, you know, it's very hard to forecast the future of a partnership concept. There's certain ideas that we don't know about that we'll certainly always be considering. Right at the moment, we don't have a plan for any partnerships. That said, we're certainly open-minded to anything that will be of value in building AVITA and establishing RECELL as a standard of care and broadening our geographic penetration. I think it's possible. I don't have any in mind, and we don't have any pending. It is just an open question at the moment.
Thank you. Can you provide a little color commentary around your preliminary thoughts on a OUS, outside of US, strategy for the future?
Yes. It is an important opportunity for AVITA. There's a global world out there, and we, in fact, do have some international plans in development. I think for the year of 2023, you should not expect a material investment in that. We're gonna be investing in the US soft tissue repair launch and expansion of the burn market. I think by the end of 2023, we will be able to articulate our international expansion strategy.
Focusing in on the vitiligo indication, it sounds like, reimbursement considerations, insurance payer considerations will be quite important. Are you expecting difficulties in getting reimbursement, or how do you size that up?
Actually, we don't anticipate difficulties in reality. What we're after actually is physician reimbursement. The market is rather price inelastic in terms of paying for the procedure otherwise. However, the treating physician will be treating in their office. It's gonna be, you know, It won't be a hospital, it'll be a physician office environment. The reimbursement for the physician is very material to the adoption of this type of technology for them to be able to allocate time to treat patients with RECELL.
Given our other sites of service that have reimbursement, given our clinical data and safety profile with RECELL, the broadening which we already have in hospital DRG, Transitional Pass-Through outpatient, and getting an additional indication for payment in the physician office, we think is very achievable, and we have a plan to do so that I think has the very clear expectation that we achieve that before January 2025. That would be the launch time.
There are a number of questions related to ongoing cash burn, future profitability, future potential financing requirements. Is there anything you can tell us today, Jim, relative to cash burn and your cash position and how long it will last for the company?
Our cash position is strong, first and foremost. Secondly, the strategy we're articulating here would result in a 2024 meaningfully significant reduction in cash use versus 2023. In fact, absent vitiligo, we would not necessarily need additional cash because the revenue growth we anticipate would provide the sufficient fuel for our future. Now, it may happen in 18 months or 24 months that as we think about the opportunities before us, that we decide we wanna fund them and raise some cash. Having said that, we are quite confident that this pathway will lead us to a place where we have some choices. So we feel very comfortable with our cash position. We think that we can execute the strategy we have articulated here within the constraints of that cash position.
What might change is how the vitiligo channel choices develop, which we are working on at the moment. As soon as we establish that, we'll communicate those. Right now, we do not feel the need or the threat of needing cash in any definable near-term manner.
Thank you. Jim, do you anticipate that your burns business, your soft tissue, or your vitiligo will provide the greatest revenue stream over the long term?
Yeah, that's a terrific question. What I can see is the burns business, the soft tissue repair in the United States and then expanding internationally, is going to be arguably sufficient to grow the company well into profitability and beyond. The vitiligo is a bit like the, you know, it's a huge market. As we develop that market, it could, in a 5-year+ horizon, become the dominant source of revenue. That said, we don't, so to speak, need it to be a fundamental part of our revenue in the near term, which I would define as under the 3-5-year horizon.
Thank you. several questions, comments around Japan. glad to see things moving along there. basically, the overarching question is: what are your expectations? Can you provide some commentary for your expectations around the Japanese business over the longer run?
Yes. Well, first of all, we're highly encouraged by the approval. We're highly encouraged by the first 30 days of their execution. You know, it's just a little bit early in the process for us to give projections on it in the long run. That is one of our targets here. Another, you know, we have a lot of things underway that are all growth generating, and we wanna communicate those as part of our guidance during the February conference call. You can expect us to do that around Japan in February.
A question focusing in on reimbursement, with vitiligo. Since FDA approval is expected, July of 2023 and reimbursement has been estimated to be sufficiently in place in early 2025, essentially, why does reimbursement take so long?
Typically, to establish reimbursement for a new site of service with a new technology takes three to five years. The fact that we see the path to achieve it in 18 months or so is really reflective of the reimbursement work we've already done, the clinical data that we have, and the broad use of RECELL geographically in the United States. One might look at that and say, "Well, get a regulatory approval that's taking 18 months." That's actually atypically short. I think that that is a very good outcome and should be you know, viewed through that lens.
Thank you. It appears that the company is on roughly a 30% revenue growth rate this year. Is that a good baseline to think about your growth in future years, or might you do better than that?
We believe that 30% growth is inadequate for our future, and one of the opportunities we have is expanding market and the opportunity to penetrate greater. We have an expectation of higher growth than that. We'll have more tangible reflection of that in our February guidance. The answer to the question is, do I think 30% is adequate? No. We actually think it needs to be considerably more than that.
Several questions about potential exit strategies in the future. Essentially, is this something that the company's open to? Can you provide any color commentary around your thoughts on exit strategies in the future?
You know, one thing we're clear about is the opportunities in burns that gets expanded into the access to the other 25% of that market. The entrance into soft tissue repair and the ultimate launching into vitiligo provides the company with a very solid pipeline for the future. We think that we can build the company around those indications. Certainly, there will be business development opportunities for us to gain some additional investment into a broader portfolio, which we'll be thinking about. In terms of exit, we really aren't, so to speak, thinking about that. What we're thinking about is executing on our plan, building the company to a thriving, self-sustaining business that can continue to provide value to patients and shareholders. That's our orientation and that, you know, that's what we know about, and that's what we think about.
Can you provide an update on your automated device program? Any thoughts around the timing of it and potential price point compared to the current version of RECELL?
You know, it's just we're just a month or two early on that particular answer to when the automated device will be ready. We actually have a goal that we're right now validating. We'll be ready to communicate that in February as well. I can tell you it will be oriented towards being available for the burns and soft tissue market first, and then following that, available for vitiligo. More to come in February. There's going to be a lot happening in February.
Okay. I think we have time for maybe one or two more questions. There have been a number of questions, Jim, around the change in CEO and the timing of it and the rationale behind it. Can you provide a little insight into what the board was thinking and along the direction and the timing and so forth?
Sure I can. Of course, I was on the board during the last 18 months, and I can say it this way. You know, first and foremost, we think that Mike really shepherded the company through a very critical stage, particularly around the clinical research and the ultimate approval of RECELL under multiple indications. That is a very valuable contribution. At the same time, the board went through a process of identifying, as boards do, it's a, it's a job of the board, to make sure that the future management team is well aligned to the future needs of the company. The board came to a conclusion that a more broadly commercially experienced CEO would be the right next management leader for AVITA.
The board, which was we, I of course was excluded during the process as I became a candidate, went through a process with an external recruiting firm to identify the criteria of who we would want and an external selection process. We made that change when we found the person that the board thought was correct. Again, I was not part of that formal final decision, but that occurred when it occurred. You know, there's no way to telegraph those type of things. They happen in due course when the board finds that they have identified the right person and the right reason for change.
Maybe for the final question, Jim, can you discuss sort of what you're most excited and most enthusiastic about now that you've been in position for roughly 100 days?
I can tell you what I'm most impacted by is the patient stories. The patient stories are life-changing. You know, I mentioned one at our conference call about a woman who worked from Virginia who had 85% of her body burned, and her prognosis was 1 year in the ICU and death. At 6 months, she came out, she and her husband are now burn survivor advocates, and they're giving back to the world, you know? That is one of those things, you know, if you're mission driven as I am, you wanna do something that's relevant to the world. I will say that is the number 1 thing that impacted me.
When I translate that into what I see at AVITA, and I see not just burns, but I see all the similar applications for skin grafting and soft tissue repair, and I see the potential of life-changing for vitiligo patients, those drive me as well. The third element, which really also I'm not surprised by it 'cause being on the board, I had exposure. The people in the management team of AVITA are first class. They buy into the mission. Their mission is the mission. That really drives great things. If you think about what makes a company valuable and what makes a company great, it's being able to deliver a solution that makes a difference in patients' lives, that you can build a company around, where you can create shareholder value.
You know, that's a trifecta. I can tell you that's how I see it, and that's how why I joined AVITA in full-time role.
Very good. Well, Jim, do you have any closing remarks?
All I can say is if you have questions for us, we as a team are really interested to hear from you. We'll respond and provide you insight that we're able to and that we know. Sometimes we may have to come back to you after we've had a chance to look into your question if it's something that surprises us, which it may. We're terrifically excited. We think that this is the inflection point for AVITA. We're clear that these two approvals, in particular soft tissue repair, it's an immediate opportunity. Triples our market opportunity in general, also increases our burn opportunity, capturing that other 25%. It is gonna be the engine that drives growth greater than 30% over the next 3 to 4 years. This is the time for us to execute.
We don't have to wait for something that we don't know about. We know the clinical data, we have the reimbursement, we can see the market, and we have the capacity in the company to be able to manufacture and to execute the commercial opportunity before us. This inflection point is uncommon in my experience to happen all together at the same time. With that, I think that's my parting thought.
Great. We thank everyone for tuning in. We had quite a nice audience. Thank you for your great questions, and we apologize for the technical difficulties. We got off to a slow start, but we're ending right on time. Thanks to everyone and have a good day.