Thank you everyone, for joining us today. We continued to deliver strong growth in our top line revenue this quarter, and we are pleased to report record commercial RECELL revenues, which exclude BARDA revenue, of $8.2 million dollars, compared to $6.7 million dollars, a 23% increase, over the same quarter last year. Our commercial revenue was $15.7 million in the half-year ending June 30, 2022, an increase of $4.4 million or 39%, compared to $11.3 million in the corresponding period in the prior year.
In the quarter we achieved greater penetration in a larger base of accounts leading to an increase in overall burn cases treated with RECELL®. With ongoing improvement in access to burn centers and in-person meetings we were able to resume our commercial activities in the “new normal” operating environment.
Our commercial team increased their field training cadence to reach over 300 burn care providers each month, up from about 200 per month in the first quarter. In addition, we are continuing to conduct webinars and summits that are now in-person to further broaden our reach. An increase in field training, coupled with case support designed to help alleviate staffing constraints, has allowed us to drive broader provider adoption, deeper penetration, and ultimately increased order size. We began selling the ease-of-use RECELL device to our larger accounts this quarter, which is resonating very well, particularly with those customers who are experiencing ongoing staffing challenges that I just mentioned. We have shipped the new device in a phased release to about a quarter of our accounts.
Turning now to the outpatient market, we initiated our limited launch in March. As we expand into new indications, the outpatient market will become a larger proportion of our addressable market and an increasingly important patient population supporting our continued growth. While the bulk of burn procedures are in-patient, we expect that out-patient treatment will comprise our core soft tissue market; as such, we are working to familiarize centers with outpatient care pathways, coding, and coverage.
Relative to Japan, we, along with our partner COSMOTEC, completed our first training and evaluation cases in Japan during the quarter. As I mentioned on our last call, discussions are ongoing with the Japanese authorities regarding reimbursement and pricing which we anticipate will wrap up later this year.
I’d like to highlight a recent media story, in which a 12-year-old home-schooled student’s science experiment exploded resulting in second-and third-degree burns to over 50% of his body. In addition to the young student, his mother sustained second- and third degree burns while saving her son’s life. Both the boy and his mother have been undergoing RECELL treatments at the Joseph M. Still Burn Center of Doctors Hospital in Augusta, Georgia, which is the largest burn care facility in the United States, and one of our largest customers. We are inspired by the burns community, which has been uplifting the family during this crisis, and we’re encouraged by both the mother and son’s recovery thus far.
Moving on now to our pipeline indications, we made solid progress in our soft tissue reconstruction and stable vitiligo trials. We just released topline data for our soft tissue reconstruction trial. The study had co-primary endpoints, based on pairwise comparisons where each subject received both RECELL used in combination with widely meshed skin grafting and the Control treatment of conventional skin grafting; one endpoint had a hypothesis of superiority for donor skin sparing and the other co-primary endpoint had a hypothesis of non-inferiority for healing. RECELL showed statistically superior donor skin sparing versus the conventional autografting standard of care Control, thereby achieving the endpoint. While comparable healing was observed between RECELL and Control, pre-specified statistical non-inferiority was not met. Nonetheless, the statistically significant donor sparing and comparability in observed healing, along with the established safety record of RECELL, together point to a favorable benefit risk profile. As such we will proceed as planned with PMA submission, for both the soft tissue and vitiligo indications later in 2022, with FDA approvals anticipated in the 2nd half of 2023.
As I’ve mentioned previously, once approved in soft tissue reconstruction, we expect to initially leverage our installed base of burns centers and our existing infrastructure to launch the RECELL System into our burn centers that are collocated with Level 1 and Level 2 trauma centers. From there, we plan to grow into another 200 to 250 high volume trauma centers which also do some burn cases as well, and we will update you on our plans here on future calls. Notably, trauma centers will be able to use the existing reimbursement codes currently being used in the burns setting. We are excited to deploy what we’ve learned in burn care to efficiently and effectively address the soft tissue trauma opportunity.
Turning now to vitiligo, and as we’ve stated in previous calls, this is a skin disorder characterized by depigmented areas of skin that appear as white spots or patches, and which are primarily attributed to an underlying autoimmune disorder in the patient. There are an estimated one hundred million sufferers of vitiligo worldwide, including up to 6.5 million Americans.
With recent completion of patients 6-month follow-ups for our vitiligo clinical trial, we expect topline data, followed by PMA submission, during the 2nd half of 2022, with FDA premarket approval and commercial introduction anticipated prior to the end of 2023. We recognize that our current RECELL product involves hands-on preparation of the cell suspension by physicians and/or their supporting staff. To make the best use of physician and support personnel’s time in the dermatologist’s office to address our vitiligo opportunity, we are developing an automated RECELL device.
We are encouraged by the FDA’s recent approval of a topical JAK-inhibitor which we believe will further drive vitiligo disease awareness in this very large market that has limited effective treatment options. Over time, we anticipate multiple product entrants to this compelling opportunity. We believe the strong safety record of RECELL, and the ‘one-and-done’ nature of the associated treatment procedure will be differentiated, as well as medically and commercially important.
We have been working diligently on vitiligo pre-commercialization activities. AVITA has attended nine dermatology conferences since January of this year. At these conferences, over 25 sessions have featured vitiligo, a marked increase year-over-year, as JAK inhibitors and RECELL have stimulated interest in vitiligo treatments. Importantly, RECELL received numerous mentions in these sessions.
With that, I’d now like to remind you of our strategic growth drivers.
- We are keenly focused on driving health care provider engagement through education maintaining our recent momentum in burns. The fall conference season is just ahead, and we are excited for continued in-person conversations.
- Second, we anticipate submission of PMA supplements by the end of 2022 for both soft tissue reconstruction and vitiligo indications, and we continue to plan to enter those markets in the second half of 2023.
- Lastly, and turning to a longer-term growth driver, our pilot work in establishing RECELL within the outpatient setting continues, where we anticipate the future bulk of soft tissue trauma cases.
In summary, we are executing on our business objectives and have successfully achieved several key milestones this year. I’m encouraged by our commercial team’s performance, driving advanced practice training, and keeping RECELL front and center in the minds of burn care practitioners. I look forward to updating you later this year on our continued progress in our exciting pipeline indications.
With that, I’ll now turn it over to Michael for details on our financial performance in the quarter. Michael?
Three Months Ended June 30, 2022 Financial Results
Our commercial revenue, which excludes BARDA revenue, was $8.2 million for the three months ended June 30, 2022, an increase of $1.5 million or 23%, compared to $6.7 million in the corresponding period in the prior year. Total revenue, which includes BARDA revenue, was $8.3 million in the current year compared to $10.3 million in the corresponding period in the prior year which included $3.6 million in BARDA related revenue that resulted from our delivery of units to managed inventory for BARDA for emergency response preparedness.
The growth in commercial revenues was largely driven by an increase in the number of customers ordering as well as the average order size for those customers.
Gross profit margin improved by 3% to 83% compared to the corresponding period in the prior year.
Total operating expenses increased by 3% to $13.9 million compared to $13.4 million in the corresponding period in the prior year. The increase in operating expenses is primarily attributable to higher compensation costs, sales commissions, and professional fees, partially offset by lower clinical trial related expenses. Higher compensation costs resulted from an expansion of our commercial team, while higher commissions were driven by an increase in revenues. Higher professional fees were driven by an increase in pre-commercialization activities for RECELL launches in soft tissue reconstruction and vitiligo. Clinical trial expenses incurred in our soft tissue and vitiligo trials were lower during the period, as the trial participants were in the follow-up phase which was less costly than the earlier recruitment and treatment phase.
Net loss increased by 33% or $1.5 million to $6.3 million, or $0.25 per share, compared to a net loss of $4.7 million, or $0.19 per share, in the corresponding period of the prior year.
Adjusted EBITDA* loss increased by 51% or $1.6 million to $4.7 million, over the $3.1 million recognized in the corresponding period in the prior year.
Six Months Ended June 30, 2022, Financial Results
Our commercial revenue, which excludes BARDA revenue, was $15.7 million in six months ended June 30, 2022, an increase of $4.4 million or 39%, compared to $11.3 million in the corresponding period in the prior year. Total revenue, which includes BARDA revenue, was $15.9 million in the current year compared to $19.1 million in the corresponding period in the prior year which included $7.7 million in BARDA related revenue that resulted from our delivery of units to managed inventory for BARDA for emergency response preparedness. The growth in commercial revenues was largely driven by an increase in the number of customers ordering as well as the average order size for those customers.
Gross profit margin improved by 2% to 80% compared to the corresponding period in the prior year.
Total operating expenses increased by 12% to $29.9 million compared to $26.6 million in the corresponding period in the prior year. The increase in operating expenses is primarily attributable to higher compensation costs and professional fees, partially offset by lower clinical trial related expenses. Higher compensation costs were primarily a result of increased share-based compensation expenses due to certain performance milestones being met, higher commissions driven by an increase in revenues, and an expansion of our commercial team. Increased professional fees were driven by an increase in pre-commercialization costs for RECELL launches in soft tissue reconstruction and vitiligo. Research and development expenses were lower relative to the prior year during which higher costs were incurred relating to recruitment and treatment for the soft tissue and vitiligo clinical trials.
Net loss increased by 47% or $5.0 million to $15.7 million, or $0.63 per share, compared to a net loss of $10.7 million, or $0.45 per share, in the corresponding period of the prior year.
Adjusted EBITDA* loss increased by 46%, or $3.5 million to $11.1 million, over the $7.6 million recognized in the corresponding period in the prior year. A table reconciling non-GAAP measures is included in the related press release for reference.
Turning to guidance, commercial revenues in calendar year 2022 are projected to be approximately $30 million, excluding BARDA revenues, which represents a 20% increase year-over year. We project BARDA revenues of approximately $0.3 million in calendar year 2022, as compared to $7.9 million in calendar year 2021, since we completed delivery of RECELL units into the national stockpile in 2021.
Josh Jennings, Cowen
I was hoping to focus on the pipeline and wanted to Mike just asked about the soft tissue top-line data and understand that there was comparable healing in that one of the co-primary endpoints, but maybe you could just help us understand that and give a little bit more detail on why you think that not hitting statistic, but non-inferiority can be overcome and just any details you can show the comparability and why you're confident that this submission is approvable?
Dr. Mike Perry
Sure, Josh. Thanks for the question. Really the aim of the study was to show that RECELL treatment in soft tissue injury results in equivalent healing while using less donor skin. So, we have co-primary endpoints, first endpoint, donor sparing -- donor skin sparing was achieved at P less than 0.001, so that one's claim.
The non-inferiority healing was achieved that P equals 0.048, which is equivalent to P less than 0.05, but was not achieved at the pre-specified statistical significance of P less than 0.025. And basically, what you're looking at is a 95% confidence interval around a two-sided T test for a 0.025. [CORRECTION: If you’re looking at a 95% confidence interval, around a one sided T test, which FDA often accepts for approval, then we’d need p<0.05 (which we have).]
If you're looking at a 95% confidence interval, around a one sided T test, which often has FDA access for approval, then you've got the 0.025 on a one sided T test. So based upon that, as well as based upon the benefit risk analysis, rather than just simple endpoint analysis that the FDA uses for class three medical devices.
We're very confident that based upon the results of this pivotal study that we're going to be able to file our PMA on our original timeline, and we're also strong in our conviction that it will receive FDA approval. Did that answer your question, Josh?
Josh Jennings
That did and thanks very helpful. Thanks Mike. And just any comment on just in terms of the safety events or adverse events in either the study group or the control group of I'm assuming you call them out that there really was no difference, but just wanted to clarify that?
Dr. Mike Perry
Yes, certainly there we did look at adverse events, of course, and there were no differences between the control and the treated arm.
Josh Jennings
Excellent. And just on the vitiligo trial, I'm not sure if you're sharing this. But all patients completed the follow-up period, and how do you -- how should we be expecting the presentation of that data? Are there any dermatology conferences upcoming in the back half of the year? Or should we respect the press release?
And then lastly, on top of that, sorry for two questions in one, but I just was wondering if it just in general either vitiligo or any other channels, whether there's any partnership opportunities that you're pursuing in commercialization, either in the brand space, or the dermatology space or the trauma space? Thanks for taking all the questions.
Dr. Mike Perry
Thanks Josh. I'll answer the first question. First on vitiligo, we do have all of the patients completed their six month endpoints, and we're looking at those data now. So, we're anticipating that we will be releasing those data, top line data shortly within the coming weeks. And relative to partnerships either in burns or in vitiligo, at this time, we are still planning for a go it alone strategy. And that said, we're still going to be opportunistic, relative to partnership opportunities, especially if they're going to be accretive to earnings and will look better overall for our revenue slopes and increasing revenues over time.
Matthew O'Brien, Piper Sandler
Thanks for taking my questions. Just to start here on the guide sort of back half the year. How did your core business do in the first half versus what you're implying in the second half, which does not slow down? Really, you're guiding to about 3% growth for the second half. While you're in this position, any insight into what you see that gives you pause to maybe bring up that guidance a little bit? Thank you. And I got one more after.
Dr. Mike Perry
Sure. Thanks for the question, Matt. We wanted to stick with a number that we're confident in, and we are confident in approximately 30 million. The reasons for that, given what we have in our first half of the year, are a combination of real seasonality with the business, potential supply chain issues, macroeconomics, the staffing issues that are prevalent in the hospitals, as well as potential COVID flares, which slow things down. So, really with that we're just holding tight in what we're confident of.
Matthew O'Brien, Piper Sandler
And just one more for me. On those labor shortages, which are ongoing and have been pervasive in the industry, are you seeing any improvements on that front? Any line of sight, and so when it'll be less of a headwind, maybe back half this year or sometime next year? And then if you could kind of reiterate how your new ease of use system is kind of improving that as well?
Dr. Mike Perry
Sure. Thanks again Matt. In relation to the labor shortages, we are not seeing an improvement there. The good news is it seems to have settled into at least a level of primarily the nursing shortage if we really want to pinpoint it.
And our trainings has increased from 200 a month to 300 a month, in order to keep up with the shortages. And we feel that that's an additional opportunity for us to get in with the surgeons, and we're turning a difficult situation into an opportunity for AVITA.
And so far as our ease of use device, we have launched that that's definitely a leg up that we have relative to the staffing shortages in the hospitals. And that's rolling out well being well received. And we continue to have confidence that this will help us and will move the adoption of RECELL further.
Ryan Zimmerman, BTIG
Congrats on the record revenue this quarter. I want to start actually on the burn market though for a moment and just talk about you referred to some deeper account penetration this quarter. And, Mike, if you could just talk about kind of, are you seeing lower TBSA? Are you seeing higher TBSA? Are you seeing customers stock up ahead of their push to outpatient? Just appreciate the color on the metrics, the step up and utilization amongst surgeons by our math was pretty meaningful quarter-over-quarter?
Dr. Mike Perry
We in general -- well, thanks for the question, Ryan. In general, what we're seeing that our top customers are stable, and we're getting a broader group of customers utilizing the RECELL device, which is exactly what we want. Relative to size, we're not seeing a substantial reduction in the size of burns that are being treated. That said, the trend is going toward smaller burns. And when you start looking at the TBSA, it's difficult. I would say no huge change would be correct.
Ryan Zimmerman, BTIG
Okay, I appreciate that that's helpful color. And turning Japan for a moment, you talked about reimbursement and pricing by year end 2022. What line of sight do you have with COSMOTEC I mean, in terms of certainty around that from the Japanese PMDA? And how should we think about kind of what we can expect in terms of reimbursement in Japan and whether that's sufficient to drive adoption? And the second part of that is, how do you think about adoption going in and '23 in Japan, assuming you can pick up what you need there?
Dr. Mike Perry
Sure. Thanks again, for that question, Ryan. For Japan, we're hearing very good things from our partner, COSMOTEC, and we do anticipate that we will have reimbursement from the MHLW discussions are ongoing. And we're still optimistic, if not confident that we'll have reimbursement by the end of this calendar year. I guess relative to the U.S. pricing is usually favorable, so relative to Europe or other countries.
But our situation is that based upon the reimburse price we've negotiated that will receive 40% of that reimburse price. And our partners are going with a stage in Japan. And they've actually already started basically teaching with our key opinion leaders in Japan, and we've shipped a number of kits. But we won't be able to go commercial until we've got that MHLW pricing.
Ryan Zimmerman, BTIG
Fair enough. And I could speak one last one. And then I'll hop back and queue. Gross margins really nice this quarter, Michael, can you maintain this kind of level of gross margin going forward? That's a nice step up from Q1.
Michael Holder
Thank you, Ryan, for your question. We do look to maintain these margins here at the low 80% level. So, we should be good with that going forward for the foreseeable future.
Dr. Mike Perry
Yes, we're good to add to that, Ryan, we're continuing to working on continued cost savings in the context of shipping, which will sustain or increase your gross margins.
Dr. Mike Perry
Well, I want to thank everybody for joining us today in our quarterly meeting. We're excited, very excited about the future and basically near-term milestones of submitting PMAs for both vitiligo and soft tissue reconstruction by the end of this calendar year with approvals in the second half of 2023.
With that, again, thank you for your kind attention, and let's close the meeting.
AVITA Medical is a regenerative medicine company leading the development and commercialization of devices and autologous cellular therapies for skin restoration. The RECELL® System technology platform, approved by the FDA for the treatment of acute thermal burns in both adults and children, harnesses the regenerative properties of a patient’s own skin to create Spray-On Skin™ cells. Delivered at the point-of-care, RECELL enables improved clinical outcomes and validated cost savings. RECELL is the catalyst of a new treatment paradigm and AVITA Medical is leveraging its proven and differentiated capabilities to develop first-in-class cellular therapies for multiple indications, including acute traumatic wounds and repigmentation of stable vitiligo lesions.
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