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Good afternoon everyone, and thank you for joining us today. I will begin today’s call by discussing highlights for the fourth quarter and full year as well as our expectations and guidance for 2023. Sean will then provide more detailed commentary on our financial performance before opening the call to Q&A.
To begin with, we had strong top line commercial revenue performance with $9.4 million dollars in Q4 2022, which is a 37% increase over the same period in the prior year. For the full-year 2022, our commercial revenue was $34.1 million dollars, which was a 36% increase over the prior year. As a reminder, commercial revenue includes all global revenue, and excludes the one- hundred thousand dollars BARDA revenue recognized in the quarter and four hundred thousand dollars for the year. I’d like to personally congratulate our field sales team for their successful 2022.
With respect to our two pending applications with the FDA, our PMA supplement for soft tissue was submitted on the 9th of December and our PMA application for vitiligo was submitted on the 16th. Both submissions, independently, have breakthrough device designation. As such, we have expedited review for both programs, which have each met or exceeded the primary endpoints in their respective studies used to support the applications. The 180-day review cycle would imply June approvals.
Notably, the soft tissue PMA supplement would significantly broaden our existing burns market and allow us to leverage our existing burns infrastructure. Our team has developed the commercial plans to maximize the soft tissue opportunity and to drive synergies between Burns and Soft Tissue Repair, which will drive our growth over the next three plus years. These synergies are significant and important.
First, soft tissue repair utilizes the same inpatient reimbursement and outpatient codes as burns. As such, both in-hospital reimbursement through a DRG and outpatient reimbursement through a transitional pass-through code will be effective immediately upon FDA approval for soft tissue indications.
Second, of the nearly 150 burn centers that we are presently approved to sell in, approximately half are also either level 1 or a level 2 trauma centers. Which means that these hospitals will have immediate access to the expanded label upon approval. Additionally, we will be adding approximately 1,000 hospital call points that are level 1 and level 2 trauma centers to our current 150 or so hospital call points.
Third, within the U.S. inpatient burn market, we are configured to only call on the U.S. burn centers, where 70% of the RECELL® eligible cases are treated. The expansion into level 1 and level 2 trauma centers positions our sales force to capture the remaining 30% of the burn market. In the second quarter, we will begin calling on these trauma centers. We will use this opportunity to begin promoting RECELL, for burns, in these level 1 and level 2 trauma centers, and begin seeking Value Analysis Committee approval that will allow for a more rapid soft tissue repair launch in July.
Together, these synergies offer us the unique opportunity to prepare for the full commercial launch of soft tissue on July 1, 2023, as we should have immediate access to our expanded indications and VAC approvals in many of those hospitals already upon PMA supplement approval.
Further, during the second quarter, we will initiate the planned expansion of our U.S. field sales organization. Currently, we have 30 field sales people that we will be expanding to approximately 70 field sales people, which includes both direct sales and clinical roles. This is ahead of the expected June approval of our PMA supplement for soft tissue repair such that the team is in place and trained at launch. This will result in a peak operating expense as a percent of revenue in Q3 2023. I emphasize that our contribution margin on a new field sales professional is breakeven with approximately five RECELL kits sold per month per individual. Currently, the average productivity of a direct sales rep exceeds 20 kits per month. This is what I like to call ‘weaponizing our gross profit’ to enhance market adoption and penetration where the sales force expansion pays for itself quickly.
For the vitiligo indication, we expect PMA approval in June 2023 as well. We are in the process of pursuing in-office reimbursement through the AMA CPT code process. It is our goal to secure Medicare reimbursement by January 2025. During the interim period, we will be implementing cash pay for vitiligo patients and physician sponsored studies to build our podium presence for an intended commercial launch in January 2025.
During our last call, I also committed to providing an update on our automation program. By way of background, currently the disaggregation of cells from the autologous sample is done manually and requires frequent training by our field sales team. Our automation device is designed to automate that disaggregation, which will require less training by our sales team and operating room staff, and will allow us to better leverage selling time by our field organization. We plan to submit our PMA supplement application to the FDA by June 30 of this year. Just like with soft tissue, we would be subject to the 180-day review cycle, and we project approval by January 2024.
As reported in Q4, we have begun our launch in Japan through our partner COSMOTEC. Early returns are very positive. These sales are recognized in U.S. dollars, and we will report Japan revenues in our footnotes in the foreign revenue line. During 2023, we expect that Japan will account for over 90% of those international revenues.
With respect to our broader international strategy, it remains on our agenda to communicate our strategy during the November Q3 earnings call.
With respect to 2023 guidance, as communicated, we will be providing updated annual and quarterly guidance every quarter. Our annual revenue guidance for 2023 is expected to be in the range of $49 million to $51 million dollars, which would be, at midpoint of guidance, 47% growth over 2022. For the first quarter of 2023, we expect commercial revenues to be between $10 million and $11 million dollars, at midpoint of this guidance, we would be up over 40% over the prior year.
As I have outlined, 2023 will be the year of inflection for AVITA Medical, transforming our business to encompass multiple indications and dramatically expanding our growth trajectory. Our regulatory and commercial teams are making great strides, and I look forward to updating you on our progress on future calls.
In the three months ended December 31, 2022, our commercial revenue, which excludes BARDA revenue, increased by 37% to $9.4 million, compared to $6.8 million in the same period in 2021. Total revenue, which includes BARDA revenue, increased by 36% to $9.5 million compared to $6.9 million in the same period in 2021.
Gross profit margin was 86% compared to 88% for the fourth quarter of 2021.
Total operating expenses for the quarter increased by 2% to $15 million, compared to $14.8 million in the same period in 2021. The increase in operating expenses is attributable to increased selling expenses, pre-commercialization costs, and salaries and benefits, partially offset by lower research and development and share-based compensation expenses. Higher selling costs are attributable to increased commissions, travel costs and training events associated with increased sales activity. Increased pre-commercialization costs are driven by activities related to future RECELL launches in soft tissue repair and vitiligo. Higher salaries and benefits are driven by the expansion of our workforce to support the overall operations. Research and development costs were lower due to the following: The pediatric burn study was closed for enrollment, soft tissue repair and vitiligo trial participants were in a less costly follow-up phases this period compared to more costly recruitment and treatment phases in the prior period, along with lower expenses for sponsored research agreements toward pipeline development. In addition, we had lower development expenses in the current year from ongoing development of next generation devices for automated preparation of Spray-On Skin™ Cells as we are currently in a lower cost project phase compared to the prior year. Share-based compensation expense was lower due to a reversal in the current period of a previously recognized expense for unvested awards related to the termination of a former executive officer.
Net loss decreased by 37% to $5.4 million, or $0.21 per share, compared to a net loss of $8.5 million, or $0.34 per share, in the same period in 2021.
Adjusted EBITDA loss decreased by 39% to $4.0 million, compared to a loss of $6.5 million in the same period in 2021.
For the full year ended December 31, 2022, our commercial revenue increased by 36% to $34.1 million, compared to $25.1 million in the same period in 2021. The growth in commercial revenues was largely driven by deeper penetration within individual customer accounts along with the commencement of commercial sales with our partner COSMOTEC in Japan. Total revenue increased by 4% to $34.4 million compared to $33 million in the same period in 2021.
Gross profit margin was 82%, relatively flat compared to the same period in 2021.
Total operating expenses increased by 10% to $59.1 million compared to $53.6 million in the same period in 2021. The increase in operating expenses is attributable to higher salaries and benefits, pre-commercialization costs, selling costs, share-based compensation expenses, partially offset by lower research and development expenses. Higher salaries and benefits were primarily a result of the expansion of our commercial team along with an increase in our workforce to support the overall operations. In addition, we incurred severance costs in the current year associated with the termination of a former executive officer. Higher pre-commercialization costs are driven by activities related to future RECELL launches in soft tissue repair and vitiligo. Higher selling costs are attributable to increased commissions, travel costs and training events due to increased sales activity. Share-based compensation expenses were higher in the current year driven by new equity grants, partially offset by a reversal of a previously recognized expense for unvested awards related to the termination of a former executive officer. Research and development costs were lower due to the following: the pediatric burn study was closed for enrollment, soft tissue repair and vitiligo trial participants were in less costly follow-up phases in this period compared to more costly recruitment and treatment phases in the prior period, and a lower expense for sponsored research towards pipeline development in the current period. This is partially offset by higher development expenses in the current year from ongoing development of next generation devices for an automated preparation of Spray-On Skin™ Cells, as compared to the prior year due to early prototype development and testing.
Net loss was $26.7 million, or $1.07 per share, compared to a net loss of $25.1 million, or $1.03 per share, in the same period in 2021.
Adjusted EBITDA loss was $19 million, compared to a loss of $18.1 million in the same period in 2021.
A table reconciling non-GAAP measures is included in today’s press release for reference.
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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 soft tissue repair and repigmentation of stable vitiligo lesions.
