AVITA Medical, Inc. (RCEL) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Stockholders of AVITA Medical, Inc. Please note that today's meeting is being recorded. It is now my pleasure to turn today's meeting over to Lou Panaccio, Chair of the Board. Mr. Panaccio, the floor is yours.

Thank you, and good day, ladies and gentlemen, and welcome to the 2023 Annual Meeting of Stockholders of AVITA Medical. I am Lou Panaccio, Chair of the Board of AVITA Medical. It is just after 3 p.m. Pacific Daylight Time and 8 a.m. Australian Eastern Standard Time. Will the meeting please come to order? It is my pleasure to preside over this meeting. On behalf of the company's Board of Directors, I thank you for joining us. We appreciate your attendance, your interest and, most importantly, your support of AVITA Medical. This annual meeting of the stockholders is held pursuant to the bylaws of the company and written notice to all stockholders. You are participating in the meeting virtually as this meeting is being held exclusively by way of this live webcast and there is no physical meeting. Stockholders may submit questions at any time during the meeting in the space provided on the virtual meeting screen. Additionally, we will have a general question-and-answer period following the presentation of voting items to address pertinent questions related to the matters discussed at today's meeting. Before we begin, I would like to introduce the directors of AVITA Medical who are in attendance today. We welcome our CEO and Executive Director, Mr. Jim Corbett; and our nonexecutive directors, Mr. Jeremy Curnock-Cook, Professor Suzanne Crowe, Mr. Jan Stern Reed as well as our 2 new nonexecutive director nominees, Mr. Robert McNamara and Mr. Cary Vance. We're also joined by the company's Interim Chief Financial Officer, Sean Ekins and the company's General Counsel, Donna Shiroma. Representatives are also present from AVITA Medical's United States legal advisers, K&L Gates, represented by Chris Cunningham; the company's Australian legal advisers, Lander & Rogers, represented by David Morris and Breanna Taylor; the company's Australian share registry, Computershare, represented by Rod Somes, with a portion of our share registry held in Australia in the form of CDRs; and Mark Licciardo from Acclime Australia, who serves as the company's Australian local agent. Our independent registered public accounting firm, Grant Thornton, represented by Cathy Hyodo. In accordance with our bylaws, I will act as Chairman of the meeting; and Ms. Donna Shiroma, our General Counsel, will act as the secretary of the meeting. Should you be experiencing any technical difficulties, please call the telephone numbers on the screen. Before we move to the formal business of this year's meeting, I would like to share AVITA Medical's significant achievements in 2022. First, AVITA Medical delivered strong 2022 results, ending the year in a solid financial position. The company's full year commercial revenue was up 36% from the prior year and it ended the year with a strong balance sheet of USD 86.3 million in cash, cash equivalents and marketable securities with 0 debt. Earlier in 2022, the company announced that the U.S. Food and Drug Administration approved its premarket approval supplement application for our Ease of Use RECELL device. Customers prefer this version of RECELL as it streamlines workflow, reduces training efforts from both the customer and the AVITA medical team. In 2022, AVITA Medical grew its commercial presence in Japan. In the first quarter, the company received regulatory approval from Japan's Pharmaceuticals and Medical Devices Agency to market RECELL for the treatment of acute burns in Japan. The approval was championed by the company's Japanese distributor partner, Cosmotec. Shortly after, Japan's Ministry of Health, Labor and Welfare granted the RECELL system marketing approval with favorable reimbursement, and Cosmotec placed its initial stocking order, followed by a commercial launch in fourth quarter 2022. In the third quarter 2022, the company released positive top line results from our pivotal trials of 2 new indications, RECELL for the use of soft tissue repair and vitiligo. Both trials met or exceeded the primary endpoints in their respective studies. Soon after, the FDA granted the RECELL system the Breakthrough Device designation for both proposed indications. The company ended the year with 2 submissions to the FDA: a PMA application to expand the indication of RECELL to include soft tissue repair; and a PMA application to expand the clinical application of RECELL to include the treatment of stable vitiligo. Lastly, AVITA Medical's core strength lies in its people. In addition to welcoming Jim Corbett as CEO in September 2022, the company onboarded new talent, made organizational changes to advance the strategic growth plans and drive sustained growth. On behalf of the Board of Directors, we remain committed to working alongside management to achieve the company's corporate goals and continue to deliver value for our shareholders. AVITA Medical thanks you for your continued support and encouragement. Following the conclusion of this meeting's formal business, our CEO, Jim Corbett, will provide a company update. We will now take up the items to be acted upon. The Board of Directors has appointed Kerri Shenkin of Computershare U.S. to serve as the independent inspector of the election for this meeting. I request that she file her oath of office with the Secretary of the meeting for inclusion in the minutes of this meeting. Will the Secretary please report on the proof of notice of meeting?

Yes. I have an affidavit of mailing from Broadridge Financial Solutions certifying as to the giving of notice of this meeting and the sending to holders of common stock of record as of April 13, 2023, Pacific Time, the notice of Internet availability of proxy material, all of which Broadridge commenced distributing to stockholders on April 18, 2023. I also received confirmation of mailing from Computershare Australia confirming as to the giving of notice of this meeting and the sending to holders of CDI the proxy material and voting instruction form, all of which Computershare Australia commenced distributing to holders of CDI on April 19, 2023. I also have a copy of the annual report on Form 10-K for the fiscal year ending December 31, 2022, which includes financial statements certified by Grant Thornton. A copy of this annual report was sent or made available to each stockholder entitled to vote at this meeting, and an electronic copy of the annual report can be accessed by clicking on the link located at the virtual meeting center. The notice of meeting and the affidavits of mailing, together with the attachments thereto and the annual report for the fiscal year ending December 31, 2022, will be filed with the minutes of this meeting.

The Secretary has the list of the holders of record of common stock of the company at the close of business on the record date. This list of stockholders can be made available upon request to stockholders, and the secretary will file a copy of the list of stockholders with the records of the company. Ms. Shiroma, will you please present your report of attendance at this meeting so that we can determine whether a quorum is present?

Mr. Chairman, on April 13, 2023, Pacific Time, the record date for this annual meeting, there were, outstanding and entitled to vote, a total of 25,327,761 shares of common stock including the underlying shares of common stock represented by CDIs. I have been informed by the inspector of election that there are 13,127,305 shares of stock represented by proxy or approximately 52% of all the shares entitled to vote at this annual meeting. The shares so represented exceed 50% of the total shares entitled to vote at this meeting and thus constitute a quorum.

Thank you, Ms. Shiroma. On the basis of the report of the Secretary and the Inspector of Election, I find that proper notice has been given and that a quorum is present. Accordingly, this meeting has been properly convened. It is 3:11 p.m. Pacific Time on June 6, 2023, and the polls for voting on all matters are open. All U.S. holders of common stock entitled to vote at this meeting have the ability to do so online as referenced in your proxy materials. If you are a stockholder entitled to vote and have not yet voted or if you want to change your previously cast vote, please do so via the website used to access this meeting or via the instructions in your proxy materials for submitting your proxy vote. If you are a holder of CDRs, in accordance with your voting instructions, you should have previously submitted your voting instructions to Computershare Australia no later than 12:30 p.m. Australian Eastern Standard Time on June 6, 2023. Please remember that if you have already voted by proxy, it is not necessary to vote again. After voting has been completed on all matters on the agenda, we will close the polls. The Board of Directors recommend a vote for all the nominees listed in proposal 1 and a vote for proposals 2 to 14, except where their personal interest in a proposal causes them to abstain. We will now move to a review of the proposals. The first proposal to come before the meeting is the election of directors. At this meeting, we will be electing each of the 7 directors for a 1-year term or until their respective successors have been duly elected and qualified. The nominees are: Mr. Lou Panaccio, Non-Executive Chair; Mr. Jim Corbett, Executive Director and CEO; Mr. Jeremy Curnock-Cook, Non-Executive Director; Professor Suzanne Crowe, Non-Executive Director; Ms. Jan Stern Reed, Non-Executive Director; Mr. Robert McNamara, Director Nominee; and Mr. Cary Vance, Director Nominee. Information concerning their principal occupations, service as AVITA Medical Board members, skills and qualifications and other matters which may be of interest are contained in the proxy statement and the annual report. No other nominations were received prior to the deadline established in the company's bylaws, therefore no additional nominations may be made at this meeting, and I declare the nominations to be closed. Proposal 2 asks stockholders to ratify the appointment of Grant Thornton as the company's independent registered public accounting firm for the fiscal year ending December 31, 2023, as described in the company's proxy statement. As I have a direct interest in the next proposal to be put to the meeting, I will hand the chair to Professor Suzanne Crowe.

Proposal 3 asks stockholders to approve the grant of restricted stock units to acquire shares of common stock of the company which may be represented by CDIs equal in value to USD 87,500 at the time of the grant and the grant of options to acquire shares of common stock of the country, which may be represented by CDIs equal in value to USD 37,500 at the time of the grant to Mr. Lou Panaccio on the terms and conditions set out in the proxy statement pursuant to and for the purposes of ASX Listing Rule 10.11. I now hand the chair back to Mr. Panaccio.

Thank you, Suzanne. I will now continue with the remaining proposals. Proposal 4 asks stockholders to approve the grant of restricted stock units to acquire shares of common stock of the company, which may be represented by CDIs equaling value to USD 87,500 at the time of the grant and the grant of options to acquire shares of common stock of the company, which may be represented by CDIs equaling value to USD 37,500 at the time of the grant to Professor Suzanne Crowe on the terms and conditions set out in the proxy statement pursuant to and for the purposes of ASX Listing Rule 10.11. Proposal 5 asks stockholders to approve the grant of restricted stock units to acquire shares of common stock of the company, which may be represented by CDIs equal in value to USD 87,500 at the time of the grant and the grant of options to acquire shares of common stock of the company, which may be represented by CDRs, equaling value to USD 37,500 at the time of the grant to Mr. Jeremy Curnock-Cook on the terms and conditions set out in the proxy statement pursuant to and for the purposes of ASX Listing Rule 10.11. Proposal 6 asks stockholders to approve the grant of restricted stock units to acquire shares of common stock of the company which may be represented by CDIs equal in value to USD 87,500 at the time of the grant and the grant of options to acquire shares of common stock of the company, which may be represented by CDIs equaling value to USD 37,500 at the time of the grant to Ms. Jan Stern Reed on the terms and conditions set out in the proxy statement, pursuant to and for the purposes of ASX Listing Rule 10.11. Proposal 7 asks stockholders to approve the grant of restricted stock units to acquire shares of common stock of the company, which may be represented by CDIs equal in value to USD 147,000 at the time of the grant and the grant of options to acquire shares of common stock of the company, which may be represented by CDIs equal in value to USD 63,000 at the time of the grant to Mr. Robert McNamara on the terms and conditions set out in this proxy statement pursuant to and for the purpose of ASX Listing Rule 10.11 in recognition of Mr. McNamara being appointed as a new Director of the company during 2023. Proposal 8 asks stockholders to approve the grant of restricted stock units to acquire shares of common stock of the company, which may be represented by CDIs equal in value to USD 87,500 at the time of the grant and the grant of options to acquire shares of common stock of the company, which may be represented by CDIs, equal in value to USD 37,500 at the time of the grant to Mr. Robert McNamara on the terms and conditions set out in the proxy statement pursuant to and for the purposes of ASX Listing Rule 10.11. Proposal 9 asks stockholders to approve the grant of restricted stock units to acquire shares of common stock of the company, which may be represented by CDIs equal in value to USD 147,000 at the time of the grant and the grant of options to acquire shares of common stock of the company, which may be represented by CDIs, equal in value to USD 63,000 at the time of the grant to Mr. Cary Vance on the terms and conditions set out in this proxy statement pursuant to and for the purposes of ASX Listing Rule 10.11 in recognition of Mr. Vance being appointed as a new Director of the company during 2023. Proposal 10 asks stockholders to approve the grant of restricted stock units to acquire shares of common stock of the company, which may be represented by CDIs equal in value to USD 37,500 at the time of the grant and the grant of options to acquire shares of common stock of the company, which may be represented by CDIs equal in value to USD 37,500 at the time of the grant to Mr. Cary Vance on the terms and conditions set out in the proxy statement pursuant to and for the purposes of ASX Listing Rule 10.11. Proposal 11 asks stockholders to approve the grant of options to acquire 100,000 shares of common stock of the company which may be represented by CDIs to Mr. Jim Corbett on the terms and conditions set out in the proxy statement pursuant to and for the purposes of ASX Listing Rule 10.11. Proposal 12 asks stockholders to approve, a, an amendment to the 2020 Omnibus Incentive Plan, the terms of which are summarized in this proxy statement; and b, for the purposes of ASX Listing Rule 7.2, Exception 13 B and for all other purposes, the issue of equity securities in the company under and subject to the terms of the plan for 3 years commencing on the date of this proposal is approved by the company's stockholders as an exception to ASX Listing Rule 7.1. Proposal 13 asks stockholders to approve: a, the adoption of the company's employee stock purchase plan, the terms of which are summarized in this proxy statement; and b, for the purposes of ASX Listing Rule 7.2, Exception 13 B and for other purposes, the issue of equity securities in the company under and subject to the terms of the employee stock purchase plan within 3 years from the date that this proposal is approved by the company's stockholders as an exception to ASX Listing Rule 7.1. This next proposal is advisory. Proposal 14 asks stockholders to approve on a nonbinding basis the compensation paid to the company's named executive officers as disclosed in the Executive Compensation Discussion section in the annual report on Form 10-K, which was filed with the SEC and ASX on February 23, 2023, in the U.S., February 24, 2023, in Australia. The polls are about to close, so if you have not yet voted, please do so. [Voting]

Since everyone has had the opportunity to vote, it is now 3:23 p.m. Pacific Time, and the polls are closed. We will announce the results of the voting as soon as possible following the close of this meeting via announcements to be filed with the U.S. Securities and Exchange Commission and the Australian Securities Exchange. That concludes the business of this meeting. The meeting is now adjourned. I now invite you to ask any questions that you may have as it relates to the contents of today's meeting. Please follow the instructions provided on the virtual meeting screen to submit questions.

Mr. Chairman, we do not have any questions at this time.

Thank you, Ms. Shiroma. Well, thank you. This concludes the Annual Meeting of Stockholders. Thank you for your attendance. Thank you for attending. And for those who wish to stay on, our CEO, Mr. Jim Corbett, will present a company update. Thanks, Jim.

Thank you, Mr. Chairman. For those of you who may be new to AVITA, I'm going to take a moment and introduce the background of what AVITA does. We're a regenerative medicine company transforming the standard of care for skin restoration with our innovative cellular technology platform. The RECELL system includes autologous cell harvesting device and prepares, produces and delivers regenerative cellular suspension, Spray-On Skin Cells, within 30 minutes at the point of care. Spray-On Skin Cells contain cells necessary to regenerate the patient's outer layer of natural healthy skin as well as cells that modulate and catalyze the healing process. Our current U.S. indication is acute thermal burns. Pending U.S. indications are for a PMA supplement for soft tissue repair and a PMA application for the treatment of the autoimmune condition of vitiligo. The core advantages of the RECELL system is that it utilizes a very small skin sample from the patient, significantly less skin relative to conventional skin graft treatment. Suspension created at patient's bedside within 30 minutes further supports healing at the cellular level. Multi-cell regenerative therapy in single point-of-care procedure, reducing hospital length of stay. From a process point of view, using the RECELL system, a patch of healthy skin is removed from the patient. The RECELL processes healthy -- the RECELL system and the device processes healthy skin and disaggregate cells to produce regenerative autologous suspension Spray-On Skin Cells. Third, the autologous suspension is sprayed onto the treatment areas of patient with a unique applicator. RECELL enables regeneration of healthy skin and free cells modulate and catalyze the healing process. This single platform has multiple indications. In the U.S., currently, we have an indication for burns with an outpatient and inpatient reimbursement, and in Japan with burns as well. We currently have an application previously referred to as soft tissue repair pending for approval under the Breakthrough Medical Device designation. The 180-day mark is tomorrow, June 7, so we expect approval at any time. We also have a PMA submission pending for vitiligo. It also is covered under the Breakthrough Device designation, and we expect that approval on the 180-day mark, which is June 16. In 2023, there was a number of highlights and milestones. In the first quarter of 2023, we grew at a rate of 40% over the same quarter of the prior year. We initiated the expansion of our field sales organization, initiating the recruiting and the hiring process and grew from 30 to 69 towards a goal of 70 individuals in our commercial organization. Onboarding and training is underway and is ahead of schedule and will be prepared for the expected approval in the next day or two. Soft tissue repair, the designation of our PMA supplement, is probably better referred to as full-thickness skin defects. And on forward communication, we will be modifying our definition of this PMA supplement. As I mentioned earlier, this PMA supplement is covered under the FDA Breakthrough Device designation. The vitiligo approval is expected later in June on the 16th, and we will be pursuing reimbursement for vitiligo at the site of service of the physician's office, and we are expected to produce revenue for vitiligo during 2025. As well, we have invented and created a device called RECELL GO. It's a durable device, with a disposable that processes the skin sample and disaggregates automatically so the physician and staff do not have to do so for them as they currently do. This device is also covered under Breakthrough Device designation. We expect to submit for FDA approval through an FDA supplement on June 30 or before of 2023. This would put 180 days past on January 1, 2024. There's a significant overlap of burns and the full-thickness skin defect segment. There is nearly 35,000 burns, 25,000 that are treated in the burn centers, where we have had our sales force concentrated on up until tomorrow. Approximately 150 burn centers constitute our target accessible market. The other 10,000 burns cases that are RECELL eligibles exist in the Level 1 trauma centers, where 110,000 targeted full-thickness skin defects also exist. And in this overlap, 50% of the 145 burn centers are Level 1 trauma centers. We have reimbursement for burns, inpatient and outpatient. And for the procedures that will be covered under the full-thickness skin defect approval, we also have inpatient and outpatient reimbursement. The vitiligo opportunity was submitted in December 2022. From a primary end point point of view, the proportion of patients achieving repigmentation for RECELL sites at the control week at week 24 was greater than 80%. That is a superiority over what we established for the primary end point. The proposed RECELL indication represents first-in-class repigmentation transplantation of melanocytes. Our plans for 2023 and 2024 are to conduct a post-market study of approximately 100 patients to demonstrate the cure and the mental health benefits of the vitiligo treatment. The vitiligo market is approximately 5x the size of the combined burns and full-thickness skin defect market. Vitiligo opens a significant market application of RECELL and the site of service reimbursement for RECELL is expected in 2025. 2023 is truly a year of inflection for the company. We're expecting 2 FDA approval indications, one for full-thickness skin defects, previously referred to as soft tissue repair; one for vitiligo. We plan to file by June 30 of this month the RECELL GO Breakthrough Device designated FDA submission, and we have plans to have an international expansion strategy to be communicated during Q3 2023 earnings release. Looking ahead, our commercial revenue, excluding BARDA, for Q2 2023, previously communicated in our first quarter call, is between USD 10.7 million and USD 11.7 million. We've held our annual guidance constant from the first quarter for 2023 at USD 49 million to USD 51 million. From an expectations point of view, we have the burn market, which we continue to grow. We have the full-thickness skin defects known previously as soft tissue repair and represents at least a 5x expansion of our burn center opportunity. We have the vitiligo approval, which will happen also during June, the 180-day mark being June 17, which is a 5x expansion of the full-thickness skin defect plus burns market, so we have a dramatically increasing market opportunity for RECELL. We've been preparing our organization for this expansion and are fully ready for launch for the full-thickness skin defect expansion. Our outlook for the next 3 to 5 years is driven by the burns and full-thickness skin defect market, with vitiligo joining our growth prospects in 2025, and our international expansion plans will be communicated by the end of year 2023 and begin contributing in 2024. RECELL is a truly revolutionary treatment for treating patients with their own skin. We really are focused on the benefits that RECELL provides to patients and, therefore, their families. We thank you very much for attending this year's Annual Shareholders' Meeting, and thank you again for joining us today.

This concludes the meeting. You may now disconnect.