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AVITA Medical, Inc.

AVITA Medical, Inc.RCELEarnings & Financial Report

Nasdaq · health care industry

Avita Medical is a clinical and commercial company developing and marketing a range regenerative medicine products. The first regenerative medicine product brought to the market by Avita Medical was ReCell spray-on skin for the treatment of burns. The two latest products are ReNovaCell, for Aesthetics and Plastic applications including skin trauma, and ReGenerCell for the treatment of chronic wounds. The Avita Medical regenerative product range is currently marketed in Europe, the Middle East...

What changed in AVITA Medical, Inc.'s 10-K — 2022 vs 2023

Top changes in AVITA Medical, Inc.'s 2023 10-K

341 paragraphs added · 355 removed · 218 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

79 edited+47 added−74 removed50 unchanged
In the U.S., several existing reimbursement codes were in place prior to the commencement of commercial sales of the RECELL System. For inpatient treatment of burn patients, U.S. hospitals are reimbursed under DRG (Diagnosis Related Group) Codes based on diagnosis of a patient’s injuries.
In the U.S., several existing reimbursement codes were in place prior to the commencement of commercial sales of the RECELL System. For inpatient treatment of burn patients, U.S. hospitals are reimbursed under Diagnosis Related Group ("DRG") Codes based on diagnosis of a patient’s injuries.
For physicians, CPT (Current Procedural Terminology) codes for use in RECELL System procedures are recommended by the American Burn Association and are the same for both inpatient and outpatient use.
For physicians, Current Procedural Terminology ("CPT") codes for use in RECELL System procedures are recommended by the American Burn Association and are the same for both inpatient and outpatient use.
With each iteration of our RECELL System development, we anticipate preservation of the therapeutic power of Spray-on Skin Cells, deployed in devices that become appropriate for use in an increasing range of clinical settings.
With each iteration of our RECELL System, we anticipate preservation of the therapeutic power of Spray-on Skin Cells, deployed in devices that become appropriate for use in an increasing range of clinical settings.
Treatments to restore pigmentation include skin grafting, laser phototherapy (with and without topicals), and Melanocyte-Keratinocyte Transplantation Procedure (“ MKTP ”). MKTP requires expensive and substantial laboratory equipment and is currently only available in a handful of locations in the U.S. RECELL does not treat underlying autoimmune disease. Rather, it works to restore pigmentation.
Treatments to restore pigmentation include skin grafting, laser phototherapy (with and without topicals), and Melanocyte-Keratinocyte Transplantation Procedure (“MKTP”). MKTP requires expensive and substantial laboratory equipment and is currently only available in a handful of locations in the U.S. RECELL does not treat underlying autoimmune disease. Rather, it works to restore pigmentation.
Furthermore, the Company itself will continue to comply with all relevant FDA requirements and regulations and any applicable international agency regulatory requirements in its continued manufacturing and promotion of its FDA approved commercial product. 11 Table of Contents In addition to FDA approval in the U.S., the RECELL System has received various approvals and registrations in international markets.
Furthermore, the Company itself will continue to comply with all relevant FDA requirements and regulations and any applicable international agency regulatory requirements in its continued manufacturing and promotion of its FDA approved commercial product. 10 Table of Contents In addition to FDA approval in the U.S., the RECELL System has received various approvals and registrations in international markets.
Our goal is to establish RECELL as the standard of care for any burn injury that requires grafting for patients with 5% TBSA injury or greater. In the U.S., we estimate that there are approximately 35,000 patients annually that could benefit from our technology.
Looking ahead, our goal is to establish RECELL as the standard of care for any burn injury that requires grafting for patients with 5% TBSA injury or greater. In the U.S., we estimate that there are approximately 35,000 patients annually that could benefit from our technology.
AKS prohibits any person from soliciting, offering, receiving, or providing any remuneration in cash or in kind, whether directly or indirectly, to induce or reward the referral, purchase, lease, order, or recommendation of any item or service for which payment may be made in whole or in part under a federal healthcare program such as Medicare and Medicaid • The Federal False Claims Act (“ FCA ”).
AKS prohibits any person from soliciting, offering, receiving, or providing any remuneration in cash or in kind, whether directly or indirectly, to induce or reward the referral, purchase, lease, order, or recommendation of any item or service for which payment may be made in whole or in part under a federal healthcare program such as Medicare and Medicaid. • The Federal False Claims Act (“FCA”).
These regulations govern our advertising and promotional practices, our interactions with healthcare providers (“ HCPs ”), and our reporting of any payments made to HCPs. AVITA Medical is committed to the highest standards of business conduct in accordance with the AdvaMed Code of Ethics.
These regulations govern our advertising and promotional practices, our interactions with healthcare providers (“HCPs”), and our reporting of any payments made to HCPs. AVITA Medical is committed to the highest standards of business conduct in accordance with the AdvaMed Code of Ethics.
The market is expected to grow, especially over the next decade, with the advent of novel treatment options including oral and topical Janus Kinase (“ JAK ”) inhibitors, such as Opzelura. Although these new products will both stabilize and re-pigment some patients, it is anticipated that many patients will need additional modes of treatment for re-pigmentation.
The market is expected to grow, especially over the next decade, with the advent of novel treatment options including oral and topical Janus Kinase (“JAK”) inhibitors, such as Opzelura. Although these new products will both stabilize and re-pigment some patients, it is anticipated that many patients will need additional modes of treatment for re-pigmentation.
AVAILABLE INFORMATION The Company files annual, quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission (“ SEC ”) under the Exchange Act. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
AVAILABLE INFORMATION The Company files annual, quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission (“SEC”) under the Exchange Act. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
It also imposes criminal and civil liability and penalties on those who violate requirements such as mandatory contractual terms which are intended to safeguard the security, transmission and use of individually identifiable health information. Various state and foreign laws also govern the privacy and security of health information such as the European Union General Data Protection Regulation (“ GDPR ”).
It also imposes criminal and civil liability and penalties on those who violate requirements such as mandatory contractual terms which are intended to safeguard the security, transmission and use of individually identifiable health information. Various state and foreign laws also govern the privacy and security of health information such as the European Union General Data Protection Regulation (“GDPR”).
We also lease a limited amount of incubator space in Irvine, California for scientific research and product development activities. MANUFACTURING, SUPPLY AND PRODUCTION We produce the RECELL System in the Ventura facility under current Good Manufacturing Practices (“ cGMP ”) and per ISO 13485, which also meets the regulatory requirements of other jurisdictions in which we sell the RECELL System.
We also lease a limited amount of incubator space in Irvine, California for scientific research and product development activities. MANUFACTURING, SUPPLY AND PRODUCTION We produce the RECELL System in the Ventura facility under current Good Manufacturing Practices (“cGMP”) and per ISO 13485, which also meets the regulatory requirements of other jurisdictions in which we sell the RECELL System.
Additionally, in adhering to federal reporting requirements, all relevant state marketing reporting regulations, any payments, and transfers of value to physicians and teaching hospitals, as well as other categories of disclosures must be reported annually. 12 Table of Contents Privac y AVITA Medical must comply with the federal Health Insurance Portability and Accountability Act of 1996 (“ HIPAA ”) which imposes criminal and civil liability for, among other conduct, making false statements relating to healthcare matters and executing a scheme to defraud any healthcare benefit program.
Additionally, in adhering to federal reporting requirements, all relevant state marketing reporting regulations, any payments, and transfers of value to physicians and teaching hospitals, as well as other categories of disclosures must be reported annually. 11 Table of Contents Privac y AVITA Medical must comply with the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) which imposes criminal and civil liability for, among other conduct, making false statements relating to healthcare matters and executing a scheme to defraud any healthcare benefit program.
In general, we have found that most U.S. burn centers follow the industry-standard process of evaluating the RECELL System and then taking it through their hospital’s Value Analysis Committee (“ VAC ”) prior to purchasing.
In general, we have found that most U.S. burn centers follow the industry-standard process of evaluating the RECELL System and then taking it through their hospital’s Value Analysis Committee (“VAC”) prior to purchasing.
Pursuant to its authority under the Federal Food, Drug, and Cosmetic Act (the “ FD&C Act ”), the FDA has jurisdiction over medical devices in the U.S. The FDA regulates the design, development, manufacturing, and distribution of medical devices to ensure that medical products distributed domestically are safe and effective for their intended uses.
Pursuant to its authority under the Federal Food, Drug, and Cosmetic Act (the “FD&C Act”), the FDA has jurisdiction over medical devices in the U.S. The FDA regulates the design, development, manufacturing, and distribution of medical devices to ensure that medical products distributed domestically are safe and effective for their intended uses.
The trial is essentially a repeat of the successful previous trial in full-thickness burns, but with a population of patients with full-thickness, non-burn injuries.
The trial was essentially a repeat of the successful previous trial in full-thickness burns, but with a population of patients with full-thickness, non-burn injuries.
From time-to-time we may also store small quantities of the RECELL System at satellite distribution sites within the U.S. to better support access of the RECELL System to our U.S. customers. BARDA CONTRACT We have a contract with the BARDA, under the Assistant Secretary for Preparedness and Response, within the U.S.
From time-to-time we may also store small quantities of the RECELL System at satellite distribution sites within the U.S. to better support access of the RECELL System to our U.S. customers. BARDA CONTRACT We have a contract with BARDA, under the Assistant Secretary for Preparedness and Response, within the U.S. Department of Health and Human Services.
Similar to the burns indication, soft tissue repair is associated with large areas of skin loss and as such, some of the top unmet needs identified by surgeons are closely aligned: • Reduced donor skin harvesting • Reduced scarring • Reduced pain • Uniform pigmentation with surrounding skin Given the interest to reduce donor skin harvesting, just as with the burns indication, we designed a clinical trial to demonstrate the use of less donor skin without compromising healing outcomes relative to conventional autografting.
Similar to the burns indication, full-thickness skin defects are associated with large areas of skin loss and as such, some of the top unmet needs identified by surgeons are closely aligned: • Reduced donor skin harvesting • Reduced scarring • Reduced pain • Uniform pigmentation with surrounding skin Given the interest to reduce donor skin harvesting, just as with the burns indication, we designed a clinical trial to demonstrate the use of less donor skin without compromising healing outcomes relative to conventional autografting.
As of December 31, 2022, we had 126 employees full-time and part-time employees. As of December 31, 2022, 98% of our workforce was based in the United States, with a significant number of our management and professional employees having prior experience with leading medical product, biotech, or pharmaceutical companies. None of our employees are covered by collective bargaining agreements.
As of December 31, 2023, we had 207 full-time and part-time employees. As of December 31, 2023, 99% of our workforce was based in the United States, with a significant number of our management and professional employees having prior experience with leading medical product, biotech, or pharmaceutical companies. None of our employees are covered by collective bargaining agreements.
In addition, RECELL has been successfully used outside the U.S. for many years and there exist several case reports on the treatment of traumatic injuries (soft tissue repair) that have been the subject of peer-reviewed scientific publications and presentations at medical conferences.
In addition to these results, RECELL has been successfully used outside the U.S. for many years and there exist several case reports on the treatment of traumatic injuries that have been the subject of peer-reviewed scientific publications and presentations at medical conferences.
Foreign Corrupt Practices Act (“ FCPA ”) prohibits any U.S. individual or business from paying, offering, or aut horizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party, or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business.
Foreign Corrupt Practices Act (“FCPA”) prohibits any U.S. individual or business from paying, offering, or authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party, or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business.
Vitiligo rates a ‘7.61’ on the Dermatology Life Quality Index (“ DLQI ”), which is in the same range of other aesthetic dermatological disease analogs which receive healthy positive reimbursement such as Rosacea (5.2), Psoriasis (9.3) and Atopic Dermatitis (12.79).
Vitiligo rates a 7.61 on the Dermatology Life Quality Index (“DLQI”), which is in the same range of other aesthetic dermatological disease analogs which receive healthy positive reimbursement such as Rosacea (5.2), Psoriasis (9.3) and Atopic Dermatitis (12.79).
Department of Health and Human Services, Office of Inspector General. Such laws prohibit medical device manufacturers from offering or providing certain types of payments or gifts to health care providers; and/or require the disclosure of gifts or payments to healthcare providers. Interactions with Foreign Officials and Entities The U.S.
Such laws prohibit medical device manufacturers from offering or providing certain types of payments or gifts to health care providers; and/or require the disclosure of gifts or payments to healthcare providers. Interactions with Foreign Officials and Entities The U.S.
In a STSG, or autograft, donor skin is harvested from a healthy area of the patient’s skin. The donor skin is then typically perforated into a mesh that can be expanded and transferred to cover the prepared burn injury. Treatment with STSG results in additional trauma for the patient due to creation of a new donor site wound.
The donor skin is then typically perforated into a mesh that can be expanded and transferred to cover the prepared burn injury. Treatment with STSG results in additional trauma for the patient due to creation of a new donor site wound.
BARDA exercised a contract option to fund a randomized, controlled clinical trial for a pediatric early intervention study which commenced enrollment in March 2020, and closed to enrollment in June 2021, subsequent to FDA-approval of an expanded RECELL indication for use that includes treatment of pediatric patients. Currently, the BARDA contract is supporting the Company’s clinical trial in soft-tissue repair.
BARDA exercised a contract option to fund a randomized, controlled clinical trial for a pediatric early intervention study which commenced enrollment in March 2020, and closed to enrollment in June 2021, subsequent to FDA-approval of an expanded RECELL indication for use that includes treatment of pediatric patients.
INTELLECTUAL PROPERTY We seek to protect our intellectual property, core technologies, and other know-how through a combination of patents, trademarks, trade secrets, non-disclosure and confidentiality agreements, licenses, assignments of invention and other contractual arrangements with our employees, consultants, partners, suppliers, customers, and others.
INTELLECTUAL PROPERTY We seek to protect our intellectual property, core technologies, and other know-how through a combination of patents, trademarks, trade secrets, confidentiality agreements, licenses, and IP assignments with our employees, consultants, business partners, suppliers, customers, and others.
The overall cost of treatment with STSG is expensive - for example it would cost approximately $579,000 and 59.4 days in hospital for a patient with a 40% Total Body Surface Area (“ TBSA ”) mixed-depth burn injury to recover and return to normal day to day activities.
The overall cost of treatment with STSG is expensive - for example it would cost 3 Table of Contents approximately $579,000 and 59.4 days in hospital for a patient with a 40% TBSA mixed-depth burn injury to recover and return to normal day to day activities.
As a result of having achieved an expanded indication for use in pediatric burns, the Biomedical Advanced Research and Development Authority ( “ BARDA ”) funded U.S. Pediatric Burns trial has been closed to new enrollment (refer to BARDA Contract section below).
As a result of having achieved an expanded indication for use in pediatric burns, the Biomedical Advanced Research and Development Authority (“BARDA”) funded U.S. Pediatric Burns trial has been closed to new enrollment.
Also included within the Ventura facility is a secure controlled-temperature warehouse that complies with the vendor-managed inventory (“ VMI ”) requirements of the contract with BARDA. See below for details. AVITA Medical sources multiple components, sub-assemblies, and materials from third-party suppliers, who are required to meet our cGMP quality specifications and associated regulatory requirements.
Also included within the Ventura facility is a secure controlled-temperature warehouse that complies with the vendor-managed inventory (“VMI”) requirements of the contract with BARDA. The VMI contract with BARDA terminated on December 31, 2023. AVITA Medical sources multiple components, sub-assemblies, and materials from third-party suppliers, who are required to meet our cGMP quality specifications and associated regulatory requirements.
In September 2018, the FDA approved RECELL as a Class 3 device through a PMA for the treatment of acute thermal burn injuries in patients 18 years and older. Following receipt of our original PMA, we commenced commercialization of the RECELL System in January 2019 in the United States.
In September 2018, the FDA approved RECELL as a Class 3 device through a premarket approval (“PMA”) for the treatment of second and third-degree 2 Table of Contents acute thermal burn injuries in patients 18 years and older. Following receipt of our original PMA, we commenced commercialization of the RECELL System in January 2019 in the United States.
Information contained on our website is not part of or incorporated into this annual report. 13 Table of Contents ORGANIZATIONAL STRUCTURE The Company has a total of six subsidiaries and their corporate details and business activities are listed below: Subsidiary Name Place of Incorporation % Held Business Purpose AVITA Medical Pty Limited Australia 100 Operating Company AVITA Medical Americas, LLC Delaware 100 U.S. operations AVITA Medical Europe Limited United Kingdom 100 EMEA operations Visiomed Group Pty Ltd Australia 100 Asia Pacific Operations C3 Operations Pty Ltd Australia 100 Holding company Infamed Pty Ltd Australia 100 Inactive
Information contained on our website is not part of or incorporated into this annual report. 12 Table of Contents ORGANIZATIONAL STRUCTURE Prior to the Corporate Restructuring initiated during fourth quarter, the Company had a total of six subsidiaries and their corporate details and business activities are listed below: Subsidiary Name Place of Incorporation % Held Business Purpose AVITA Medical Pty Limited Australia 100 Operating Company AVITA Medical Americas, LLC Delaware 100 U.S. operations AVITA Medical Europe Limited United Kingdom 100 EMEA operations Visiomed Group Pty Ltd Australia 100 Asia Pacific Operations C3 Operations Pty Ltd Australia 100 Holding company Infamed Pty Ltd Australia 100 Inactive By the end of the fourth quarter of 2023 the business activities of AVITA Medical Pty Limited, AVITA Medical Europe Limited, Visiomed Group Pty Ltd, C3 Operations Pty Ltd and Infamed Pty Ltd were liquidated.
These Spray-On Skin Cells are prepared at the point of care in as little as 30 minutes, providing a new way to treat thermal burns, other wounds, skin injuries or defects of the skin. The skin cell suspension includes keratinocytes, fibroblasts, and melanocytes, all of which play critical roles in skin regeneration.
These Spray-On Skin Cells are prepared at the point of care in as little as 30 minutes, providing a new way to treat thermal burn wounds and full-thickness skin defects. The regenerative skin cell suspension includes the patient's own skin cells, including keratinocytes, fibroblasts, and melanocytes, all of which play critical roles in skin regeneration.
BARDA funded the completion of two randomized, controlled pivotal clinical trials, as well as Compassionate Use and Continued Access programs, and development of the health economic model demonstrating the cost savings associated with the RECELL System.
Under the original contract, BARDA has provided funding and technical support for the development of the RECELL System. BARDA funded the completion of two randomized, controlled pivotal clinical trials, as well as Compassionate Use and Continued Access programs, and development of the health economic model demonstrating the cost savings associated with the RECELL System.
The market for treatment of burns in the U.S. is highly concentrated, with approximately 150 burn centers and approximately 300 burn surgeons who treat the majority of severe burns in the country (i.e., ~75%). Accordingly, our target market is predominantly focused on burn centers.
The market for the treatment of burns in the U.S. is highly concentrated, with approximately 140 burn centers and approximately 300 burn surgeons who treat the majority of severe burn patients in the country (i.e., ~75%). Accordingly, our target market was predominantly burn centers, of which half are trauma centers.
As of December 31, 2022, our executive leadership team was 50% female, our senior leadership team was 38% female, and our total employee base was 47% female. In addition to promoting gender diversity, we encourage ethnically diverse talent when recruiting as well as providing employee training and development focusing on workplace diversity and inclusion.
As of December 31, 2023, the Directors of the Company were 28.5% female, our senior executive team was 30% female and our total employee base was 50.2% female. In addition to promoting gender diversity, we encourage ethnically diverse talent when recruiting as well as providing employee training and development focusing on workplace diversity and inclusion.
The majority of patients treated on an inpatient basis in the U.S. are treated in specialized burn centers. Severe burns (typically defined as second- and third-degree) are commonly treated with autologous split-thickness skin grafts (“ STSGs ”) to achieve definitive closure of the burn wound.
The majority of patients treated on an inpatient basis in the U.S. are treated in specialized burn centers. Severe burns (typically defined as second- and third-degree) are commonly treated with autologous split-thickness skin grafts (“STSGs”) to achieve definitive closure of the burn wound. In a STSG, or autograft, donor skin is harvested from a healthy area of the patient’s skin.
Interactions with Healthcare Providers Providing any benefits or advantages to HCPs in order to induce or encourage the use or referral of AVITA products is strictly prohibited by both U.S. and international laws and regulations.
Interactions with Healthcare Providers Providing any benefits or advantages to HCPs in order to induce or encourage the use or referral of AVITA products is strictly prohibited by both U.S. and international laws and regulations. Restrictions under applicable Federal and State healthcare laws and regulations include but are not limited to the following: • The Federal healthcare Anti-Kickback Statute (“AKS”).
FCA also imposes similar penalties on those who make a false statement material to a fraudulent claim, or who improperly avoid, decrease, or conceal an obligation to pay money to the federal government • State and foreign laws and regulations may apply to sales or marketing arrangements and claims involving healthcare devices or services reimbursed by non-governmental third-party payors Additionally, certain state laws require medical device companies to comply with voluntary guidelines in our interactions with healthcare providers promulgated by global trade associations and relevant compliance guidance issued by the U.S.
FCA also imposes similar penalties on those who make a false statement material to a fraudulent claim, or who improperly avoid, decrease, or conceal an obligation to pay money to the federal government. • State and foreign laws and regulations may apply to sales or marketing arrangements and claims involving healthcare devices or services reimbursed by non-governmental third-party payors.
Products (immunosuppressants) working to stabilize vitiligo and RECELL (working to restore pigmentation) are complementary. Further, large pharmaceutical companies with immunosuppressant assets in development will likely invest in disease awareness campaigns which will further grow consumer awareness and the market.
Products (immunosuppressants) working to stabilize vitiligo and RECELL (working to restore pigmentation) are complementary. Further, large pharmaceutical companies with immunosuppressant assets in development will likely invest in disease awareness campaigns which will further grow consumer awareness and the market. Following FDA approval, we established a three-step framework to secure reimbursement. The first step is a post-market study called, TONE.
In addition, our field sales team provides robust clinical case support and staff training. It is not uncommon in the burn community to have rotating staff and it is our commitment for all those working with RECELL to be comfortable with the technology both during the procedure as well as during aftercare.
It is not uncommon in the treatment of wounds to have rotating staff and it is our commitment for all those working with RECELL to be comfortable with the technology both during the procedure as well as during aftercare.
Also included in the BARDA contract was a provision for procurement of the RECELL System under a vendor-managed inventory system to bolster emergency preparedness in the amount of $7.6 million.
Also included in the BARDA contract was a provision for procurement of the RECELL System under a vendor-managed inventory system to bolster emergency preparedness in the amount of $7.6 million and an additional $1.6 million to support the logistics of emergency deployment of RECELL Systems for use in mass casualty or other emergency situations.
The expansion plan allows for coverage of over 75% of total targeted procedures. 8 Table of Contents HUMAN CAPITAL AVITA Medical’s investment in the U.S. commercial success of RECELL has led to the development of best-in-class teams supporting sales, clinical education and training, reimbursement, medical affairs, as well as corporate management and infrastructure.
We plan to further expand our commercial organization to 108 in the first half of 2024. 7 Table of Contents HUMAN CAPITAL AVITA Medical’s investment in the U.S. commercial success of RECELL has led to the development of best-in-class teams supporting sales, clinical education and training, reimbursement, medical affairs, as well as corporate management and infrastructure.
Vitiligo affects people of all skin types, but it may be more noticeable in people with darker skin. It is estimated that worldwide vitiligo prevalence is between 0.5 to 2% of the population.
It may also be caused by heredity factors or a triggering event, such as sunburn, stress, or exposure to industrial chemicals. Vitiligo affects people of all skin types, but it may be more noticeable in people with darker skin. It is estimated that worldwide vitiligo prevalence is between 0.5 to 2% of the population.
In August 2020, we filed a Transitional Pass-through Payment Application (“ TPT ”) with The Centers for Medicare & Medicaid Services (“ CMS ”) to support a separate, additional Medicare payment for use of the RECELL System in the Outpatient Setting.
In August 2020, we filed a Transitional Pass-through Payment Application (“TPT”) with The Centers for Medicare & Medicaid Services (“CMS”) to support a separate, additional Medicare payment for use of the RECELL System in the Outpatient Setting. On November 3, 2021, the Company was informed that CMS approved our TPT submission with the code effective as of January 1, 2022.
The extent of color loss from vitiligo is unpredictable, can affect the skin on any part of the body, and may also affect hair and the inside of the mouth. Vitiligo occurs when melanocytes, the pigment-producing skin cells, die or stop producing melanin, the pigment that gives skin, hair, and eyes color.
Vitiligo Vitiligo is a disease that causes the loss of skin pigmentation, or color, in patches. The extent of color loss from vitiligo is unpredictable, can affect the skin on any part of the body, and may also affect hair and the inside of the mouth.
Additionally, AVITA Medical owns and defends a global trademark portfolio comprising 125 registered trademarks, common or state law trademarks, and pending trademark applications. Recently, AVITA Medical received U.S. federal trademark registration on the marks “AVITA Medical” and the AVITA Medical logo.
Additionally, AVITA Medical owns and defends a global trademark portfolio comprising 142 registered trademarks, common or state law trademarks, and pending trademark applications, including “AVITA Medical,” the AVITA Medical logo, “RECELL,” “Spray-On Skin,” the RECELL System logo, “RES,” and others in the U.S. and international markets.
Additionally, in patients with >50% TBSA, the RECELL System provided 60% fewer mean surgical procedures versus NBR (N =318).
Additionally, in adult patients with greater than 50% TBSA (N=318), the RECELL System resulted in a 60% reduction in the mean number of autograft procedures versus NBR data.
The Company operates an FDA-registered production plant in Ventura, California, in a 27,480 square foot facility that is currently leased through September 30, 2024. The Ventura facility has two 3-year options to extend the lease, at our sole option, which allows for a total lease extension period through September 30, 2030.
The Ventura facility has one 3-year option to extend the lease, at our sole option, which allows for a total lease extension period through September 30, 2030. The Company also has an administrative office lease in Irvine, California of approximately 10,700 square feet that is currently leased through the end of July 8 Table of Contents 2028.
We expect that our research and development pipeline, strategic partnerships with universities, and improvements to the RECELL System and RES will result in additional and diverse patent applications for automated tissue processing and RES-related compositions of matter, along with related methods of use, in the next calendar year.
We expect that our research and development pipeline, strategic partnerships, and improvements to the RECELL System and RES will result in additional and diverse patent applications in the next calendar year. In 2019, AVITA Medical filed a Patent Term Extension (“PTE”) application with the U.S. Patent and Trademark for U.S.
On November 3, 2021, the Company was informed that CMS approved our TPT submission with the code effective as of January 1, 2022. The new “C” code provides additional payment which offsets the cost of the device in hospital outpatient facilities an d ambulatory surgical centers for Medicare beneficiaries over a 2-to-3-year period before converting to a permanent code.
The new “C” code provides additional payment which offsets the cost of the device in hospital outpatient facilities and ambulatory surgical centers for Medicare beneficiaries over a 2-to-3-year period before converting to a permanent code. Following the granting of the code, the Company is working with commercial carriers to ensure broader coverage.
The Company’s patent portfolio encompasses assets in the U.S., China, Japan, Australia, Brazil, Canada, France, Germany, Hong Kong, Italy, Spain, the United Kingdom, and applications pending before the European Patent Office ( “EPO” ).
As of December 31, 2023, AVITA Medical’s patent portfolio comprised 22 patent grants and 31 pending patent applications worldwide, with patent coverage either secured or in progress in the U.S., China, Japan, Australia, Brazil, Canada, France, Germany, Hong Kong, Italy, Spain, the United Kingdom, and at the European Patent Office (“EPO”).
In the pivotal study, RECELL met both co-primary endpoints, demonstrating statistically significant donor sparing and non-inferior healing outcomes with RECELL versus standard of care.
Both co-primary endpoints were met, demonstrating statistically significant donor sparing and non-inferior healing outcomes with RECELL versus standard of care, meaning less skin from the patient is required to repair and close the wound without compromising the healing outcomes relative to convention autografting.
AVITA Medical’s patent portfolio covers AVITA Medical’s core RECELL System, methods of using the RECELL System, the Regenerative Epidermal Suspension (“ RES® ”), methods of preparing a cell suspension with exogenous agents to promote wound healing, as well as to one or more automated systems for tissue processing and preparation of cell suspensions.
AVITA Medical’s patent portfolio covers the original RECELL product, all-in-one RECELL, RECELL GO, methods of using the RECELL System, methods of evaluating the therapeutic potential of Regenerative Epidermal Suspension (“RES”), a cell-free and allogeneic RES supernate, and methods of preparing a cell suspension with exogenous agents to promote wound healing.
Soft tissue repair represents a significant opportunity which AVITA Medical can pursue leveraging its existing and future resources while also creating synergies with the burns market. As of February 23, 2023, approximately 50% of the U.S. burn centers are classified as Level 1 and Level 2 trauma centers.
The approval for the treatment of full-thickness skin defects represents a significant opportunity in which we are leveraging our existing resources while also creating synergies with the burns market. Approximately 50% of the U.S. burn centers are classified as trauma centers.
Following the granting of the code, the Company is working with commercial carriers to ensure broader coverage. The new “C” code is not indication specific and lays the foundation for growth in other indications outside of acute thermal burns (such as soft tissue repair).
The new “C” code is not indication specific and lays the foundation for growth in other indications outside of acute thermal burns (such as soft tissue repair). 4 Table of Contents Full-Thickness Skin Defects A wound is a breach in the integrity of the skin, with full-thickness wounds extending through the dermal layer to deeper tissues.
This is particularly important as we aim to enter the dermatology space, where there is a shift toward an emphasis on the volume of patients treated in a day. In summary, our research and development efforts are currently focused on: • Further clinical development of the RECELL System in additional skin-focused clinical indications where the platform can be leveraged.
This is particularly important as we aim to enter the dermatology space, where there is a shift toward an emphasis on the volume of patients treated in a day. RECELL GO maintains the FDA Breakthrough Device designation from predecessor devices.
We entered into the contract on September 29, 2015, and the scope has expanded through a number of amendments to the contract. The current contract period continues to December 31, 2023, with the option by BARDA to terminate earlier. Under the contract, BARDA has provided funding and technical support for the development of the RECELL System.
The contract provided funding for the development of the RECELL System. We entered into the contract on September 29, 2015, with the original contract period ending on December 31, 2023. We have executed a contract modification with BARDA to extend the period of performance to September 28, 2025.
If the term extension requested in the PTE application is approved, the patent term of U.S. Patent No. 9,029,140, which covers the RECELL System, will be extended to April 9, 2024. An interim PTE application was approved on December 12, 2022, for U.S.
Patent No. 9,029,140, which covers the RECELL System, as a result of patent term lost to the FDA regulatory process. The PTE application was approved, and the patent term of U.S. Patent No. 9,029,140, has been extended to April 9, 2024.
Possible competitors may include medical device, pharmaceutical and wound care companies, academic and medical institutions, governmental agencies, medical practitioners, and public and private research institutions, among others. Any product that we successfully develop and commercialize will compete with both existing therapies and any new therapies that may become available in the future.
In the future, we may face competition from various sources, including medical device, pharmaceutical, and wound care companies, academic and medical institutions, governmental agencies, medical practitioners, and public and private research institutions, among others.
Those Level 1 and Level 2 trauma centers currently utilizing RECELL should be able to use RECELL to repair soft tissue immediately following FDA approval as these centers have already approved RECELL through their respective VACs.
Those trauma centers currently utilizing RECELL are now able to use RECELL to treat full-thickness skin defects as these centers have already approved RECELL through their respective VACs.
The RECELL System offers fewer procedures required for definitive closure versus conventional autografts. In pediatric cases using the RECELL System, there were 56% fewer mean surgical procedures (N = 284) compared to the American Burn Association’s National Burn Repository ( “NBR” ).
Retrospective studies demonstrated that fewer autografting procedures are required for definitive closure of full-thickness burns when using the RECELL System versus conventional autografts. In pediatric cases (N = 284), treatment with the RECELL System resulted in a 56% reduction in the mean number of autograft procedures required compared to National Burn Repository ( “ NBR ” ) data.
Patent No. 9,029,140 that extends its expiration date until February 6, 2024 while we wait for full approval of the PTE application. AVITA Medical’s other patents have expected expiration dates ranging from 2032 to 2033, while AVITA Medical’s pending patent applications, if granted, would have expiration dates ranging from 2032 to 2041.
AVITA Medical’s other patents have expected expiration dates ranging from 2032 to 2033, while AVITA Medical’s pending patent applications, if granted, would have expiration dates ranging from 2032 to 2042.
RECELL® PLATFORM The RECELL System has a long-established safety profile, and clear potential for clinical and health-economic value propositions across a range of skin-related clinical indications. The patented and proprietary platform technology underlying Spray-On Skin™ Cells originated in Australia, based on the seminal work of Professor Fiona Wood and fellow scientist Marie Stoner.
The application of these cells stimulates healing and repigmentation throughout the wound bed. The patented and proprietary platform technology underlying the Spray-On Skin Cell suspension originated in Australia, based on the seminal work of Professor Fiona Wood and fellow scientist Marie Stoner.
The RECELL System is a single use (disposable), stand-alone, battery operated, autologous cell harvesting device containing enzymatic and buffer solutions, sterile surgical instruments, and actuators to achieve the disaggregation and delivery of skin cells.
Refer to Footnote 20 for further details • Establish commercial payor coverage for the RECELL System in the U.S. for the treatment of vitiligo lesions; initial phase of coverage expected during the fourth quarter of 2025 PRODUCT PORTFOLIO RECELL Platform RECELL is a single use, stand-alone, battery operated, autologous cell harvesting device containing enzymatic and buffer solutions, sterile surgical instruments, and actuators.
Further, BARDA expanded the awarded contract to provide supplemental funding of $1.6 million to support the logistics of emergency deployment of RECELL Systems for use in mass casualty or other emergency situations. We are contracted to manage this inventory of product until the earlier of the federal government requesting shipment or at contract termination on December 31, 2023.
We were contracted to manage this inventory of product until the earlier of the federal government requesting shipment or at contract termination on December 31, 2023. As of December 31, 2023, we had received cumulative payments of $40.3 million under the original BARDA contract.
AVITA Medical also owns trademark registrations for “RECELL,” “Spray-On Skin,” the RECELL System logo, “RES,” and others in the U.S. and international markets. In addition to patent and trademark protection, we also rely on trade secrets, know-how, and other proprietary information to develop and maintain our competitive position.
In addition to patent and trademark protection, the Company also relies on trade secrets, know-how, and other proprietary information to develop and maintain our competitive position. We have robust confidentiality and invention disclosure procedures in place that incentivize our employees to innovate and allow us to maintain our rights to AVITA Medical innovations.
Vitiligo is believed to be an autoimmune disorder in which a patient’s immune system attacks and destroys the melanocytes in the skin. It may also be caused by heredity factors or a triggering event, such as sunburn, stress, or exposure to industrial chemicals.
Vitiligo occurs when melanocytes, the pigment-producing skin cells, die or stop producing melanin, the pigment that gives skin, hair, and eyes color. Vitiligo is believed to be an autoimmune disorder in which a patient’s immune system attacks and destroys the melanocytes in the skin.
From a reimbursement perspective, the same DRG code that is currently being used to treat inpatient burns can be applied to soft tissue repair once FDA approval is received.
From a reimbursement perspective, the same DRG code that is currently being used to treat inpatient burns is now being applied for the treatment of full-thickness skin defects. Additionally, the outpatient TPT “C” code we have been granted for RECELL can also be utilized for the treatment of full-thickness skin defects in the outpatient setting.
We continue to commit significant and increasing resources in product development to ensure that our device continues to evolve and has robust patent protection. In February 2022, the FDA approved the PMA supplement for RECELL Autologous Cell Harvesting Device, an enhanced RECELL system aimed at providing clinicians a more efficient user experience and simplified workflow.
In February 2022, the FDA approved a PMA supplement for the RECELL Autologous Cell Harvesting Device, an enhanced ease-of-use device aimed at providing clinicians a more efficient user experience and streamlined workflow. On June 7, 2023, the FDA approved a PMA supplement for full-thickness skin defects based on results from our pivotal trial for soft tissue repair and reconstruction.
In December 2022, the Company submitted a PMA supplement to expand the use of RECELL for soft tissue repair and an original PMA application to expand the use of RECELL for treatment of vitiligo.
In June 2023, the FDA approved a supplement to our PMA to expand the use of RECELL for full-thickness skin defects and an original PMA to expand the use of RECELL for the repigmentation of stable depigmented vitiligo lesions.
Additionally, we rely on our research and development program, clinical trials, know-how and marketing programs to advance our products and product candidates, and to expand our intellectual property rights. As of December 31, 2022, we had been granted a total of 19 patents and had 27 patent applications pending worldwide.
Additionally, we rely on our research and development program, clinical trials, know-how and marketing programs to advance our products and product candidates, and to expand our intellectual property rights. As powerful complements to our IP rights, we also believe that the regulatory approval processes around the world will continue to provide additional and significant barriers to entry against meaningful competition.
We have robust confidentiality and invention disclosure procedures in place that incentivize our employees to innovate and allow us to maintain our rights to AVITA Medical innovations. 9 Table of Contents FACILITIES AVITA Medical leases approximately 17,500 square feet of administrative and office space in Valencia, California that is currently leased through October 31, 2026.
FACILITIES AVITA Medical leases approximately 17,500 square feet of administrative and office space in Valencia, California that is currently leased through October 31, 2026. The Company operates an FDA-registered production plant in Ventura, California, in a 27,480 square foot facility that is currently leased through September 30, 2027.
Further, we will be expanding our burn market opportunity by virtue of our soft tissue launch as we will be extending our reach to include trauma centers. 6 Table of Contents Vitiligo Vitiligo is a disease that causes the loss of skin pigmentation, or color, in patches.
Further, we are expanding our burn market opportunity by virtue of our approval for full-thickness skin defects as we are extending our reach to include trauma centers. 5 Table of Contents We anticipate RECELL being used in both the inpatient & outpatient settings across a wide range of wound sizes.
Japan is the second largest healthcare market, with approximately 6,000 patients per year who suffer from severe burns in Japan. Large patient populations coupled with healthy reimbursement coverage makes Japan an attractive market for the RECELL System. In February 2019, we entered into a collaboration with COSMOTEC, an M3 Group company, to market and distribute the RECELL System in Japan.
Our global commercialization strategy is focused on Australia, the European Union, and Japan. 6 Table of Contents In February 2019, we entered into a partnership with COSMOTEC, an M3 Group company, to market and distribute the RECELL System in Japan.
STRATEGY Our objective is to become the leading provider of regenerative medicine addressing unmet medical needs in burn injuries, trauma injuries, and in dermatological and aesthetics indications, such as vitiligo.
Today, our common stock trades on the Nasdaq under the symbol “RCEL” and our CHESS Depositary Interests (“CDIs”) are traded on the ASX under the symbol “AVH.” STRATEGY AVITA Medical is focused on becoming the leading provider of regenerative medicine addressing unmet medical needs in burn injuries, full-thickness skin defects, and in skin repigmentation, such as vitiligo.
However, based on our clinical trials, we believe that the RECELL System has sustainable competitive clinical and economic advantages over this current standard of care. We face additional competition in the burns market from other FDA-approved products such as Epicel ® provided by Vericel Corporation as well as from Stratagraft® provided by Mallinckrodt.
While RECELL complements autografts for the treatment of various wound injuries, split-thickness autografts represent the traditional surgical procedure and the current standard of care. However, based on our clinical trials, we believe that the RECELL system offers sustainable competitive clinical and economic advantages over the traditional surgical procedure.
Our patented and proprietary RECELL® System (“ RECELL System ” or “ RECELL ”) technology platform harnesses the regenerative properties of a patient’s own skin to create Spray-On Skin ™ Cells, an autologous skin cell suspension that is sprayed onto the patient to regenerate natural healthy skin.
RECELL harnesses the regenerative properties of a patient’s own skin to create an autologous skin cell suspension, Spray-On Skin ™ Cells, delivering a transformative solution at the point of care. This breakthrough technology serves as the catalyst for a new treatment paradigm enabling improved clinical outcomes.
Notably, as discussed more fully below, our core U.S. patent remains in force until February 6, 2024, and we expect it to be extended through April 9, 2024. In addition to patent protection, we believe that the regulatory approval processes around the world will continue to provide significant barriers to entry against meaningful competition.
Additionally, our innovative technology is supported by robust intellectual property rights and we believe that regulatory approval processes around the world will continue to provide additional and significant barriers to entry against meaningful competition.
Subsequent to anticipated FDA approval of RECELLfor vitiligo, we plan to commence a full commercial launch following receipt of in-office reimbursement, which we believe will occur by January 2025; • Evaluate potential commercialization applications for the RECELL System related to skin rejuvenation and Epidermolysis Bullosa indications; • Further invest in our RECELL System platform to automate and improve workflow, speed, and ease of use as it relates to specific indications, as well as to build upon our intellectual property; • Continue to build upon commercial activities in Japan through our partnership with COSMOTEC Company, Ltd (“ COSMOTEC ”) with our current Pharmaceuticals and Medical Devices Act (“ PMDA ”) approval for RECELL with an indication in burns; • Develop and pursue viable commercial activities outside of the U.S. and Japan once we have received FDA approval for RECELL System indications in soft tissue and vitiligo; • Pursue business development opportunities that are complementary to our core RECELL System indications and/or our targeted markets; and • Improve our margins and profitability by leveraging our current team and infrastructure across an expanding base of business in burns and in future indications.
To achieve these objectives, we intend to: • Become the standard of care in the U.S. burns industry by increasing RECELL penetration and adoption in burn centers • Expand into U.S. trauma centers to increase utilization of RECELL for the treatment of full-thickness skin defects • Launch RECELL GO ™ following FDA approval to increase market adoption and expand our customer base • Expand our global presence within the European Union and Australia through the exclusive use of third-party distributors • Continue to build upon commercial activities in Japan through our partnership with COSMOTEC Company, Ltd (“COSMOTEC”) with our current Pharmaceuticals and Medical Devices Act (“PMDA”) approval for RECELL with an indication in burns • Continue to pursue business development opportunities that are complementary to our core RECELL System indications and/or our targeted markets, such as the agreement with Stedical Scientific, Inc.
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Item 1. BUSINESS GENERAL AVITA Medical, Inc. and its subsidiaries (including AVITA Medical Pty Limited (" AVITA Australia ") (collectively, “ AVITA Medical ”, “ we ”, “ our ”, “ us ” or “ Company ”), is a regenerative medicine company leading the development and commercialization of devices and autologous cellular therapies for skin restoration.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Beginning in 2022, applicable manufacturers are also required to report such information regarding their relationships with physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists and certified nurse midwives during the previous year; and • analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to our business practices, including but not limited to, research, distribution, sales, and marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; and state laws that require medical device companies to comply with the industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government; state laws that require medical device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers, marketing expenditures or drug pricing, as well as state and local laws that require the registration of sales representatives; and state and foreign laws governing the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Applicable manufacturers are also required to report such information regarding their relationships with physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists and certified nurse midwives during the previous year; and • analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to our business practices, including but not limited to, research, distribution, sales, and marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; and state laws that require medical device companies to comply with the industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government; state laws that require medical device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers, marketing expenditures or drug pricing, as well as state and local laws that require the registration of sales representatives; and state and foreign laws governing the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Events that may prevent successful or timely commencement, enrollment or completion of clinical development or a regulatory application include: • delays in raising, or inability to raise, sufficient capital to fund the planned trials; • delays in reaching a consensus with regulatory agencies on trial design; • changes in trial design; • inability to identify, recruit and train suitable clinical investigators; • inability to add new clinical trial sites; • delays in reaching agreement on acceptable terms for the performance of the trials with prospective clinical research organizations and clinical trial sites; • delays in recruiting suitable clinical sites and patients (i.e., subjects) to participate in clinical trials; • imposition of a clinical hold by regulatory agencies for any reason, including negative clinical results, safety concerns or as a result of an inspection of manufacturing or clinical operations or trial sites; • failure by any relevant parties to adhere to clinical trial requirements; • failure to perform in accordance with the FDA’s Good Clinical Practice (“ GCPs ”), or applicable regulatory guidelines in other countries; • delays in the testing, validation, manufacturing and delivery of the product candidates to the clinical sites; • delays caused by clinical trial sites not completing a trial; • failure to demonstrate adequate effectiveness; • occurrence of serious adverse events in clinical trials that are associated with the product candidates that are viewed to outweigh its potential benefits; • changes in regulatory requirements and guidance that require amending or submitting new clinical protocols; • adverse events, safety issues, product recalls, manufacturing or supply chain interruptions, or poor clinical outcomes where the RECELL System is being used commercially; and • disagreements with regulatory agencies in the interpretation of the data from our clinical trials.
Events that may prevent successful or timely commencement, enrollment or completion of clinical development or a regulatory application include: • delays in raising, or inability to raise, sufficient capital to fund the planned trials; • delays in reaching a consensus with regulatory agencies on trial design; • changes in trial design; • inability to identify, recruit and train suitable clinical investigators; • inability to add new clinical trial sites; • delays in reaching agreement on acceptable terms for the performance of the trials with prospective clinical research organizations and clinical trial sites; • delays in recruiting suitable clinical sites and patients (i.e., subjects) to participate in clinical trials; • imposition of a clinical hold by regulatory agencies for any reason, including negative clinical results, safety concerns or as a result of an inspection of manufacturing or clinical operations or trial sites; • failure by any relevant parties to adhere to clinical trial requirements; • failure to perform in accordance with the FDA’s Good Clinical Practice (“GCPs”), or applicable regulatory guidelines in other countries; • delays in the testing, validation, manufacturing and delivery of the product candidates to the clinical sites; • delays caused by clinical trial sites not completing a trial; • failure to demonstrate adequate effectiveness; • occurrence of serious adverse events in clinical trials that are associated with the product candidates that are viewed to outweigh its potential benefits; • changes in regulatory requirements and guidance that require amending or submitting new clinical protocols; • adverse events, safety issues, product recalls, manufacturing or supply chain interruptions, or poor clinical outcomes where the RECELL System is being used commercially; and • disagreements with regulatory agencies in the interpretation of the data from our clinical trials.
We will require additional clinical data or approvals from regulatory authorities within these countries to market the product for the treatment of other indications, and from any other jurisdictions in which we seek to market the product. This process can be time consuming and complicated and may be unsuccessful or otherwise result in unanticipated delays or fail altogether.
However, we will require additional clinical data or approvals from regulatory authorities within these countries to market the product for the treatment of other indications, and from any other jurisdictions in which we seek to market the product. This process can be time-consuming and complicated and may be unsuccessful or otherwise result in unanticipated delays or fail altogether.
A person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it to have committed a violation; in addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act; • the federal false claims laws including the civil False Claims Act, which can be enforced through civil whistleblower or qui tam actions, and civil monetary penalties laws, which impose criminal and civil penalties against individuals or entities for knowingly presenting, or causing to be presented to the federal government, claims for payment that are false or fraudulent, knowingly making, using or causing to be made or used, a false record or statement material to a false or fraudulent claim, or knowingly making, or causing to be made, a false statement to avoid, decrease or conceal an obligation to pay money to the federal government; in addition, the government may assert that a claim including items and services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act; • HIPAA imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or making false or fraudulent statements relating to healthcare matters.
A person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it to have committed a violation; in addition, the government may assert that a claim including 21 Table of Contents items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act; • the federal false claims laws including the civil False Claims Act, which can be enforced through civil whistleblower or qui tam actions, and civil monetary penalties laws, which impose criminal and civil penalties against individuals or entities for knowingly presenting, or causing to be presented to the federal government, claims for payment that are false or fraudulent, knowingly making, using or causing to be made or used, a false record or statement material to a false or fraudulent claim, or knowingly making, or causing to be made, a false statement to avoid, decrease or conceal an obligation to pay money to the federal government; in addition, the government may assert that a claim including items and services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act; • HIPAA imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or making false or fraudulent statements relating to healthcare matters.
Certain of our activities have been funded, and may in the future be funded, by the U.S. government, including through our contracts with BARDA.
Certain of our activities have been funded, and may in the future be funded, by the U.S. government, including through previous contracts with BARDA.
In addition, we cannot predict the nature, scope, or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted. There is no assurance that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws or other laws including trade related laws.
In addition, we cannot predict the nature, scope, or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted. 26 Table of Contents There is no assurance that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws or other laws including trade related laws.
In addition, we are continually identifying additional third-party suppliers who could serve if necessary as replacement manufacturers should the need arise. 17 Table of Contents Certain of our products are dependent on specialized sources of supply potentially subject to disruption which could have a material, adverse impact on our business.
In addition, we are continually identifying additional third-party suppliers who could serve if necessary as replacement manufacturers should the need arise. Certain of our products are dependent on specialized sources of supply potentially subject to disruption which could have a material, adverse impact on our business.
If we raise additional capital through the issuance of equity or convertible debt securities, the percentage ownership held by existing stockholders may be reduced, and the market price of our common stock or CDIs could fall due to an increased number of shares or CDIs available for sale in the market.
If we raise additional capital through the issuance of equity, the percentage ownership held by existing stockholders may be reduced, and the market price of our common stock or CDIs could fall due to an increased number of shares or CDIs available for sale in the market.
For example, on August 16, 2022, President Biden signed the Inflation Reduction Act of 2022, or the IRA, into law, which among other things, extends enhanced subsidies for individuals purchasing health insurance coverage in Affordable Care Act marketplaces through plan year 2025.
For example, on August 16, 2022, President Biden signed the Inflation Reduction Act 22 Table of Contents of 2022, or the IRA, into law, which among other things, extends enhanced subsidies for individuals purchasing health insurance coverage in Affordable Care Act marketplaces through plan year 2025.
The fact that many burn center employees 23 Table of Contents have moved on to other positions or industries may limit our ability to increase adoption of our RECELL system as we will be required to train a new group of nurses and other personnel critical to the implementation of the RECELL system.
The fact that many burn center employees have moved on to other positions or industries may limit our ability to increase adoption of our RECELL system as we will be required to train a new group of nurses and other personnel critical to the implementation of the RECELL system.
If we fail to obtain adequate patent protection for our proprietary technology, our ability to be commercially competitive will be materially impaired. In the ordinary course of business and as appropriate, we intend to apply for additional patents covering both our technologies and products, as we deem appropriate.
If we fail to obtain adequate patent protection for our proprietary technology, our ability to be commercially competitive will be materially impaired. 20 Table of Contents In the ordinary course of business and as appropriate, we intend to apply for additional patents covering both our technologies and products, as we deem appropriate.
We are an emerging growth company, and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors. We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (“ JOBS Act ”).
We are an emerging growth company, and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors. We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”).
If we were to violate the Nasdaq 20% rule, the Company would be subject to delisting from Nasdaq and share prices and trading volumes would likely suffer. 24 Table of Contents There has been relatively limited trading volume in the markets for our common stock and CDIs, and more active, liquid trading markets for such securities may never develop.
If we were to violate the Nasdaq 20% rule, the Company would be subject to delisting from Nasdaq and share prices and trading volumes would likely suffer. There has been relatively limited trading volume in the markets for our common stock and CDIs, and more active, liquid trading markets for such securities may never develop.
Likewise, any investigation of any potential violations of these laws by respective government bodies could also have an adverse impact on our reputation, our business, results of operations and financial condition. Item 1B. UNRESOLVED STAFF COMMENTS None
Likewise, any investigation of any potential violations of these laws by respective government bodies could also have an adverse impact on our reputation, our business, results of operations and financial condition. Item 1B. UNRESOLVE D STAFF COMMENTS None
The policies of the FDA or other regulatory authorities may change, and additional government regulations may be enacted that could prevent, limit or delay the necessary approval of any products we may develop and commercialize.
The policies of 14 Table of Contents the FDA or other regulatory authorities may change, and additional government regulations may be enacted that could prevent, limit or delay the necessary approval of any products we may develop and commercialize.
Some specific factors that could negatively affect the price of our common stock and CDIs or result in fluctuations in their price and trading volume include: • actual or expected fluctuations in our operating results; • actual or expected changes in our growth rates or our competitors’ growth rates; • results of clinical trials of our product candidates; • results of clinical trials of our competitors’ products; • regulatory actions with respect to our products or our competitors’ products; • reports of one or more patient serious adverse events; • publication of research reports by securities analysts about us or our competitors in the industry; • our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may give to the market; • fluctuations of exchange rates between the U.S. dollar and the Australian dollar; • issuances by us of debt or equity securities; • litigation involving our company, including stockholder litigation; • investigations or audits by regulators into the operations of our company; • proceedings initiated by our competitors or clients; • strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy; • sales or perceived potential sales of the common stock or CDIs by us, our directors, executive management team or our stockholders in the future; • short selling or other market manipulation activities; • announcement or expectation of additional financing efforts; • terrorist acts, acts of war or periods of widespread civil unrest; • economic and social effects of the COVID-19 virus, including any emerging variants or other pandemics; • natural disasters and other calamities; • changes in market conditions for biopharmaceutical stocks; • our inability to raise additional capital, limiting our ability to continue as a going concern; • changes in market prices for our product or for our raw materials; • changes in market valuations of similar companies; • changes in key personnel for us or our competitors; • speculation in the press or investment community; • changes or proposed changes in laws and regulations affecting our industry; and • conditions in the financial markets in general or changes in general economic conditions. 25 Table of Contents The requirements of being a public company in the United States and listed on the ASX may strain our resources and divert management’s attention.
Some specific factors that could negatively affect the price of our common stock and CDIs or result in fluctuations in their price and trading volume include: • actual or expected fluctuations in our operating results; • actual or expected changes in our growth rates or our competitors’ growth rates; • results of clinical trials of our product candidates; • results of clinical trials of our competitors’ products; • regulatory actions with respect to our products or our competitors’ products; • reports of one or more patient serious adverse events; • publication of research reports by securities analysts about us or our competitors in the industry; • our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may give to the market; • fluctuations of exchange rates between the U.S. dollar and the Australian dollar; • issuances by us of debt or equity securities; • litigation involving our company, including stockholder litigation; • investigations or audits by regulators into the operations of our company; • proceedings initiated by our competitors or clients; • strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy; • sales or perceived potential sales of the common stock or CDIs by us, our directors, executive management team or our stockholders in the future; • short selling or other market manipulation activities; • announcement or expectation of additional financing efforts; • terrorist acts, acts of war or periods of widespread civil unrest; 24 Table of Contents • natural disasters and other calamities; • changes in market conditions for biopharmaceutical stocks; • our inability to raise additional capital, limiting our ability to continue as a going concern; • changes in market prices for our product or for our raw materials; • changes in market valuations of similar companies; • changes in key personnel for us or our competitors; • speculation in the press or investment community; • changes or proposed changes in laws and regulations affecting our industry; and • conditions in the financial markets in general or changes in general economic conditions.
These 21 Table of Contents laws regulate the business or financial arrangements and relationships through which we conduct our operations, including how we research, market, sell and distribute our products for which we obtain marketing approval.
These laws regulate the business or financial arrangements and relationships through which we conduct our operations, including how we research, market, sell and distribute our products for which we obtain marketing approval.
In addition, a number of nurses and other critical personnel in burn centers who are trained and well versed in the use of the RECELL system have determined to change occupations, possibly as a result of the ongoing pandemic. Nationally, this has been termed the “great resignation”.
In addition, a number of nurses and other critical personnel in burn centers who are trained and well versed in the use of the RECELL system have determined to change occupations. Nationally, this has been termed the “great resignation”.
We have significant product development projects ongoing that, if successful, are intended to improve the ease and use of our device in our current burn indication as well as in soft tissue repair, vitiligo and future indications. The costs, timeline and ultimate success of these product development programs are subject to risk and uncertainty.
We have significant product development projects ongoing that, if successful, are intended to improve the ease and use of our device in our current burn indication, as well as in full-thickness skin defects, vitiligo and future indications. The costs, timeline and ultimate success of these product development programs are subject to risk and uncertainty.
Development and commercialization of our products require successful completion of the regulatory approval process and may suffer delays or fail. We may be unsuccessful in obtaining additional approvals for our RECELL System for soft tissue repair and skin conditions such as vitiligo.
Development and commercialization of our products require successful completion of the regulatory approval process and may suffer delays or fail. We may be unsuccessful in obtaining additional approvals for our RECELL System for full thickness skin defects and skin conditions such as vitiligo.
If the Company is not able to develop and obtain regulatory approval for these products in development in a timely fashion and within budget, our business prospects and financial condition may suffer.
If we are not able to develop and obtain regulatory approval for these products in development in a timely fashion and within budget, our business prospects and financial condition may suffer.
We rely on third parties to conduct, supervise and monitor our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our drug product candidates and our business could be substantially harmed.
If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our drug product candidates and our business could be substantially harmed.
If we are unable to achieve profitability sufficient to permit us to fund our operations and other planned actions, we may be required to raise additional capital. There can be no assurance that such capital would be available on favorable terms, or at all.
If we are unable to achieve profitability sufficient to permit us to fund our operations, repay the indebtedness under our Credit Agreement with OrbiMed and other planned actions, we may be required to raise additional capital. There can be no assurance that such capital would be available on favorable terms, or at all.
There also may be future changes unrelated to the IRA that result in reductions in potential coverage and reimbursement levels for our product and we cannot predict the scope of any future changes or the impact that those changes would have on our operations .
Accordingly, we continue to evaluate the effect that the Affordable Care Act has on our business. There also may be future changes unrelated to the IRA that result in reductions in potential coverage and reimbursement levels for our product and we cannot predict the scope of any future changes or the impact that those changes would have on our operations.
We expect to make significant investments to facilitate our future growth through, among other things: • new product development; • commercial development of our RECELL System to such areas soft tissue repair and vitiligo; 26 Table of Contents • clinical trials for additional indications; and • funding of our marketing and sales infrastructure.
We expect to make significant investments to facilitate our future growth through, among other things: • new product development; • commercial development of our RECELL System to such areas full-thickness skin defects and vitiligo; • clinical trials for additional indications; and • funding of our marketing and sales infrastructure.
We have limited financial resources and will likely require additional financings to continue the development and commercialization of our RECELL System or any future products, which may cause dilution to our existing stockholders or place restrictions on our operations. If additional financing is not available, we may have to postpone, reduce or cease operations.
We may require additional financing in the future to continue the development and commercialization of our RECELL System or any future products, which may cause dilution to our existing stockholders. If additional financing is not available, we may have to postpone, reduce or cease operations.
Medicare reimburses ASCs for services using CPT codes and reimburses hospitals for outpatient services using Ambulatory Payment Classifications (“ APCs ”). In addition, in 2022, we were approved for a Transitional Pass-through Payment (“ TPT ”) C code to support additional Medicare payment in the outpatient hospital and the ASC setting.
Medicare reimburses 16 Table of Contents ASCs for services using CPT codes and reimburses hospitals for outpatient services using Ambulatory Payment Classifications (“APCs”). In addition, in 2022, we were approved for a TPT C code to support additional Medicare payment in the outpatient hospital and the ASC setting.
For example, even if the FDA grants marketing approval for use of our RECELL System for the treatment soft tissue repair and/or vitiligo, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the product candidate in those countries if not currently approved.
For example, even though the FDA has granted marketing approval for use of our RECELL System for the treatment full-thickness skin defects and vitiligo, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the product candidate in those countries if not currently approved.
Uncertainty about future economic conditions could negatively affect our current and prospective customers causing them to delay the purchase of our products. Poor economic conditions could harm our business, financial condition, operating results and cash flows.
We are subject to the risks arising from adverse changes in general economic market conditions. Uncertainty about future economic conditions could negatively affect our current and prospective customers causing them to delay the purchase of our products. Poor economic conditions could harm our business, financial condition, operating results and cash flows.
The severity and length of time that a downturn in economic and financial market conditions may persist, as well as the timing, strength and sustainability of any recovery from such downturn, are unknown and are beyond our control. Many predict that the U.S. economy will enter a recession in fiscal year 2023.
The severity and length of time that a downturn in economic and financial market conditions may persist, as well as the timing, strength and sustainability of any recovery from such downturn, are unknown and are beyond our control.
We have incurred a cumulative deficit of $262.6 million through December 31, 2022. We anticipate that we may continue to incur losses at least until U.S. sales of the RECELL System are adequate to fund operating expenses. We may not be able to successfully achieve or sustain profitability.
We anticipate that we may continue to incur losses at least until U.S. sales of the RECELL System are adequate to fund operating expenses. We may not be able to successfully achieve or sustain profitability.
Successful transition to profitable operations is dependent upon achieving a level of revenues adequate to support our cost structure, including in new markets for which we are not presently approved. Provisions in our U.S. government contracts, including our contracts with BARDA, may affect our intellectual property rights.
Successful transition to profitable operations is dependent upon achieving a level of revenues adequate to support our cost structure, including in new markets for which we are not presently approved.
We are also subject to the reporting requirements under the ASX Listing Rules due to the listing of our CDIs on ASX. We expect that the requirements of these rules and regulations will increase our legal, accounting and financial compliance costs, make some activities more difficult, time consuming and costly, and place significant strain on our personnel, systems and resources.
The requirements of these rules and regulations will increase our legal, accounting and financial compliance costs, make some activities more difficult, time consuming and costly, and can place significant strain on our personnel, systems and resources.
Our ability to access equity capital is currently limited by ASX Listing Rule 7.1, which provides that a company must not, subject to specified exceptions, issue or agree to issue during any consecutive 12-month period any equity securities, or other securities with rights to conversion to equity, if the number of those securities in aggregate would exceed 15% of the number of outstanding common shares at the commencement of that 12-month period unless stockholder approval is obtained.
Our ability to access equity capital is currently limited by ASX Listing Rule 7.1, which provides that a company must not, subject to specified exceptions, issue or agree to issue during any consecutive 12-month period any equity securities, or other securities with rights to conversion to equity, if the number of those securities in aggregate would exceed 15% of the number of outstanding common shares at the commencement of that 12-month period unless stockholder approval is obtained. 23 Table of Contents Our equity issuances will be limited by ASX Listing Rule 7.1 so long as we continue to be listed on the ASX and this constraint may prevent us from raising the full amount of equity capital needed for operations without prior stockholder approval.
We rely on clinical research organizations (“ CRO ”), and clinical trial sites to ensure our clinical trials are conducted properly and on time. While we will have agreements governing their activities, we will have limited influence over their actual performance.
We rely on clinical research organizations (“CRO”), and clinical trial sites to ensure our clinical trials are conducted properly and on time. While we will have agreements governing their activities, we will have limited influence over their actual performance. CROs manage and monitor the clinical trials, duties and functions, and we will control only certain aspects of our CROs’ activities.
We are highly dependent on our regulatory approval in the United States and failure to maintain that approval would materially impact our business and prospects. Our business is highly dependent on the PMA we received in September 2018 from the FDA. This PMA allows us to sell our RECELL System in the United States, our current primary market.
We are highly dependent on our regulatory approval in the United States and failure to maintain that approval would materially impact our business and prospects. Our business is highly dependent on the PMA we received in September 2018 from the FDA including subsequent secondary approvals of the PMA outside of burns.
Any such action by the FDA would have a material adverse effect on our business. 15 Table of Contents We may encounter substantial delays in any further clinical studies necessary to support any regulatory applications for additional commercial applications of our technology.
Any such action by the FDA would have a material adverse effect on our business. We may encounter substantial delays in any further clinical studies necessary to support any regulatory applications for additional commercial applications of our technology. We cannot guarantee that any preclinical testing or clinical trials will be conducted as planned or completed on schedule, if at all.
In addition, maintaining this PMA also increases the probability of approval of secondary indications for the PMA outside of burns. While we intend to take every action and precaution to ensure that our PMA remains effective, it is possible that the FDA could take a position in the future that requires a modification, temporary suspension or revocation of our PMA.
This PMA allows us to sell our RECELL System in the United States, our current primary market. While we intend to take every action and precaution to ensure that our PMA remains effective, it is possible that the FDA could take a position in the future that requires a modification, temporary suspension or revocation of our PMA.
A cyber-attack may result in a material adverse effect on our financial position and results of operations and harm our business reputation. We rely on information technology systems for critical business functions and the operations of our business. We rely upon complex, integrated information technology (IT) systems in our business functions including our quality systems to operate our business.
We rely on information technology systems for critical business functions and the operations of our business. We rely upon complex, integrated information technology (“IT”) systems in our business functions including our quality systems to operate our business.
If this were to occur, our ability to successfully market and sell our products in such markets could be materially impaired. In addition, the laws of various foreign countries in which we may compete may not protect our intellectual property to the same extent as do the laws of the United States.
In addition, the laws of various foreign countries in which we may compete may not protect our intellectual property to the same extent as do the laws of the United States.
Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired. 22 Table of Contents The continued successful commercialization of the RECELL system for FDA approved and pending indications, will depend in part on the extent to which government authorities and health insurers establish adequate reimbursement levels and pricing policies.
The continued successful commercialization of the RECELL system for FDA approved and pending indications, will depend in part on the extent to which government authorities and health insurers establish adequate reimbursement levels and pricing policies.
Under some environmental laws and regulations, we could be held responsible for costs at third-party sites that we have used for waste disposal, or for contamination at our past or present facilities.
Under some environmental laws and regulations, we could be held responsible for costs at third-party sites that we have used for waste disposal, or for contamination at our past or present facilities. Failure to comply with current environmental laws, or future laws, could result in significant fines, penalties and expenses which could have an adverse impact on our financial condition.
We are prohibited from promoting our products for uses that are inconsistent with the uses that have been approved by the FDA - also known as “off-label” uses. More specifically, we may not make claims, in our promotion materials, website or otherwise, about the use of any RECELL products which are outside of their approved labeling and indications.
More specifically, we may not make claims, in our promotion materials, website or otherwise, 19 Table of Contents about the use of any RECELL products which are outside of their approved labeling and indications.
Risks Related to Our Business Operations We have experienced significant losses, expect losses to continue for the foreseeable future and may never achieve or maintain profitability.
Risks Related to Our Business Operations We have experienced significant losses, expect losses to continue for the foreseeable future and may never achieve or maintain profitability. Although we have begun full scale marketing and sales of our RECELL ® System in the United States and other jurisdictions, we have not yet achieved profitability.
If one or more of the research analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our common stock and CDIs could decrease, which could cause our share price or trading volume to decline. General Risk Factors If we fail to manage our growth effectively, our business could be disrupted.
If one or more of the research analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our common stock and CDIs could decrease, which could cause our share price or trading volume to decline. 25 Table of Contents General Risk Factors The Company's cash, cash equivalents and marketable securities could be adversely affected by bank failures or other events affecting financial institutions and could adversely affect our liquidity and financial performance.
To the extent any of these single sourced suppliers may have disruptions in deliveries due to production, quality, or other issues, we may also experience related production delays or unfavorable cost increases associated with qualifying alternate suppliers.
Due to the cost and regulatory requirements associated with qualifying multiple suppliers, in the prior year we single-sourced some of our material components. To the extent that any of these single-sourced suppliers experience disruptions in deliveries due to production, quality, or other issues, we are potentially subject to similar production delays or unfavorable cost increases.
Defending against any such actions can be costly, time-consuming and may require significant financial and personnel resources.
Defending against any such actions can be costly, time-consuming and may require significant financial and personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired.
As part of such review, the FDA may request additional information, at which time the product may become temporarily unavailable. Obtaining and maintaining regulatory approval for a product candidate in one jurisdiction does not mean that we will be successful in obtaining regulatory approval for that product candidate in other jurisdictions.
Obtaining and maintaining regulatory approval for a product candidate in one jurisdiction does not mean that we will be successful in obtaining regulatory approval for that product candidate in other jurisdictions.
We cannot guarantee that any preclinical testing or clinical trials will be conducted as planned or completed on schedule, if at all. As a result, we may not achieve the expected clinical milestones necessary for approval by the FDA, or other regulators, for the use of our RECELL System for additional applications in the United States or other countries.
As a result, we may not achieve the expected clinical milestones necessary for approval by the FDA, or other regulators, for the use of our RECELL System for additional applications in the United States or other countries. 15 Table of Contents A failure in a clinical study or regulatory application can occur at any stage.
We face manufacturing risks that may adversely affect our ability to manufacture products and could reduce our gross margins and negatively affect our business and operating results.
If we are unable to secure additional capital as circumstances require, we may not be able to fund our planned activities or continue our operations. We face manufacturing risks that may adversely affect our ability to manufacture products and could reduce our gross margins and negatively affect our business and operating results.
Additionally, any future regulatory approvals that we receive may also contain requirements for costly post-marketing testing and surveillance to monitor the safety and effectiveness of the product. Once a product is approved, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export, and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements.
Once a product is approved, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export, and record keeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submission of safety and other post-marketing reports, registration, and continued compliance with good manufacturing practices for any clinical trials that we conduct post-approval.
A cyber security incident could be disruptive to our business, compromise confidential data, cause reputation harm, and subject us to litigation and federal and state governmental inquiries. We collect and store sensitive business and other information, including intellectual property and trade secrets, on our networks. Our business operations are dependent upon the secure maintenance of this information.
We collect and store sensitive business and other information, including intellectual property and trade secrets, on our networks. Our business operations are dependent upon the secure maintenance of this information.
As a public company, we are subject to the reporting requirements of the Exchange Act, the U.S. Sarbanes-Oxley Act of 2002 (the “ Sarbanes-Oxley Act ”), the Dodd-Frank Act and the listing standards and the rules and regulations of Nasdaq.
Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), the Dodd-Frank Act and the listing standards and the rules and regulations of Nasdaq. We are also subject to the reporting requirements under the ASX Listing Rules due to the listing of our CDIs on ASX.
In particular, we filed a patent Term Extension application with the U.S. Patent and Trademark Office requesting an extension of our commercial patent that covers the RECELL System, U.S. Patent No. 9,029,140. If the term extension is approved, the patent term will be extended to April 9, 2024.
In 2019, we filed a Patent Term Extension (“PTE”) application with the U.S. Patent and Trademark for U.S. Patent No. 9,029,140, which covers the RECELL System, as a result of patent term lost to the FDA regulatory process. The PTE application was approved, and the patent term of U.S. Patent No. 9,029,140, has been extended to April 9, 2024.
If we are unable to promptly obtain coverage and profitable payment rates from hospital budget, government-funded and private purchasers for the RECELL System or any future products, this could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition. 16 Table of Contents For example, we presently benefit from various reimbursement codes, including the following: • Reimbursement for hospitals in inpatient services using Medicare Severity Diagnosis-Related Groups (“ MS-DRGs ”). • Specific International Classification of Disease, 10th revision, Procedure Classification System (“ ICD-10-PCS ”) code series describing our “cell suspension technique” for the use of the RECELL System. • Current Procedural Terminology (“ CPT ”) codes to support physician reimbursement for professional healthcare services, ambulatory surgical center (“ ASCs ”) reimbursement for facility services and hospital reimbursement for outpatient department services.
For example, we presently benefit from various reimbursement codes, including the following: • for hospitals in inpatient services using Medicare Severity Diagnosis-Related Groups (“MS-DRGs”). • Specific International Classification of Disease, 10th revision, Procedure Classification System (“ICD-10-PCS”) code series describing our “cell suspension technique” for the use of the RECELL System. • CPT codes to support physician reimbursement for professional healthcare services, ambulatory surgical center (“ASCs”) reimbursement for facility services and hospital reimbursement for outpatient department services.
Additionally, if rebate obligations associated with them are substantially greater than we expect, our future net revenue and profitability could be materially diminished. Macroeconomic and Social Risks Our business, results of operations and financial condition may be adversely impacted by the COVID-19 pandemic.
Additionally, if rebate obligations associated with them are substantially greater than we expect, our future net revenue and profitability could be materially diminished. Macroeconomic and Social Risks Adverse changes in general economic conditions or uncertainty about future economic conditions, including economic uncertainty from the departures of critical personnel from the industry, could adversely affect us.
In addition, process deviations or unanticipated effects of approved process changes may result in production runs of our RECELL System not complying with stability requirements or specifications. The occurrence or suspected occurrence of production and distribution difficulties can lead to lost inventories and in some cases product recalls, with consequential reputational damage and the risk of product liability.
The complexity of these processes, as well as strict company and government standards for the manufacture, storage and distribution of our product candidates, subjects us to risks. In addition, process deviations or unanticipated effects of approved process changes may result in production runs of our RECELL System not complying with stability requirements or specifications.
These requirements include submission of safety and other post-marketing reports, registration, and continued compliance with good manufacturing practices for any clinical trials that we conduct post-approval. Finally, per FDA regulations, changes made to products, specifications, or test data evaluation methodology would generally require communication with the FDA. There are several pathways for communicating with the FDA of such changes.
Finally, per FDA regulations, changes made to products, specifications, or test data evaluation methodology would generally require communication with the FDA. There are several pathways for communicating with the FDA of such changes. As part of such review, the FDA may request additional information, at which time the product may become temporarily unavailable.
The investigation and remediation of any identified problems can cause production delays, substantial expense, lost sales and delays of new product launches. In the event our production efforts require a recall or result in an inventory loss, our operating results and financial condition may be adversely affected.
In the event our production efforts require a recall or result in an inventory loss, our operating results and financial condition may be adversely affected. A cyber security incident could be disruptive to our business, compromise confidential data, cause reputation harm, and subject us to litigation and federal and state governmental inquiries.
Such a failure of approval would have a material negative effect on our future prospects. 14 Table of Contents In Australia, the RECELL System is approved to use for the treatment of burns, acute wounds, scars and vitiligo. In the EU the product has been approved for the treatment of burns, chronic wounds, scars and vitiligo.
For instance, our RECELL System has been approved by the FDA and regulatory authorities in Australia, the EU and Japan for use in certain treatments of burns, acute wounds, scars and vitiligo.
Failure to comply with current environment laws, or future laws, could result in significant fines, penalties and expenses which could have an adverse impact on our financial condition. 19 Table of Contents We may be subject to civil and criminal penalties if the FDA determines that we have marketed or promoted our products for off-label usage.
We may be subject to civil and criminal penalties if the FDA determines that we have marketed or promoted our products for off-label usage. We are prohibited from promoting our products for uses that are inconsistent with the uses that have been approved by the FDA - also known as “off-label” uses.
Furthermore, the patent protections we have been granted may not be broad enough to prevent competitors from producing products similar to ours. 20 Table of Contents In markets other than the USA, where we continue to have patent protection on the RECELL System, the expiration of these patents means the Company may not be able to deter a competitor from introducing a product similar to the RECELL System in those jurisdictions.
Our other patents have expected expiration dates ranging from 2032 to 2033, while our pending patent applications, if granted, would have expiration dates ranging from 2032 to 2042. Furthermore, the patent protections we have been granted may not be broad enough to prevent competitors from producing products similar to ours.
Our products are manufactured, stored and distributed using technically complex processes requiring specialized facilities, highly specific raw materials and other production constraints. The complexity of these processes, as well as strict company and government standards for the manufacture, storage and distribution of our product candidates, subjects us to risks.
Product recalls or inventory losses caused by unforeseen events may adversely affect our operating results and financial condition. Our products are manufactured, stored and distributed using technically complex processes requiring specialized facilities, highly specific raw materials and other production constraints.
Although we have begun full scale marketing and sales of our RECELL ® System in the United States and other jurisdictions, such sales have been limited to date and we have not yet obtained profitability. We had a total net loss of $26.7 million and $25.1 million for the year-ended December 31, 2022 and the year-ended December 31, 2021, respectively.
We had a total net loss of $35.4 million and $26.7 million for the year ended December 31, 2023 and December 31, 2022, respectively. We have incurred a cumulative deficit of $298.0 million through December 31, 2023.
Removed
Although our RECELL System has been approved for use in the treatment of acute partial-thickness thermal burn wounds in patients 18 years of age and older or application in combination with meshed autografting for acute full-thickness thermal burn wounds in pediatric and adult patients in the United States, we are looking to expand the indications of the product for use in soft tissue repair and vitiligo.
Added
Servicing our debt requires a significant amount of cash and we are subject to a number of restrictive covenants relating to our indebtedness, which may restrict our business and financing activities.
Removed
In December 2022, the company submitted a PMA supplement to expand the use of RECELL for soft tissue repair and an original PMA application for the use of RECELL for treatment of vitiligo.
Added
Pursuant to the Credit Agreement that the Company entered with OrbiMed Advisors, LLC ("Credit Agreement") on October 18, 2023, we incurred $40.0 million of indebtedness secured by substantially all of our assets and have the ability to incur an additional $50.0 million of indebtedness.
Removed
While clinical trials for such uses are nearing completion, there can be no assurance that we will be successful in those clinical trials or ever receive approval by the FDA for the use of our RECELL System for such additional applications.
Added
This level of debt could have significant consequences on future operations, including increasing our vulnerability to adverse economic and industry conditions and limiting our flexibility in planning for, or reacting to, changes in our business and the markets in which we compete. 13 Table of Contents Our ability to make scheduled payments of interest depends on our future performance, which is subject to interest rate risk, economic, financial, competitive and other factors beyond our control.
Removed
We worked with COSMOTEC to advance our application for approval of the RECELL System in Japan pursuant to Japan’s Pharmaceuticals and Medical Devices Act (“ PMDA ”). In February 2022, our application for regulatory approval was approved by the PMDA for both adult and pediatric burns.
Added
We are exposed to risks related to a potential rising interest rate environment for the debt, which could cause our borrowing costs to rise and impact our liquidity. Our business may not generate cash flow from operations in the future sufficient to service our debt in cash and make necessary capital expenditures.
Removed
A failure in a clinical study or regulatory application can occur at any stage.
Added
In addition, if the Company’s net revenue does not equal or exceed a certain amount for upcoming fiscal periods as set forth in the Credit Agreement, then the Company will be required to repay five percent of the outstanding principal amount of its indebtedness in equal quarterly installments, in addition to a repayment fee and a prepayment fee.
Removed
Debt financing, if available, may involve restrictive covenants, which may limit our operating flexibility with respect to certain business matters. If we are unable to secure additional capital as circumstances require, we may not be able to fund our planned activities or continue our operations.
Added
If we are unable to generate sufficient cash flow to satisfy payment obligations under the Credit Agreement, we may be required to adopt one or more alternatives, such as obtaining additional equity capital on terms that may be onerous or highly dilutive.
Removed
We expect recent supply chain disruptions as a result of the pandemic combined with raw material shortages, and inflationary pressures, to continue for the foreseeable future. These conditions have strained our suppliers and extended supplier delivery lead times. The Life Sciences industry is experiencing market wide shortages for resin products used in our packaging.
Added
We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.
Removed
As a result of recent inflation, we are seeing increases in the costs of raw materials. We have single-sourced some of our material components due to the cost and regulatory requirements associated with qualifying multiple suppliers.
Added
The restrictions and covenants in the Credit Agreement may also prevent us from taking actions that we believe would be in the best interests of our business, and may make it difficult for us to successfully execute our business strategy or effectively compete with companies that are not similarly restricted.

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Item 2. Properties

Properties — owned and leased real estate

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Item 2. PROPERTIES Our principal corporate office is located at 28159 Avenue Stanford, Suite 220, Valencia, California 91355. We lease the 17,500 square foot facility under a lease agreement that, as amended, expires on October 31, 2026.
Item 2. PR OPERTIES Our principal corporate office is located at 28159 Avenue Stanford, Suite 220, Valencia, California 91355. We lease the 17,500 square foot facility under a lease agreement that expires on October 31, 2026.
Our production plant in Ventura, California is a 27,480 square foot facility that we lease through September 30, 2024 with the right to extend the lease, at our sole option, as a result of two, three-year, options that allow us to extend the lease up to an additional six years in total. We do not own any real property.
Our production plant in Ventura, California is a 27,480 square foot facility that we lease through September 30, 2027 with the right to extend the lease, at our sole option, as a result of two, three-year options that allow us to extend the lease up to an additional six years in total.
We believe that leased facilities are adequate to meet current needs and that additional facilities will, if required, be available for lease to meet future needs.
The Company also has an administrative office lease in Irvine, California of approximately 10,700 square feet that is currently leased through the end of July 2028. We do not own any real property. We believe that leased facilities are adequate to meet current needs and that additional facilities will, if required, be available for lease to meet future needs.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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From time to time, as an operating business, we are involved in routine disputes (both formal and informal) with customers, manufacturing partners and employees. Item 4. MINE SAFETY DISCLOSURES Not applicable. 27 Table of Contents PART II
From time to time, as an operating business, we are involved in routine disputes (both formal and informal) with customers, manufacturing partners and employees. Item 4. MINE SAF ETY DISCLOSURES Not applicable. 28 Table of Contents PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Item 4. Mine Safety Disclosures 27 PART II 28 Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 28 Item 6. [Reserved] 28 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 29
Item 4. Mine Safety Disclosures 28 PART II 29 Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 29 Item 6. [Reserved] 29 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 30 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 39 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information The Company’s common stock is quoted on the Nasdaq Capital Market under the ticker symbol “RCEL” and the Company’s CDIs are quoted on the ASX under the ticker code “AVH”.
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOC KHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information The Company’s common stock is quoted on the Nasdaq Capital Market under the ticker symbol “RCEL” and the Company’s CDIs are quoted on the ASX under the ticker code “AVH”.
Holders As of January 31, 2023, the Company had approximately 23,190 unique stockholders of record of our common stock (which includes 23,120 holders of the Company’s CDIs, with each representing 1/5 of a share of common stock, and CHESS Depositary Nominees Pty Ltd, holds the legal title to all of the outstanding common stock underlying the CDIs of the Company).
Holders As of January 31, 2024, the Company had approximately 4 unique stockholders of record of our common stock (which includes 20,497 holders of record of the Company’s CDIs, with each representing 1/5 of a share of common stock, and CHESS Depositary Nominees Pty Ltd, holds the legal title to all of the outstanding common stock underlying the CDIs of the Company).
We intend to retain future earnings for use in our business and do not anticipate paying cash dividends on our common stock and CDIs in the foreseeable future.
Dividends We have never paid cash dividends to our stockholders or to the holders of ordinary shares in the former parent company, AVITA Australia. We intend to retain future earnings for use in our business and do not anticipate paying cash dividends on our common stock and CDIs in the foreseeable future.
Removed
Dividends We have never paid cash dividends to our stockholders or, prior to the Redomiciliation, to the holders of ordinary shares in the former parent company, AVITA Australia (being AVITA Medical Pty Limited).

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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In addition, we have no off-balance sheet arrangements (as defined in the rules and regulations of the SEC) that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material investors.
In addition, we have no off-balance sheet arrangements (as defined in the rules and regulations of the SEC) that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
The transaction price was allocated on a stand-alone selling price basis as follows: $7.6 million to the procurement of the RECELL product, which is classified as revenues when recognized in the consolidated statement of operations and $1.6 million to the emergency deployment services is be classified as revenues when recognized in the consolidated statement of operations.
The transaction price was allocated on a stand-alone selling price basis as follows: $7.6 million to the procurement of the RECELL product, which is classified as revenues when recognized in the Consolidated Statement of Operations and $1.6 million to the emergency deployment services is classified as revenues when recognized in the Consolidated Statement of Operations.
Under this guidance, revenue is recognized when product is placed in the BARDA vendor-managed inventory (“ VMI ”) as control of the product has been transferred to the customer at the time of delivery to the VMI. RECELL units that have been delivered to BARDA have a product replacement obligation at no cost to BARDA due to product’s limited shelf-life.
Under this guidance, revenue is recognized when product is placed in the BARDA vendor-managed inventory (“VMI”) as control of the product has been transferred to the customer at the time of delivery to the VMI. RECELL units that have been delivered to BARDA have a product replacement obligation at no cost to BARDA due to product’s limited shelf-life.
Income under the BARDA contract is earned under a cost-plus-fixed-fee arrangement in which the Company is reimbursed for direct costs incurred plus allowable indirect costs and a fixed-fee earned. Billings under the contracts are based on approved provisional indirect billing rates, which permit recovery of fringe benefits, general and administrative expenses and a fixed fee.
Income under the BARDA contract is earned under a cost-plus-fixed-fee arrangement in which we are reimbursed for direct costs incurred plus allowable indirect costs and a fixed-fee earned. Billings under the contracts are based on approved provisional indirect billing rates, which permit recovery of fringe benefits, general and administrative expenses and a fixed fee.
Recognize revenue when/as performance obligation(s) are satisfied In order for an arrangement to be considered a contract, it must be probable that the Company will collect the consideration to which it is entitled for goods or services to be transferred.
Recognize revenue when/as performance obligation(s) are satisfied In order for an arrangement to be considered a contract, it must be probable that we will collect the consideration to which it is entitled for goods or services to be transferred.
Amounts received from BARDA for the research and development of the Company’s product are classified as BARDA income in the consolidated statement of operations and are accounted for under IAS 20. For further details refer to BARDA Income and Receivables below.
Amounts received from BARDA for the research and development of the our product are classified as BARDA income in the Consolidated Statement of Operations and are accounted for under IAS 20. For further details refer to BARDA Income and Receivables below.
Year-Ended Year-Ended $ % Statement of Operations Data: December 31, 2022 December 31, 2021 Change Change Revenues $ 34,421 $ 33,025 $ 1,396 4 % Cost of sales (6,041 ) (6,104 ) 63 1 % Gross profit 28,380 26,921 1,459 5 % BARDA income 3,215 1,590 1,625 102 % Operating Expenses: Sales and marketing expenses (21,913 ) (16,267 ) (5,646 ) (35 )% General and administrative expenses (23,330 ) (21,693 ) (1,637 ) (8 )% Research and development expenses (13,857 ) (15,669 ) 1,812 12 % Total operating expenses (59,100 ) (53,629 ) (5,471 ) (10 )% Operating loss (27,505 ) (25,118 ) (2,387 ) (10 )% Interest expense (16 ) (29 ) 13 45 % Other income 892 47 845 nm* Loss before income taxes (26,629 ) (25,100 ) (1,529 ) (6 )% Provision for income tax (36 ) (42 ) 6 14 % Net loss $ (26,665 ) $ (25,142 ) (1,523 ) (6 )% *not meaningful Total net revenue increased 4% or $1.4 million to $34.4 million, compared to $33.0 million in the corresponding period in the prior year which included $7.9 million from our delivery of units to managed inventory for the Biomedical Advanced Research and Development Authority (“ BARDA ”) (of the Office for the Assistant Secretary for Preparedness and Response) for emergency response preparedness.
Year-Ended Year-Ended $ % Statement of Operations Data: December 31, 2022 December 31, 2021 Change Change Revenues $ 34,421 $ 33,025 1,396 4 % Cost of sales (6,041 ) (6,104 ) 63 1 % Gross profit 28,380 26,921 1,459 5 % BARDA income 3,215 1,590 1,625 102 % Operating expenses: Sales and marketing (21,913 ) (16,267 ) (5,646 ) (35 )% General and administrative (23,330 ) (21,693 ) (1,637 ) (8 )% Research and development (13,857 ) (15,669 ) 1,812 12 % Total operating expenses (59,100 ) (53,629 ) (5,471 ) (10 )% Operating loss (27,505 ) (25,118 ) (2,387 ) (10 )% Interest expense (16 ) (29 ) 13 45 % Other income, net 892 47 845 *nm Loss before income taxes (26,629 ) (25,100 ) (1,529 ) (6 )% Income tax expense (36 ) (42 ) 6 14 % Net loss $ (26,665 ) $ (25,142 ) (1,523 ) (6 )% *nm = not meaningful Total net revenue increased by 4% or $1.4 million to $34.4 million, compared to $33.0 million in the year-ended December 31, 2021, which included $7.9 million from our delivery of units to managed inventory for BARDA (of the Office for the Assistant Secretary for Preparedness and Response) for emergency response preparedness.
The product procurement performance obligation is satisfied at a point in time, upon transfer of control of the product. As such, the related revenue for these performance obligations is recognized at a point in time as revenue within the Company’s consolidated statement of operations.
The product procurement performance obligation is satisfied at a point in time, upon transfer of control of the product. As such, the related revenue for these performance obligations is recognized at a point in time as revenue within our Consolidated Statement of Operations.
The Company evaluated the BARDA contract and concluded that a portion of the arrangement, such as the procurement of the RECELL system and the emergency preparedness, represents a transaction with a customer and as such are in the scope of ASC 606.
We evaluated the BARDA contract and concluded that a portion of the arrangement, such as the procurement of the RECELL system and the emergency preparedness, represents a transaction with a customer and as such are in the scope of ASC 606.
The Company has concluded that grants are not within the scope of ASC 606, as they do not meet the definition of a contract with a “customer”. The Company has further concluded that Subtopic 958-605, Not-for-Profit-Entities-Revenue Recognition also does not apply, as the Company is a business entity, and the grants are with governmental agencies.
We have concluded that grants are not within the scope of ASC 606, as they do not meet the definition of a contract with a “customer”. We have further concluded that Subtopic 958-605, Not-for-Profit-Entities-Revenue Recognition also does not apply, as the Company is a business entity, and the grants are with governmental agencies.
We base those estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates. 33 Table of Contents The following listing is not intended to be a comprehensive list of all of our accounting policies.
We base those estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates. The following listing is not intended to be a comprehensive list of all of our accounting policies.
An uncertain tax position represents the Company’s expected treatment of a tax position taken in a filed return or planned to be taken in a future tax return or claim that has not been reflected in measuring income tax expense for financial reporting purposes.
An uncertain tax position represents our expected treatment of a tax position taken in a filed return or planned to be taken in a future tax return or claim that has not been reflected in measuring income tax expense for financial reporting purposes.
The decrease in net loss was driven by higher revenue during the year, partially offset by higher operating expenses as described above. Liquidity and Capital Resources Overview We expect to utilize cash reserves until U.S. sales of our products reach a level sufficient to fund ongoing operations.
The increase in net loss was driven by higher operating expenses as described above, partially offset by higher revenue. Liquidity and Capital Resources Overview We expect to utilize cash reserves until U.S. sales of our products reach a level sufficient to fund ongoing operations.
As such, revenue is recognized only to the extent a significant reversal of revenues is not expected to occur in subsequent periods. For the Company’s contracts that have an original duration of one year or less, the Company used the practical expedient applicable to such contracts and does not consider the time value of money.
As such, revenue is recognized only to the extent a significant reversal of revenues is not expected to occur in subsequent periods. For our contracts that have an original duration of one year or less, we used the practical expedient applicable to such contracts and does not consider the time value of money.
The Company recognizes the tax benefit from an uncertain tax position when it is more-likely-than-not that the position will be sustained upon examination on the basis of the technical merits or the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired.
We recognize the tax benefit from an uncertain tax position when it is more-likely-than-not that the position will be sustained upon examination on the basis of the technical merits or the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired.
The Company estimated the stand-alone selling price of the emergency deployment services performed based on the Company’s projected cost of providing the services plus an applicable profit margin as denoted in the contract. The Company’s performance obligations are either satisfied at a point in time or over time as services are provided.
We estimated the stand-alone selling price of the emergency deployment services performed based on our projected cost of providing the services plus an applicable profit margin as denoted in the contract. Our performance obligations are either satisfied at a point in time or over time as services are provided.
The following discussion and analysis of our financial condition and results of operations for the year-ended December 31, 2022 and 2021, should be read in conjunction with our consolidated financial statements and related notes included in this Annual Report.
The following discussion and analysis of our financial condition and results of operations for the years-ended December 31, 2023 and 2022, should be read in conjunction with our consolidated financial statements and related notes included in this Annual Report.
The simplified method was chosen because the Company has limited historical option exercise experience due to its short operating history of awards granted, the first plan was established in 2016 and was primarily used for Executives awards.
The simplified method was chosen because the we have limited historical option exercise experience due to its short operating history of awards granted, the first plan was established in 2016 and was primarily used for Executives awards.
In addition to guidance under ASC 606, the Company recognizes revenue from the sales of RECELL product to BARDA for placement into vaccine stockpiles in accordance with Securities and Exchange Commission (SEC) Interpretation, Commission Guidance regarding Accounting for Sale of Vaccines and BioTerror Countermeasures to the Federal Government for Placement into the Pediatric Vaccine Stockpile or the Strategic National Stockpile (SNS).
In addition to guidance under ASC 606, we recognize revenue from the sales of RECELL product to BARDA for placement into vaccine stockpiles in accordance with Securities and Exchange Commission (“SEC”) Interpretation, Commission Guidance regarding Accounting for Sale of Vaccines and BioTerror Countermeasures to the Federal Government for Placement into the Pediatric Vaccine Stockpile or the Strategic National Stockpile (SNS).
Generally Accepted Accounting Practices, or U.S. GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
The preparation of consolidated financial statements in conformity with U.S. Generally Accepted Accounting Practices, or U.S. GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
We have no purchase commitments or long-term contractual obligations or purchase commitments, except for lease obligations as of December 31, 2022. Refer to Note 6 of our Consolidated Financial Statements for further details on our lease obligations.
We have no purchase commitments or long-term contractual obligations, except for lease obligations as of December 31, 2023. Refer to Note 7 of our Consolidated Financial Statements for further details on our lease obligations.
Government Grants / BARDA Income and Receivables AVITA Medical was granted a BARDA contract in September 2015, wherein BARDA provided funding to the AVITA Medical to support the ongoing U.S. clinical regulatory program towards FDA premarket approval, Compassionate Use program, clinical and health economics research, and U.S. pediatric burn programs.
Government Grants / BARDA Income and Receivables We were granted a BARDA contract in September 2015, wherein BARDA provided funding to us to support the ongoing U.S. clinical regulatory program towards FDA premarket approval, Compassionate Use program, clinical and health economics research, and U.S. pediatric burn programs.
The following assumptions were used in the valuation of stock options. • Expected volatility – determined using the average of the historical volatility using daily intervals over the expected term and the derived volatility using the longest term available of 12 months. • Expected dividends – None, based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. • Expected term – the expected term of the Company’s stock options for tenure only vesting has been determined utilizing the “simplified” method as described in the SEC’s Staff Accounting Bulletin No. 107 relating to stock-based compensation.
The following assumptions were used in the valuation of stock options. • Expected volatility – determined using the historical volatility using daily intervals over the expected term. • Expected dividends – None, based on the fact that we have never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. • Expected term – the expected term of our stock options for tenure only vesting has been determined utilizing the “simplified” method as described in the SEC’s Staff Accounting Bulletin No. 107 relating to stock-based compensation.
The 34 Table of Contents $1.6 million for emergency deployment includes variable consideration which is deemed immaterial to the contract as a whole . The Company estimated the stand-alone selling price of the procurement of the RECELL product based on historical pricing of the Company’s product at the initial execution of the contract.
The $1.6 million for emergency deployment includes variable consideration which is deemed immaterial to the contract as a whole. We estimated the stand-alone selling price of the procurement of the RECELL product based on historical pricing of our product at the initial execution of the contract.
Deferred tax assets are reduced by a valuation allowance if it is more likely than not that a portion of the deferred tax asset will not be realized. The Company reviews its uncertain tax positions regularly.
Deferred tax assets are reduced by a valuation allowance if it is more likely than not that a portion of the deferred tax asset will not be realized. We review our uncertain tax positions regularly.
Further, because of the short duration of these contracts, the Company has not disclosed the transaction price for the remaining performance obligations as of each reporting period or when the Company expects to recognize this revenue.
Further, because of the short duration of these contracts, we have not disclosed the transaction price for the remaining performance obligations as of each reporting period or when we expect to recognize this revenue.
The total transaction price for the portion of the BARDA contract that is with-in the scope of ASC 606, was determined to be $9.2 million.
The total transaction price for the portion of the BARDA contract that is within the scope of ASC 606, was determined to be $9.2 million at contract inception.
Capital Management and Material Cash Requirements We aim to manage capital so that the Company continues as a going concern while also maintaining optimal returns to stockholders and benefits for other stakeholders. We also aim to maintain a capital structure that ensures the lowest cost of capital available to the Company.
Capital Management and Material Cash Requirements We aim to manage capital to maintain optimal returns to stockholders and benefits for other stakeholders. We also aim to maintain a capital structure that ensures the lowest cost of capital available to us.
Compensation expense for performance-based awards is measured based on the number of shares ultimately expected to vest, estimated at each reporting date based on management’s expectations regarding the relevant performance criteria. 35 Table of Contents T he Company estimates the fair value of tenure-based share options using the Black-Scholes option pricing model on the date of grant.
Compensation expense for performance-based awards is measured based on the number of shares ultimately expected to vest, estimated at each reporting date based on management’s expectations regarding the relevant performance criteria. We estimate the fair value of stock options on the date of grant using the Black-Scholes option pricing model.
The increase was primarily resulted from higher operating costs, partially offset by increased revenues. Net cash used in investing activities was $19.3 million during the year-ended December 31, 2022 and $50.2 million during the during the year-ended December 31, 2021. Cash flows used for investing activities were primarily attributable to investing excess cash in marketable securities in the prior year.
The increase primarily resulted from higher operating costs, partially offset by increased revenues. Net cash provided in investing activities was $1.6 million during the year-ended December 31, 2023 and cash used in investing activities was $19.3 million during the during the year-ended December 31, 2022. Cash flows provided by investing activities were primarily attributable to maturities of marketable securities.
We regularly review the Company’s capital structure and seek to take advantage of available opportunities to improve outcomes for the Company and its stockholders. For the annual period ended December 31, 2022, there were no dividends paid and we have no plans to commence the payment of dividends.
We regularly review our capital structure and seek to take advantage of available opportunities to improve outcomes for us and our stockholders. For the year-ended December 31, 2023, there were no dividends paid and we have no plans to commence the payment of dividends.
Higher selling costs are attributable to increased commissions due to increased revenue and higher costs for travel, hands-on professional education, and training. Increased pre-commercialization costs are driven by activities related to future RECELL launches in soft tissue repair and vitiligo. Higher salaries and benefits were primarily due to additional field personnel added to deepen penetration within individual customer accounts.
Increased costs in the current year were primarily driven by higher selling costs, pre-commercialization costs and higher salaries and benefits. Higher selling costs are attributable to increased commissions due to increased revenue and higher costs for travel, hands-on professional education, and training. Increased pre-commercialization costs are driven by activities related to future RECELL launches in soft tissue repair and vitiligo.
Research and development expenses decreased 12%, or $1.8 million, to $13.9 million, compared to $15.7 million recognized in the corresponding period in the prior year.
Research and development expenses decreased by 12%, or $1.8 million, to $13.9 million, compared to $15.7 million recognized in the year-ended December 31, 2021.
See Note 15 to our Consolidated Financial Statements included in this Annual Report for additional detail on share-based compensation. Income Taxes Income taxes are accounted for using the liability method.
See Note 15 to our Consolidated Financial Statements included in this Annual Report for additional detail on share-based compensation.
Our objective is to become the leading provider of regenerative medicine addressing unmet medical needs in burn injuries, trauma injuries, and in dermatological and aesthetics indications, such as vitiligo.
Our objective is to become the leading provider of regenerative medicine addressing unmet medical needs in burn injuries, full-thickness skin defects, and in skin repigmentation, such as vitiligo.
The following table summarizes our cash flows for the periods presented: Year-Ended Year-Ended (In Thousands) December 31, 2022 December 31, 2021 Net cash used in operations $ (19,090 ) $ (18,024 ) Net cash used in investing activities (19,332 ) (50,208 ) Net cash provided by financing activities 900 64,065 Effect of foreign exchange rate on cash and cash equivalents and restricted cash (26 ) (87 ) Net increase/(decrease) in cash and cash equivalents and restricted cash (37,548 ) (4,254 ) Cash and cash equivalents and restricted cash at beginning of year 55,712 59,966 Cash and cash equivalents and restricted cash at end of year 18,164 55,712 Net cash used in operating activities was $19.1 million during the year-ended December 31, 2022, and $18.0 million during the year-ended December 31, 2021.
The following table summarizes our cash flows for the periods presented: Year-Ended (In thousands) December 31, 2023 December 31, 2022 Net cash used in operations $ (38,011 ) $ (19,090 ) Net cash provided by/(used in) investing activities 1,607 (19,332 ) Net cash provided by financing activities 40,374 900 Effect of foreign exchange rate on cash and cash equivalents (16 ) (26 ) Net increase/(decrease) in cash and cash equivalents 3,954 (37,548 ) Cash and cash equivalents at beginning of the period 18,164 55,712 Cash and cash equivalents at end of the period 22,118 18,164 Net cash used in operating activities was $38.0 million during the year-ended December 31, 2023, and $19.1 million during the year-ended December 31, 2022.
There are also areas in which our judgment in selecting an available alternative would not produce a materially different result. We have identified the following as our critical accounting policies. Revenue Recognition The Company adopted ASC Topic 606 – Revenue from Contracts with Customers, on July 1, 2018.
There are also areas in which our judgment in selecting an available alternative would not produce a materially different result. We have identified the following as our critical accounting policies.
Once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised with each contract, determines whether those are performance obligations and the related transaction price.
Once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised with each contract, determines whether those are performance obligations and the related transaction price. We then recognize the sale of goods based on the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied.
BARDA income consisted of funding from BARDA, under the Assistant Secretary for Preparedness and Response, within the U.S. Department of Health and Human Services, under ongoing USG Contract No. HHSO100201500028C.
Gross profit margin was 82% and relatively flat compared to the year-ended December 31, 2021. BARDA income consisted of funding from BARDA, under the Assistant Secretary for Preparedness and Response, within the U.S. Department of Health and Human Services, under ongoing USG Contract No. HHSO100201500028C.
Changes in reimbursement rates by third party payors, may place additional financial pressure on hospitals and the broader healthcare system. Healthcare institutions may take actions to mitigate any persistent pressures on their budgets and such actions could impact the future demand for our products. Geopolitical conditions may also impact our operations.
Healthcare institutions may take actions to mitigate any persistent pressures on their budgets and such actions could impact the future demand for our products. Geopolitical conditions may also impact our operations.
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.
This is partially offset by higher development expenses in the current year from ongoing development of next generation devices for preparation of Spray-On Skin™ Cells as compared to the prior year due to early prototype development and testing. Net loss increased by 6%, or $1.5 million, to $26.7 million, over the $25.1 million recognized in the year-ended December 31, 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. Gross profit margin was 82% and relatively flat compared to the corresponding period in the prior year.
The growth in commercial revenues was largely driven by deeper penetration within individual customer accounts and the full-thickness skin defects launch along with the commencement of commercial sales with our partner COSMOTEC in Japan. Gross profit margin increased by 2% to 84.5% compared to 82.4% in the year-ended December 31, 2022.
Overview AVITA Medical, Inc. is a regenerative medicine company leading the development and commercialization of devices and autologous cellular therapies for skin restoration.
Overview AVITA Medical is a commercial-stage regenerative medicine company transforming the standard of care for skin restoration with innovative devices and autologous cellular therapies.
Critical Accounting Policies and Estimates The SEC defines “critical accounting policies” as those that require the application of management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. The preparation of consolidated financial statements in conformity with U.S.
We have no committed plans to issue further shares on the market but will continue to assess market conditions. 34 Table of Contents Critical Accounting Policies and Estimates The SEC defines “critical accounting policies” as those that require the application of management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.
Under Topic 606, the Company recognizes revenue when its customers obtain control of promised goods or services, in an amount that reflects the consideration which the Company expects to be entitled in exchange for those goods or services. To determine revenue recognition for arrangements that are within the scope of Topic 606, the Company performs the following five steps: 1.
Revenue Recognition We recognize revenue when its customers obtain control of promised goods or services, in an amount that reflects the consideration which we expect to be entitled in exchange for those goods or services.
General and administrative expenses increased 8%, or $1.6 million, to $23.3 million, compared to $21.7 million recognized in the corresponding period in the prior year. The increase was primarily driven by higher salaries and benefits and share-based 30 Table of Contents compensation expenses.
Higher salaries and benefits were primarily due to additional field personnel added to deepen penetration within individual customer accounts. General and administrative expenses increased by 8%, or $1.6 million, to $23.3 million, compared to $21.7 million recognized in the year-ended December 31, 2021. The increase was primarily driven by higher salaries and benefits and share-based compensation expenses.
The Company then recognizes the sale of goods based on the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied. The Company’s revenue consists primarily of the sale of the RECELL System to hospitals or other treatment centers, COSMOTEC and to BARDA (collectively, “customers”), predominately in the United States.
Our revenue consists primarily of the sale of the RECELL System to hospitals or other treatment centers, COSMOTEC and to BARDA (collectively, “customers”), predominately in the United States.
Emergency preparedness services include procuring necessary storage containers, housing, and maintaining the containers (and product), and providing shipping and handling services in the event of an emergency situation. This stand ready obligation is a series of distinct services that are substantially the same and have the same pattern of transfer to the customer, overtime as services are consumed.
This stand ready obligation is a 35 Table of Contents series of distinct services that are substantially the same and have the same pattern of transfer to the customer, overtime as services are consumed.
Results of Operations Year-Ended December 31, 2022, compared to the Year-Ended December 31, 2021 The table below summarizes the results of our continuing operations for each of the periods presented (in thousands).
The increase in net loss was driven by the higher operating expenses, partially offset by higher revenues and the non-cash charges as described above. Year-Ended December 31, 2022, compared to the Year-Ended December 31, 2021 The table below summarizes the results of our operations for each of the periods presented (in thousands).
Net cash provided by financing activities was $0.9 million and $64.1 million for the year-ended December 31, 2022 and 2021 respectively. The decrease in cash provided by financing activities was due to the issuance of common stock during March 2021.
Cash flows used in investing activities for the year-ended December 31, 2022 is primarily attributable to purchase of marketable securities. Net cash provided by financing activities was $40.4 million and $0.9 million for the years-ended December 31, 2023 and 2022, respectively. The increase in cash provided by financing activities was due to the issuance debt.
Total commercial revenue, which excludes BARDA revenue, increased by 36% or $9.0 million to $34.0 million in the full year-ended December 31, 2022, compared to $25.1 million in the corresponding period in the prior year.
Total commercial revenue, which excludes BARDA revenue, increased by 36% or $9.0 million to $34.0 million in the year-ended December 31, 2022, compared to $25.1 million in the year-ended December 31, 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 operating expenses increased 7% to $27.1 million, compared to $25.3 million in the corresponding period in the prior year. 31 Table of Contents Sales and marketing expenses increased 23%, or $1.6 million, to $8.5 million, compared to $6.9 million recognized in the corresponding period in the prior year.
Total operating expenses increased by 10% or $5.5 million to $59.1 million, compared to $53.6 million in the year-ended December 31, 2021. Sales and marketing expenses increased by 35%, or $5.6 million, to $21.9 million, compared to $16.3 million recognized in the year-ended December 31, 2021.
The expected term of options with a performance condition or market condition was set to the contractual term of 10 years. • Risk-free interest rate – t he risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for a period approximately equal to the expected term of the award.
Further, we do not have sufficient history of exercises in the U.S. market given our redomiciliation from Australia to the United States in 2020. • Risk-free interest rate – the risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for a period approximately equal to the expected term of the award.
Although we do not have operations in Russia or Ukraine, the continuation of the Russia-Ukraine military conflict and/or an escalation of the conflict beyond its current scope may further weaken the global economy and could result in additional inflationary pressures and supply chain constraints. 29 Table of Contents Although we do not believe that these trends have had a material effect on our business, financial condition or results of operations, it may in the future.
Although we do not have operations in Russia, Ukraine or in the Middle East, the continuation of the Russia-Ukraine military conflict and the conflict in the Middle East, and potential escalation of the conflicts beyond their current scope may further weaken the global economy and could result in additional inflationary pressures and supply chain constraints. 30 Table of Contents Results of Operations Year-Ended December 31, 2023, compared to the Year-Ended December 31, 2022 The table below summarizes the results of our operations for each of the periods presented (in thousands).
BARDA income increased as a result of funding by BARDA for the pivotal trial for use of the RECELL System for soft tissue repair. Total operating expenses increased 10% or $5.5 million to $59.1 million, compared to $53.6 million in the corresponding period in the prior year.
Under the BARDA 32 Table of Contents contract, income of $3.2 million was recognized during the year-ended December 31, 2022, compared to income of $1.6 million for the year-ended December 31, 2021. BARDA income increased as a result of funding by BARDA for the pivotal trial for use of the RECELL System for soft tissue repair.
Sales and marketing expenses increased 35%, or $5.6 million, to $21.9 million, compared to $16.3 million recognized in the corresponding period in the prior year. Increased costs in the current year were primarily driven by higher selling costs, pre-commercialization costs and higher salaries and benefits.
Sales and marketing expenses increased by 70%, or $15.4 million, to $37.3 million, compared to $21.9 million incurred in the year-ended December 31, 2022. Higher costs in the current year were primarily attributed to higher salaries and benefits, commissions, recruitment fees and travel costs.
Contract costs to fulfil the performance obligation are incremental and expected to be recovered are capitalized and amortized on a straight-line basis over the term of the contract. Contract costs are included in other long-term assets. Contract Liabilities The Company receives payments from customers based on contractual terms. Trade receivables are recorded when the right to consideration becomes unconditional.
Contract costs to fulfil the performance obligation are incremental and expected to be recovered are capitalized and amortized on a straight-line basis over the term of the contract. Contract costs are included in other long-term assets. See Note 5 to our Consolidated Financial Statements included in this Annual Report for additional detail on revenue recognition.
See Note 14 to our Consolidated Financial Statements included in this Annual Report for additional detail on revenue recognition.
See Note 16 to our Consolidated Financial Statements included in this Annual Report for additional detail on income taxes. Recent accounting pronouncements See discussion of recent accounting pronouncements in Note 2 of the Consolidated Financial Statements located in Item 8 in this Annual Report. 38 Table of Contents
Share-Based Compensation The Company records compensation expense for share-based payments to employees, including grants of stock options, restricted stock units and performance-based awards based on the fair market value of the awards on the date of grant. The fair value of share-based compensation awards is amortized over the vesting period of the award.
Share-Based Compensation We measure and recognize compensation expense on a graded-vesting method, for stock options and restricted stock units (“RSUs”), to employees, directors and consultants over the vesting period based on their grant date fair values.
BARDA income consisted of funding from BARDA, under the Assistant Secretary for Preparedness and Response, within the U.S. Department of Health and Human Services, under ongoing USG Contract No. HHSO100201500028C. Under the BARDA contract, income of $3.2 million was recognized during the year-ended December 31, 2022, compared to income of $1.6 million for the same period in the prior year.
The increase in gross profit margin is largely driven by higher production along with lower shipping costs. BARDA income consisted of funding from BARDA, under the Assistant Secretary for Preparedness and Response, within the U.S. Department of Health and Human Services, under ongoing USG Contract No. HHSO100201500028C.
Subsequent to FDA approval for vitiligo, we will commence a full commercial launch following receipt of in-office reimbursement, which we anticipate will occur by January 2025 • Evaluate potential commercialization applications for the RECELL System related to skin rejuvenation and Epidermolysis Bullosa indications • Further invest in our RECELL System platform to automate and improve workflow, speed, and ease of use as it relates to specific indications, as well as to build upon our intellectual property estate • Continue to build upon commercial activities in Japan through our partnership with COSMOTEC Company, Ltd with our current PMDA approval for RECELL with an indication in burns • Develop and pursue viable commercial activities outside of the U.S. and Japan once we have received FDA approval with RECELL System indications in soft tissue and vitiligo • Pursue business development opportunities that are complementary to our core RECELL System indications and/or our targeted markets • Improve our margins and profitability by leveraging our current team and infrastructure across an expanding base of business in burns and in future indications Business Environment and Current Trends The outbreak of the global pandemic and the associated response measures implemented by governments and businesses around the world, as well as subsequent accelerated and robust recovery in global business activity, have increased uncertainty in the business environment.
To achieve this objective, we plan to: • Become the standard of care in the U.S. burns industry by increasing RECELL System penetration in burn centers • Continue to commercialize the RECELL System in the U.S. for treatment of full-thickness skin defects • Expand our global presence within the European Union and Australia through the exclusive use of third-party distributors. • Launch RECELL GO following FDA approval to increase market adoption, expand our customer base, and facilitate international commercialization • Establish commercial payor coverage for the RECELL System in the U.S. for the repigmentation of stable depigmented vitiligo lesions, which we expect will begin during the fourth quarter of 2025 • Further invest in our RECELL System platform to automate and improve workflow, speed, and ease of use as it relates to specific indications, as well as to build upon our intellectual property estate • Continue to build upon commercial activities in Japan through our partnership with COSMOTEC Company, Ltd with our current PMDA approval for RECELL with an indication in burns • Develop and pursue viable commercial activities outside of the U.S. and Japan following the FDA approvals of the RECELL System for full-thickness skin defects and repigmentation of stable depigmented vitiligo lesions • Pursue business development opportunities that are complementary to our core RECELL System indications and/or our targeted markets • Improve our margins and profitability by leveraging our current team and infrastructure across an expanding base of business in burns and in future indications • With the successful execution of the exclusive distribution agreement with Stedical Scientific, Inc., we will begin distribution of the PermeaDerm ® Biosynthetic Wound Matrix in the United States using our existing sales force.
The Company has further applied the practical expedient to exclude sales tax in the transaction price and expense contract fulfilment costs such as commissions and shipping and handling expenses as incurred.
We have further applied the practical expedient to exclude sales tax in the transaction price and expense contract acquisition costs such as commissions and shipping and handling expenses as incurred. For revenues related to the BARDA contract within the scope of ASC 606, we identified two performance obligations (i) the procurement of 5,614 RECELL units, (ii) emergency preparedness services.
Identify the contract with a customer 2. Identify the performance obligations 3. Determine the transaction price 4. Allocate the transaction price to the performance obligations 5.
To determine revenue recognition for arrangements that are within the scope of Topic 606, Revenue from contracts with customers , (“ASC 606”), we perform the following five steps: 1. Identify the contract with a customer 2. Identify the performance obligations 3. Determine the transaction price 4. Allocate the transaction price to the performance obligations 5.
For the year-ended December 31, 2022, we r ecognized $370,000 of revenue related to BARDA services provided to BARDA for emergency preparedness. 32 Table of Contents Given the above, we believe there is presently sufficient working capital to support our committed research and development programs and other activities over the next twelve months and the Company believes it has the ability to realize its assets and pay its liabilities and commitments in the normal course of business.
Given the above, we believe there is presently sufficient working capital to support our committed activities, our research and development programs and other activities over the next twelve months.
For revenues related to the BARDA contract with-in the scope of ASC 606, the Company identified two performance obligations (i) the procurement of 5,614 RECELL units, (ii) emergency preparedness services. Through this contract the Company promises to procure the product through a vendor management inventory arrangement and to stand ready to provide emergency deployment services related to the product.
Through this contract we promise to procure the product through a vendor management inventory arrangement and to stand ready to provide emergency deployment services related to the product. Emergency preparedness services include procuring necessary storage containers, housing, and maintaining the containers (and product), and providing shipping and handling services in the event of an emergency situation.
AVITA Medical has historically funded its research and development activities, and more recently its substantial investment in sales and marketing activities, through raising capital by issuing securities, and it is expected that similar funding will be obtained to provide working capital if and when required.
AVITA Medical has funded its research and development activities, and more recently its substantial investment in sales and marketing activities, through raising capital by issuing securities and the issuance of debt. As of December 31, 2023, the Company had approximately $22.1 million in cash and cash equivalents and $66.9 million in marketable securities.
Our patented and proprietary RECELL® System technology platform harnesses the regenerative properties of a patient’s own skin to create Spray-On Skin ™ Cells, an autologous skin cell suspension that is sprayed onto the patient to regenerate natural healthy skin.
RECELL harnesses the regenerative properties of a patient’s own skin to create an autologous skin cell suspension, Spray-On Skin™ Cells, delivering a transformative solution at the point of care. This breakthrough technology serves as the catalyst for a new treatment paradigm enabling improved clinical outcomes.
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To achieve this objective, we intend to: • Become the standard of care in the U.S. burns industry by increasing RECELL System penetration in burn centers and with burn physicians • Commercialize the RECELL System in the U.S. for use in soft tissue repair following approval of our pending PMA supplement, which was submitted to the FDA in December 2022.
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At the forefront of our portfolio is our patented and proprietary RECELL® System, approved by the United States Food & Drug Administration (“FDA”) for the treatment of thermal burn wounds and full-thickness skin defects, and for repigmentation of stable depigmented vitiligo lesions.
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Following anticipated FDA approval for soft tissue repair, we plan to commence a full commercial launch in July 2023 with both inpatient and outpatient reimbursement in place • Commercialize the RECELL System in the U.S. for use in treatment of vitiligo following approval of our pending PMA application, which was submitted to the FDA in December 2022.
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Refer to Note 20 of our Consolidated Financial Statements for further details Business Environment and Current Trends Changes in reimbursement rates by third party payors may place additional financial pressure on hospitals and the broader healthcare system.
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These macroeconomic environment implications, including supply chain shortages, increased cost of healthcare, increased inflation rates, competitive and tight labor market , and other related global economic conditions and geopolitical conditions, remain unknown. Additionally, there have been various economic indicators that the United States economy may be entering a recession in upcoming quarters.
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Year-Ended Year-Ended $ % Statement of Operations Data: December 31, 2023 December 31, 2022 Change Change Revenues $ 50,143 $ 34,421 15,722 46 % Cost of sales (7,780 ) (6,041 ) (1,739 ) (29 )% Gross profit 42,363 28,380 13,983 49 % BARDA income 1,428 3,215 (1,787 ) (56 )% Operating expenses: Sales and marketing (37,291 ) (21,913 ) (15,378 ) (70 )% General and administrative (28,334 ) (23,330 ) (5,004 ) (21 )% Research and development (20,821 ) (13,857 ) (6,964 ) (50 )% Total operating expenses (86,446 ) (59,100 ) (27,346 ) (46 )% Operating loss (42,655 ) (27,505 ) (15,150 ) (55 )% Interest expense (1,143 ) (16 ) (1,127 ) *nm Other income, net 8,483 892 7,591 *nm Loss before income taxes (35,315 ) (26,629 ) (8,686 ) (33 )% Income tax expense (66 ) (36 ) (30 ) (83 )% Net loss $ (35,381 ) $ (26,665 ) (8,716 ) (33 )% *nm = not meaningful Total net revenues increased by 46%, or $15.7 million, to $50.1 million, compared to $34.4 million in the year-ended December 31, 2022.
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If these conditions continue or worsen, they could adversely impact our future operating results. An economic recession could potentially impact the general business environment and the capital markets, which may have a material negative impact on our financial results.
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Our commercial revenue, which excludes BARDA revenue, was $49.8 million for the year-ended December 31, 2023, an increase of $15.8 million, or 46%, compared to $34 million in the year-ended December 31, 2022.
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Net loss increased 6%, or $1.5 million, to $26.7 million, over the $25.1 million recognized in the corresponding period in the prior year. The increase in net loss was driven by higher operating expenses as described above, partially offset by higher revenue.
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BARDA income decreased 56% or $1.8 million to $1.4 million, compared to $3.2 million in the year-ended December 31, 2022, due to reimbursable clinical trials winding down. Total operating expenses increased by 46% or $27.3 million to $86.4 million, compared with $59.1 million in the year-ended December 31, 2022.
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Transition Period Ended December 31, 2021, compared to the Six Months Ended December 31, 2020 The table below summarizes the results of our continuing operations for each of the periods presented (in thousands).
Added
The increase in salaries and benefits and recruitment fees are due to the preparation of the commercial launch of full-thickness skin defects in June 2023. Higher commissions and travel costs were directly associated with the increase in revenues.
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Transition Period Six Months Ended $ % Statement of Operations Data: July 1 - December 31, 2021 December 31, 2020 Change Change Revenues $ 13,956 $ 10,163 3,793 37 % Cost of sales (1,905 ) (1,750 ) (155 ) 9 % Gross profit 12,051 8,413 3,638 43 % BARDA income 580 1,045 (465 ) (44 )% Operating Expenses: Sales and marketing expenses (8,472 ) (6,865 ) (1,607 ) 23 % General and administrative expenses (10,996 ) (11,703 ) 707 (6 )% Research and development expenses (7,586 ) (6,735 ) (851 ) 13 % Total operating expenses (27,054 ) (25,303 ) (1,751 ) 7 % Operating loss (14,423 ) (15,845 ) 1,422 (9 )% Interest expense (17 ) (10 ) (7 ) 70 % Other income 38 8 30 375 % Loss before income taxes (14,402 ) (15,847 ) 1,445 (9 )% Income tax benefit (expense) (25 ) (21 ) (4 ) 19 % Net loss $ (14,427 ) $ (15,868 ) 1,441 (9 )% Total net revenue increased 37% to $14.0 million, compared to $10.2 million in the corresponding period in the prior year.

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