Avita Medical, a company focused on burns and wound care, is aiming for a significant turnaround under its new US-based CEO, Cary Vance. Vance recently concluded a visit to Australia, engaging with investors and presenting the company’s strategy for recovery and growth. While the reception was largely positive, some investors expressed scepticism, recalling a similar presentation last year that was followed by a substantial drop in share price.
Vance acknowledged these concerns, stating that this time would be different, supported by “sequential” quarterly revenue improvements. The company’s past challenges have been attributed to hurdles with US Medicare Administrative Contractors (MACs) and hospital Value Analysis Committees (VACs), which led to reimbursement issues and delays in hospital approvals. These setbacks forced Avita to revise its earnings guidance multiple times and resulted in a breach of debt covenants, alongside a significant reorganisation of its sales force.
Despite these headwinds, Vance expressed confidence, declaring, “By the end of 2026 we will look back at 2025 as having a number of headwinds, but we are back on track.”
The Avita Story: From Innovation to Global Reach
Avita’s core innovation is its spray-on skin product, Recell, developed by renowned Perth burns surgeon Professor Fiona Wood. The Recell device works by taking a small skin sample from a patient and mixing the cells into a liquid spray, ready for application within 30 minutes. The system includes a battery-operated device for cell harvesting, along with necessary surgical instruments.
Recell offers a significant advantage over traditional skin grafts, with a single kit capable of covering an area up to 80 times larger. Professor Wood famously utilised Recell to treat victims of the 2002 Bali terrorist attacks.
Founded in 1992 as Clinical Cell Culture, the company rebranded as Avita Medical in 2008 following a merger. Avita first listed on the ASX in 1993 and later made its debut on the Nasdaq in October 2019, relocating its headquarters from Perth to Valencia, California, in 2020.
Cary Vance was appointed interim CEO in October last year, succeeding Jim Corbett. Vance, who had been on Avita’s board since 2023, was made permanent CEO on May 1st. With three decades of experience in medical technologies, Vance, who is distantly related to US Vice President JD Vance, has led several US companies. Meanwhile, Professor Wood recently received a Lifetime Achievement Award at the American Burns Association meeting, highlighting her significant contributions to the field.
Regulatory Milestones and Market Expansion
Avita’s products have achieved a series of regulatory approvals, paving the way for market access:
- 2005: European authorities granted approval for Recell.
- September 2018: The US Food and Drug Administration (FDA) approved Recell as a Class III device for treating adult thermal burns.
- June 2021: The FDA expanded its approval to include paediatric third-degree burns, a significant segment of burn injuries in the US.
- June 2023: The FDA approved Recell for soft tissue injuries, dramatically broadening the potential market from 40,000 burn victims to an estimated 4.5 million Americans seeking treatment for wounds annually, including those from accidents and injuries.
- May 2024: The FDA approved Recell GO, an automated device designed to streamline the skin sample preparation process. This device aims to reduce the reliance on sales agents for training clinicians, simplifying kit preparation.
Avita manufactures its devices at a facility in Ventura, California.
Diversifying the Product Portfolio
Beyond the flagship Recell, Avita is expanding its offerings:
- Recell Mini: A variant designed for smaller wounds, measuring under 480 square centimetres.
- Cohealyx: Through an agreement with Regenity Biosciences, Avita sells Cohealyx in the US and potentially in Australia, Japan, and Europe. This bovine collagen matrix is designed to create a conducive environment for wound healing. Post-marketing studies have shown a significant reduction in healing time compared to other matrices. Vance estimates a total addressable market of 200 burns centres for Cohealyx.
- Permeaderm: A bio-synthetic dressing used for temporary application while a wound is assessed. Avita licenses this product in the US through Stedical Scientific. It offers an alternative to cadaver skin, which is more expensive and requires extensive tracking.
Navigating Reimbursement and Hospital Approvals
The complexities of the US healthcare system, particularly with MACs and VACs, have presented significant challenges for Avita.
- MACs (Medicare Administrative Contractors): Delays in MACs listing pricing for Recell meant that hospitals and surgeons were not being reimbursed, leading them to revert to traditional grafts. Following extensive lobbying, all seven MACs have now listed Recell pricing, with retrospective payments being made.
- VACs (Value Analysis Committees): Avita underestimated the time required for these hospital committees to approve Recell’s usage. Vance acknowledged that while the company cannot control the VAC process, it focuses on providing “proper data and information that is very convincing” to expedite approvals. The goal is to shorten the approval timeline from potentially six months to around two months.
Financial Performance and Outlook
Avita reported US$19.06 million in sales revenue for the March quarter, a 10% increase year-on-year and a 4% improvement from the previous quarter. The company’s net loss narrowed to US$10.6 million from US$13.85 million in the prior period.
Management has reaffirmed its 2026 revenue guidance of US$80-$85 million, representing a 12-19% increase. Chief Finance Officer David O’Toole highlighted strong revenue momentum in recent months and improved revenue quality, with the absence of lower-margin bulk orders. The gross profit margin remained stable at 82%.
The company received an order from the US Biomedical Advanced Research and Development Authority (BARDA) for up to US$25.5 million over 10 years, contingent on a disaster event, with a guaranteed US$4 million in payments over the decade.
Strengthening the Balance Sheet
Despite revenue growth, Avita carries a significant debt load of US$46.1 million. At the end of March, the company had US$14.26 million in cash and marketable securities. The company opted for loans over dilutive equity financing, which is generally more favoured by US investors. In January, Avita refinanced its debt on more favourable terms, resolving previous covenant breaches that had led to share price penalties and waiver fees. Vance indicated that the company would address its capital structure over the US summer.
Global Ambitions and Future Prospects
While the US market is expected to remain the primary driver of Avita’s growth, the company has approvals for Recell in Australia, New Zealand, Japan, and parts of Europe. Vance acknowledged that Recell has underperformed in Australia and is optimistic that Recell GO will boost sales. The company is actively working on establishing distribution channels in Europe and has seen meaningful revenue from Japan, though it seeks to revitalise its approach in that market.
Avita is also exploring potential cosmetic and aesthetic applications for its technology and had previously pursued US approval for vitiligo, but abandoned the endeavour due to anticipated reimbursement challenges.
A Clear Strategy for Growth
CEO Cary Vance emphasised Avita’s “very clear and simple, understandable strategy for growing the business,” with a focus on helping vulnerable patients. He noted that Recell currently holds only 20-22% of the estimated US$1 billion addressable market for burns treatment. For Cohealyx and Permeaderm, market penetration is even lower at around 5%. The ideal scenario involves surgeons utilising all three products in a single procedure.
Vance believes that investors can “start believing again,” but acknowledges that ultimate success hinges on persuading surgeons and hospital administrators to adopt the company’s innovative products. He has committed to accountability, stating that if the projected sequential quarterly sales growth does not materialise, he will be held responsible.
At a Glance:
- ASX Code: AVH (CDIs)
- Nasdaq Code: RCEL (US Shares)
- Shares on Issue: Approximately 153.9 million CDIs and equivalents.
- CDI Price: $1.155
- Market Capitalisation: $177.7 million
- Chief Executive Officer: Cary Vance
- Board: Jan Stern Reed (Chair), Cary Vance, Jeremy Curnock Cook, Prof Suzanne Crowe, Robert McNamara, Joseph (Joe) Fralin Woody, Dr Michael Eric Tarnoff
- Financials (March Quarter 2026):
- Sales: US$19.06m (up 4%)
- Total Revenue: US$19.25m (up 4%)
- Net Loss: $10.6m (compared to $13.85m deficit previously)
- Cash and Marketable Securities: US$14.26m (down 21%)
- Debt: US$46.1m (up 7%)
- Identifiable Major Holders: The four largest shareholders are nominee companies, with holdings ranging from 1.0% to 3.4%. L&Y SMSF Holdings holds 1.16%.
