Avita Medical Ltd (RCEL)

[Cake10]

For those unimpressed with the last quarter, particularly the smaller-than-hoped newly added centers, it appears they have a “go deep” strategy for scaling. Might seem counterintuitive in terms of sales strategy, but their primary focus may be not to “go wide (too soon)”.

In fact, their goal for ALL of 2020 is only 25 new centers. Perhaps that strategy is also dictated by other market forces and conditions into which I have no insight.

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Snippet from the quarterly, worth a re-read:

2019 in Review

United States In-Patient Burns

31 December 2019 marked the first full calendar year (CY) of sales since the U.S. commercial launch of the RECELL System in early January. During the first half of CY2019, our commercial and clinical support team made concerted efforts to build awareness and to promote the donor-sparing, point-of-care and related clinical benefits of the RECELL System among an initial cohort of the 132 burn centers (i.e. the in-patient setting) that treat approximately 40,000 burn patients each year.

The core of these early efforts involved educating and training many of the 300 certified burn surgeons, proctoring bench and in vivo use of the RECELL System, and ultimately seeking hospital approval to purchase the RECELL System through the respective VAC at each burn center.

With RECELL being the first product in more than 20 years granted Premarket Approval (PMA) by the U.S. Food and Drug Administration (FDA) to treat severe thermal burns, we were able to quickly secure orders in 39 of the 132 U.S. burn centers (and train 136 burn surgeons) by 30 June 2019. Consistent with our two randomized clinical studies and our PMA, early utilization of the RECELL System by the first adopters mainly focused on the less common full thickness or “big burns”; that is, the larger and deeper (full thickness) TBSA burns bracket within the approximately 14,000 of the 40,000 patients treated within the in-patient setting.

In the quarter ended 30 September 2019, we added a further 13 institutions (as well as increasing to 157 trained burn surgeons) and saw our top line revenue consequently benefit from the addition of these new customers, including some larger stocking orders from key customers during that period. With the initial core customer base established within this window, our commercial efforts in Q3 CY2019 shifted to building consistent RECELL utilization by ensuring strong clinical outcomes within those early users of the RECELL System. Creating a strong commercial support presence in centers, paired with excellent RECELL clinical experience was a key focus during the first quarter of fiscal year (FY) 2020 (Q3 CY2019) because the in- patient burn treatment setting is characterized by physician preference and inherent variability in month-to- month patient accrual (i.e. burns are random, or “accident-induced,” and therefore lack a consistent referral path).

The closing three months of 2019 (FQ2 FY2020 / Q4 CY2019) resulted in growing and consistent utilization of the RECELL System across our customer base, including some of the highest procedural rates with the RECELL System since PMA (and 15 to 20% higher than FQ1 FY 2020 / Q3 CY 2019). Furthermore, we were able to add eight new customers late in the quarter and train an additional nine burn surgeons. This brought our 2019 total to 63 ordering customers and 166 trained burn surgeons. Due to our commercial team’s efforts in educating both physicians and burn centers, we have reaped to date 100% success in navigating the VAC approval process and have established a base of “super users,” or physicians using the RECELL System across a broad array of burn sizes and depths, and patient types. In this regard, our top 20 customers are relatively concentrated and delivered approximately 60% of revenue in each of the last two quarters of CY2019. Because of this, we see the opportunity in 2020 to similarly more broadly penetrate our other RECELL customers, as well as to expand our footprint into new burn centers.

In pursuit of wider utilization of the RECELL System, we intend to add 25 new sites in CY2020 and will leverage our current commercial infrastructure to do so. The rate of in-patient burn admissions is inherently variable, but we feel very confident of incremental revenue growth across the entirety of CY2020 as we continue to focus on our “go deep” strategy of (1) broader TBSA burn utilization (i.e. broadening RECELL use from large, full thickness, TBSA wounds, or “big burns,” to the much higher incidence of smaller or partial thickness burns) consistent with usage patterns demonstrated by our most experienced users; and (2) educating and training other burn surgeons within our customer base. We see a total addressable burn market for the RECELL System of U.S. $200 million in in-patient burns.

https://www.asx.com.au/asxpdf/20200131/pdf/44dnn664vbmtlx.pdf