Avita Medical Ltd (RCEL)

[inversor86]

Investor Update

I have bolded the most important parts.

28 November 2012

Dear Shareholder,

We started 2Q2012 with $16 million in cash, no debt, an expanded board of directors, a strengthened management team, continued strong growth in acceptance and uptake of ReCell® Spray-On Skin® amongst key surgeons, a growing body of published literature reporting excellent ReCell clinical results and a clear plan to establish Avita as a market leader in the emerging field of regenerative medicine.

We remain committed to building a sustainable and profitable business for the long-term; in the near-term we are maintaining our highly focussed, strategic approach to laying the foundation to support our growth. We continue to make excellent progress with solid achievements against each of the key components of our long-term strategic plan and have launched several key initiatives for the coming 12-24 months:
? Obtain reimbursement for ReCell in key markets
? Establish ReCell as a core tool in the management of chronic wounds
? Expand ReCell product line offerings to differentiate specific markets
? Obtain FDA clearance for ReCell sales and marketing in the US
? Increase shareholder value and visibility among potential institutional investors
CORPORATE ACTIVITIES
? Completed successful A$10 million capital raising
? Expanded Board with two new directors
? Strengthened management team

Capital raising. At the General Meeting in Melbourne, Australia on 19 October shareholders approved the A$10.36 million capital raising led by Octa Phillip Bioscience Managers and Australian Ethical Investment, $2.99 million of which came from existing shareholders via the Shareholder Purchase Plan (SPP). As at 1 November 2012, following disbursement of costs associated with the capital raising, the company had $16 million cash or in deposits on call.

Board expansion. On 22 October Avita Medical announced the board appointments of Mr Jeremy Curnock Cook and Mr Matt McNamara. Mr Curnock Cook has served on the boards of numerous international healthcare and biotechnology companies from his base in London and brings a wealth of experience to the board. Mr Curnock Cook was former head of the life science private equity team at Rothschild Asset Management, was responsible for the launch of the first dedicated biotechnology fund for the Australian market and the launch of a joint venture with Johnson & Johnson Development Corporation for the creation of Healthcare Ventures, an investment vehicle dedicated to seed stage investments in Europe, as well as the conception and launch of the International Biotechnology Trust (IBT).

Mr McNamara, currently Chief Investment Officer and Fund Manager of OctaPhillip Bioscience Managers, has extensive experience in the biotech sector, serving on numerous boards and having a decade of experience in sales and marketing and general management in the pharmaceutical sector with Merck & Co. and Johnson and Johnson Medical Pty. Ltd. respectively and was CEO of a Life Sciences Venture Capital fund, SciCapital Pty. Ltd.
Strengthened management team. The company continues to develop a world-class management team with two recent hires :
Ms Debra Leeves was appointed General Manager Europe, Middle East and North Africa (EMEA). Ms Leeves has an outstanding record in the healthcare and biotech sector. Previously, Ms Leeves was Marketing Manager EMEA for GE Healthcare and in various senior sales and marketing management roles with Pfizer/Wyeth and GlaxoSmithKline.
Mr Timothy Rooney was appointed Chief Operating Officer/Chief Financial Officer in October. Mr Rooney has 23 years' experience in senior finance and operations. Most recently he was CFO/COO of a large pharmaceutical wholesale business, which under his guidance grew from an early stage start-up to a US$450 million business.
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REIMBURSEMENT
? Initiated medico-economic studies in key markets to support reimbursement applications for ReCell
? Demonstrated large cost savings achievable to healthcare systems
A major business objective for Avita is the obtainment of coding and reimbursement for ReCell in core markets including the United Kingdom, Germany, France, China and the US.

In the current climate of imposed austerity, health care costs are under increasing scrutiny as governments and health-payer systems seek cost curbing opportunities. Reimbursement processes for medical technology are complex and vary from country to country with the responsible agencies serving as gatekeepers to the inclusion of medical products as accepted standards of care. The major European
markets and China have implemented new systems for reimbursement coding, closely regulating payment for medical technology.
Anecdotal evidence for cost saving is no longer sufficient. Controlled economic studies are required to support cost savings claims for reimbursement. Avita has commenced studies to provide direct evidence for ReCell cost benefit claims. Avita has engaged expert reimbursement consultants to
develop cogent strategies to expedite the application and
approval process and is working closely with a select group of influential surgeons at select clinical centres to conduct country-specific medico-economic studies to support application for reimbursement.
Economic data documenting cost savings achievable with ReCell in burns treatment have been collected at Pinderfields Hospital in the UK and were presented at the recent International Society for Burn Injuries in Sept 2012. The data demonstrate the significant savings available to the healthcare system with incorporation of ReCell into the management of burns.
CLINICAL DEVELOPMENT
Data comparing the cost of treatment burn patients by size of burn, up to discharge using ReCell vs current standard of care. Data based on recorded expenses in treatment of 26 burns patients at Pinderfields Hospital Burns Units United Kingdom during 2011. Economic models indicate significant economic benefits obtained using ReCell in management of acute burn injuries, even in relatively small burns (<10% TBSA) which represent the majority of burn injuries.
? Clinical studies underway to further expand and support marketing claims
? Promising preliminary results with ReCell in management of chronic wounds
? Initiating controlled study in treatment of venous leg ulcers
? Progressing FDA trials with additional US$880K support from US Department of Defense
Clinical studies Avita continues to work with selected surgeons at leading centres throughout Europe in conducting small-scale, in-market studies on a variety of indications, including treatment of burns, acne scarring, scar revision, vitiligo and rejuvenation procedures (e.g., wrinkle removal), representing a subset of potential applications for ReCell. Results of these studies have been and will be presented at scientific medical conferences and published in peer-reviewed medical journals and will support clinical efficacy claims in applications for reimbursement.
Lower limb ulcers Lower limb ulcers (LLUs), which include venous leg ulcers and diabetic foot ulcers, are a major healthcare problem in developed countries due to their prevalence, high cost of treatment and detrimental impact on patient quality of life. LLUs afflict nearly 1.5% of the general population in OECD countries and up to 3% over the age of 70 years. The expense of treating LLUs imposes a major financial burden on healthcare systems. In the US alone some 6.5 million people suffer from LLUs with associated annual treatment costs estimated in excess of US$25 billion; similar prevalence and expenses are documented for the UK, Germany and France. The costs to patients include associated morbidity, pain, lack of mobility and lost work days and wages.
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In preliminary open-label studies, ReCell was used at four European centres to treat approximately 80 patients suffering from venous leg ulcers and diabetic foot ulcers. The average
age of patients' across study centres was approximately 70 years; wounds were open an average of approximately 13 months and averaged approximately 21 cm2 in size.
Results of these preliminary studies have been encouraging. Over 70% of patients showed complete healing of the wound within 7-12 weeks following a single treatment with ReCell. With the current standard of care treatment it would be expected that approximately 43% of these wounds would have achieved closure during this period. ReCell appears to yield a highly significant positive effect on wound healing. Pain, a critical indicator of quality of life, was reported as significantly reduced or eliminated within 72 hours following ReCell treatment.
Given the positive results achieved in preliminary studies, Avita has
initiated a randomised control study with leading clinicians at up to 5
European centres. Up to 80 patients will be enrolled in the study.
Study protocols have been submitted for approval by the relevant ethics review boards at each centre. It is anticipated that enrolment in the study will commence during the 1st quarter of 2013.
Healing of chronic lower limb ulcers in one
participating study centre. 95% of ulcers achieved closure of 80% or better within 60 days following a single treatment with ReCell. Data provided by B. De Angelis et al., Tor Vergata University, Rome, Italy.
US FDA trials. The US remains the largest single market in the world for medical products. We will continue to pursue FDA approvals for ReCell to access the US market for a range of clinical indications.
Avita was recently awarded an additional US$880K from the US Department of Defense Armed Forces Institution for Regenerative Medicine (AFIRM), supplementing the $1.75 million in previous funding in support for Avita's on-going US FDA trial for the use of ReCell® Spray-On-Skin® in the treatment of burn injuries. The US FDA burns trial comparing the performance of ReCell against split-thickness grafts, the current standard of care, is progressing with seven investigational sites in the US actively enrolling patients.
The FDA-approved study is complex and highly conservative in design and inclusion criteria; hence enrolment has been slower than hoped. Approximately 80% of the required subjects have been enrolled in the study and are undergoing follow up.
The award demonstrates the commitment by the US Department of Defence, the US Army, and AFIRM to bringing the ReCell technology through the FDA approval process and cleared for sales in the US, thereby making it available for the military and civilian population.
SALES AND MARKETING
? Continuing focussed marketing approach, working closely with select influential surgeons
? Growing list of publications and presentations by prominent clinicians and Centres of Excellence
? Clinical demonstration studies in China continuing with >150 procedures conducted in support of pricing application
Avita continues to expand sales and marketing presence in key European markets, participating in regional and international congresses, sponsoring targeted clinical studies and supporting our direct sales representatives, joint- venture partners and distributors in advertising and marketing.
Avita is continuing its strategy of focussing on a few high-value markets and within those markets working closely with a limited number of key surgeons and clinical sites. This 'deep versus broad' approach is yielding positive results as we continue to build a core group of ReCell users and establish a strong clinical foundation.
Our goal over the next two years is to achieve wide scale penetration and usage of ReCell, establishing ReCell as standard care for a range of indications including the treatment of chronic wounds, acute burn injuries and aesthetic procedures. To maximize this outcome Avita is pursuing reimbursement for ReCell in specific countries and developing the next generation ReCell products to meet needs of various markets.
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EMEA. Consistent with Avita's strategic approach we have engaged a select group of highly regarded and influential surgeons with whom we are working closely. These Key Opinion
Leaders (KOLs) are assisting in the establishment of best practises in the use of ReCell, demonstrating the substantial benefits of ReCell in treating a range of indications, presenting clinical outcomes at national and international congresses and publishing their results in peer-reviewed journals.
The growing adoption of ReCell and the value of closely engaging KOLs is evidenced by the nine presentations on the use of ReCell delivered at the 16th Congress of the International Society for Burn Injuries (ISBI), Edinburgh, Scotland in September 2012. Presentations covered
a range of topics including: use of ReCell in the treatment of paediatric
burns and scalds, as a replacement for grafts in burns, in the modification of scars, in combination with split-thickness grafts, in the treatment of facial burns and an economic cost-benefit model for use of ReCell. These presentations represent work done at key international Centres of Excellence including hospitals in the United Kingdom, Italy, France, Australia and the United States. It should be noted that there were no presentations on ReCell at the 2008 ISBI Congress, a single ReCell presentation at the 2010 ISBI and this year nine presentations.
Presentation by Mr Benjamin Way Consultant, Chelsea and Westminster Hospital, London, UK, on the use of ReCell in treatment of burns to the face delivered at the ISBI conference in Scotland September 2012. Mrs Isabel Jones, Consultant, Burns and Plastic Surgery Chelsea and Westminster Hospital Foundation Trust is shown performing a ReCell procedure in which two ReCell kits were used to treat a significant burn to the face and
China. Avita is progressing its entry into the large Chinese market. We recently signed with a Chinese distributor and hired a Territory Manager, based in Beijing, ensuring that Avita has a direct presence in the market. The company is pursuing the same focussed strategy in China as in the EMEA

countries, working closely with a small, select group of influential
surgeons to ensure excellent outcomes, and establish a base of core users and Centres of Excellence.
In conjunction with our Chinese distributor, Avita recently participated in the Chinese Society of Burns Annual Academic Meeting held in Zhengzhou in October 2012. This is the major meeting of burns surgeons in China with over 500 surgeons in attendance. Presentations included use of ReCell in the treatment of superficial to full thickness burns and the use of ReCell in the
Mr Jeremy Rawlins, presenting data collected while at Pinderfields Hospital, UK at the Chinese Society of Burns Annual Academic Meeting held in Zhengzhou, China in October. Mr Rawlins recently relocated to Royal Perth Hospital in Perth, Australia.
management of paediatric scalds.
Avita is finalising clinical studies at key hospital centres in major provinces in China. Over 150 patients have been treated with ReCell at Chinese hospitals to date. These studies are providing evidence on the clinical efficacy of ReCell in a range of indications
and will be used to market and promote ReCell. Additionally, endorsement by senior hospital officials is being used to support the submission of pricing applications for reimbursement necessary for the large-scale commencement of commercial sales of ReCell in China.
PRODUCT DEVELOPMENT

ReCell addresses the needs of a wide range of indications representing diverse markets each having distinct requirements. The company has initiated a project to develop and launch the next generation of ReCell products addressing the specific needs of the various market segments.
This is a major product development initiative by the company and the first significant development project the company has undertaken since development of the original ReCell device. The new products will significantly broaden our addressable market base, provide differentiation of product to address needs of different markets, and allow implementation of a range of business models and pricing flexibility reflecting the need of specific markets.
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OUTLOOK

Avita Medical has entered the next stage in the company's evolution. Avita is in its strongest ever position. Avita is implementing key initiatives and making continued steady progress against the Company's strategic plan. We are developing our base of KOLs, expanding our geographic reach, addressing new fields of use for our flagship ReCell product and advancing the development of the next generation of regenerative products.
ReCell is becoming integral to the treatment of acute and chronic wounds, plastic and reconstructive surgeries and a range of aesthetics procedures.
We do not underestimate the challenges faced in the introduction of highly innovative and disruptive new technologies such as ReCell in the current global economic conditions. We are, however, confident that we will continue to accomplish our strategic goals, achieve sustainable growth and profitability, and establish Avita as a market leader in the emerging field of regenerative medicine.
Management feel strongly that the recent share price does not reflect the company's stage of development or recent progress made by Avita. In the coming months we will be working with potential institutional investors to increase Avita's visibility in financial markets and build shareholder value.
On behalf of the Avita Medical Board of Directors I thank our shareholders and employees for your loyalty, support and dedication. I am honoured to have you with us in this fascinating and exciting endeavour and look forward to providing updates on Avita's progress in the coming months.

Please feel free to contact me with any questions or for additional information.
Yours faithfully
William F Dolphin PhD Chief Executive Officer [e-mail]
The Company has three offices of operation: United States (Northridge, California) focussed on management of regulatory affairs, clinical trials worldwide and operations; United Kingdom (Cambridge) focussed ReCell sales & marketing for the EMEA regions; and Australia (Perth, Western Australia) focussed on sales of respiratory products and market entry into Asia Pacific.
AVITA MEDICAL LIMITED
ASX: AVH OTCQX:AVMXY
AVITA MEDICAL OFFICE LOCATIONS
ASIA PACIFIC
Suite G01
68 So. Terrance
South Perth WA 6151
Australia
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[e-mail]
EUROPEAN HEAD OFFICE
1st Floor, Unex House
132-134 Hills Road Cambridge CB2 8PA United Kingdom
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AMERICAS
Suite 220
9221 Corbin Ave
Northridge CA 91324
United States
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