The Avita Medical Inc (ASX: AVH) share price has lost more than 60% over one year, despite the company showing growth and delivering record revenues in FY20.
Is the Avita share price a good buy at this level, and what of its prospects for 2021?
First, the numbers…
Avita is currently a loss-making company. It posted a record full-year revenue of $14.3 million in FY20, which translated to a bottom line loss of $43 million.
Revenue has kept growing however, with the company reporting a first-quarter FY21 revenue of $US5 million, a 59% increase over the same quarter prior year.
Avita is also in a healthy financial position, and held US$66 million in cash and no debt as at 30 September.
The RECELL flagship product
The company’s business revolves around the rollout of its RECELL technology product in the United States.
RECELL basically aims to replace the traditional skin graft procedure in patients with burns injury.
The device helps surgeons use a small sample of a patient’s own skin to produce a suspension of spray-on skin cells, which can then be applied to a patient’s burn site in as little as 30 minutes to regenerate a new outer layer of skin.
The procedure uses less than 5% of the size normally required in a graft, and has been clinically demonstrated to heal the burn site as effectively as a skin graft.
The technology was invented by an Australian doctor, Fiona Wood, who used the product in an experimental capacity when treating the victims of the Bali bombings in 2002.
However, it wasn’t mass-commercialised until recently, when the company obtained Food and Drug Administration (FDA) approval in the US in 2018, with first launch only in 2019.
Target market and size
RECELL’s current target market is concentrated in the 134 burn centres in the US, with approximately 14,000 adults with second or third degree burns treated at those burn centres each year.
Despite being approved in Europe, China, and Australia, Avita is not actively selling into these markets – preferring to focus on a roll-out in the US over the next 18 months.
However, in Japan the company is expected to launch in fiscal 2022, with the market size in that country approximately at 6,000 burn victims per year.
Future prospects
Although the current US approval of the RECELL system is limited to adult burn wounds, the applications could be much broader.
Clinical trials are currently under way for RECELL to be used outside burn centres – including for general cosmetic surgery, soft-tissue reconstruction, and paediatrics use.
This gives the company a good tailwind for future revenues.
However , there are other competitive products in burns care in the market, including NovoSorb made by Polynovo Ltd (ASX: PNV).
About the Avita share price
As mentioned, the Avita share price has lost about 60% over the year. The company is dual listed on the Nasdaq.
With the possibilities of the RECELL product just explained and clinical trails under way, who knows where the share price will go to in 2021.
At the time of writing, Avita’s share price is almost unchanged for the day at $4.94. The company commands a market cap of $330 million.
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More reading
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- ASX 200 down 0.4%: NIB jumps, a2 Milk rebounds, WiseTech sinks lower
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Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Avita Medical Limited and POLYNOVO FPO. The Motley Fool Australia has recommended Avita Medical Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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