Avita Medical, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Aveda Medical Second Quarter Earnings Call. At this time, all participants' lines are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Ms. Carolyn Corner with Westwick. Please go ahead, ma'am.

Thank you, Operator. Welcome to Aveda Medical's first fiscal second quarter 2021 earnings call. Joining me on today's call are Mike Perry, President and Chief Executive Officer, and Shawn Eakins, Interim Principal Financial Officer and Principal Accounting Officer. This call will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements, including statements regarding the markets in which Aveda operates, trends and expectations for Aveda's products and technology, trends and demands for Aveda's products, Aveda's expected financial performance, expenses and position in the market, and the impact of COVID-19 on Aveda's operations and Aveda's customers' operations. These statements are neither promises nor guarantees and involve known and unknown risks and uncertainties that could cause actual results, performance, or achievements to differ materially from any results, performance, or achievements expressed or implied by the forward-looking statements. Please review AVIDA's most recent filings with the SEC, particularly the risk factors described in AVIDA's S3 and 10-K filings, and in AVIDA's quarterly report on Form 10-Q for the second quarter ended December 31, 2020, for additional information. Any forward-looking statements provided during this call, including projections for future performance, are based on management's expectations as of today. AVIDA undertakes no obligation to update these statements, except as required by applicable law. AVIDA's press release for second quarter 2021 results is available on AVIDA's website, www.avidamedical.com, under the Investors section, and includes additional details about AVIDA's financial results. AVIDA's website also has the latest SEC filings, which you are encouraged to review. A recording of today's call will be available on AVIDA's website by 5 p.m. Pacific time today. Now I'd like to turn the call over to Mike for his comments on second quarter 2021 business highlights.

Thank you, Caroline, and thank you, everyone, for joining us today. The second fiscal quarter ended December 2020 was a solid quarter of execution here at Aveda with progress across several of our growth drivers. While we pre-released our top line results and a few metrics in January, I'm pleased to be able to provide you with some additional details and updates today. Before I delve into our recent performance, I realize that many of you listening today may be somewhat new to Aveda Medical, so I'd like to quickly provide some background on our business and on our technology platform. Aveda is a commercial stage regenerative medicine company with a proprietary technology platform that utilizes the body's own healing powers to provide skin restoration at the point of care. In simple terms, our offering, which is known as the resell system, is best portrayed as spray-on skin cells. Clinicians take a small sample of the patient's skin and within 25 to 30 minutes can utilize the resell system to prepare an autologous, cellular suspension, which is then sprayed onto the wound or defect to regenerate natural, healthy epidermis or skin, including the return of natural pigmentation. Before Resell received FDA approval in late 2018, burn patients received large skin grafts from other parts of their bodies, which created large secondary wounds that were extraordinarily painful and provided new sites for potential infection and scarring. Today, the resell system delivers compelling, well-defined clinical benefits by significantly reducing the amount of donor skin required to treat both second and third degree burns and genuinely provides win-win dynamics to physicians, patients, hospitals, and payers. Resell was the first PMA approved in burn care in more than 20 years, and we began our commercialization efforts within the hospital inpatient setting in early 2019. We are becoming increasingly confident that Resell is rapidly evolving to become the standard of care within burns, which we see as a $260 million U.S. market opportunity. Today, we are extremely proud to have used Resell to treat over 10,000 patients globally across a variety of indications, and our 186 peer-reviewed publications and presentations depicting outcomes in over 2,000 patients exemplify our enduring commitment to improving the lives of patients through our clinical and our R&D efforts. Importantly, the Resell system is not limited to applications and burns. We currently have three pivotal or registration clinical trials in progress in the United States that seek to leverage our PMA approval via a variety of label expansion opportunities. These indications involve prospective applications of our resell technology to patients who have lost their epidermis through injury or accident, and for those patients who have impaired epidermis, due to skin defects or abnormalities. As we've discussed over this past year, we are also especially excited about our opportunity in treating stable vitiligo, a common yet undertreated skin disorder, and I'll update you on our progress here in a few moments. Beyond our near-term clinical pipeline prospects, We are exploring applications for use of the resell system within the cell and gene therapy arena to attend to a significant number of life-threatening or debilitating skin disorders. And I look forward to updating you as our R&D efforts move forward. So with that quick background on the company, I will now turn to some highlights from our recent quarter. While our revenues in the second fiscal quarter were, like so many of our peers, hampered by COVID-19, we have continued to demonstrate progress with both our legacy Burns business and our pipeline initiatives. Our Burns revenues were flat compared to the previous quarter ended September 2020. However, we did open eight new hospital accounts, bringing the total number of Burns centers with access to the resale system, to 93. With the ABA estimating that there are 136 burn centers in the United States, we're very pleased with our commercial team's success in developing such a broad footprint in the market. We saw 485 resale procedures in the quarter, essentially flat from the 496 procedures we saw in the first fiscal quarter. As we look ahead and as COVID-19 abates, with more of our population being vaccinated, our sales force will be primarily focusing on driving and expanding usage within our existing accounts. For now, however, with COVID-19 resurging beginning in November of last year, our sales reps are limited to case support in those centers that are still able to treat burns. While we are seeing very limited live in-person training activities, our employees are rarely permitted to engage directly in the aftercare setting, and therefore live dialogue and access is transient at best or has otherwise been transferred to a digital format. With all the recent closures and reallocation of hospital resources, as well as some stocking orders that occurred in December, January sales were the softest we've seen since the pandemic began. Here in February, we're seeing some recovery in sales as centers work through stocking orders, although we are still feeling the impact from reduced access and capacity limitations. To illustrate our challenges more clearly, I'd like to present a real life example. There was a recent accident in California where three individuals were severely burned, all of whom we believe could have been candidates for resell treatment. Due to hospital capacity constraints, each of the three individuals was sent to a separate facility for treatment. One facility had a burn bed with a physician already familiar with using resell, and that patient was indeed treated with resell. The second patient went to a facility that was still in process of securing VAC or Value Analysis Committee approval, so that patient could not be treated with resell. Of note, resell has since been approved for use at that center. The third patient went to a hospital where the burn surgeon who had adopted resell was on maternity leave. In non-pandemic times, the three patients would likely have been transported to a single burn center for treatment, and our reps could have made contact with the treating physician and enabled access to resell for all three patients. You can only imagine how frustrating this type of environment is to our reps and to the treating physicians. I trust this example helps demonstrate the access issues we are encountering during these trying times. With that said, we have been encouraged lately to see broad use of the resell system across different wound sizes, injury types, and anatomic locations. We have also seen an increasing number of unique surgeons using the products, which we view as a healthy leading indicator for future growth as we drive increased penetration into our account base. In both our pre-release and earlier in this presentation, I mentioned our strong progress in our pipeline vitiligo efforts. We continue to see a remarkable level of interest in our vitiligo study from physicians, sites, and patients, and we have a strong pipeline of new sites looking to participate in this clinical trial. Vitiligo continues to be our fastest-enrolling study, and therefore we predict it will be our next approved indication for the resell system. For those unfamiliar with the condition, vitiligo is a skin disorder characterized by deep pigmented areas of skin that appear as white spots or patches, and which are primarily attributed to an underlying autoimmune disorder in the patient. Many people associate Michael Jackson with this disease, who perhaps represents the most famous example of this disorder. Yet, vitiligo truly represents a sizable market opportunity for us. There are an estimated 100 million sufferers of vitiligo worldwide, including approximately 4.5 million Americans. Of those in the U.S., we estimate approximately 1.3 million have stable vitiligo, meaning that their underlying autoimmune issue is being well-managed and the disease is not continuing to spread and new white spots are not appearing. The stable vitiligo market in the U.S. currently represents approximately a $5 billion opportunity, and there is no FDA-approved product presently available to enable repigmentation for these patients. In addition, we expect to see an increasing number of patients with stable vitiligo who meet the criteria for resell treatment due to the emergence of new treatments to stabilize the underlying disease, such as Insight's new therapeutic, Ruxolitinib, which is currently in phase three clinical trials. Furthermore, Cigna's recent determination of medical necessity and correspondingly strong reimbursement support of $38,000 over a 12-month period points to positive reimbursement trends for patients requiring treatment of their vitiligo lesions. These are very solid and encouraging signals that bode well for use of the resell system as we seek to be the first curative and scalable therapy for repigmentation of patients with stable vitiligo. In the second fiscal quarter, we enrolled nine additional patients in our pivotal study assessing the use of the resell system to treat stable vitiligo. Since then, we have enrolled another patient, bringing our total to 11. You may recall that we were granted investigational device exemption in early July, followed by IRB approval and site contracting in September, which is when we also enrolled our first patient. Today, our pivotal study currently has seven sites enrolling patients, and we expect to complete enrollment of this trial by the end of 2021. Assuming usual FDA review timelines, we believe we could be in a position to enter the U.S. market commercially with this indication as early as the second half of calendar year 2023. You may recall that we have two other pivotal trials ongoing both with the goal of expanding our PMA label into new indications. Much like what we are observing with our commercial efforts in burns, our pediatric scalds and soft tissue reconstruction or trauma studies have been impacted by the pandemic largely because they are performed in facilities which are directly caring for COVID patients. Even under normal circumstances, enrollment can be challenging because there is no referral pipeline for patients of these sorts in studies, and due to the fact that these cases are emergent, random, and accident-driven. Therefore, the restrictions we are seeing due to COVID are having a material impact on enrollment. With that backdrop, I am, however, pleased to report that in our soft tissue trial, we are now set up to receive patients in 10 centers across which should place us in a better position to enroll once patient volumes and facility operations return to some semblance of normality. I'd like to add that opening new sites led to the recruitment of five patients in January, a record month, although we anticipate enrollment to remain lumpy for the foreseeable future. We plan to complete recruitment for a soft tissue injury trial in calendar 2022, and with a six-month follow-up for patients in this trial, we're aiming for an approval in calendar 2024. In partnership with the University of Colorado Gates Center for Regenerative Medicine, we're continuing to make progress toward preclinical proof of concept of a system for delivery of genetically modified skin cells. As a reminder, Our objective for this program is to develop a therapeutic for correction of the gene defect associated with epidermolysis bullosa, or EB, a debilitating orphan skin disorder. This work potentially paves the way for treatment of other genetically correctable skin disorders or genodermatoses. Also, we are pleased to have announced our partnership with the Houston Methodist Research Institute to develop a therapeutic involving molecular reversal of skin cell aging. We have initiated this program, and the Methodists and Aveda's scientific teams are working collaboratively on the delivery of a novel RNA-based telomerase to skin cells. Overall, we are very encouraged with the progress we have made toward establishing and advancing these sponsored research programs with leading academic institutions, and we are thereby setting the stage for long-term growth for Avita Medical. I'd now like to walk you through some of the growth drivers we see ahead. Starting with reimbursement, the company is seeking a transitional pass-through payment application known as a TPT, which will support a separate additional Medicare payment for the resale system, specifically for its use in the outpatient setting. We had communicated previously that we had hoped that the Centers for Medicare and Medicaid Services, or CMS, would have made its final decision in December of last year, with a CCO to be implemented with effect on January 1st of 2021. However, we experienced a delay due to COVID-19. I would like to emphasize that we have no reason to believe this delay is due to anything beyond COVID-19. If and when we receive a C-code, our team is poised to initiate and leverage a pilot launch to approach commercial payers to seek coverage for those in the outpatient setting. Based on the new timeline, we expect initial outpatient sales to commence by the end of calendar 2021, ramping to a broader launch into this market segment in 2022. Moving now to our next growth driver, we anticipate broadening our geographic footprint over the coming years. To that end, together with our commercial partner, Cosmotech, we continue to seek approval in Japan. As previously reported, we completed the three required non-clinical benchtop studies in August of 2020 as scheduled. Our efforts and interactions with COSMATEC and the Japanese Regulatory Authority are ongoing, but at this time, due to the broad labeling applied for, I do not have an update on when we might advance our application for marketing approval of the resale system under Japan's Pharmaceutical and Medical Devices Act, or PMDA. We continue to prioritize the U.S., and in parallel, we are continually reevaluating our reentry into ex-U.S. markets as we add new clinical indications for the resale system. Next on the list, I mentioned our three pivotal clinical trials earlier. and we are working toward our goal of having our vitiligo product approved and on the market in calendar 2023 with our soft tissue or trauma indication to follow in 2024. I still do not have a clear line of sight on the cadence of recruitment in our pediatric scald study sponsored by BARDA. However, I'll keep you updated as enrollment in this trial transitions to a more predictable pace. Beyond these indications, we are working on moving forward with our cell and gene therapy work. This year, in our EB and in our rejuvenation efforts, we are focusing on preclinical proof of concept with plans to speak with the FDA toward the end of this calendar year to determine a path forward into clinical trials. Next, under growth initiatives, we will continue to drive forward on physician engagement and education. This year at ABA, we have 15 abstracts accepted utilizing the resale system, which is the highest number we have ever had at ABA. Additionally, in 2020, we had seven articles published in peer-reviewed journals, and currently in 2021, we already have the same number presently under review. For my next point, it almost goes without saying that our commercial team will be continuing to drive penetration into our burn center accounts. While we expect the growth in number of accounts to slow down, since we're already in 93 of 136 centers, our sales team is focused on increasing usage and penetration within these accounts. Presently, more than half of our resale revenues come from approximately 20 accounts. While we don't think this pattern is unusual for a product launch at our stage, it does speak to the sensitivity of our top-line revenue to burn center closures or staffing changes at these facilities. While that's not a metric we will necessarily update moving forward, I mention it to demonstrate firstly that some of our physicians are using resell very frequently, and secondly, to highlight the large opportunity ahead of us to drive more deeply into our many accounts once COVID begins to wane. In summary, looking ahead, we genuinely believe in the broad utility of the resale platform across multiple indications, and despite the challenging macro environment, we are encouraged by our Salesforce demonstrated ability to build our burn center account base and thereby teeing us up for future procedural growth. I am more encouraged than ever by the enrollment cadence of our vitiligo trial, and I look forward to updating you as we continue progress on our objective of bringing a robust and scalable treatment to this underserved patient population. With that, I'll turn it over to Sean for details on our financial performance in the quarter. Sean?