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?

Thank you, Mike. For the second quarter that ended December 31st, we reported revenues of $5.1 million compared to $3.3 million in the corresponding period ending December 31st, 2019, and flat to the prior quarter ending September 30th, 2020. As Mike mentioned, the flatness in the current quarter compared to the prior quarter was largely driven by the spike of COVID-19. The gross profit for the December quarter was $4.3 million, representing a gross margin of 84%. This is an increase of $1.9 million from the gross profit of $2.4 million, or gross margin of 74%, reported in September 2019 quarter. The increase in gross margin is largely driven by our increased shelf life along with reduced shipping costs and increased production at our Ventura facility. The total operating expenses for the December quarter were $10.4 million, which is a decrease of $3 million compared to the same period in 2019. The decrease in our operating expenses is primarily driven by the reduction of our share-based compensation, partially offset by the increase in our research and development costs. The reduction in our share-based compensation is related to the reversal of unvested incentive compensation for an executive that's separated from the company prior to fully investing. The increase in our research and development costs was attributable to ramping up are clinical trials for treatment of vitiligo and pediatric scalds and other research and development costs associated with furthering the company's pipeline. Cash on the balance sheet was approximately $59.8 million as of December 31, 2020. With that, we thank you for your attention, and now I will turn the call back over to the operator for your questions.

Thank you. As a reminder, to ask a question, you need to press star then 1 on your telephone. To withdraw your question, please press the pound key. Our first question comes from the line of Josh Jennings with Cowan. Your line is now open.

Hi, good afternoon. Thanks for taking the questions and appreciate all the, the details provided on the call. I think this setup in terms of what you're experiencing currently with COVID was, is well documented. Now I wanted to ask a couple of questions on the vitiligo stable vitiligo indications, the deeper we dig into it, the, uh, more enthusiastic we get. I wanted to just get your sense of some of the precedent data that's out there for resale in stable vitiligo. I think people are aware of the China data that's accrued, the real world experience. And then you have the not so often U.S., but more so internationally employed melanocyte, keratinocyte transplant procedure. And we've dug up some pretty impressive results in terms of the repigmentation efficacy for that procedure. And would you consider that a strong precedent in terms of how you're thinking about the potential for the data in the U.S. pivotal trial? And how strong is that efficacy data for MKTP?

Thanks, Josh, for your question. The data on MKTP, melanocyte, keratinocyte transplantation, is very strong, but as you know, there are only a few centers in the U.S., and it's a very costly procedure, so not really scalable. At the same time, what that procedure does is transfer skin along with melanocytes and keratinocytes from an area of the patient's skin that is pigmented and moves it to the area that is depigmented due to the active vitiligo or stable vitiligo, hopefully at the time of treatment. I think it serves as an excellent precedent in addition to our 1,000 patients that we have treated with the resell system for their vitiligo disease previously in that it's the same transfer of melanocytes specifically from an area of pigmentation to an area of stable depigmentation of the patient and proves that that process works for repigmentation and is a durable effect. So I think very much yes. That serves as a wonderful precedent and gives us a lot of confidence in our trial going forward. That said, we're not sure of the exact concentration. So in our clinical trial, we have three groups that are treating at 1 to 5, 1 to 10, and 1 to 20, when our regular product that we have for burns for re-epithelialization is at 1 to 80. And while that will return pigment within 10 months to a year, the goal, of course, in burns is re-epithelialization, whereas the goal in vitiligo is repigmentation. Hopefully that's answered your question. Please let me know if you have any follow-on.

Yeah, thank you. Just a couple of quick ones on vitiligo additionally. Just, I mean, if you talked about the three different expansion ratios that are being studied in the pivotal trial in the United States, and we'll see what that shows. But, I mean, one way that we're thinking about is that you, Vita had three shots on goal here. I mean, you have three different expansion ratios ongoing, and you could have all three of them be successful. You could have all two of them, two of the three or one of the three. I mean, is that the right way to think about the trial design in that there are actually three different expansion ratios that are being studied here, so it's three shots on goal for efficacy?

Yes, it is the correct way to look at it relative to the efficacy endpoint that we've agreed to with the FDA. At the same time, we've got a lot of experience ex-US on the 1 to 20 ratio, which does successfully repigment. But we wanted to make sure that, as you said, we've got three shots on goal to hit our primary endpoint. We've got an interim analysis, and that would be a possibility where we drop a group because we're seeing strong efficacy in other groups. I think that's it there. Andy, is there anything you... might like to add to, Andy's our chief technology officer, to that relative to the vitiligo clinical trial?

We undertook a feasibility trial to look at these different concentrations and we're continuing that work as a way to get an early signal at what differences we might see in the pivotal work. We proceeded with the pivotal work because we came to understand with medical advisory input that in fact part of the patient-physician conversation is around the tradeoff between how much donor skin you want to harvest and likelihood of success. So what we anticipate is some differences between those study arms with respect to response rate. And so that is why we have them and why we proceeded with a pivotal study.

Thanks, Andy. Maybe if I could just throw one last one in on Vitiligo. You mentioned the feasibility trial, and I wanted to ask when we could possibly see results of the feasibility trial, or will they be made public in 2021, and maybe any update on the enrollment status there? And on top of that, just any other publications, either out of the experience in China or the resale experience in Vitiligo in the Netherlands, that could be coming into print in 2021 before we see the top line data for the US PIVOTL trial. Thanks so much for taking the questions.

Thanks, Josh. I'll pass that question over to Andy as well as he's got the more of the detail on the specifics of the trial as well as other precedents.

The feasibility trial is halfway enrolled. We have five of 10 subjects treated. We will be looking at their data after three months of follow-up and again at six months. So roughly three months from now is when we'll start to see those patients in that first group coming in. And we'll make, you know, we'll be conducting analysis and figuring out what it means for us in terms of next steps at that point. The latest work from our collaboration with the Netherlands Institute for Pigment Disorders is about to be submitted for publication, and the study that they've most recently conducted really points to the importance of stability in this population before proceeding with a surgical intervention.

Thanks, Andy, and thank you, Josh, again.

Thank you. Our next question comes from the line of Kevin DeGieter with Oppenheimer, your line is now open.

Hey, guys. Good afternoon. And can you maybe talk us through the underlying assumptions with regard to TPT code? You mentioned the hope to begin to have some discussions with payers, you know, late in 2021. You know, I guess really sort of two questions here. Any additional color you can provide in kind of the most latest communication that you know, on that application. And then, you know, point two, to kind of hit the, you know, timeline for, you know, contribution beginning later in 21, can you just kind of walk us backwards as to what that suggests as to, you know, a timeframe for, you know, having some clarity on whether that code will be issued or not?

Sure. Thanks for the question, Kevin. So we were actually, we started off with an NTAP. So basically an add-on payment. And we were specifically directed by CMS to go through the TPT, the transitional pass-through payment. And we remained very confident that ultimately will get it. So that part of the question, I think, you know, CMS is delayed due to COVID. We have no reason to believe that there's anything in the application that's being questioned. And, you know, for products that have breakthrough therapies, such as the resale system, they're looking at the applications on a quarterly basis. So, you know, the next quarter, April 1st of this year, hopefully we'll see the C code coming through. Relative to launching in the outpatient setting and what that will look like, I'd like to pass it over to Aaron, our chief commercial officer, to give you a little bit of color on that.

Thanks, Mike. Hi, Kevin. You know, so there's a few things once we get the code really that's just Medicare Medicaid that it's covering, right? Which is less than fifteen percent of the patients in the hospital. And so we need to make sure that we've got commercial payers on board and that they're covering it, paying for it and not rejecting it before we want to make a full run at the market. So we're actually going to be planning on doing once we get the code. doing a pilot launch at about six centers and working with them to get some procedures and ensure that those codes or those procedures are getting paid. Once we're confident that there's good coverage, then we'll be rolling it out to kind of a broader number of accounts. But as you can imagine, it does take a little bit of time. for the procedure to happen, for then it to be submitted, and then to see if there's a denial and to work through that. So that's kind of where those timelines are coming from.

Great. As you think about the process of establishing those interactions with payers, you know, in the outpatient setting for the burn market, you know, if that timeline is a bit out in front of the prospective launch for for vitiligo, but they're not terribly out in front of it. Do you see opportunities to, from an education perspective, to begin to have dialogue with payers on the vitiligo indication as part of the outpatient burn discussion, or is a pragmatic or a logistics question, are those really kind of for wholly separate discussions and timelines?

They will be separate predominantly. So this will be covered in the outpatient setting or ambulatory surgical setting. Vitiligo, for the most part, will be done in the DERMS office. So we're going to have to pursue a different reimbursement strategy to get that covered. Now, having said that, if the DERMS wanted to go and treat it in the outpatient or an ambulatory surgical center, then they could leverage that code. The code is not kind of indication specific. But the majority of cases won't be treated there. They're going to be a different point of care.

Great. Thanks for taking my questions.

You're welcome.

Thanks, Kevin.

Thank you. Our next question comes from the line of Ryan Zimmerman with VTIG. Your line is now open.

Thank you for taking the questions. Appreciate all the color. Maybe on the accounts, the 20 burn accounts that you referred to, Mike, Can you just talk about kind of the utilization within those accounts, given that they are, you know, strong users of the technology and kind of what kind of capacity do you have in those accounts specifically, and then maybe the dynamics within the other 73 accounts or so, you know, what and how do you see utilization trending with those accounts, you know, absent these COVID dynamics?

Sure. Thanks for your question, Ryan. Relative to the, I'm going to start off and then pass it over to Aaron again for a little bit more color, but at the top line, those 20 accounts that we might call our super users, there definitely have a couple of surgeons that are looking at resale as we look at resale inside the company and which is any burn that is requiring a skin graft, whether, you know, deep partial thickness or full thickness, second or third degree burn, that resell has a role for application and for the indication and is going to be better than the standard of care for the patients. So they're looking at resell whenever they're thinking about skin grafting. In the other accounts, you know, it's the adoption curve. And they're just basically looking at timing. We're looking at their timing and their experience to get comfortable with use of the resale system. Typically, they'll start with large burns that are deep, you know, over 30% full thickness because they can use it along with a widely meshed split thickness skin graft where they're comfortable, and then they start moving down to smaller wounds, and then ultimately to smaller and deep partial thickness wounds where they can use resell alone. For a little bit more of the dynamics and a little bit more color, I'm going to pass it over to Erin.

Thank you, Mike. Hi, Ryan. So, you know, just to kind of put it in perspective, I think we've got some accounts, and for We're measuring penetration in terms of usage, resale usage in terms of total admins, total admissions, burn admissions. We have some accounts that are using resale over 30%, over 40% of all admins or resales being used on. In our internal modeling, when we look at peak, that is not what we think is going to be normal, right? So that is really using resell on everything, using resell on very small wounds, resell on faces, on children and first-line therapy. I mean, they're using it consistently, right? So we don't think that's where the bulk of the market will be. If you look at kind of where we're at for all of our customers that are approved through the Value Analysis Committee, they averaged last year about 8% of total admissions. So if you average for all our customers, we're about 8%. But it just shows you that there really is opportunity to kind of really get up to the 30s, 40s%. Although, you know, when I look at that, you know, I don't think that's going to be the normal for everyone, but it certainly shows the opportunity that there is for us. Okay.

That's very helpful.

Hopefully that answers your question, Kevin.

Yeah. Yeah, no, that was great, Mike and Aaron. Thank you. Let me turn into Vitiligo for a second, you know, following up on Josh's questions earlier. Just, you know, you put a stake in the sand around enrollment completion by the end of FY21 and And I'm wondering if you could just speak to your confidence in the sites that you're brought up online. You know, you're at 11 today. Kind of what do you see specifically that gives you that confidence to get that trial completed and done by the end of the fiscal year 21, or excuse me, calendar year 21?

Yeah, so thanks, Ryan. Yeah, and so far as looking at the end of the calendar year, The cadence and the, I would say really the enthusiasm that we're seeing from both physicians and patients is driving our optimism relative to enrollment. Also, another factor relative to enrollment, before I pass it over to Andy to give a little bit more color, is that we're not competing directly with COVID beds, of course. These are procedures that are not in the ICU. They're outside of the hospital setting often with the procedural dermatologists and plastic surgeons. So that helps give us the confidence that we will complete enrollment by the end of this calendar year. And Ryan, I'll now pass it over to Andy Quick, our CTO,

Thanks, Mike. Hi, Ryan. The vitiligo program, as already discussed, is receiving a lot of attention within the community. There is a lot of excitement. We are engaging with the community through advocacy sites, through local radio, through social media platforms with a concerted effort really to drive those patients to the door. You know, it's sort of known within the vitiligo community that there aren't great treatment options, and so we need to be a part of creating that awareness and bringing patients to the door. That's why we think that we'll be able to recruit this year is by taking that active role in gathering the people.

Does that answer your question, Ryan? Oh, yeah, definitely. Thank you for taking the questions.

Of course. Our pleasure.

Thank you. Our next question comes from the line of Brooks O'Neill with Lake Street Capital Markets. Your line is now open.

Thank you. Good afternoon. I wanted to follow up on Ryan's question. I'm curious maybe Aaron could just help us to understand what you're trying to do to take the 20 accounts to the 93 accounts to the 136 accounts and whether you think there's realistic possibility that that can begin to happen in 2021?

Sure. Hi, Brooks. Good to hear from you. So I think that first and foremost, I think, you know, as COVID lightens up and we're able to actually sell and get into the accounts, that will be the most influential thing that we can do. But I think the second to that is all about education, training, and specifically peer-to-peer kind of communication, dialogue, exchange, and training. So we're putting a lot of effort into connecting. We've got, you know, over a dozen KOLs that we've contracted to help us with training, and we're doing tailored individualized training for accounts. So we're not leading the training. We're connecting the surgeon. We're saying perhaps what the hurdle is or where the challenge is or where they're at in the adoption curve. And then that surgeon's able to share their own experience, their cases, and they have a private one-on-one dialogue. where they can really kind of speak together and share experiences. And we're finding that that almost always leads to a case, usually within the following week. So that's very impactful. We're investing heavily. We're about to roll out some virtual reality modules as well. You know, it's really important just to keep the content fresh. to be ever pivoting and just to have something new all the time. It's just getting stale, all these Zoom calls and the same old, same old. So really, it's going to be education and these different modes of education until we can really get out there and sell, and then we'll continue with the education. But the supplementing with being able to kind of get in there will certainly help.

Great. And then I had just one follow-up. I was curious. Obviously, it's been a challenging environment for everybody. It sounds like perhaps particularly challenging in the burn environment that you guys face. How's morale, first, in the sales organization, and secondly, really throughout the entire organization? Would you say it's had an impact on your people, or do you feel like people are sort of hunkering down and ready to get going again as soon as the doors open?

Thanks, Brooks. I'll take that one, and I may pass over to Aaron for specifically on the sales group. But in general, for the company, I think we're seeing a very strong level of engagement through COVID. As a matter of fact, sometimes because people are working from home, you know, they're actually working longer hours than they would if they were in the office. And, you know, it's been a very – it's challenging, again, because we're not in person. And, of course, communication is always, you know, best in person. But using the various platforms that are available for us for video calls, we've been really keeping employees engaged. We've also had a variety of employee – engagement opportunities that have been led by HR where we're doing some fun things with the employees over the Zoom platform and making sure that our employees remain engaged and understand that at some time in the future, hopefully near future, when we've got a good proportion of our employee base vaccinated will be able to have a return to the office. But overall, very, very positive on how employees continue to engage during these trying times. I'm going to pass it over to Aaron specifically on the sales force because they've got some different challenges that COVID presents to them relative to access to the hospitals, to burn centers, and, you know, expanding and actually just making, even making contact. Erin?

Yeah, absolutely. So, you know, it's challenging, right? And at times it's certainly frustrating when you can't Get in there sell, you know, even all the selling opportunities are kind of diminishing, including just regional conferences, right? That are now virtual or being canceled. So there is, I don't want to lie that there is some frustration, but I think that's in many different industries. And I think, if anything, our reps are feeling grateful and supported. You know, we've altered the compensation plans, clearly. You know, I don't want to say that everyone's hitting the comp targets 100%, but we're certainly being reasonable and making adaptations to support them. You know, we're also creating sales contests and circles of excellence and variety of different things, right, so that they can have various shots on goal. Their comp plans aren't 100% commission-based. They also have a base component. They also have components based on other activities that aren't necessarily sales-driven, so we're trying to kind of broaden that a little bit. But in general, I think they're feeling supported. The feedback I'm getting is Avita is one of their favorite companies to work for. They think it's a great company and good technology. There's a lot of turnover in the hospitals right now. We're not the usual folks that they're dealing with. So they are feeling the strains of training and that remote training. But they're traveling less and you know so so that I think in general we're feeling good. We're not seeing you know Turnover anything kind of concerning from that perspective, so I think we're in a good place.

Yeah, I'd like to add Brooks that I I failed to I'm remiss I failed to mention our Ventura facility where we do our manufacturing and those employees have been coming to work you know on a daily basis and and continuing to manufacture product and continue supply both for clinical trials as well as for use in the field. And morale there continues to be good, and they're performing an excellent job. And, you know, knock wood, everything has been going well. We've seen no interruptions in our supply chain through this entire period.

Fantastic. That's great. I hope you keep that up, and I hope we get through this.

Thanks, Brooks.

Thank you. Our next question comes from the line of Leanne Harrison with Bank of America. Your line is now open.

Thank you. Good morning, all. Good evening. Mike, you mentioned when you were talking about growth drivers, you talked about expansion to markets outside of the United States. You know, you mentioned Japan. Can you also provide a little bit more color in terms of which other countries are you considering? And what sort of timeline would that be?

Sure. Thanks, Leanne, for your question. What we're really looking at is right now with just Burns, when we looked at the economics for Burns alone, It ends up being a negative ROI for the business going to Europe or Australia, both due to reduced incidence of burns in those areas and regions, as well as the work that would be required, as well as the spend that would be required to do local clinical trials, get reimbursement in each of the countries in Europe, for example. So what we're really looking for is our pipeline to expand, new indications to come on board, such as vitiligo and trauma, soft tissue, and then we'll be looking at an expansion back into beyond Japan, back into Europe, back into Australia and other areas of Asia.

Okay, so just an indication it's probably not going to be in the next three years.

Outside of Japan. Other than Japan, I would say three years is probably the pivot point at which we will start looking at relaunching.

Okay. Thank you. And then also in terms of these growth initiatives ahead, obviously, you know, you talked about the Japan market and the work you're doing there and also progressing clinical trials. I'm just trying to understand in terms of, you know, Avida's cash balance. Do you think that that provides you with adequate funding to progress these initiatives, or would Avida consider a capital raise?

So regarding Japan, we would definitely be getting into revenues from them once they're approved. As soon as PMDA approves the product, It goes to MHLW, the Ministry of Health, Labor, and Welfare. They will be setting the reimbursement price, and then Cosmatech, our partner there, is ready with their direct sales force to do a launch. Economics there are about 50-50 relative to the split of revenues. Regarding funding the pipeline, you know, we did end the year with about $60 million of cash. We are burning somewhere between 6 to 8 million per quarter, and we also anticipate revenue accrued from our burn business will continue to fuel our pipeline. Other than that, insofar as raising cash, we're going to be opportunistic regarding that potential opportunity.

Okay. Okay. Thank you very much. And I guess just one final question, if we come back to, you know, the COVID impact on your burns business and on the number of procedures that, you know, the volumes of procedures that was down for the second quarter of 21. Can you give us some color on how that trended by month by month? And also, I guess you mentioned that January was the softest sales you've seen since the pandemic began. But do you have a sense of procedures? Was procedures down as well? Or did you see procedures start to recover, given the number of COVID cases has started to reduce this month?

Thanks, Leanne. You know, we have not given guidance in general or provided numbers specifically on our month-to-month revenue, and, you know, we've given a little bit of historical reference relative to procedural growth. I'm going to pass it over to Aaron in a moment, but Yes, January was the softest that we've seen since the pandemic began. But it was also, as I mentioned in my prepared remarks, partly due to loading of accounts in December. And the reason that that happens is, you know, to reach rebate levels, there's various tiers. So various centers or hospitals tend will buy up, you know, to a million dollars or, you know, different grades and levels. So they'll get different tiers of discounts. So working through that inventory brought our use of Resell down. To speak to procedures and our recovery that we've recently seen, in February, I would like to turn it over to Erin Liberto, our chief commercial officer.

So maybe the only, you know, this thing that I could maybe add some flavor, right? So there was, we do believe there was loading because the rebates also was the end of the compensation period. And the other reason is because the sales, the number of procedures were not down or as soft as the sales number, right? So you could see that they were consuming some of the product that was on the shelf. And so, you know, certainly, you know, February is very early into the month, so I think it's pretty early to kind of comment too deeply. I don't have all the analytics back, but we do see that continuation of consumption on some of that loading that was done at the end of the year. We're also seeing just, you know, we believe there's a lower incidence of procedures happening due to COVID, right? So we know that there are less accidents. We are getting feedback from different hospitals saying that there's less admissions since COVID started. And so that is a bit of a factor as well. And that correlates with the lockdowns, right? So as the lockdowns increase, the accidents decrease. And we saw that COVID kind of flare up in that December, January period. So hopefully that helps a bit.

Thanks, Erin. Thank you very much. Leanne? Yeah, great. You're welcome.

Thank you. Our last question comes from the line of John Hester with Bell Potter. Your line is now open.

Good afternoon, Mike. It's good to chat. Mike, I just wanted to have a chat about the progress of the vaccine in the US. 35 million vaccines provided so far. Where is it with your own staff and particularly your sales staff? Have they had access to vaccines? And what is the situation with hospitals in that Given that frontline staff are supposed to be priority for vaccines and to receive a vaccine, can we somewhat optimistically, I hope, have a view that once those frontline hospital staff are vaccinated, that potentially there'll be more capability for non-COVID cases to be administered to hospitals?

Thanks, John, for your question. You know, the way the vaccine rollouts are going in the United States are determined at the state level. It's not being managed at the federal level. So it's highly variable from state to state. And some states, you know, are well into having vaccinated their frontline workers and others have not started. So with that variability, along with, you know, even if the frontline individuals are vaccinated, you know, there are still COVID patients that are spiking, COVID cases that are spiking, and the patients are still there, still occupying the burn beds, which are being turned into ICU beds, and that dynamic does not really permit our reps to get more access to the hospitals. Yeah, so that's really the situation on the vaccines and about as much granularity as I can get into.

Yeah, okay, so it's likely to be many more months before we – See a different trend.

Unfortunately, yes. Yeah, it's really hard to predict. You know, hopefully with the new J&J vaccine, DNA vaccine, single shot, no required booster, similar efficacy to that of Pfizer and Moderna, we'll be seeing, you know, faster rollouts. But again, this is, you know, being determined by state by state. So, really very, very difficult to predict, even by the experts.

Okay, good one. Thank you.

You're welcome, John.

Thank you. There are no further questions. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.