Avita Medical, Inc.

Ladies and gentlemen, thank you for standing by and welcome to Aveda Medical's third quarter 2021 earnings conference call. At this time, all participant 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 will need to press star then one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then zero. I would now like to hand the conference over to your host, Caroline Corner, Managing Director Ed Westwick. Please go ahead.

Welcome to Avita Medical's fiscal third quarter 2021 earnings call. Joining me on today's call are Mike Perry, President and Chief Executive Officer, and Michael Holder, Chief Financial 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 demand 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 third quarter, ended March 31, 2021, 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 with the third quarter 2021 results is available on AVIDA's website, www.avidamedical.com, under the investor 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. Our recording of today's call will be available on Aveda's website by 5 p.m. Pacific time today. Now I'd like to turn the call over to Mike for his comments on third quarter 2021 business highlights.

Thank you, Caroline, and thank you, everyone, for joining us today. The third fiscal quarter ended March 2021 with a solid quarter of execution here at Aveda with progress across several of our growth drivers. Before I delve into our recent performance, I realize that some of you listening today may be fairly new to Avita Medical, so I'll commence with a quick backgrounder prior to moving forward with our recent progress. Avita is a commercial stage regenerative medicine company with a proprietary technology platform known as the Resell System, which is commonly portrayed as spray-on skin cells. Clinicians take a small sample of the patient's skin, and within 25 to 30 minutes, at the point of care, can use the resell system to prepare a cellular suspension, which is then sprayed onto the wound to regenerate natural, healthy epidermis or skin, including the return of natural pigmentation. Before resell received premarket approval or PMA in late 2018, allowing us to begin our commercial efforts in 2019, Burn patients received large skin grafts from other parts of their bodies, which created sizable secondary wounds that were extraordinarily painful and provided new sites for potential infection and scarring. Today, the resale system delivers compelling, well-defined clinical benefits by significantly reducing the amount of donor skin required to treat second and third degree burns and providing a win-win dynamic to physicians, patients, hospitals, and payers. While we are increasingly confident that resale is rapidly becoming the standard of care in what we estimate as a $260 million serviceable burn market, the resale system is not limited to applications and burns. As we previously disclosed, we currently have three pivotal clinical trials in progress in the United States that seek to leverage our PMA approval through a variety of label expansion opportunities. These indications involve prospective application of our resell technology to patients who have lost their epidermis through injury or accident, or for those patients who have impaired epidermis due to skin defects or abnormalities. We remain especially energized about our opportunity in treating stable vitiligo, a common yet remarkably undertreated skin disorder. Beyond our near-term clinical pipeline prospects, we're exploring applications for the use of resell within the cell and gene therapy arena to attend to a significant number of life-threatening or debilitating skin disorders. So with that background on the company, I will now turn to some highlights from our recent quarter. While our revenues in the third fiscal quarter were, like 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 4.7 million, down 9% compared to the previous quarter, ended December 2020, primarily due to a soft January, which was our lowest month of sales since the initial COVID shutdown last April. As a reminder, the slow January was due to a combination of factors, including a lower accident incidence during COVID, as well as inventory stocking in December as customers bought up to achieve their annual rebate tiers. We did experience some improved performance in the latter part of the quarter. Overall, 492 resale procedures were performed during the quarter, which was a slight increase over our second fiscal quarter. Over the past 18 months, we've made concerted efforts to target small burns in order to deepen our penetration in established accounts. Burns covering less than 30% total body surface area, or TBSA, represent approximately 95% of burn admissions. We have been successful in moving the needle, and close to 80% of our cases now come from these smaller wounds. I should note that with this, Increased penetration, we also see the average number of resale units per procedure decrease. Consequently, while this decreases our average revenue per procedure, it correspondingly allows us to access many more procedures, which is consistent with our plan. In the third quarter, we opened six new hospital accounts, bringing the total number of burn centers with access to the resale system to 99. With the ABA estimating there are 136 burn centers in the United States, we are very pleased with our commercial team's success, and we feel that we've established a solid footprint in this market, and our focus will now be on driving utilization. As such, we don't anticipate regularly updating on this metric looking ahead. We have also seen an increased number of new surgeons using our product. For example, in this past quarter, we saw 147 unique surgeons using the resell system, which represents approximately 50% of the 300 U.S. burn surgeons. We view this as a healthy leading indicator for future growth as we drive penetration into our existing account base. Today, we're able to gain access to most accounts to support cases and aftercare, as well as to perform training. Sales calls are still challenging. However, we are seeing traction in small offsite Evita events. Furthermore, on the heels of a successful series of 18 presentations at the 2021 American Burns Association meeting, where our founder, Fiona Wood, was honored, with the Everett Erdis Evans Memorial Lecturer Award, RECEL continued to be front and center at the John A. Boswick Memorial Burn and Wound Care Symposium and at the North American Burn Society meeting. We observed an important shift in the presentations and discussions at these conferences toward more advanced topics of practice integration and the use of RECEL with synergistic products which demonstrates strong adoption and the community's commitment to ongoing post-market investigator-initiated research with Resell. As we look ahead, our sales force will be focusing primarily on driving and expanding usage and adding new surgeon users within our existing accounts. As we mentioned on our last call, we were working through stocking inventory at the beginning of the third quarter but we saw purchasing resume in February and March. Here in May, we are still seeing impacts due to reduced access and capacity limitations, but we are also seeing signs of improvement. Moving now to our progress in our pipeline vitiligo efforts, we continue to see a high level of interest in our vitiligo study and have increased the number of sites from seven to 11 during the quarter. For those unfamiliar with the condition, Vitiligo is a skin disorder characterized by depigmented areas of skin that appear as white patches and are primarily attributed to an underlying autoimmune disorder in the patient. Vitiligo presents 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 disease is being well managed and their depigmentation is not continuing to spread. The stable vitiligo market in the U.S. currently represents approximately a $5 billion market opportunity, and there is no FDA-approved product presently available to enable repigmentation for these patients. Patients whose vitiligo is stable and unresponsive to frontline therapies, such as topical treatments and phototherapy, are candidates for resell. Our clinical trial sites require support in tapping into this population. Given that these particular patients have not benefited from conventional treatment, they are no longer routinely seen in the clinical setting. To address this situation, we launched a substantial multimedia recruitment campaign, including outreach on local radio, digital radio, and social media. Rather than spending on media outreach during our third fiscal quarter at a time when vaccinations were still ramping up and many restrictions remained in place, we initiated these recruitment campaigns in April and expect to see subsequent increases in enrollment. We have already seen an uptick in referrals, and we've identified potential study participants who are approaching the required 12 months of disease stability and plan to enroll in the coming months. In the third fiscal quarter, we enrolled three additional patients in our pivotal study assessing the use of the resale system to treat stable vitiligo. Since the beginning of March, we have enrolled another three patients. bringing our total to 16, and we expect enrollment completion in this trial by the end of 2021. Early feasibility data points to the potential for us to consider dropping an arm of the pivotal study, thereby reducing the total number of subjects required. Assuming usual FDA review timelines, we continue to believe we should be in a position to enter the U.S. market commercially with this indication as early as the second half of calendar 2023. You may recall that we have two other pivotal trials ongoing, both with the goal of expanding our PMA label into new indications. The pediatric partial thickness burn study funded by our BARDA contract aims to expand our burn indication to include the pediatric patient population. Enrollment in this study increased from 10 to 16 during the third quarter. As a potential alternative to completion of this prospective trial, we are engaged in dialogue with the FDA regarding prospective analyses of clinical data collected during the resell, compassionate use, and continued access programs to potentially support an expansion of resell's indication for use to include pediatrics. Please stay tuned for more communication on this front. In our soft tissue reconstruction trial for trauma, which involves non-burn wounds such as necrotizing soft tissue infections and degloving injuries, we saw an increase in enrollment from six subjects to 22. Our site engagement efforts are paying off, and it has been gratifying to see the increased momentum. Fourteen sites are currently enrolling in this trial. We plan to complete recruitment for our soft tissue injury trial in calendar year 2022, and with a six-month follow-up for the patients in this trial, we're aiming for an approval in calendar 2024. Work also continues to progress in our collaborations with the University of Colorado Gates Center for Regenerative Medicine, for epidermolysis bullosa, or EB, and with the Houston Methodist Research Institute for rejuvenation using RNA telomerase. These programs both aim to show preliminary proof of concept during this calendar year. I'd now like to walk you through the growth drivers we see ahead. To begin, we will continue to drive forward on physician engagement and education. With approximately 50% of U.S. burn surgeons using Resil in the Quarter and 81% of the approximately 300 U.S. burn surgeons trained to use our system, we have built a world-class burn physician base. We are further leveraging our training capabilities and physician engagement programs and adding new outreach efforts. For example, we are rolling out a virtual reality program to more adequately engage surgeons remotely. We are seeing an increase in off-site programs such as dinners and trainings, and we look forward to launching our virtual reality offering very soon. As of March, with restrictions relaxing a bit, we've been able to achieve access into all cases and for all aftercare support However, sales calls remain the challenging part, and we will update you as access here improves. Our commercial team will be continuing to drive penetration into our burn center accounts. As I mentioned, we are VAC approved in what we believe is a critical mass of burn centers, and with that, we are shifting focus to concentrate on penetration within these accounts. We anticipate that our strategy of driving into smaller burns will result in a broader resell usage and ultimately in a substantial increase in the volume of cases utilizing the resell system. Our pipeline efforts are moving forward, and despite a less speedy rebound from COVID than we'd like, all three of our registration clinical trials continue to make gains toward completion. There are potential favorable changes coming with respect to the use of existing data for pediatric burn labeling and a reduction in the number of pivotal vitiligo subjects needed to pursue the vitiligo indication. We continue to be optimistic about our preclinical pipeline work in epidermolysis bullosa and rejuvenation. Turning to reimbursement, as you've heard previously, the company is seeking a transitional pass-through payment application known as a TPT, which will support a separate additional Medicare payment or C code 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 C code to be implemented with effect on January 1st of 2021. However, CMS is experiencing delays due to COVID-19. If and when we receive a C-code, our team is poised to initiate and leverage a pilot launch and 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 early 2022. Moving to our last growth driver, we anticipate broadening our geographical footprint over the coming years. To that end, together with our commercial partner, Cosmotech, we continue to seek approval in Japan. Our efforts and interactions with Cosmotech and the Japanese Regulatory Health Authority are actively ongoing. While we continue to prioritize the U.S. market, in parallel, we are frequently reevaluating our reentry into ex-U.S. markets as we add new clinical indications for the resale system. 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 remain encouraged by our Salesforce's demonstrated ability to build our burn center account base and thereby teeing us up for future procedural growth. I'd now like to turn the call over to our CFO, Michael Holder for details on our financial performance in the quarter.