Ann: Change of Director's Interest Notice - Michael Perry, page-28

Avita's share price has more than halved since February after several COVID-19 related setbacks. The company has had to reduce its onsite hospital sales team due to new COVID-19 protocols, and the cancellation of major professional conferences has made it difficult to access new surgeons and teach them about Recell. Management says this will slow growth.

Sales could still grow materially over the next few years and Avita has a clean balance sheet with net cash of US$71m - but something about Avita just doesn't sit right with us.

The technology has been approved in Europe and Australia since 2005, yet annual sales never topped $4m in these markets. Investors have stomached losses for 20 consecutive years.

The company is still bleeding cash as it invests in sales, marketing and new clinical trials to hopefully expand its market (see Chart). Management doesn't expect Avita to break even for another few years, which is hard to reconcile with the company's ambitious claims around market size and penetration over that time. Either the opportunity is smaller than suggested or expenses are going to explode.

There are other red flags, too: the company's clean balance sheet was achieved with a $120m capital raising last year, but it was only open to institutional investors - retail shareholders were heavily diluted, so the company doesn't pass our 'shareholder-friendly' test.

Then there's chief executive Michael Perry's 2020 pay cheque of US$17m in cash and stock grants, with a further US$8m going to five senior personnel. When management takes home more than their company earns in revenue, our eyebrows are firmly raised.

With a market capitalisation some 41 times revenue, significant growth expectations are already built into the share price. While we hope Avita's technology does prove to be a commercial success, we aren't willing to bear the risks