Although part of me shares the confidence of DrS777 in the company's future, the other annoying part of me wants to try to work out how management arrived at their expectations. Before I carry on, to management's credit, I think they have been very transparent with their goals and expectations for a biotech company at this stage of its journey, which I really appreciate; even if that transparency has/could lead to some disappointment at times.
See below my thoughts,
some extracts from company releases, quotes from management,and my miscalculations for 2024 financial expectations:
Check 1: Commercial Revenue (FY24 $78.5M - $84.5M)Revenue growth is expected to come from:
+ Q2 2023 sales force expansion:
"from 30 to 70 (40) people in our territories from 14 to 40 to maintain small sales territories and keep our growth rate high. Specifically, we aimed for our 40 territories to average under $2 million to facilitate effective coverage penetration and growth. We should be approaching the $2 million threshold during the latter half of 2024." ~ 70 sales reps should be approaching $80M in 2024. + Q1 2024 salesforce expansion:
"38 new positions to our commercial organization, which will bring our commercial organization to a total of 108.We expect our expanded set field team to be in place by April 1st." ~ 38 new reps commence sales during Q2'24+ 200 new (larger/high volume) trauma accounts: "With our current commercial field organization and our expanded sales force, we expect to add approximately 200 new accounts during 2024." ~ 3.9 times increase from 70 trauma accounts in Q3'23 to 270 trauma accounts during 2024+ FTSD is 10x the size of burns (400,000 vs 35,000): "We continue to affirm this expanded indication (FTSD) increases the patient population of RECELL by 10 times over the patient opportunity with burns."+ Assuming potential PermeaDerm revenue isn't included in FY24 revenue guidance: “We think the portfolio expansion is going to end up driving revenue growth, perhaps further than we are currently guiding to” – JPMH Conference"During February 2024, the Company purchased a total of $2.5 million in inventory from Stedical Scientific."
"The Company expects the gross margin from the sale of PermeaDerm to be 50% of the average sales price."~ Upside potential: 50% x $2.5M = $1.25M + Assuming potential PolyMedics Innovations revenue isn't included in FY24 revenue guidance:"We will be making contributions and projections as we get a little momentum behind us and understand the demand pattern is going to emerge from, in this case, Germany, Austria and Switzerland.And we will update our guidance in that with that in mind. But 2024 will be the year to get the foundation in place of all our distribution partners and 2025 will be where I think we see material revenue."= When I plug my misinterpretation of that info into the spreadsheet, it spits out this patent pending data:
The share price based on a price to sales ratio of 9.2 and $81.5M FY24 revenue works out to be about RCEL $29 or AVH $8.80.Check 2: BARDA RevenueAfter taking some time to read the
2023 Annual Report (Form 10-K),
@Epichemist I think our hopes for a substantial upfront procurement order from BARDA have been ruled out (apologies for leading you and anyone else astray). However, in the event of a national emergency, the renewed BARDA contract looks like it would provide some substantial revenue:
BARDA Contract
On February 16, 2024, the Company executed a contract modification with BARDA to extend the period of performance, under the original contract dated September 29, 2015, from December 31, 2023 to September 28, 2025. Under the modified contract, BARDA shall have access to AVITA Medical’s RECELL inventory in the event of a national emergency. No additional inventory build will be required. In the case of a national emergency, BARDA shall pay for RECELL devices at a reduced price for the first 1,000 units and retail price for any units over 1,000 requested. BARDA will pay AVITA Medical approximately $333,000 in maintenance fee over the term of the contract to ensure first right of access. (p103 or F-38)
For revenues related to the BARDA contract within the scope of ASC 606, the Company identified two performance obligations (i) the procurement of 5,614 RECELL units, (ii) emergency preparedness services. Through this contract the Company promises to procure the product through a vendor management inventory arrangement and to stand ready to provide emergency deployment services related to the product. Emergency preparedness services include procuring necessary storage containers, housing, and maintaining the containers (and product), and providing shipping and handling services in the event of an emergency situation. This stand ready obligation is a series of distinct services that are substantially the same and have the same pattern of transfer to the customer, overtime as services are consumed. (p37)1,000 RECELL devices @ reduced price (30%? x $6,500) = $4.5M?
4,614 RECELL devices @ retail price ($6,500) = $30M5,614 RECELL devices = $34.5M?
Check 3: Financials & Cash BurnI agree that the focus should be on the company's revenue growth and outlook rather than the increasing expenses (or investments for future growth); especially whilst the company has $89.1M in cash and 2x$25M debt financing facility available at their option to fund the growth to profitability in 2025, and beyond. However, some seem a little concerned, and I still like to keep an eye on the bottom line too so here goes:
Management would not have included an allowance for a BARDA procurement order when they did their strategic planning/budgeting for 2024, so the increase in operating expenses is expected to be funded out of their current $89.1M cash, $78.5 - $84.5M in FY24 commercial revenue, and 1H25 commercial revenue:
"As a reminder, $40 million of the total $90 million debt facility was funded at closing. As we have discussed previously, we do not, at this time, foresee a need for either of the remaining $25 million tranches before they expire at the end of this year.
With our current cash balance of $89.1 million as of December 31st and our expectations of reaching cash flow breakeven no later than the third quarter of 2025. We are confident that we have sufficient cash reserves to achieve our goals" Gross Margin:
"Our margin with PermeaDerm will be 50%. On RECELL, we will very likely be in that 85% range. We’re making some investments in our manufacturing operation, rather substantial, frankly. And that couple of margin points makes a little difference when you completely rehab the facility"~ Also includes PermeaDerm stock order(s), say 83% gross margin for 2024.Operating Expenses:"We are expanding our sales force. So from a sales expense standpoint, there will be an increase. But the R&D expense is not going to increase by 43% again, as well as G&A is not going to increase either."~ say S&M increases $18M, G&A remains flat, I think R&D should decrease unless they're got some upcoming studies e.g., with complementary products. Interest Expense & other income:
~ say OrbiMed interest expense $40M x 13.3% = $5.32M; other income av. $65M x 5% = $3.25M; I've made no allowances for any non-cash gains."Due to the limited business operations of the foreign subsidiaries, the net impact of the restructuring was a $9.4 million foreign exchange gain or previously deferred unrealized cumulative translation adjustments in equity. This $9.4 million noncash gain was recorded in other income expense on the statement of operations. We expect the restructuring to be completed no later than the third quarter of this year (does this mean we can expect more non-cash gains in Q1/2/3 '24 or was it all realised in Q4'23? Anyone have any thoughts?), at which point our primary operating company, AVITA Medical Americas LLC, will be a wholly owned subsidiary of AVITA Medical, Inc., and no foreign subsidiaries will exist."When I plug these assumptions into the spreadsheet, it spits out this data which is free to a good home:
I must have made some input errors in the spreadsheet above (possibly the cash burn/net loss %) because it looks to me like an additional $25M tranche would come in handy in Q4'24 to shore up the balance sheet until profitability in 2025.
Although the above is probably full of misinterpretations and miscalculations, I found it to be a helpful exercise ~ hopefully, others here do too.
(20min delay)