On April 10th, Avita did disclose a reason for not meeting...

On April 10th, Avita did disclose a reason for not meeting guidance: "The revision in guidance is attributable to a slower-than-expected conversion rate of new accounts for our expanded label of full-thickness skin defects".
The problem is that the market quite rightly did not accept this as the only reason for the sales miss. The reason given in no way explains why there was also a drop in sales to burns units, which have been buying well up to now.
After selling some of my holdings in Avita I now share my analysis of the possible reasons for the poor sales in Q1 FY24:

	Possible Reason for Drop in Sales	How Likely?	Comment
1	1. Surgeons moving to competitor products	Very unlikely	Recell system is the only option to greatly reduce the area of donor site for skin grafting. Other options increase hospital stay, operating time, number of procedures and cost, and provide inferior outcome for patients.
2	2. Hospitals running down inventory of the current Recell system awaiting Go approval	Very likely	This would be rational for hospitals with sufficient inventory as the new Go system will require less training and time for staff to prepare for use. This is not likely to occur over more than one or two quarters, as inventories are unlikely to be that large to start with.
3	3. Slower than anticipated growth in applications other than burns	Likely	This has been claimed by Avita in its announcements, so is a given. However, this would have no impact in burns and new trauma centres except for possible inventory run-down as covered above.
4	4. Reduced number of patients needing treatment	Unlikely	For such a large market, statistical variations in the number of patients would not likely be material.
5
6	Conclusions:		1. The next quarterly report is likely to provide new negatives in terms of costs and loss, but could be positive if Avita expands on the reasons for the poor quarter, if these reasons align with point 2 above.
7			2. Any residual negative after the May quarterly report, should start to dissipate leading up to Go approval. Although not 100% certain, IMO approval in late May is > 90% likely.
8			3. Once hospitals deplete their inventories, they will restock, even if Go is not approved as expected. The existing product will still beat all opposition on results for patients, and will still work well in conjunction with polymers.
9			4. The total market for Recell systems will continue to grow strongly as more hospitals and surgeons inevitably start to adopt it, based on results achieved and as some of the 71 submissions in the evaluation or decision stage of the value analysis committee (VAC) process (as of March 31, 2024) complete.

We will all have to make some important investment decisions as we approach and move past the two major upcoming events during May 24: Quarterly report and hopefully approval of Go. I will be looking to restore and grow my holdings as I still believe in the outlook for Avita. Good luck to all.