UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
(Address of principal executive offices and Zip Code)
Registrant’s telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol |
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Name of each exchange on which registered |
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The |
Securities registered pursuant to section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has selected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares of the registrant’s $0.0001 par value common stock outstanding as of May 1, 2022 was
TABLE OF CONTENTS
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Item 1. |
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Consolidated Balance Sheets – March 31, 2022 (unaudited) and December 31, 2021 |
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Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021 (unaudited) |
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Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 (unaudited) |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
FORWARD-LOOKING STATEMENT
This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future revenues; solvency; future industry market conditions; future changes in our capacity and operations; future operating and overhead costs; intellectual property; regulatory and related approvals; the conduct or outcome of pre-clinical or clinical (human) studies; operational and management restructuring activities (including implementation of methodologies and changes in the board of directors); future employment and contributions of personnel; effects on the global economy of the ongoing COVID-19 pandemic, including effects on the economy of existing and future variants on the original COVID-19 strain; tax and interest rates; productivity, business process, rationalization, investment, acquisition and acquisition integrations, consulting, operational, tax, financial and capital projects and initiatives; inflationary pressures on the U.S. and global economy; changes in the legal or regulatory environment; and future working capital, costs, revenues, business opportunities, cash flows, margins, earnings and growth. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,”“anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential”, or “continue” or the negative of these terms or other similar expressions.
The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the factors described under the sections in this Quarterly Report on Form 10-Q titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for our management to predict all risk factors and uncertainties.
You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
3
PART I – Financial Information
Item 1. FINANCIAL STATEMENTS
AVITA MEDICAL, INC.
Consolidated Balance Sheets
(In thousands, except share and per share data)
(Unaudited)
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As of |
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March 31, 2022 |
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December 31, 2021 |
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ASSETS |
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Cash and cash equivalents |
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$ |
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$ |
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Marketable securities |
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Accounts receivable, net |
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BARDA receivables |
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Prepaids and other current assets |
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Restricted cash |
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Inventory |
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Total current assets |
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Marketable securities, long-term |
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Plant and equipment, net |
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Operating lease right-of-use assets |
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Intangible assets, net |
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Other long-term assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND SHAREHOLDERS' EQUITY |
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Accounts payable and accrued liabilities |
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Accrued wages and fringe benefits |
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Other current liabilities |
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Total current liabilities |
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Contract liabilities |
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Operating lease liabilities, long-term |
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Other long-term liabilities |
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Total liabilities |
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Contingencies (Note 12) |
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Shareholders' Equity: |
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Common stock, $ and respectively |
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Preferred stock, $ issued or outstanding at March 31, 2022 and December 31, 2021 |
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Additional paid-in capital |
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Accumulated other comprehensive income |
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Accumulated deficit |
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Total shareholders' equity |
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Total liabilities and shareholders' equity |
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$ |
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$ |
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The accompanying notes form part of the unaudited consolidated financial statements.
4
AVITA MEDICAL, INC.
Consolidated Statements of Operations
(In thousands, except share and per share data)
(Unaudited)
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Three Months Ended March 31, |
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2022 |
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2021 |
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Revenues |
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$ |
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$ |
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Cost of sales |
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Gross profit |
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BARDA income |
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Operating expenses: |
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Sales and marketing expenses |
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( |
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General and administrative expenses |
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Research and development expenses |
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( |
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Total operating expenses |
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( |
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Operating loss |
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( |
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( |
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Interest expense |
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- |
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Other income |
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Loss before income taxes |
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( |
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Income tax expense |
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( |
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( |
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Net loss |
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$ |
( |
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$ |
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Net loss per common share: |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Weighted-average common shares: |
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Basic |
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Diluted |
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The accompanying notes form part of the unaudited consolidated financial statements.
5
AVITA MEDICAL, INC.
Consolidated Statements of Comprehensive Loss
(In thousands)
(Unaudited)
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Three Months Ended March 31, |
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2022 |
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2021 |
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Net loss |
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$ |
( |
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$ |
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Change in foreign currency translation gain/(loss) |
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( |
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Change in net unrealized loss on marketable securities, net of tax |
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( |
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- |
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Comprehensive loss |
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$ |
( |
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$ |
( |
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The accompanying notes form part of the unaudited consolidated financial statements.
6
AVITA MEDICAL, INC.
Consolidated Statements of Shareholders’ Equity
(In thousands, except shares)
(Unaudited)
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Three Months Ended March 31, 2022 |
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Common Stock |
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Shares |
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Amount |
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Additional Paid-in Capital |
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Accumulated Other Comprehensive Gain (Loss) |
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Accumulated Deficit |
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Total Shareholders' Equity |
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Balance at December 31, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Net loss |
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- |
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- |
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- |
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- |
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( |
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Share-based compensation |
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- |
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- |
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- |
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- |
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Exercise of stock options |
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- |
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- |
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- |
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Vesting of restricted stock units |
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- |
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- |
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- |
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- |
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- |
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Other comprehensive loss |
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- |
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- |
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- |
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( |
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- |
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( |
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Balance at March 31, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Three Months Ended March 31, 2021 |
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Common Stock |
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Shares |
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Amount |
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Additional Paid-in Capital |
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Accumulated Other Comprehensive Gain (Loss) |
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Accumulated Deficit |
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Total Shareholders' Equity |
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Balance at December 31, 2020 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Net loss |
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- |
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- |
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- |
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- |
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( |
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Issuance of common stock under direct placement |
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Issuance costs associated with direct placement |
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( |
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( |
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Share-based compensation |
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- |
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- |
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- |
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- |
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Exercise of stock options |
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- |
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- |
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- |
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Translation gain |
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- |
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- |
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- |
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( |
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- |
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( |
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Balance at March 31, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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The accompanying notes form part of the unaudited consolidated financial statements.
7
AVITA Medical, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
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Three Months Ended |
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March 31, 2022 |
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March 31, 2021 |
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Cash flow from operating activities: |
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Net loss |
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$ |
( |
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$ |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Share-based compensation |
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Non-cash lease expense |
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Remeasurement and foreign currency transaction loss |
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Excess and obsolete inventory related charges |
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BARDA deferred costs |
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Contract cost amortization |
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Provision (benefit) for doubtful accounts |
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( |
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Amortization of premium of marketable securities |
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- |
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Changes in operating assets and liabilities: |
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Trade and other receivables |
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( |
) |
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( |
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BARDA receivables |
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( |
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( |
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Prepaids and other current assets |
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( |
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Inventory |
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Operating lease liability |
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( |
) |
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( |
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Other long-term assets |
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( |
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( |
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Accounts payable and accrued expenses |
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( |
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Accrued wages and fringe benefits |
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( |
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( |
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Other current liabilities |
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( |
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Contract liabilities |
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( |
) |
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Other long-term liabilities |
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- |
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Net cash used in operations |
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( |
) |
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( |
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Cash flows from investing activities: |
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Purchase of marketable securities |
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( |
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- |
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Maturity of marketable securities |
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- |
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Cash paid for property and equipment |
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( |
) |
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( |
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Cash paid for patent filing fees |
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( |
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( |
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Net cash used in investing activities |
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( |
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( |
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Cash flow from financing activities: |
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Proceeds from direct placement of common stock |
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- |
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Issuance cost associated with direct placement |
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- |
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( |
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Proceeds from exercise of stock options |
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Net cash provided by financing activities |
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Effect of foreign exchange rate on cash and restricted cash |
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( |
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( |
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Net decrease in cash and cash equivalents and restricted cash |
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( |
) |
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Cash and cash equivalents and restricted cash beginning of the period |
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Cash and cash equivalents and restricted cash end of the period |
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$ |
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$ |
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Supplemental Disclosure of Cash Flow Information |
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Cash paid for interest |
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$ |
- |
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$ |
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Plant and equipment purchases not yet paid |
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$ |
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$ |
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The accompanying notes form part of the unaudited consolidated financial statements.
8
AVITA MEDICAL, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. The Company
Nature of the Business
The AVITA group of companies (comprising AVITA Medical, Inc. (“AVITA” or the “Company”) and its subsidiaries, including AVITA Medical Pty Limited, previously known as AVITA Medical Limited, (“AVITA Medical”)) (collectively, “AVITA Group” or “we”, “us”, or “our”) is a commercial-stage regenerative medicine company focused on the treatment of burns, trauma and other acute injuries, together with skin defects like vitiligo. The Company’s lead product is the RECELL® System, a device that enables healthcare professionals to produce a suspension of Spray-On Skin™ Cells using a small sample of the patient’s own skin. In September 2018, the United States Food & Drug Administration (“FDA”) granted premarket approval (“PMA”) to the RECELL System for use in the treatment of acute thermal burns in patients eighteen years and older. Following receipt of our original PMA, we commenced commercializing the RECELL System in January 2019 in the United States. In June 2021 the FDA approved an expanded indication to include treatment of pediatric acute full-thickness thermal burns. In February 2022, the FDA approved a PMA supplement for the RECELL® Autologous Cell Harvesting Device with enhanced ease-of-use, aimed at providing clinicians a more efficient user experience and simplified workflow. In addition, the FDA has granted the Company Investigational Device Exemptions (“IDEs”) which have enabled the Company to initiate pivotal clinical trials to further expand the approval of the RECELL System for soft tissue reconstruction and vitiligo. Enrollment of those clinical trials is complete and, if successful, those studies would enable the Company to seek FDA approval to market the RECELL System in the United States in those indications.
In February 2019 we entered into a collaboration with COSMOTEC, an M3 Group company, to market and distribute the RECELL System in Japan. We worked with COSMOTEC to advance our application for approval of the RECELL System in Japan pursuant to Japan’s Pharmaceuticals and Medical Devices Act (“PMDA”). In February 2022, COSMOTEC’s application for regulatory approval was approved by the PMDA initially with labelling for burns only. COSMOTEC plans to commercially launch RECELL in Japan following Japan’s Ministry of Health, Labour, and Welfare approval of reimbursement pricing. Once soft tissue and vitiligo data are available from the Company’s related U.S. clinical trials, COSMOTEC plans to submit a further application for soft tissue and vitiligo indications.
In March 2020, the World Health Organization declared the outbreak of a novel strain of the coronavirus (“COVID-19”) a pandemic. We continue to closely monitor the recent developments surrounding the continued spread and potential resurgence of COVID-19 due to existing and future variants. As a result of the pandemic, our customers (primarily hospitals) are experiencing disruptions with respect to a shortage in operating room personnel. Although the number of U.S. hospitalizations due to COVID-19 has decreased in the last several months and many government imposed restrictions have been lifted, we continue to be unable to predict the full impact that the ongoing COVID-19 pandemic will have on our future results of operations, liquidity and financial condition due to numerous uncertainties, including the duration of the pandemic, the actions that may be taken in the future by government authorities across the United States in response to new variants. The Company has assessed the potential impact of COVID-19 on certain accounting matters including, but not limited to, the allowance for doubtful accounts, inventory reserves and return reserves, and impairment considerations for long-lived assets, marketable securities and intangibles, as of March 31, 2022 and through the date of this report. With respect to future operating results, it is not possible at this time to predict, with any degree of precision, the effects of COVID-19. Consequently, actual results for accounting estimates and assumptions, particularly those relating to the recoverability of certain intangible assets and estimates of expected credit losses on accounts receivable could differ from these estimates. However, we do not currently believe that COVID-19 will result in any significant changes in costs going forward. We will continue to monitor the performance of our business and reassess the impacts of COVID-19 and its variants.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information included in this quarterly report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Transition Report on Form 10-KT for the transition period ended December 31, 2021 filed with the SEC on February 28, 2022 (United States) and the ASX on March 01, 2022 (Australia) (the “Transition Report”).
9
There have been no changes to the Company’s significant accounting policies as described in the Transition Report on Form 10-KT that have had a material impact on the Company’s consolidated financial statements. See the summary of the Company’s significant accounting policies set forth in the notes to its consolidated financial statements included in the Transition Report.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated on consolidation.
Use of Estimates
The preparation of the accompanying consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts (including doubtful accounts, carrying value of long-lived asset, the useful lives of long-lived assets, accounting for marketable securities, income taxes, stock-based compensation, and the stand-alone selling price for the BARDA contract) and related disclosures. Estimates have been prepared on the basis of the current and available information. However, actual results could differ from estimated amounts.
Foreign Currency Translation and Foreign Currency Transactions
The financial position and results of operations of the Company’s operating non-U.S. subsidiaries are generally determined using the respective local currency as the functional currency of that subsidiary. Assets and liabilities of these subsidiaries are translated at the exchange rate in effect at each period end. Income statement accounts are translated at the average rate of exchange prevailing during the period. Adjustments arising from the use of differing exchange rates from period to period are included in accumulated other comprehensive gain (loss) in shareholders’ equity. Gains and losses resulting from foreign currency transactions are included in general and administrative expenses and were a loss of $
The Company’s non-operating subsidiaries that use the U.S. dollar as their functional currency remeasure monetary assets and liabilities at exchange rates in effect at the end of each period and nonmonetary assets and liabilities at historical rates. Gains and losses resulting from these remeasurements and foreign currency transactions are included in general and administrative expenses. During the three months ended March 31, 2022 and 2021, the Company recorded losses of $
Comprehensive Income (Loss)
The components of comprehensive income (loss) consist of net income (loss), foreign currency translation adjustments from its subsidiaries not using the U.S. dollar as their functional currency and unrealized gains and losses in investments available for sale. The Company did not have reclassifications from other comprehensive income (loss) to net loss during the quarter ended March 31, 2022.
Revenue Recognition
The Company recognizes revenue when its customers obtain control of promised goods or services, in an amount that reflects the consideration which the Company expects to be entitled in exchange for those goods or services.
To determine revenue recognition for arrangements that are within the scope of Accounting Standard Codification (“ASC”) Topic 606, Revenue Recognition, the Company performs the following five steps:
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1. |
Identify the contract with a customer |
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2. |
Identify the performance obligations |
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3. |
Determine the transaction price |
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4. |
Allocate the transaction price to the performance obligations |
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5. |
Recognize revenue when/as performance obligation(s) are satisfied |
In order for an arrangement to be considered a contract, it must be probable that the Company will collect the consideration to which it is entitled for goods or services to be transferred. Once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised with each contract, determines whether those are performance obligations and the related transaction price. The Company then recognizes the sale of goods based on the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied.
10
The Company’s revenue consists primarily of the sale of the RECELL System to hospitals or other treatment centers and to BARDA (collectively, “customers”), predominately in the United States. The Company evaluated the BARDA contract and concluded that a portion of the arrangement, such as the procurement of the RECELL system and the emergency preparedness, represents a transaction with a customer and as such are in the scope of ASC 606. Amounts received from BARDA for the research and development of the Company’s product are classified as BARDA income in the consolidated statement of operations and are accounted for under IAS 20. For further details refer to BARDA Income and Receivables below.
Revenues for commercial customers (hospitals and treatment centers) are recognized as control of the product is transferred to customers, at an amount that reflects the consideration expected to be received in exchange for the product. Revenues are recognized net of volume discounts. As such, revenue is recognized only to the extent a significant reversal of revenues is not expected to occur in subsequent periods. For the Company’s contracts that have an original duration of one year or less, the Company elected the practical expedient applicable to such contracts and does not consider the time value of money. Further, because of the short duration of these contracts, the Company has not disclosed the transaction price for the remaining performance obligations as of each reporting period or when the Company expects to recognize this revenue. The Company has further applied the practical expedient to exclude sales tax in the transaction price and expense contract fulfilment costs such as commissions and shipping and handling expenses as incurred.
The total transaction price for the portion of the BARDA contract that is within the scope of ASC 606, was determined to be $
The Company’s performance obligations are either satisfied at a point in time or over time as services are provided. The product procurement performance obligation is satisfied at a point in time, upon transfer of control of the product. As such, the related revenue for these performance obligations is recognized at a point in time as revenue within the Company’s consolidated statement of operations. In addition to guidance under ASC 606, the Company recognizes revenue from the sales of RECELL product to BARDA for placement into vaccine stockpiles in accordance with Securities and Exchange Commission (SEC) Interpretation, Commission Guidance regarding Accounting for Sale of Vaccines and BioTerror Countermeasures to the Federal Government for Placement into the Pediatric Vaccine Stockpile or the Strategic National Stockpile (SNS). Under this guidance, revenue is recognized when product is placed in the BARDA vendor-managed inventory as control of the product has been transferred to the customer at the time of delivery to the VMI. RECELL units that have been delivered to BARDA have a product replacement obligation at no cost to BARDA due to product’s limited shelf-life. The estimated cost of the expired inventory over the term of the contract is recognized on a per unit basis at the time of delivery. The liability is released upon replacement of the product along with a corresponding reduction to inventory. The emergency preparedness services performance obligation is satisfied over time. Revenue for the emergency deployment will be recognized on a straight-line basis during the term of the contract as services are consumed over time. Services recognized are included in sales within the consolidated statement of operations. Contract costs to fulfil the performance obligations are incremental and expected to be recovered are capitalized and amortized on a straight-line basis over the term of the contract. Contract costs are included in other long-term assets.
Contract Liabilities
The Company receives payments from customers based on contractual terms. Trade receivables are recorded when the right to consideration becomes unconditional. The Company satisfies its performance obligation on product sales when the products are shipped or delivered, depending on the terms of the sale. Payment terms on invoiced amounts are typically 30-
11
Cost of Sales
Cost of sales related to products includes costs to manufacture or purchase, package, and ship the Company’s products. Costs also include relevant production overhead and depreciation and amortization. These costs are recognized when control of the product is transferred to the customer and revenue is recognized.
Income Taxes
Income taxes are accounted for using the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income or loss in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that a portion of the deferred tax asset will not be realized. We recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations. Accrued interest and penalties are included on the related tax liability line in the consolidated balance sheet.
The Company reviews its uncertain tax positions regularly. An uncertain tax position represents the Company’s expected treatment of a tax position taken in a filed return or planned to be taken in a future tax return or claim that has not been reflected in measuring income tax expense for financial reporting purposes. The Company recognizes the tax benefit from an uncertain tax position when it is more-likely-than-not that the position will be sustained upon examination on the basis of the technical merits or the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired.
Cash and Cash Equivalents
Consists of cash held at deposit institutions and cash equivalents. Cash equivalents consist of short-term highly liquid investments with original maturities of three months or less from the date of purchase and consist primarily of money market funds. The Company holds cash at deposit institutions in the amount of $
Restricted Cash
Pursuant to a contractual agreement to maintain the business credit card, the Company must maintain restricted cash deposits which amounted to approximately $
Concentrations
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities, trade receivables, BARDA receivables and other receivables. As of March 31, 2022 and December 31, 2021, substantially all of the Company’s cash was deposited in accounts at financial institutions, and amounts may exceed federally insured limits. Management believes that the Company is not exposed to significant credit risk due to the financial strength of the depository institutions in which its cash is held.
As of March 31, 2022
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As of March 31, 2022 |
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As of December 31, 2021 |
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||
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BARDA procurement and emergency preparedness services |
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$ |
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|
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$ |
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|
|
BARDA expense reimbursements |
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Total BARDA receivables |
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$ |
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$ |
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|
12
Marketable Securities
All marketable securities, which consist of corporate debt securities, U.S government agency obligations, U.S treasury and commercial paper are denominated in the U.S. dollars, have been classified as “available for sale”, and are carried at fair value. Unrealized gains and losses, net of any related tax effects, are excluded from earnings and are included in other comprehensive income (loss) and reported as a separate component of stockholders equity until realized. Realized gains and losses on marketable securities are included in other income in the accompanying Consolidated Statements of Operations. The cost of any marketable securities sold is based on the specific identification method. The amortized cost of marketable securities is adjusted for amortization of premiums and accretion of discounts to maturity. Interest on marketable securities is included in other income. In accordance with the Company’s investment policy, management invests to diversify credit risk and only invests in securities with high credit quality, including U.S. government securities, and the maximum final maturity from the date of purchase is
If necessary, the Company will recognize an allowance for credit losses on available-for-sale debt securities on an individual basis, and will no longer consider other than-temporary impairment or immediately reduce the cost basis of the investment provided that it is more likely than not that the security will be held to recovery or maturity. Further, the Company will recognize any improvements in estimated credit losses on available-for-sale debt securities immediately in earnings and reduce the existing allowance for credit losses. The Company will disaggregate its available-for-sale debt securities into the following categories: commercial paper, corporate debt, government and agency securities and money market funds. The Company’s corporate bonds are comprised of predominantly high-grade corporate bonds while its government and agency securities are U.S. treasury bonds, and U.S. agency bonds. The Company has analyzed both corporate bonds and government and agency securities and identified that both types of securities have similar risk characteristics in that they are traded infrequently and have contractual interest rates and maturity dates.
To evaluate for impairment, management reviews credit rating changes, securities trends, interest rate movements and unrealized loss at the security level of the Company’s available for sale debt securities. If any of these give rise to a potential credit concern, the Company performs a discounted cash flow analysis to determine the credit portion of the impairment. The discounted cash flow analysis will be performed either internally or through the assistance of a qualified third party. Once the credit component of the impairment is determined, the Company will record the impaired amount as an allowance to the available-for-sale debt securities balance and as a charge to other income in the accompanying Consolidated Statements of Operations, not to exceed the amount of the unrealized loss. The Company assesses expected credit losses at the end of each reporting period and adjusts the allowance through other income.
BARDA Income and Receivables
The AVITA Group was awarded a Biomedical Advance Research and Development Authority (“BARDA”) contract in September 2015. The contract with BARDA expires December 31, 2023. Under this arrangement BARDA supported the Company’s research and development for the Company’s product, including the U.S. clinical regulatory program targeted towards PMA, our compassionate use program, clinical and health economics research. Currently, the BARDA contract is supporting the Company’s clinical trial in soft-tissue reconstruction.
Consideration received under the BARDA arrangement is earned and recognized under a cost-plus-fixed-fee arrangement in which the Company is reimbursed for direct costs incurred plus allowable indirect costs and a fixed-fee earned. Billings under the contracts are based on approved provisional indirect billing rates, which permit recovery of fringe benefits, general and administrative expenses and a fixed fee.
The Company has concluded that grants under the BARDA arrangement are not within the scope of ASC 606, as it does not meet the definition of a contract with a “customer.” The Company has further concluded that Subtopic 958-605, Not-for-Profit-Entities-Revenue Recognition also does not apply, as the Company is a business entity and the payments are with governmental agencies or units. With respect to the BARDA arrangement, we considered the guidance in IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, by analogy. BARDA income and related receivables are recognized when there is reasonable assurance that the amount will be received, and all attaching conditions have been complied with. When the payment relates to an expense item, the amount received is recognized as income over the period when the expense was incurred.
13
Leases
The Company has operating leases for corporate office space, manufacturing and warehouse facility. The Company’s operating leases have remaining lease terms of
Right of use (“ROU”) assets represent the Company’s right to control an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an explicit rate, the Company used its incremental borrowing rate (“IBR”) based on the information available at commencement date in determining the discount rate used to present value lease payments. In determining the IBR, the Company considered its credit rating and current market interest rates. The IBR used approximates the interest that the Company would be required to pay for a collateralized loan over a similar term. The Company’s leases typically do not include any residual value guarantees or asset retirement obligations.
The Company’s lease terms are only for periods in which it has enforceable rights. A lease is no longer enforceable when both the lessee and the lessor each have the right to terminate the lease without permission from the other party with no more than an insignificant penalty. The Company has options to renew some of these leases for
The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component for all underlying asset classes. Some leases require variable payments for common area maintenance, property taxes, parking, insurance and other variable costs. The variable portion of lease payments is not included in operating lease assets or liabilities. Variable lease costs are expensed when incurred.
Share-based compensation
The Company records compensation expense for stock options based on the fair market value of the awards on the date of grant. The fair value of share-based compensation awards is amortized over the vesting period of the award. Compensation expense for performance-based awards is measured based on the number of shares ultimately expected to vest, estimated at each reporting date based on management’s expectations regarding the relevant performance criteria, if any. The Black-Scholes option pricing model and Monte Carlo Simulation were used to estimate the fair value of the time-based and performance-based options, respectively. Under ASU 2016-09, Compensation – Stock Compensation (“ASC 718”) Improvements to Employee Share-Based Payment Accounting, the Company elected to account for forfeitures as they occur.
The following assumptions were used in the valuation of stock options.
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• |
Expected volatility – determined using the average of the historical volatility using daily intervals over the expected term and the derived volatility using the longest term available of 12 months. |
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• |
Expected dividends - based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future |
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• |
Expected term – the expected term of the Company’s stock options for tenure only vesting has been determined utilizing the “simplified” method as described in the SEC’s Staff Accounting Bulletin No. 107 relating to share-based compensation. The simplified method was chosen because the Company has limited historical option exercise experience due to its short operating history of awards granted, the first plan was established in 2016 and was primarily used for Executives awards. Further, the Company does not have sufficient history of exercises in the U.S. market given the recent redomiciliation to the United States during 2020. The expected term of options with a performance condition was set to the contractual term of |
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• |
Risk-free interest rate – the risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for a period approximately equal to the expected term of the award. |
14
Segment Reporting
Operating segments are defined as components of an enterprise for which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company’s chief operating decision maker is its Chief Executive Officer. To date, the Company has viewed its operations and manages its business as
Deferred Compensation Plan and Investments in Corporate-Owned Life Insurance
The Company’s Deferred Compensation Plan (the "DCP"), which became effective on October 2021, allows highly compensated key employees to elect to defer a portion of their salary, bonus, commissions and RSU awards to later years. Management determined that the DCP shall be accounted for similar to a defined benefit plan under ASC 715, Compensation – Retirement Benefits, and should follow accounting treatment similar to a cash balance plan. Management determined that the employee portion and employer portion of the deferred compensation should be recognized as compensation expense with a corresponding credit to deferred compensation liability. The matching contribution will be accrued over the vesting period of with
3. Accounting Standards Update
Recently Adopted Accounting Pronouncements
In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance.” ASC 832 requires business entities to provide certain disclosures when they (1) have received government assistance and (2) use a grant or contribution accounting model by analogy to other accounting guidance. The guidance will require business entities to disclose the nature of the transactions, accounting policies used to account for the transactions, and state which line items on the balance sheet and income statement are affected by these transactions and the amount applicable to each financial statement line. Business entities will also have to disclose significant terms and conditions of transactions with a government such as the duration of the agreement, any commitments made by either side, provisions, and contingencies. The guidance in ASU 2021-10 is effective for all entities for fiscal years beginning after December 15, 2021. Entities may apply the provision either (1) prospectively to all transactions within the scope of ASC 832 that are reflected in the financial statements as of the adoption date and all new transactions entered into after the date of adoption or (2) retrospectively. The Company adopted this standard as of January 1, 2022. The adoption did not have a material impact on the Consolidated Financial Statements or disclosures.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, or ASU 2019-12, which includes amendments to simplify the accounting for income taxes by removing certain exceptions to the general principles in ASC 740, Income Taxes, or ASC 740. The amendments also improve consistent application of and simplify U.S. GAAP for other areas of ASC 740 by clarifying and amending existing guidance. The new guidance is effective for the Company for annual periods beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. Early adoption of the amendments is permitted. The Company adopted this standard as of January 1, 2022. The adoption did not have a material impact on the Consolidated Financial Statements.
15
Recent Accounting Pronouncements Not Yet Adopted
All other newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.
4. Marketable Securities
The following table summarizes the amortized cost and estimates fair values of debt securities available for sale:
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March 31, 2022 |
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Amortized Cost |
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Gross Unrealized Holding Gains |
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Gross Unrealized Holding Losses |
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Carrying Value |
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(in thousands) |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Cash Equivalents: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
|
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|
|
Current marketable securities: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S Treasury securities |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Commercial paper |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Corporate debt securities |
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|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
U.S Government Agency Obligations |
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|
|
|
|
|
- |
|
|
|
( |
) |
|
|
|
|
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Total current marketable securities |
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$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
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|
|
Long-term marketable securities: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S Treasury securities |
|
$ |
|
|
|
$ |
- |
|
|
$ |
( |
) |
|
$ |
|
|
|
Corporate debt securities |
|
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
|
|
|
Total Long-term marketable securities |
|
$ |
|
|
|
$ |
- |
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
As of December 31, 2021 |
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|
Amortized Cost |
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Gross Unrealized Holding Gains |
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Gross Unrealized Holding Losses |
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Carrying Value |
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(in thousands) |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Cash Equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
|
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|
|
Current marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
|
$ |
|
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|
|
Corporate debt securities |
|
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
|
|
|
Asset-backed securities |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
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Total current marketable securities |
|
$ |
|
|
|
$ |
- |
|
|
$ |
( |
) |
|
$ |
|
|
|
Long-term marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S Treasury securities |
|
$ |
|
|
|
$ |
- |
|
|
$ |
( |
) |
|
$ |
|
|
|
Corporate debt securities |
|
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
|
|
|
Total Long-term marketable securities |
|
$ |
|
|
|
$ |
- |
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
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16
The maturities of debt securities available for sale are summarized in the following table using contractual maturities. Actual maturities may differ from contractual maturities due to obligations that are called or prepaid.
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As of March 31, 2022 |
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As of December 31, 2021 |
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Amortized Cost |
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Carrying Value |
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Amortized Cost |
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Carrying Value |
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Due in one year or less |
|
|
|
|
|
|
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|
|
$ |
|
|
|
$ |
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|
Due after one year through three years |
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|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
Gross unrealized gains and losses on the Company’s marketable securities were an unrealized gain of $
5. Fair Value Measurements
The authoritative guidance on fair value measurements establishes a framework with respect to measuring assets and liabilities at fair value on a recurring basis and non-recurring basis. Under the framework, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as of the measurement date. The framework also establishes a three-tier hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability and are developed based on the best information available in the circumstances. The hierarchy consists of the following three levels:
Level 1: Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.
Level 2: Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3: Inputs are unobservable inputs for the asset or liability
The following tables present information about the Company’s financial assets measured at fair value on a recurring basis, based on the three-tier fair value hierarchy:
|
|
|
As of March 31, 2022 |
|
|||||||||||||
|
(in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
|
Cash Equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
|
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|
|
Total cash equivalents |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Short-term marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S Treasury securities |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Commercial paper |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Corporate debt securities |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
U.S Government Agency Obligations |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Total short-term marketable securities |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Long-term investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S Treasury securities |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Corporate debt securities |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Total long-term marketable securities |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Total marketable securities and cash equivalents |
|
$ |
|
|
|
$ |
|
|
|
$ |
- |
|
|
$ |
|
|
17
|
|
|
As of December 31, 2021 |
|
|||||||||||||
|
(in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
|
Cash Equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
|
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|
|
Total cash equivalents |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Short-term marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Asset-backed securities |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Corporate debt securities |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Total short-term marketable securities |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Long-term investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S Treasury securities |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Corporate debt securities |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Total long-term marketable securities |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Total marketable securities and cash equivalents |
|
$ |
|
|
|
$ |
|
|
|
$ |
- |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s Level 1 assets include money market instruments and are valued based upon observable market prices. Level 2 assets consist of commercial paper, U.S Government agency obligations, corporate debt securities and U.S Treasury securities. Level 2 securities are valued based upon observable inputs that include reported trades, broker/dealer quotes, bids and offers. As of March 31, 2022 and December 31, 2021, the Company had no investments that were measured using unobservable (Level 3) inputs. There were no transfers between fair value measurement levels during the quarter ended March 31, 2022 or the transition period ended December 31, 2021.
6. Leases
During August 2021, the Company remeasured the lease liability for an office lease due to a change in the lease term. As a result of the remeasurement of the lease liability, there was an increase of approximately $
The following table sets forth the Company’s operating lease expenses which are included in general and administrative expenses in the consolidated statements of operations (in thousands):
|
|
|
Three months ended March 31, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Operating lease cost |
|
$ |
|
|
|
$ |
|
|
|
Variable lease cost |
|
|
|
|
|
|
|
|
|
Total lease cost |
|
$ |
|
|
|
$ |
|
|
Supplemental cash flow information related to operating leases for the three months ended March 31, 2022 and 2021 was as follows (in thousands):
|
|
|
Three months ended March 31, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
Operating cash outflows from operating leases |
|
$ |
|
|
|
$ |
|
|
18
Supplemental balance sheet information, as of March 31, 2022 and December 31, 2021 related to operating leases was as follows (in thousands):
|
|
|
As of March 31, 2022 |
|
|
As of December 31, 2021 |
|
||
|
Reported as: |
|
|
|
|
|
|
|
|
|
Operating lease right-of-use assets |
|
$ |
|
|
|
$ |
|
|
|
Total right-of-use assets |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities: |
|
|
|
|
|
|
|
|
|
Operating lease liabilities, short-term |
|
$ |
|
|
|
$ |
|
|
|
Operating lease liabilities, long term |
|
|
|
|
|
|
|
|
|
Total operating lease liabilities |
|
$ |
|
|
|
$ |
|
|
|
Operating lease weighted average remaining lease term (years) |
|
|
|
|
|
|
|
|
|
Operating lease weighted average discount rate |
|
|
|
% |
|
|
|
% |
As of March 31, 2022, maturities of the Company’s operating lease liabilities are as follows (in thousands):
|
|
|
|
|
Operating Leases |
|
|
|
2022 |
|
|
|
$ |
|
|
|
2023 |
|
|
|
|
|
|
|
2024 |
|
|
|
|
|
|
|
2025 |
|
|
|
|
- |
|
|
Total lease payments |
|
|
|
|
|
|
|
Less imputed interest |
|
|
|
|
( |
) |
|
Total operating lease liabilities |
|
|
|
$ |
|
|
As of March 31, 2022, there were no leases entered into that had not yet commenced.
7. Inventory
The composition of inventory is as follows (in thousands):
|
|
|
As of March 31, 2022 |
|
|
As of December 31, 2021 |
|
||
|
Raw materials |
|
$ |
|
|
|
$ |
|
|
|
Work in process |
|
|
|
|
|
|
|
|
|
Finished goods |
|
|
|
|
|
|
|
|
|
Total inventory |
|
$ |
|
|
|
$ |
|
|
The Company has reduced the carrying value of its inventories to reflect the lower of cost or net realizable value. Charges for estimated excess and obsolescence are recorded in cost of sales in the consolidated statement of operations and were $
8. Intangible Assets
The composition of intangible assets, net is as follows (in thousands):
19
|
|
|
|
|
|
|
As of March 31, 2022 |
|
|
As of December 31, 2021 |
|
||||||||||||||||||
|
|
|
Weighted Average Life |
|
|
Gross Amount |
|
|
Accumulated Amortization |
|
|
Net Carry Amount |
|
|
Gross Amount |
|
|
Accumulated Amortization |
|
|
Net Carry Amount |
|
|||||||
|
Patent 1 |
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Patent 2 |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Patent 3 |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Patent 5 |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Patent 6 |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Patent 7 |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Patent 8 |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Patent 10 |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Patent 11 |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Trademarks |
|
Indefinite |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
Total intangible assets |
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
During the three months ended March 31, 2022 and 2021, the Company did not identify any events or changes in circumstances that indicated that the carrying value of its intangibles may not be recoverable. As such, there was
The Company expects the future amortization of amortizable intangible assets held at March 31, 2022 to be (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Amortization Expense |
|
||
|
2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
20
9. Plant and Equipment
The composition of property, plant and equipment, net is as follows (in thousands):
|
|
|
Useful Lives |
|
As of March 31, 2022 |
|
|
As of December 31, 2021 |
|
||
|
Computer equipment |
|
|
|
$ |
|
|
|
$ |
|
|
|
Computer software |
|
|
|
|
|
|
|
|
|
|
|
Construction in progress |
|
|
|
|
- |
|
|
|
|
|
|
Furniture and fixtures |
|
|
|
|
|
|
|
|
|
|
|
Laboratory equipment |
|
|
|
|
|
|
|
|
|
|
|
Leasehold improvements |
|
|
|
|
|
|
|
|
|
|
|
RECELL Moulds |
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated amortization and depreciation |
|
|
|
|
( |
) |
|
|
( |
) |
|
Total plant and equipment, net |
|
|
|
$ |
|
|
|
$ |
|
|
Depreciation expense related to plant and equipment for the three months ended March 31, 2022 and 2021 was $
10. Prepaids and Other Current Assets and Other long-term assets
Prepaids and other current assets consisted of the following (in thousands):
|
|
|
As of March 31, 2022 |
|
|
As of December 31, 2021 |
|
||
|
Prepaid expenses |
|
$ |
|
|
|
$ |
|
|
|
Lease deposits |
|
|
|
|
|
|
|
|
|
Accrued investment income |
|
|
|
|
|
|
|
|
|
Other receivables |
|
|
|
|
|
|
|
|
|
Total prepaids and other current assets |
|
$ |
|
|
|
$ |
|
|
Prepaid expenses primarily consist of prepaid benefits and insurance.
Other long-term assets consisted of the following (in thousands):
|
|
|
As of March 31, 2022 |
|
|
As of December 31, 2021 |
|
||
|
BARDA contract costs |
|
$ |
|
|
|
$ |
|
|
|
Corporate-owned life insurance policies |
|
|
|
|
|
|
|
|
|
Long-term lease deposits |
|
|
|
|
|
|
|
|
|
Long-term prepaids |
|
|
|
|
|
|
|
|
|
Total other long-term assets |
|
$ |
|
|
|
$ |
|
|
21
11. Reporting Segment and Geographic Information
The Company views its operations and manages its business in
|
|
|
Three months ended March 31, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Revenue: |
|
|
|
|
|
|
|
|
|
United States |
|
$ |
|
|
|
$ |
|
|
|
Foreign: |
|
|
|
|
|
|
|
|
|
Australia |
|
|
|
|
|
|
|
|
|
United Kingdom |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
Revenue and Cost of sales by Customer type for the three months ended March 31, 2022 and 2021 were as follows (in thousands):
|
|
|
Three months ended March 31, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Revenue: |
|
|
|
|
|
|
|
|
|
Commercial sales |
|
$ |
|
|
|
$ |
|
|
|
BARDA: |
|
|
|
|
|
|
|
|
|
Product sales |
|
|
- |
|
|
|
|
|
|
Services for emergency preparedness |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
|
|
Three months ended March 31, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Cost of sales |
|
|
|
|
|
|
|
|
|
Commercial cost |
|
$ |
|
|
|
$ |
|
|
|
BARDA: |
|
|
|
|
|
|
|
|
|
Product cost |
|
|
( |
) |
|
|
|
|
|
Emergency preparedness service cost |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
12. Contingencies
The Company is subject to certain contingencies arising in the ordinary course of business. The Company records accruals for these contingencies to the extent that a loss is both probable and reasonably estimable. If some amount within a range of loss appears to be a better estimate than any other amount within the range, that amount is accrued. Alternatively, when no amount within a range of loss appears to be a better estimate than any other amount, the lowest amount in the range is accrued. The Company expenses legal costs associated with loss contingencies as incurred. As of March 31, 2022 and December 31, 2021, the Company did
13. Common and Preferred Stock
The Company’s CHESS Depositary Interests ("CDIs") are quoted on the ASX under the ticker code, “AVH”. The Company’s shares of common stock are quoted on NASDAQ under the ticker code, “RCEL”.
22
As a result of the ‘implicit consolidation’ that occurred under the AVITA group's redomiciliation from Australia to the United States of America, the number of shares of common stock on issue in the Company (as set out in the consolidated financial statements) is less than the number of ordinary shares in AVITA Medical (the prior parent company of the AVITA group) that was previously set out in the consolidated financial statements of AVITA Medical. All common share amounts included in the consolidated financial statements have been retroactively reduced by a factor of one hundred and all per share amounts have been increased by a factor or one hundred, with the exception of the Company’s common stock par value.
The Company is authorized to issue
14. Revenues
Revenues
The Company’s revenue consists of sale of the RECELL System to hospitals or other treatment centers and to BARDA (collectively “customers”), predominately in the United States. In addition, the Company records service revenue for the emergency preparedness services provided to BARDA.
Performance Obligations
For commercial contracts, we identified the hospital or treatment center as the customer in Step 1 of the 5-step model of ASC 606 and have determined a contract exists with those customers. As these contracts typically have a single performance obligation (i.e. product delivery), no allocation of the transaction price is required in Step 4 of the model. Control of the product is transferred to the customer at a point in time, at the point in time at which the goods are either shipped or delivered to our customers’ facilities, depending on the terms of the contract. The transaction price is stated within the contract and is therefore fixed consideration. The transaction price does not include the sales tax that are imposed by governmental authorities.
Remaining Performance Obligations
Revenues from remaining performance obligations are calculated as the dollar value of the remaining performance obligations on executed contracts. The estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) pursuant to the Company’s existing customer agreements is $
23
Variable Consideration
The Company evaluates its contracts with customers for forms of variable consideration, which may require an adjustment to the transaction price based on their estimated impact. For commercial customers, revenue from the sale of goods is recognized net of volume discounts. The Company uses the expected value method when estimating variable consideration. Revenue is only recognized to the extent that it is probable that a significant reversal will not occur. Variable consideration under the BARDA contract is not material to the consolidated financial statements.
Contract Assets and Contract Liabilities
Contract assets include amounts related to the Company’s contractual right to consideration for both completed and partially completed performance for which the Company does not have the right to payment. As of the period ended March 31, 2022 and December 31, 2021, the Company does
Contract liabilities are recorded when the Company receives payment prior to satisfying its obligation to transfer goods to a customer. The Company had $
Cost to Obtain and Fulfill a Contract
Commercial contract fulfillment costs include commissions and shipping expenses. The Company has opted to immediately expense the incremental cost of obtaining a contract when the underlying related asset would have been amortized over one year or less. The Company generally does not incur costs to obtain new contracts.
BARDA Contract Costs
Cost to fulfill the BARDA emergency preparedness performance obligation, which primarily consist of billed costs to BARDA incurred in connection with the emergency deployment services, are incremental and expected to be recovered. Costs are capitalized and amortized on a straight-line basis over the term of the contract. As of March 31, 2022 and December 31, 2021, the Company had $
Disaggregated Revenue
The Company disaggregates revenue from contracts with customers into geographical regions and by customer type. As noted in the segment footnote, the Company’s business consists of one reporting segment. A reconciliation of disaggregated revenue by geographical region and customer type is provided in Segment Note 11.
15. Share-Based Payment Plans
Overview of Employee Share-Based Compensation Plans
Our former parent company, AVITA Medical, adopted the Employee Share Plan and the Incentive Option Plan (collectively, the “2016 Plans”). Upon completion of the Redomiciliation, the 2016 Plans were terminated with respect to future grants and accordingly, there are no more shares available to be issued under the 2016 Plans. In addition, upon completion of the Redomiciliation, the Company had an implicit consolidation or
The 2020 Plan provides for the grant of the following Grants: (a) Incentive Stock Options, (b) Nonstatutory Stock Options, (c) Stock Appreciation Rights, (d) Restricted Stock Grants, (e) Restricted Stock Unit Grants, (f) Performance Grants, and (g) Other Grants. The 2020 Plan will be administered by the Compensation Committee or by the Board acting as the Compensation Committee. Subject to the general purposes, terms and conditions of the 2020 Plan, applicable law and any charter adopted by the Board governing the actions of the Compensation Committee, the Compensation Committee will have full power to implement and carry out the 2020 Plan. Without limitation, the Compensation Committee will have the authority to, interpret the plan, approve persons to
24
receive grants, determine the terms and number of shares of the grants, determine vesting and exercisability of grants, and make all other determinations necessary or advisable in connection with the administration of this Plan.
The contractual term of awards granted under the 2020 Plan is
Share-Based Payment Expenses
Share-based payment transactions are recognized as compensation expense based on the fair value of the instrument on the date of grant. The Company uses the graded-vesting method to recognize compensation expense. Compensation cost is reduced for forfeitures as they occur in accordance with ASU 2016-09, Simplifying the Accounting for Share-Based Payments ("ASU 2016-09"). During the three months ended March 31, 2022 and 2021, the Company recorded share-based compensation expense of $
The Company has included share-based compensation expense as part of operating expenses in the accompanying consolidated statements of operations as follows (in thousands):
|
|
|
Three-months ended March 31, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Sales and marketing expenses |
|
$ |
|
|
|
$ |
|
|
|
General and administrative expenses |
|
|
|
|
|
|
|
|
|
Research and development expenses |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
A summary of share option activity as of March 31, 2022 and changes during the period ended is presented below:
|
|
Service Only Share Options |
|
|
Performance Based Share Options |
|
|
Market Awards |
|
|
Total Share Options |
|
||||
|
Outstanding shares at December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Exercised |
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Expired |
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Forfeited |
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
Outstanding shares at March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2022 |
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
Restricted Stock Units
Restricted stock units (“RSUs”) are granted to executives as part of their long-term incentive compensation. RSUs granted prior to the 2020 Plan arise out of contracts between the Company's former parent company, AVITA Medical and the holders of such securities. RSUs granted as a result of stockholder approval at the December 22, 2021 AGM arise out of contracts between the Company and the holders of such securities. These RSU awards were approved by the Compensation Committee as determined necessary. All RSU awards have a contractual term of
25
A summary of the status of the Company’s unvested RSUs as of March 31, 2022, and changes that occurred during the year is presented below:
|
|
Service Condition RSU |
|
|
Performance Condition RSU |
|
|
Market Condition |
|
|
Total RSU's |
|
||||
|
Unvested RSUs outstanding at December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested |
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
Unvested RSUs outstanding at March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 CEO RSUs
On November 2019, the equivalent of
|
|
a) |
Tenure – the equivalent of |
|
|
b) |
Milestone performance – |
2021 AGM Awards
On December 22, 2021, as part of the Company's 2021 AGM, the Company's stockholders approved the grant of stock option awards and RSUs to the CEO and the Board of Directors. These awards are referred to as the 2021 AGM awards.
Awards to the CEO under the 2021 AGM Awards
On December 22, 2021, the CEO was issued an aggregate
|
|
• |
|
|
|
• |
|
|
|
o |
|
|
|
o |
|
|
|
o |
|
|
|
o |
|
|
|
• |
|
|
|
o |
|
|
|
o |
|
26
In order for any options or RSUs issued to the CEO to vest, both the service condition and the relevant performance or market condition (as set out in the relevant agreement between the Company and the CEO) must be satisfied. The market awards will partially vest upon satisfaction of the market condition, and the other portions will vest on the anniversary of the vesting condition or December 22 of the relevant year. The VWAP condition has a minimum of three potential tranches and the market capitalization award has a minimum of two potential tranches. For market-based awards, share-based compensation expense will be recognized over the longer of the expected achievement period for the relevant market condition and the service condition. The market condition period and the valuation of each tranche were determined using a Monte Carlo simulation. In the event the market condition is met prior to the expected achievement period, any then-unrecognized compensation expense associated with the options or RSUs that have vested with respect to both the market condition and the service condition will be recognized immediately in the Company’s consolidated statements of operations.
Awards to the Board of Directors under the 2021 AGM Awards
The Board of Director awards consist of an aggregate
|
|
• |
|
|
|
o |
|
|
|
• |
|
|
|
o |
|
16. Income Taxes
At December 31, 2021, the Company and its subsidiaries had net operating loss carryforwards for federal, state, United Kingdom, and Australian income tax purposes of $
In assessing the recoverability of its deferred tax assets, the Company considers whether it is more likely than not that its deferred assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible and/or net operating losses can be utilized. The Company considers all positive and negative evidence when determining the amount of the net deferred tax assets that are more likely than not to be realized. This evidence includes, but is not limited to, historical earnings, scheduled reversal of taxable temporary differences, tax planning strategies and projected future taxable income. Based upon the weight of available evidence including the uncertainty regarding the Company’s ability to utilize certain net operating losses and tax credits in the future, the Company has established a valuation allowance against its net deferred tax assets of $
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements related to a particular tax position are measured based on the largest benefit that has a greater than a
The Company has
The Company files income tax returns in the U.S. federal, California and certain other state and foreign jurisdictions. The Company remains subject to income tax examinations for its U.S. federal and state income taxes generally for fiscal years ended
27
June 30, 2006 and forward. The Company also remains subject to income tax examinations for international income taxes for fiscal years ended June 30, 2018 through June 30, 2021, and for certain other U.S. state and local income taxes generally for the fiscal years ended June 30, 2018 through June 30, 2021.
17. Net Loss per Share
The following is a reconciliation of the basic and diluted loss per share computations:
|
|
|
Three months ended March 31, |
|
|||||
|
|
|
(in thousands, except per share data) |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
Net Loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
Weighted-average common shares – outstanding, basic |
|
|
|
|
|
|
|
|
|
Weighted-average common shares – outstanding, diluted |
|
|
|
|
|
|
|
|
|
Net loss per common share, basic |
|
$ |
( |
) |
|
$ |
( |
) |
|
Net loss per common share, diluted |
|
$ |
( |
) |
|
$ |
( |
) |
The Company’s basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the relevant period. For the purposes of the calculation of diluted net loss per share, options to purchase common stock, restricted stock units and unvested shares of common stock issued upon the early exercise of stock options have been excluded from the calculation of diluted net loss per share as their effect is anti-dilutive. Because the Company has reported a net loss for the three months ended March 31, 2022 and 2021, diluted net loss per common share is the same as the basic net loss per share for those periods.
18. Retirement Plans
The Company offers a 401(k)-retirement savings plan (the “401(k) Plan”) for its employees, including its executive officers, who satisfy certain eligibility requirements. The Internal Revenue Code of 1986, as amended, allows eligible employees to defer a portion of their compensation, within prescribed limits, on a pre-tax basis through contributions to the 401(k) Plan. The Company matches contributions to the 401(k) Plan based on the amount of salary deferral contributions the participant makes to the 401(k) Plan. The Company will match up to
Deferred compensation plans
The Company’s Deferred Compensation Plan (the "DCP"), which became effective on October 2021 allows for eligible management and highly compensated key employees to elect to defer a portion of their salary, bonus, commissions and RSU awards to later years. These deferrals are immediately vested and are subject to investment risk and a risk of forfeiture under certain circumstances. The Company matches
The Company established a COLI to fund the DCP. The COLI is subject to creditor claims in the event of insolvency, but the assets held in the COLI are not available for general corporate purposes. Amounts in the COLI are invested in a number of funds. The securities are carried at the cash surrender value and are included in other long-term assets on the Consolidated Balance Sheets. We record investment gains and losses in operating expenses on the Consolidated Statements of Operations, along with the offsetting amount related to the increase or decrease in deferred compensation liability.
28
|
|
|
Fair Value as of March 31, 2022 |
|
Fair Value as of December 31, 2021 |
||||||||||||
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
Corporate-owned life insurance policies (1) |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1) The corporate-owned life insurance contracts are recorded at cash surrender value, which is provided by a third party and reflects the net asset value of the underlying publicly traded mutual funds and are categorized as Level 2. |
|
19. Subsequent Events
The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q and determined that there have been no events that have occurred that would require adjustments to our disclosures in the consolidated financial statements.
29
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q.
Our actual results and timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, they may not be predictive of results or developments in future periods.
The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report on Form 10-Q, including those risks identified under Part II, Item 1A. Risk Factors.
We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC and the ASX, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.
Overview
The AVITA group of companies (comprising AVITA Medical, Inc. (“AVITA” or the “Company”) and its subsidiaries, including AVITA Medical Pty Limited, previously known as AVITA Medical Limited, (“AVITA Medical”)) (collectively, “AVITA Group” or “we”, “us”, or “our”) is a commercial-stage regenerative medicine company focused on the treatment of burns, trauma and other acute injuries, together with skin defects like vitiligo. The Company’s lead product is the RECELL® System, a device that enables healthcare professionals to produce a suspension of Spray-On Skin™ Cells using a small sample of the patient’s own skin. In September 2018, the United States Food & Drug Administration (“FDA”) granted premarket approval (“PMA”) to the RECELL System for use in the treatment of acute thermal burns in patients eighteen years and older. Following receipt of our original PMA, we commenced commercializing the RECELL System in January 2019 in the United States. In June 2021 the FDA approved an expanded indication to include treatment of pediatric acute full-thickness thermal burns. In February 2022, the FDA approved a PMA supplement for the RECELL® Autologous Cell Harvesting Device with enhanced ease-of-use, aimed at providing clinicians a more efficient user experience and simplified workflow. In addition, the FDA has granted the Company Investigational Device Exemptions (“IDEs”) which have enabled the Company to initiate pivotal clinical trials to further expand the approval of the RECELL System for soft tissue reconstruction and vitiligo. Enrollment of those clinical trials is complete and, if successful, those studies would enable the Company to seek FDA approval to market the RECELL System in the United States in those indications.
The RECELL System is used to prepare Spray-On Skin Cells using a small amount of a patient’s own skin, providing a new way to treat severe burns, and simultaneously significantly reducing the amount of donor skin required. The RECELL System is designed to be used at the point of care as a standalone product, or in combination with “skin grafts”, known as split-thickness skin autografts, depending on the depth of the burn injury. The pivotal studies leading to the RECELL System’s FDA premarket approval (“PMA”) for the treatment of acute thermal burns, demonstrated that the RECELL System treated burns using 97.5 percent less donor skin when used alone in second-degree burns, and 32 percent less donor skin when used with autograft for third-degree burns compared to standard of care autografting. In these studies, a statistically significant reduction in donor skin required to treat burn patients with the RECELL System was realized without any associated compromise to healing or safety outcomes. Donor site outcomes from the clinical trial for second-degree burns also revealed a statistically significant reduction in patient-reported pain, increased patient satisfaction and improved scar outcomes.
Our compelling data from prospective, randomized, controlled clinical trials conducted at major United States burn centers, health economics modeling, and real-world use globally demonstrate that the RECELL System is a significant advancement over the current standard of care for burn patients and offers benefits in clinical outcomes and cost savings.
The RECELL System is Therapeutic Goods Administration (“TGA”) registered in Australia cleared for use in the treatment of burns, acute wounds, scars and vitiligo. In Europe, the RECELL System received CE-mark approval for the treatment of burns, chronic wounds, scars and vitiligo. In February 2019, our marketing partner COSMOTEC filed a Japan’s Pharmaceuticals and Medical Devices Act (“PMDA”) application for approval to market the RECELL System in Japan for the treatment of burns and other wounds. In February 2022, COSMOTEC’s application for regulatory approval was approved by the PMDA with labelling for
30
treatment of burns. Presently, we are not actively marketing the RECELL System internationally and therefore do not derive meaningful revenue from the RECELL System in these markets.
Our website address is www.avitamedical.com. Information contained on our website is not part of or incorporated into this report. We make our periodic reports, together with any amendments, available on our website, free of charge, as soon as reasonably practicable after we electronically file or furnish the reports with the Securities and Exchange Commission (“SEC”) or with the Australian Securities Exchange (“ASX”). The SEC maintains an internet site, www.sec.gov, which contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Copies of announcements made by the Company to the ASX are available on ASX’s website (www.asx.com.au).
Corporate History
AVITA Medical, the former parent company of the AVITA Group, began as a laboratory spin-off in the Australian State of Western Australia. Clinical Cell Culture (C3) (being the prior name of AVITA Medical) was formed under the laws of the Commonwealth of Australia in December 1992 and has operated as AVITA Medical since 2008. AVITA Medical’s ordinary shares originally began trading in Australia on the Australian Securities Exchange (“ASX”) on August 9, 1993. AVITA Medical’s American Depositary Shares (“ADSs”) traded over the counter on the OTCQX under the ticker symbol “AVMXY” from May 14, 2012 through September 30, 2019 and its ADSs began trading on the NASDAQ on October 1, 2019, under the ticker symbol “RCEL”.
The Company’s CDI’s are quoted on the ASX under AVITA Medical’s former ASX ticker code, “AVH”. The Company’s shares of common stock are quoted on NASDAQ under AVITA Medical’s former NASDAQ ticker code, “RCEL”. One share of common stock on NASDAQ is equivalent to five CDIs on the ASX.
COVID-19 Business Update and Risks Associated with COVID-19
Beginning in the first quarter of 2020, the ongoing coronavirus (“COVID-19”) pandemic has created significant disruptions to the global economies and financial markets. In the United States, State and Local Governmental authorities have responded by issuing orders, of varying degrees, requiring quarantines, restrictions on travel, mandatory closures of certain non-essential businesses, as well as providing recommendations to minimize social gatherings or interactions. Due to such orders, the COVID-19 pandemic began impacting our operations and financial results. For example, on March 19, 2020, the Executive Department of the State of California issued Executive Order N-33-20, ordering all individuals in the State of California to stay at home or at their place of residence except as needed to maintain continuity of operations of federal critical infrastructure sectors. Our primary operations are located in Valencia and Ventura, California. In response to the pandemic, we took certain business measures which included institution of various workplace protections to ensure the safety of our employees (e.g., wearing of masks, wiping down high touch areas, etc.), and the limiting of vendors and visitors to our facilities. Essential staff in manufacturing and limited support functions have continued to work from our locations following appropriate hygiene and social distancing protocols. To reduce the risk to our employees and their families from potential exposure to COVID-19, we limited activities at our corporate headquarters, encouraged our employees to work from home, encouraged virtual meetings, restricted non-essential business travel, made physical modifications and enhancements to our facilities to effect social distancing, and provided personal protective equipment to our employees. We have increased safety stocks of our product, established temporary satellite product storage locations, and accelerated initiatives to increase sourcing options. However, as most restrictions have now been lifted, we have resumed in-office work at our corporate headquarters on a hybrid work schedule for some of our employees and have lifted non-essential business travel as more states and countries begin to lift travel restrictions. Throughout the pandemic, we have remained focused on managing the business for the long-term, including maintaining our employee workforce as well as continuing to invest in critical research and development, clinical, and corporate infrastructure-related programs.
The global COVID-19 pandemic presents significant risks to us and may have far reaching impacts on our business, operations, and financial results and condition, directly and indirectly, including, without limitation, impacts on: the health of our management and employees; manufacturing, distribution, marketing and sales operations; research and development activities, including clinical activities; and customer and patient behaviors. Moreover, beginning in March 2020, access to hospitals and other customer sites was restricted to essential personnel, which has negatively impacted our ability to promote the use of the RECELL System with physicians, and to enroll our clinical studies. In addition, some hospitals and other burn centers suspended the treatment of burn patients or re-distributed those patients to other treatment facilities and, together with a general reduction in broader economic activity (e.g., reduced travel, reduced mobility, suspension of certain business operations, etc.), this resulted in a reduction in the volume of burn procedures using the RECELL System in the immediate period following the implementation of those protective measures. In addition, we experienced periodic enrollment cessation in our clinical trials due to COVID-19 as well as having individuals excluded because they have contracted COVID-19.
31
We are continuing to monitor the impact of the COVID-19 pandemic on our employees, customers, and on the markets in which we operate. We will take further actions that we consider prudent to address the COVID-19 pandemic, including reducing spending, while ensuring that we can support our customers and continue to develop our products. The ultimate extent of the impact of the COVID-19 pandemic on us, including the discovery and spread of existing and future contagious variants to COVID-19, remains highly uncertain and will depend on future developments and factors that continue to evolve. These factors, among others include the widespread vaccination of populations including recently approved booster regimens, especially in the U.S. and improvements in treatments and therapeutics for those with COVID-19, which are outside of our control, and could exist for an extended period of time even after the pandemic might end. Further imposition of quarantines, shelter-in-place and similar government orders which are outside of our control have also impacted and could continue to impact our third-party manufacturers and suppliers which could in turn adversely impact the availability or cost of materials, which could disrupt our supply chain.
Results of Operations for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.
The table below summarizes the results of our continuing operations for each of the periods presented (in thousands).
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
2022 |
|
|
2021 |
|
|
Change ($) |
|
|
% Change Favorable/(Unfavorable) |
|
||||
|
Revenues |
|
$ |
7,539 |
|
|
$ |
8,765 |
|
|
$ |
(1,226 |
) |
|
|
(14 |
%) |
|
Cost of sales |
|
|
(1,778 |
) |
|
|
(2,146 |
) |
|
|
368 |
|
|
|
17 |
% |
|
Gross profit |
|
|
5,761 |
|
|
|
6,619 |
|
|
|
(858 |
) |
|
|
(13 |
%) |
|
BARDA income |
|
|
734 |
|
|
|
570 |
|
|
|
164 |
|
|
|
29 |
% |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses |
|
|
(4,828 |
) |
|
|
(3,649 |
) |
|
|
(1,179 |
) |
|
|
(32 |
%) |
|
General and administrative expenses |
|
|
(7,534 |
) |
|
|
(5,422 |
) |
|
|
(2,112 |
) |
|
|
(39 |
%) |
|
Research and development expenses |
|
|
(3,620 |
) |
|
|
(4,109 |
) |
|
|
489 |
|
|
|
12 |
% |
|
Total operating expenses |
|
|
(15,982 |
) |
|
|
(13,180 |
) |
|
|
(2,802 |
) |
|
|
(21 |
%) |
|
Operating loss |
|
|
(9,487 |
) |
|
|
(5,991 |
) |
|
|
(3,496 |
) |
|
|
(58 |
%) |
|
Interest expense |
|
|
- |
|
|
|
(3 |
) |
|
|
3 |
|
|
|
100 |
% |
|
Other income |
|
|
28 |
|
|
|
7 |
|
|
|
21 |
|
|
|
300 |
% |
|
Loss before income taxes |
|
|
(9,459 |
) |
|
|
(5,987 |
) |
|
|
(3,472 |
) |
|
|
(58 |
%) |
|
Income tax expense |
|
|
(4 |
) |
|
|
(10 |
) |
|
|
6 |
|
|
|
60 |
% |
|
Net loss |
|
$ |
(9,463 |
) |
|
$ |
(5,997 |
) |
|
$ |
(3,466 |
) |
|
|
(58 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues decreased 14% to $7.5 million, compared to $8.8 million in the corresponding period in the prior year. The decrease in the current year revenue was driven by our recognition of $4.1 million in Biomedical Advanced Research and Development Authority (“BARDA”) related revenue in the prior year resulting from our delivery of units to managed inventory for BARDA for emergency response preparedness. Our commercial revenue in the current year increased by $2.8 million or 61%, compared to the corresponding period in the prior year. The increase in commercial sales was largely driven by broader utilization among our customer base as well as deeper penetration within individual customer accounts.
Gross profit margin was 76% and is flat compared to the corresponding period in the prior year. In the prior year our gross margins were lower compared to historical periods due to the lower price point associated with units that were delivered to managed inventory for BARDA as the BARDA contract was negotiated prior to establishing a higher price point through commercialization in the United States. In the current quarter gross margins were lower than historical periods due to reduced production and higher average production costs at our Ventura facility.
BARDA income increased 29% to $734,000, compared to $570,000 for the corresponding period in the prior year. BARDA income consisted of funding from the Biomedical Advanced Research and Development Authority, under the Assistant Secretary for Preparedness and Response, within the U.S. Department of Health and Human Services, under ongoing USG Contract No. HHSO100201500028C. BARDA income increased as a result of funding by BARDA for the pivotal trial for use of the RECELL System for soft tissue reconstruction.
Total operating expenses increased 21% or $2.8 million to $16.0 million, compared with $13.2 million in the corresponding period in the prior year.
Sales and marketing expenses increased 32% or $1.2 million to $4.8 million, compared to $3.6 million incurred in the corresponding period in the prior year. Higher costs in the current year were driven by an increase in field personnel and travel to
32
expand our market coverage, increased hands-on professional education and training events along with higher pre-commercialization costs. Higher costs for travel as well as professional and training events in the current period resulted from fewer COVID-19 related travel restrictions. Increased pre-commercialization costs were incurred for planning for RECELL launches in soft tissue reconstruction and vitiligo.
General and administrative expenses increased 39% or $2.1 million to $7.5 million, compared to $5.4 million incurred in the same period in the prior year. The increase was primarily driven by higher share-based compensation expenses in the current quarter associated with the acceleration of expense for certain performance milestones being meet in the current quarter. Higher compensation costs were driven by the hiring of an executive at the end of March 2021 along with expanding our workforce to support the overall operations.
Research and development expenses decreased 12% or $489 thousand to $3.6 million, compared to $4.1 million recognized in the same period in the prior year. Higher costs in the prior year were primarily driven by research and development costs associated with furthering the Company’s pipeline along with ramping up clinical trial costs related activities for treatment of vitiligo. The favorable variance is not a purposeful reduction in spending but reflects that certain programs were in lower cost phases during this quarter.
Liquidity and Capital Resources
We expect to utilize cash reserves until U.S. sales of our products reach a level sufficient to fund ongoing operations. The AVITA Group has historically funded its research and development activities, and more recently its substantial investment in sales and marketing activities, through raising capital by issuing securities, and it is expected that similar funding will be obtained to provide working capital if and when required. As of March 31, 2022, the Company has sufficient cash reserves to fund operations for the next 12-months. If the Company is unable to raise capital in the future, the Company may need to curtail expenditures by scaling back certain research and development or other programs.
The following table summarizes our cash flows for the periods presented (in thousands):
|
|
|
Three Months Ended |
|
|||||
|
(In Thousands) |
|
March 31, 2022 |
|
|
March 31, 2021 |
|
||
|
Net cash used in operations |
|
$ |
(9,370 |
) |
|
$ |
(8,541 |
) |
|
Net cash used in investing activities |
|
|
(22,601 |
) |
|
|
(362 |
) |
|
Net cash provided by financing activities |
|
|
1 |
|
|
|
64,028 |
|
|
Effect of foreign exchange rate on cash and restricted cash |
|
|
(6 |
) |
|
|
(11 |
) |
|
Net increase in cash and restricted cash |
|
|
(31,976 |
) |
|
|
55,114 |
|
|
Cash and restricted cash at beginning of quarter |
|
|
55,712 |
|
|
|
59,966 |
|
|
Cash and restricted cash at end of quarter |
|
|
23,736 |
|
|
|
115,080 |
|
Three months ended March 31, 2022 and 2021.
Net cash used in operating activities was $9.4 million and $8.5 million during the three months ended March 31, 2022, and 2021, respectively. The increase was primarily driven by higher operating costs partially offset by lower BARDA receivables outstanding in the current period.
Net cash used in investing activities was $22.6 million and $362,000 during the three months ended March 31, 2022, and 2021, respectively. Cash flows used for investing activities was primarily attributable to our investments into marketable securities.
Net cash provided by financing activities was $1,000 and $64.0 million during the three months ended March 31, 2022, and 2021, respectively. The decrease in cash provided by financing activities is related to proceeds from the capital raise in March 2021.
Capital management.
We aim to manage capital so that the Company continues as a going concern while also maintaining optimal returns to stockholders and benefits for other stakeholders. We also aim to maintain a capital structure that ensures the lowest cost of capital available to the Company. We regularly review the Company’s capital structure and seek to take advantage of available opportunities to improve outcomes for the Company and its stockholders.
33
For the period ended March 31, 2022, there were no dividends paid and we have no plans to commence the payment of dividends. We have no purchase commitments or long-term contractual obligations as of March 31, 2022. We have no committed plans to issue further shares on the market but will continue to assess market conditions and the Company’s cash flow requirements to ensure the Company is appropriately funded in order to pursue its various opportunities.
There is no significant external borrowing at the reporting date. Neither the Company nor any of the subsidiaries are subject to externally imposed capital requirement.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements (as defined in the rules and regulations of the SEC) that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Commitments and Contractual Obligations
The Company does not have any contractual obligations or purchase commitments, except for lease obligations for the period ended March 31, 2022. For details of lease obligations refer to Note 6 in the consolidated financial statements.
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
As a smaller reporting company, we are not required to provide the information required by this Item.
Item 4.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and our Chief Financial Officer evaluated, with the participation of our management, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. As of March 31, 2022, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures, as defined in Securities Exchange Act Rule 13a-15(e) and 15d-15(e), were effective.
Our disclosure controls and procedures have been formulated to ensure (i) that information that we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 was recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and (ii) that the information required to be disclosed by us is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Controls over Financial Reporting
There was no change in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the first quarter of fiscal year 2022 covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
34
Part II - Other Information
|
Item 1. |
LEGAL PROCEEDINGS |
None.
|
Item 1A. |
Risk Factors |
Refer to “COVID-19 Business Update and Risks Associated with COVID-19” in Part 1 above.
|
Item 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None.
|
Item 3. |
DEFAULTS UPON SENIOR SECURITIES |
None.
|
Item 4. |
MINE SAFETY DISCLOSURES |
Not applicable.
|
Item 5. |
OTHER INFORMATION |
None
35
|
Item 6. |
EXHIBITS |
(a) The following exhibits are filed as part of the Quarterly Report on Form 10-Q:
|
Exhibit No. |
|
Description |
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|
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31.1 |
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31.2 |
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32 |
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101.INS |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
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101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
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|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
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|
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
|
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
36
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Date: |
May 12, 2022 |
|
AVITA MEDICAL, INC. |
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By: |
/s/ Dr. Michael Perry |
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|
|
Dr. Michael Perry |
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|
|
President and Chief Executive Officer |
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|
|
|
(Principal Executive Officer) |
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|
|
|
|
|
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|
|
By: |
/s/ Michael Holder |
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Michael Holder |
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Chief Financial Officer |
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|
37
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Dr. Michael Perry, certify that:
|
1. |
I have reviewed this quarterly report on Form 10-Q of AVITA Medical, Inc. |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report. |
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
c) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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|
d) |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
|
|
a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
|
b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
|
Date: May 12, 2022 |
|
/s/ Dr. Michael Perry |
|
|
|
|
Name: |
Dr. Michael Perry |
|
|
|
Title: |
President and Chief Executive Officer |
|
|
|
|
(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael Holder, certify that:
|
1. |
I have reviewed this quarterly report on Form 10-Q of AVITA Medical, Inc. |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report. |
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
a) |
designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared. |
|
|
b) |
designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. |
|
|
c) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
d) |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
|
|
a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
|
b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
|
Date: May 12, 2022 |
|
/s/ Michael Holder |
|
|
|
|
Name: |
Michael Holder |
|
|
|
Title: |
Chief Financial Offer |
Exhibit 32
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of AVITA Medical, Inc. (the “Company”), does hereby certify, to such officer’s knowledge, that:
The Quarterly Report on Form 10-Q for the period ended March 31, 2022 of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
|
|
|
|
|
Dated: May 12, 2022 |
|
/s/ Dr. Michael Perry
|
|
|
|
|
Name: |
Dr. Michael Perry |
|
|
|
Title: |
President and Chief Executive Officer |
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
Dated: May 12, 2022 |
|
/s/ Michael Holder
|
|
|
|
|
Name: |
Michael Holder |
|
|
|
Title: |
Chief Financial Officer |
|
|
|
|
|
These certifications are furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certifications will not be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates them by reference.