UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
(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:
Title of each class |
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Trading Symbol |
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The |
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.
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 common stock, par value $0.0001, outstanding as of November 6, 2023 was
TABLE OF CONTENTS
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Item 1. |
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Consolidated Balance Sheets – As of September 30, 2023 (unaudited) and December 31, 2022 |
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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
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); our ability to expand our sales organization to address effectively existing and new markets that we intend to target; future employment and contributions of personnel; tax and rising 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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September 30, 2023 |
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December 31, 2022 |
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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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Inventory |
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Total current assets |
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Marketable securities long-term |
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- |
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Plant and equipment, net |
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Operating lease right-of-use assets |
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Corporate-owned life insurance ("COLI") asset |
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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, NON-QUALIFIED DEFERRED COMPENSATION PLAN SHARE AWARDS AND STOCKHOLDERS' EQUITY |
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Accounts payable and accrued liabilities |
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Accrued wages and fringe benefits |
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Current non-qualified deferred compensation liability |
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Other current liabilities |
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Total current liabilities |
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Non-qualified deferred compensation liability |
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Contract liabilities |
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Operating lease liabilities, long term |
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Total liabilities |
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Non-qualified deferred compensation plan share awards |
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Stockholders' equity: |
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Common stock, $ |
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Preferred stock, $ |
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Company common stock held by the non-qualified deferred compensation plan ("NQDC Plan") |
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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 stockholders' equity |
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Total liabilities, non-qualified deferred compensation plan share awards and stockholders' 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 |
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Nine-Months Ended |
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September 30, 2023 |
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September 30, 2022 |
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September 30, 2023 |
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September 30, 2022 |
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Revenues |
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$ |
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$ |
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$ |
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$ |
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Cost of sales |
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( |
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( |
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( |
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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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( |
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( |
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( |
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General and administrative expenses |
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( |
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( |
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( |
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( |
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Research and development expenses |
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( |
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( |
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( |
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( |
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Total operating expenses |
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( |
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( |
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( |
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( |
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Operating loss |
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( |
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( |
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( |
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( |
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Interest expense |
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( |
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( |
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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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( |
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( |
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( |
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Income tax expense |
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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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Net loss per common share: |
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Basic and Diluted |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Weighted-average common shares: |
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Basic and 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 |
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Nine-Months Ended |
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September 30, 2023 |
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September 30, 2022 |
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September 30, 2023 |
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September 30, 2022 |
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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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Foreign currency translation loss |
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( |
) |
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( |
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( |
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( |
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Net unrealized gain/(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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$ |
( |
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$ |
( |
) |
The accompanying notes form part of the unaudited Consolidated Financial Statements.
6
AVITA MEDICAL, INC.
(In thousands, except shares)
(Unaudited)
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Three-Months Ended September 30, 2023 |
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Common Stock |
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Shares |
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Amount |
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Company common stock held by the NQDC Plan |
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Additional |
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Accumulated Other |
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Accumulated |
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Total |
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Balance at June 30, 2023 |
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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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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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( |
) |
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( |
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Stock-based compensation |
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- |
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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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- |
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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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- |
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Company common stock held by the NQDC Plan |
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- |
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( |
) |
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- |
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- |
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- |
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Distribution of Company common stock held by the NQDC Plan |
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- |
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- |
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- |
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- |
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Change in redemption value of share awards in NQDC plan |
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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 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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Balance at September 30, 2023 |
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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 September 30, 2022 |
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Common Stock |
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Shares |
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Amount |
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Company common stock held by the NQDC Plan |
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Additional |
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Accumulated Other |
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Accumulated |
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Total |
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Balance at June 30, 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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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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( |
) |
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( |
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Stock-based compensation |
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- |
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- |
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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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- |
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Company common stock held by the NQDC |
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( |
) |
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- |
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- |
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- |
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Change in redemption value of share awards in NQDC plan |
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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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( |
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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 September 30, 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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7
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Nine-Months Ended September 30, 2023 |
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Common Stock |
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Shares |
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Amount |
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Company common stock held by the NQDC Plan |
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Additional |
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Accumulated Other |
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Accumulated |
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Total |
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Balance at December 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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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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( |
) |
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( |
) |
Stock-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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|
- |
|
|
- |
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|||
Company common stock held by the NQDC Plan |
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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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Distribution of Company common stock held by the NQDC Plan |
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- |
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- |
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- |
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- |
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Change in redemption value of share awards in NQDC plan |
|
- |
|
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- |
|
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- |
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( |
) |
|
- |
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- |
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( |
) |
Other comprehensive 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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Balance at September 30, 2023 |
|
|
$ |
|
$ |
( |
) |
$ |
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$ |
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$ |
( |
) |
$ |
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|||||
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Nine-Months Ended September 30, 2022 |
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Common Stock |
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|||||||||
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Shares |
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Amount |
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Company common stock held by the NQDC Plan |
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Additional |
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Accumulated Other |
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Accumulated |
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Total |
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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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|||||
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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( |
) |
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( |
) |
Stock-based compensation |
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- |
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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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- |
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|||
Vesting of restricted stock units |
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|
|
- |
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- |
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- |
|
|
- |
|
|
- |
|
|
- |
|
|
Company common stock held by the NQDC Plan |
|
|
|
- |
|
|
( |
) |
|
|
|
- |
|
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- |
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- |
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||
Change in classification of deferred compensation share awards |
|
- |
|
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- |
|
|
- |
|
|
( |
) |
|
- |
|
|
- |
|
|
( |
) |
Change in redemption value of share awards in NQDC plan |
|
- |
|
|
- |
|
|
- |
|
|
|
|
- |
|
|
- |
|
|
|
||
Other comprehensive loss |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
( |
) |
|
- |
|
|
( |
) |
Balance at September 30, 2022 |
|
|
$ |
|
$ |
( |
) |
$ |
|
$ |
|
$ |
( |
) |
$ |
|
|||||
The accompanying notes form part of the unaudited Consolidated Financial Statements.
8
AVITA Medical, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
Nine-Months Ended |
|
|||||
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
||
Cash flow from operating activities: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Stock-based compensation |
|
|
|
|
|
|
||
Non-cash lease expense |
|
|
|
|
|
|
||
Loss on fixed asset disposal |
|
|
|
|
|
|
||
Investment losses |
|
|
|
|
|
- |
|
|
Patent impairment loss |
|
|
|
|
|
- |
|
|
Remeasurement and foreign currency transaction gain |
|
|
( |
) |
|
|
( |
) |
Excess and obsolete inventory related charges |
|
|
|
|
|
|
||
BARDA deferred costs |
|
|
( |
) |
|
|
( |
) |
Contract cost amortization |
|
|
|
|
|
|
||
Provision for doubtful accounts |
|
|
|
|
|
|
||
Amortization of premium of marketable securities |
|
|
( |
) |
|
|
( |
) |
Non-cash changes in the fair value of NQDC plan |
|
|
|
|
|
( |
) |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Trade and other receivables |
|
|
( |
) |
|
|
( |
) |
BARDA receivables |
|
|
|
|
|
( |
) |
|
Prepaids and other current assets |
|
|
( |
) |
|
|
|
|
Inventory |
|
|
( |
) |
|
|
( |
) |
Operating lease liability |
|
|
( |
) |
|
|
( |
) |
Corporate-owned life insurance asset |
|
|
( |
) |
|
|
( |
) |
Other long-term assets |
|
|
( |
) |
|
|
( |
) |
Accounts payable and accrued expenses |
|
|
( |
) |
|
|
|
|
Accrued wages and fringe benefits |
|
|
|
|
|
( |
) |
|
Current non-qualified deferred compensation liability |
|
|
( |
) |
|
|
- |
|
Other current liabilities |
|
|
|
|
|
|
||
Non-qualified deferred compensation plan liability |
|
|
|
|
|
|
||
Contract liabilities |
|
|
( |
) |
|
|
( |
) |
Other long-term liabilities |
|
|
- |
|
|
|
( |
) |
Net cash used in operations |
|
|
( |
) |
|
|
( |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
||
Purchase of marketable securities |
|
|
( |
) |
|
|
( |
) |
Sale of marketable securities |
|
|
|
|
|
- |
|
|
Maturities of marketable securities |
|
|
|
|
|
|
||
Purchase of plant and equipment |
|
|
( |
) |
|
|
( |
) |
Patent filing fees |
|
|
( |
) |
|
|
( |
) |
Net cash provided by/(used in) investing activities |
|
|
|
|
|
( |
) |
|
Cash flow from financing activities: |
|
|
|
|
|
|
||
Proceeds from exercise of stock options |
|
|
|
|
|
|
||
Net cash provided by financing activities |
|
|
|
|
|
|
||
Effect of foreign exchange rate on cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
Net increase/(decrease) in cash and cash equivalents |
|
|
|
|
|
( |
) |
|
Cash and cash equivalents beginning of the period |
|
|
|
|
|
|
||
Cash and cash equivalents end of the period |
|
$ |
|
|
$ |
|
||
Supplemental Disclosure of Cash Flow Information |
|
|
|
|
|
|
||
Income taxes paid during the period |
|
$ |
|
|
$ |
|
||
Interest paid during the period |
|
$ |
|
|
$ |
|
||
Plant and equipment purchases not yet paid |
|
$ |
|
|
$ |
|
||
The accompanying notes form part of the unaudited Consolidated Financial Statements.
9
AVITA MEDICAL, INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. The Company
Nature of the Business
AVITA Medical, Inc. and its subsidiaries (collectively, “AVITA Medical”, or “Company”), is a regenerative medicine company leading the development and commercialization of devices and autologous cellular therapies for skin restoration. The Company's RECELL® System technology platform harnesses the regenerative properties of a patient’s own skin to create Spray-On Skin™ cells. 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 the original PMA, the Company commenced commercialization of the RECELL System in January 2019 in the United States. In June 2021, the FDA approved expanded use of the RECELL System in combination of meshed autografting for acute full-thickness thermal wounds in pediatric and adult patients. In February 2022, the FDA approved a PMA supplement for the RECELL Autologous Cell Harvesting Device, an enhanced ease-of-use device aimed at providing clinicians a more efficient user experience and simplified workflow. On June 7, 2023, the FDA approved a PMA supplement for full-thickness skin defects ("FTSD") based on results of the Company's pivotal trial for soft tissue repair and reconstruction. Following this approval, the Company commenced a commercial launch on June 8, 2023.
On June 16, 2023, the FDA approved a PMA application for the repigmentation of stable depigmented vitiligo lesions. Following FDA approval, the Company established a framework, which consists of three steps, to secure reimbursement for vitiligo. The first step is to conduct the 100-patient post market study called TONE. TONE will evaluate repigmentation using the RECELL device and will also seek to measure the improvement in the quality-of-life following treatment of stable vitiligo with RECELL. TONE, including publication, is expected to be complete by the end of 2024. The second step is to initiate a health economics study to capture the longitudinal healthcare costs for a vitiligo patient, which is expected to be completed by the end of 2024. The purpose of these studies is to demonstrate how treating vitiligo with RECELL can significantly reduce the lifetime healthcare cost of patients. As a result, commercial payors will stand to benefit economically by providing coverage of RECELL for the repigmentation of stable depigmented vitiligo lesions. Conversations with commercial payors will begin during the first quarter of 2025. Commercial coverage will be rolled out on a tiered basis based on state and geographic factors. The Company anticipates that the initial phase of reimbursement coverage will likely begin in the third quarter of 2025 with appropriately sized commercial support as coverage is established.
Additionally, on June 29, 2023, the Company submitted a PMA supplement to the FDA for RECELL GO™. RECELL GO maintains the FDA Breakthrough Device designation from predecessor devices. On September 29, 2023, the Company received notice from the FDA that additional information regarding the PMA is required for the continuation of a substantive review for RECELL GO. This request, which is not unique to the Breakthrough Device Program, placed the application file on hold while the Company addresses the FDA's questions. A category of questions posed by the FDA will require additional in-house testing. The Company has already made significant progress in developing the data plan for testing with some testing underway. Consequently, the Company expects to submit the complete response to the FDA no later than February 28, 2024. Upon the submission to the FDA, the application will reenter the 180-day cycle, with 90 days remaining in the review period. This timing would imply a product launch on May 31, 2024.
In February 2019, the Company entered into a collaboration with COSMOTEC Company Ltd ("COSMOTEC"), an M3 Group company, to market and distribute the RECELL System in Japan. Under the terms of the agreement, AVITA Medical will supply the RECELL product, and COSMOTEC will be the sole distributor of the product in Japan. The Company worked with COSMOTEC to advance its 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 with labeling for burns only. In September 2022, COSMOTEC commercially launched RECELL in Japan following Japan’s Ministry of Health, Labor, and Welfare approval of reimbursement pricing.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited Condensed 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. In the opinion of management, the Condensed Consolidated Financial Statements reflect all adjustments of a normal and recurring nature
10
that are considered necessary for a fair presentation of the results for the interim periods presented. 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 Annual Report on Form 10-K for the year-ended December 31, 2022 filed with the SEC on February 23, 2023 and the Australian Securities Exchange ("ASX") on February 24, 2023 (the “Annual Report").
There have been no changes to the Company’s significant accounting policies as described in the Annual Report on Form 10-K 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 Annual 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 upon consolidation.
Reclassification of prior year presentation
Certain prior year amounts within Other current liabilities have been reclassified to Current non-qualified deferred compensation liability, in the Consolidated Balance Sheets for consistency with current period presentation. These reclassifications had no effect on the reported results of operations or financial position.
Certain prior-year amounts included in Note 11 - Reporting Segment and Geographic Information have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the total Revenues. An adjustment was made to reclassify COSMOTEC sales from the United States to Japan.
Recent Accounting Pronouncements
In October 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-06 which amends the disclosure or presentation requirements related to various subtopics in the FASB ASC. The amendments in ASU 2023-06 modify the disclosure or presentation requirements of a variety of Topics in the ASC. Certain of the amendments represent clarifications to or technical corrections of the current requirements. The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. For all entities, if by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the Codification and will not become effective for any entity. The Company is currently evaluating the provisions of the amendments and the impact on its future consolidated statements.
Use of Estimates
The preparation of the accompanying Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts (including doubtful accounts, carrying value of long-lived assets, the useful lives of long-lived assets, accounting for marketable securities, income taxes, stock-based compensation, estimated credit losses, and the stand-alone selling price for the Biomedical Advanced Research and Development Authority ("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 Other
11
comprehensive gain (loss) in Stockholders’ Equity. Gains and losses resulting from foreign currency transactions are included in General and administrative expenses in the Consolidated Statement of Operations. Gains and losses resulting from foreign currency transactions were a gain 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 in the Consolidated Statement of Operations. During the three-months ended September 30, 2023 and 2022, the Company recorded a loss of $
Cash and Cash Equivalents
Cash and cash equivalents consist 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 $
Concentrations
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, marketable securities, trade receivables and other receivables. As of September 30, 2023 and December 31, 2022, substantially all of the Company’s cash was deposited in accounts at financial institutions, and amounts may exceed federally insured limits and subject to the risk of bank failure.
As of September 30, 2023,
Employee Stock Purchase Plan ("ESPP")
The Company's Employee Stock Purchase Plan (the "ESPP"), features two six-month offering periods per year, running from June 1 to November 30 and December 1 to May 31. The ESPP provides eligible employees with an opportunity to purchase shares of the Company’s common stock through payroll deductions of up to
12
3. Marketable Securities
The following table summarizes the amortized cost and estimated fair values of debt securities available-for-sale:
|
|
As of September 30, 2023 |
|
|||||||||||||
|
|
Amortized |
|
|
Gross |
|
|
Gross |
|
|
Carrying |
|
||||
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
||
Total cash equivalents |
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
||
Current marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Treasury securities |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Commercial paper |
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
|
||
Corporate debt securities |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
U.S. Government agency obligations |
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
|
||
Total current marketable securities |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
As of December 31, 2022 |
|
|||||||||||||
|
|
Amortized |
|
|
Gross |
|
|
Gross |
|
|
Carrying |
|
||||
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
||
Total cash equivalents |
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
||
Current marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Treasury securities |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Commercial paper |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Corporate debt securities |
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
|
||
U.S. Government agency obligations |
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
|
||
Total current marketable securities |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Long-term marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asset backed securities |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
U.S. Treasury securities |
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
|
||
U.S. Government agency obligations |
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
|
||
Total long-term marketable securities |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
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.
|
|
As of September 30, 2023 |
|
|
As of December 31, 2022 |
|
||||||||||
(in thousands) |
|
Amortized |
|
|
Carrying |
|
|
Amortized |
|
|
Carrying |
|
||||
Due in one year or less |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Due after one year through three years |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
||
13
Gross unrealized gains and losses on the Company’s marketable securities were an unrealized gain of $
4. 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 September 30, 2023 |
|
|||||||||||||
(in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
||
Total cash equivalents |
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
||
Current marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Treasury securities |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
Commercial paper |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Corporate debt securities |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
U.S. Government agency obligations |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Total current marketable securities |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
Total marketable securities and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|||
14
|
|
As of December 31, 2022 |
|
|||||||||||||
(in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
||
Total cash equivalents |
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
||
Current marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Treasury securities |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Commercial paper |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Corporate debt securities |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
U.S. Government agency obligations |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Total current marketable securities |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
Long-term marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asset backed securities |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||
U.S. Treasury securities |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
U.S. Government agency obligations |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
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, asset backed 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 September 30, 2023 and December 31, 2022, the Company had no investments that were measured using unobservable (Level 3) inputs. There were no transfers between fair value measurement levels as of September 30, 2023 or December 31, 2022.
5. Revenues
The Company’s revenue consists of sale of the RECELL System to hospitals, treatment centers and COSMOTEC (“commercial customers”) 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. Services are included in Revenues within the Consolidated Statements of Operations.
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 $
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 September 30, 2023 and December 31, 2022, 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 $
15
COSMOTEC. The Company recognized $
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.
6. Leases
During February 2023, the Company remeasured the lease liability for an office lease due to an increase in the lease term. As a result of the remeasurement of the lease liability, there was an increase of approximately $
During May 2023, the Company entered into a new office lease in Irvine, California. The lease commenced during July 2023 and resulted in an increase of $
The following table sets forth the Company’s operating lease expenses which are included in operating expenses in the Consolidated Statements of Operations (in thousands):
|
|
Three-Months Ended |
|
Nine-Months Ended |
|
||||||||
|
|
September 30, 2023 |
|
September 30, 2022 |
|
September 30, 2023 |
|
September 30, 2022 |
|
||||
Operating lease cost |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||
Variable lease cost |
|
|
|
|
|
|
|
|
|
||||
Total lease cost |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||
Supplemental cash flow information related to operating leases for the three-months and nine-months ended September 30, 2023 and 2022 was as follows (in thousands):
|
|
Three-Months Ended |
|
Nine-Months Ended |
|
||||||||
|
|
September 30, 2023 |
|
September 30, 2022 |
|
September 30, 2023 |
|
September 30, 2022 |
|
||||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
||||
Operating cash outflows from operating leases |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||
16
Supplemental balance sheet information, as of September 30, 2023 and December 31, 2022, related to operating leases was as follows (in thousands, except for operating lease weighted average remaining lease term and operating lease weighted average discount rate):
|
|
As of |
|
||||
|
|
September 30, 2023 |
|
December 31, 2022 |
|
||
Reported as: |
|
|
|
|
|
||
Operating lease right-of-use assets |
|
$ |
|
$ |
|
||
Total right-of-use assets |
|
$ |
|
$ |
|
||
: |
|
|
|
|
|
||
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 September 30, 2023, maturities of the Company’s operating lease liabilities are as follows (in thousands):
|
|
|
Operating Leases |
|
|
Remainder of 2023 |
|
|
$ |
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
2027 |
|
|
|
|
|
2028 |
|
|
|
|
|
Total lease payments |
|
|
|
|
|
Less imputed interest |
|
|
|
( |
) |
Total operating lease liabilities |
|
|
$ |
|
|
As of September 30, 2023, there were no leases entered into that had not yet commenced.
7
The composition of inventory is as follows (in thousands):
|
As of |
|
|||||
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||
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 Statements of Operations and were $
17
8. Intangible Assets
The composition of intangible assets, net is as follows (in thousands):
|
|
|
|
|
As of September 30, 2023 |
|
|
As of December 31, 2022 |
|
|||||||||||||||||||
|
|
Weighted |
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|||||||
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 September 30, 2023, 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 September 30, 2023 to be as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
Remainder of 2023 |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
18
9. Plant and Equipment
The composition of property, plant and equipment, net is as follows (in thousands):
|
|
|
As of |
|
|||||
|
Useful Lives |
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||
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 was $
10. Other Current and Long-Term Assets and Liabilities
Prepaids and other current assets consisted of the following (in thousands):
|
As of |
|
|||||
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||
Prepaid expenses |
$ |
|
|
$ |
|
||
Investment receivable |
|
|
|
|
- |
|
|
Lease deposits |
|
|
|
|
|
||
Accrued investment income |
|
|
|
|
|
||
BARDA contract costs |
|
|
|
|
|
||
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 |
|
|||||
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||
Long-term lease deposits |
$ |
|
|
$ |
|
||
Long-term prepaids |
|
|
|
|
|
||
Total other long-term assets |
$ |
|
|
$ |
|
||
19
Other current liabilities consisted of the following (in thousands):
|
As of |
|
|||||
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||
Operating lease liability |
$ |
|
|
$ |
|
||
BARDA deferred costs |
|
|
|
|
|
||
BARDA deferred revenue |
|
|
|
|
- |
|
|
Other current liabilities |
|
|
|
|
|
||
Total other current liabilities |
$ |
|
|
$ |
|
||
11. Reporting Segment and Geographic Information
The Company views its operations and manages its business in
Revenue by region for the three-months and nine-months ended September 30, 2023 and 2022 were as follows (in thousands):
|
Three-Months Ended |
|
|
Nine-Months Ended |
|
||||||||||
|
September 30, 2023 |
|
|
September 30, 2022 |
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
||||
United States |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Foreign: |
|
|
|
|
|
|
|
|
|
|
|
||||
Japan |
|
|
|
|
|
|
|
|
|
|
|
||||
Australia |
|
|
|
|
|
|
|
|
|
|
|
||||
United Kingdom |
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Revenue and cost of sales by customer type for the three-months and nine-months ended September 30, 2023 and 2022 were as follows (in thousands):
|
Three-Months Ended |
|
|
Nine-Months Ended |
|
||||||||||
|
September 30, 2023 |
|
|
September 30, 2022 |
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial sales |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Deferred commercial revenue |
|
|
|
|
- |
|
|
|
|
|
|
- |
|
||
BARDA: |
|
|
|
|
|
|
|
|
|
|
|
||||
Services for emergency preparedness |
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
Three-Months Ended |
|
|
Nine-Months Ended |
|
||||||||||
|
September 30, 2023 |
|
|
September 30, 2022 |
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
||||
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial cost |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
BARDA: |
|
|
|
|
|
|
|
|
|
|
|
||||
Product cost |
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Emergency preparedness service cost |
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
20
12. Commitments and 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 September 30, 2023 and December 31, 2022, 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 the Nasdaq Capital Market (“Nasdaq”) under the ticker code, “RCEL”.
The Company is authorized to issue
14. Stock-Based Payment Plans
Stock-Based Payment Expenses
Stock-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 Payment. The Company recorded stock-based compensation expense of $
The Company has included stock-based compensation expense for all equity awards and the ESPP as part of operating expenses in the accompanying Consolidated Statements of Operations as follows:
|
|
Three-Months Ended |
|
|
Nine-Months Ended |
|
||||||||||
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
||||
Sales and marketing expenses |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
General and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total operating expenses |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
A summary of share option activity as of September 30, 2023, and changes during the period ended is presented below:
|
Service Only Share Options |
|
|
Performance Based Share Options |
|
|
Total Share Options |
|
|||
Outstanding shares at December 31, 2022 |
|
|
|
|
|
|
|
|
|||
Granted |
|
|
|
|
- |
|
|
|
|
||
Exercised |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Expired |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Forfeited |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Outstanding shares at September 30, 2023 |
|
|
|
|
|
|
|
|
|||
Exercisable at September 30, 2023 |
|
|
|
|
|
|
|
|
|||
21
A summary of the status of the Company’s unvested RSUs as of September 30, 2023, and changes that occurred during the period is presented below:
Unvested Shares |
Tenure-Based RSUs |
|
|
Performance |
|
|
Total RSUs |
|
|||
Unvested RSUs outstanding at December 31, 2022 |
|
|
|
|
|
|
|
|
|||
Granted |
|
|
|
|
- |
|
|
|
|
||
Vested |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Forfeited |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Unvested RSUs outstanding at September 30, 2023 |
|
|
|
|
|
|
|
|
|||
Employee Stock Purchase Plan
In June 2023, the stockholders approved the AVITA Medical, Inc. Employee Stock Purchase Plan (the “ESPP”). The ESPP became effective on
As of September 30, 2023, the Company had $
15. Income Taxes
Tax expense for the three-months ended September 30, 2023 and 2022 was $
16. Net Loss per Share
The following is a reconciliation of the basic and diluted loss per share computations:
|
|
Three-Months Ended |
|
Nine-Months Ended |
|
||||||||
|
|
September 30, 2023 |
|
September 30, 2022 |
|
September 30, 2023 |
|
September 30, 2022 |
|
||||
(in thousands, except per share amounts) |
|
|
|
|
|
|
|
|
|
||||
Net loss |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||
Weighted-average common shares—outstanding, basic and diluted |
|
|
|
|
|
|
|
|
|
||||
Net loss per common share, basic and diluted |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
Three-Months Ended |
|
|
Nine-Months Ended |
|
||||||||||
|
September 30, 2023 |
|
|
September 30, 2022 |
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
||||
Anti-dilutive shares excluded from diluted net loss per common share: |
|
||||||||||||||
Stock options |
|
|
|
|
|
|
|
|
|
|
|
||||
Restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
22
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. In accordance with ASC 710-10, Compensation - General,
17. 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
Non-Qualified Deferred Compensation Plan
The Company’s NQDC plan, 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 and RSU awards to later years. Cash deferrals are immediately vested and are subject to investment risk, and a risk of forfeiture under certain circumstances. RSU deferrals are subject to the vesting conditions of the award. Once RSUs vest, subject to a six-month and one day holding period, employees are allowed to diversify the common stock into other investment options offered by the plan. For cash deferrals, the Company matches
The fair values of the Company’s deferred compensation plan assets and liability are included in the table below. For additional information on the fair value hierarchy and the inputs used to measure fair value, see Note 4, Fair Value Measurements.
|
|
Fair Value as of September, 2023 |
|
Fair Value as of December 31, 2022 |
|
||||||||||||||||||||
(in thousands) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
||||||||
Corporate-owned life insurance policies (1) |
|
$ |
- |
|
$ |
|
$ |
- |
|
$ |
|
$ |
- |
|
$ |
|
$ |
- |
|
$ |
|
||||
Non-qualified deferred compensation plan liability (2) |
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
||||
Rabbi Trust
During April 2022, the Company established a rabbi trust to hold the assets of the NQDC plan. The rabbi trust holds the COLI asset and the common stock from deferred RSU awards that have vested. The NQDC permits diversification of fully vested shares into other equity securities subject to a six-month and one day holding period. In accordance with ASR 268, Redeemable Preferred Stock, and ASC 718, Compensation — Stock Compensation, prior to vesting, the deferred share awards are classified as an equity instrument and changes in fair value of the amount owed to the participant are not recognized. The redemption amounts of the deferred awards are based on the vested percentage and are recorded outside of permanent equity as Non-qualified deferred
23
compensation share awards on the Consolidated Balance Sheets. As of September 30, 2023, a total of
The following table summarizes the eligible share award activity as of September 30, 2023 and December 31, 2022 (in thousands):
|
|
As of |
|
|||||
(in thousands) |
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||
Non-qualified deferred compensation share awards: |
|
|
|
|
|
|
||
Balance at inception/beginning of period |
|
$ |
|
|
$ |
- |
|
|
Change in classification of deferred compensation share awards |
|
|
- |
|
|
|
|
|
Stock-based compensation expense |
|
|
|
|
|
|
||
Change in redemption value |
|
|
|
|
|
|
||
Vesting of share awards held by NDQC |
|
|
( |
) |
|
|
( |
) |
Ending Balance |
|
$ |
|
|
$ |
|
||
18. 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, except as noted below.
Credit Agreement
On October 18, 2023 (the “Closing Date”), the Company entered into a Credit Agreement (the “Credit Agreement”), by and between the Company, as borrower, and an affiliate of OrbiMed Advisors, LLC, as the lender and administrative agent (the “Lender”). The Credit Agreement provides for a
On the Closing Date, the Company issued to an affiliate of the Lender a warrant (the “Warrant”) to purchase up to
Settlement and Release Agreement
The Company has entered into a settlement and release agreement (the “Agreement”) with former Company CEO Dr. Michael Perry. Under the terms of the Agreement, Dr. Perry will receive both wage and non-wage payments in consideration of a general release of claims in favor of the Company. Dr Perry was entitled to receive the majority of these payments under the terms of his executive employment agreement. The Agreement also contains a mutual non-disparagement agreement. The Company did not admit to any allegations under the terms of the Agreement.
24
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.
Please see “Special Statement Regarding Forward-Looking Statements” on page 3.
Overview
AVITA Medical, Inc. ("we", "our", "us") is a regenerative medicine company leading the development and commercialization of devices and autologous cellular therapies for skin restoration. Our patented and proprietary RECELL® System technology platform harnesses the regenerative properties of a patient’s own skin to create Spray-On Skin™Cells, an autologous skin cell suspension that is sprayed onto the patient to regenerate natural healthy skin.
Our objective is to become the leading provider of regenerative medicine addressing unmet medical needs in burn injuries, full-thickness skin defects, and in skin repigmentation, such as vitiligo. To achieve this objective, we plan to:
25
Business Environment and Current Trends
There remains significant uncertainty in the current macroeconomic environment due to factors including supply chain shortages, increased cost of healthcare, increased inflation rates, a competitive and tight labor market, and other related global economic conditions and geopolitical conditions. Additionally, there have been various economic indicators that the United States economy may be entering a recession in upcoming quarters. If these conditions continue or worsen, they could adversely impact our future operating results. An economic recession could potentially impact the general business environment and the capital markets, which may have a material negative impact on our financial results.
Changes in reimbursement rates by third party payors may place additional financial pressure on hospitals and the broader healthcare system. Healthcare institutions may take actions to mitigate any persistent pressures on their budgets and such actions could impact the future demand for our products. Geopolitical conditions may also impact our operations. Although we do not have operations in Russia or Ukraine, the continuation of the Russia-Ukraine military conflict and/or an escalation of the conflict beyond its current scope may further weaken the global economy and could result in additional inflationary pressures and supply chain constraints.
Recent Developments
On June 7, 2023, the FDA approved a PMA supplement for full-thickness skin defects based on results of our trial for soft tissue repair and reconstruction. Following this approval, we commenced a commercial launch on June 8, 2023.
On June 16, 2023, the FDA approved a PMA application for the repigmentation of stable depigmented vitiligo lesions. To support reimbursement, the Company is conducting a post-market clinical study which will evaluate repigmentation and seek to measure quality-of-life after treatment of stable vitiligo lesions and, initiating a separate health care economic study to capture the longitudinal health care cost of vitiligo patients. Following publication of these studies, the Company will begin discussions with commercial payors to establish reimbursement during the first quarter of 2025.
On June 29, 2023, we submitted a PMA supplement to the FDA for RECELL GO™. RECELL GO maintains the FDA Breakthrough Device designation from predecessor devices.
On September 29, 2023, we received notice from the FDA that additional information regarding the PMA is required for the continuation of a substantive review for RECELL GO. This request, which is not unique to the Breakthrough Device Program, placed the application file on hold while we address the FDA's questions. A category of questions posed by the FDA will require additional in-house testing. We have already made significant progress in developing the data plan for testing with some testing underway. Consequently, we expect to submit our complete response to the FDA no later than February 28, 2024. Upon the submission to the FDA, the application will reenter the 180-day cycle, with 90 days remaining in the review period. This timing would imply a product launch on May 31, 2024.
On October 18, 2023, the Company entered into a Credit Agreement with an affiliate of OrbiMed, as the lender and administrative agent (the “Lender”). The Credit Agreement provides for a five-year senior secured credit facility in an aggregate principal amount of up to $90.0 million. The Company drew $40.0 million on the closing date.
26
Results of Operations for the three-months ended September 30, 2023 compared to the three-months ended September 30, 2022.
The table below summarizes the results of our operations for each of the periods presented (in thousands).
|
|
Three-Months Ended |
|
|
$ |
|
|
% |
|
|||||||
Statement of Operations Data: |
|
September 30, 2023 |
|
|
September 30, 2022 |
|
|
Change |
|
|
Change |
|
||||
Revenues |
|
$ |
13,645 |
|
|
$ |
9,092 |
|
|
|
4,553 |
|
|
|
50 |
% |
Cost of sales |
|
|
(2,113 |
) |
|
|
(1,530 |
) |
|
|
(583 |
) |
|
|
(38 |
)% |
Gross profit |
|
|
11,532 |
|
|
|
7,562 |
|
|
|
3,970 |
|
|
|
52 |
% |
BARDA income |
|
|
212 |
|
|
|
904 |
|
|
|
(692 |
) |
|
|
(77 |
)% |
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sales and marketing expenses |
|
|
(10,532 |
) |
|
|
(5,411 |
) |
|
|
(5,121 |
) |
|
|
(95 |
)% |
General and administrative expenses |
|
|
(6,124 |
) |
|
|
(5,004 |
) |
|
|
(1,120 |
) |
|
|
(22 |
)% |
Research and development expenses |
|
|
(4,394 |
) |
|
|
(3,799 |
) |
|
|
(595 |
) |
|
|
(16 |
)% |
Total operating expenses |
|
|
(21,050 |
) |
|
|
(14,214 |
) |
|
|
(6,836 |
) |
|
|
(48 |
)% |
Operating loss |
|
|
(9,306 |
) |
|
|
(5,748 |
) |
|
|
(3,558 |
) |
|
|
(62 |
)% |
Interest expense |
|
|
(10 |
) |
|
|
(6 |
) |
|
|
(4 |
) |
|
|
(67 |
)% |
Other income |
|
|
615 |
|
|
|
170 |
|
|
|
445 |
|
|
|
262 |
% |
Loss before income taxes |
|
|
(8,701 |
) |
|
|
(5,584 |
) |
|
|
(3,117 |
) |
|
|
(56 |
)% |
Income tax expense |
|
|
(11 |
) |
|
|
(4 |
) |
|
|
(7 |
) |
|
|
(175 |
)% |
Net loss |
|
$ |
(8,712 |
) |
|
$ |
(5,588 |
) |
|
|
(3,124 |
) |
|
|
(56 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total net revenues increased by 50%, or $4.6 million, to $13.6 million, compared to $9.1 million in the corresponding period in the prior year. Our commercial revenue, which excludes BARDA revenue, was $13.5 million in the three-months ended September 30, 2023, an increase of $4.5 million, or 51%, compared to $9.0 million in the corresponding period in the prior year. The growth in commercial revenues was largely driven by deeper penetration within individual customer accounts along with the launch into Full Thickness Skin Defect ("FTSD").
Gross profit margin was 84.5% compared to 83.2% in the corresponding period in the prior year. The increase was largely driven by higher production associated with our increase in revenues and lower shipping costs.
BARDA income decreased by 77% or $0.7 million to $0.2 million, compared to $0.9 million in the corresponding period in the prior year due to reimbursable clinical trials winding down. 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.
Total operating expenses increased by 48% or $6.8 million to $21.1 million, compared with $14.2 million in the corresponding period in the prior year.
Sales and marketing expenses increased by 95%, or $5.1 million, to $10.5 million, compared to $5.4 million in the corresponding period in the prior year. Higher costs in the current year were primarily related to an increase in salaries and benefits, commissions and travel expenses. The increase in salaries and benefits is due to the preparation of the commercial launch of FTSD that occurred in June 2023. Higher commissions and travel costs were directly associated with the increase in revenues.
General and administrative expenses increased by 22%, or $1.1 million, to $6.1 million, compared to $5.0 million in the same period in the prior year. The increase was attributable to higher stock-based compensation, and salaries and benefits. Higher stock-based compensation in the current period is driven by the new grants in the current year.
Research and development expenses increased by 16%, or $0.6 million, to $4.4 million, compared to $3.8 million in the same period in the prior year. The increase is due to the deployment of a team of Medical Science Liaisons, for the FTSD launch in June 2023, and was partially offset by lower clinical trial expenses for vitiligo, FTSD and pediatrics as trial participants largely completed follow-up in 2022 reducing the associated expenditure in the current period.
27
Results of Operations for the nine-months ended September 30, 2023 compared to the nine-months ended September 30, 2022.
The table below summarizes the results of our operations for each of the periods presented (in thousands).
|
|
Nine-Months Ended |
|
|
$ |
|
|
% |
|
|||||||
Statement of Operations Data: |
|
September 30, 2023 |
|
|
September 30, 2022 |
|
|
Change |
|
|
Change |
|
||||
Revenues |
|
$ |
35,948 |
|
|
$ |
24,966 |
|
|
|
10,982 |
|
|
|
44 |
% |
Cost of sales |
|
|
(5,984 |
) |
|
|
(4,694 |
) |
|
|
(1,290 |
) |
|
|
(27 |
)% |
Gross profit |
|
|
29,964 |
|
|
|
20,272 |
|
|
|
9,692 |
|
|
|
48 |
% |
BARDA income |
|
|
1,369 |
|
|
|
2,189 |
|
|
|
(820 |
) |
|
|
(37 |
)% |
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sales and marketing expenses |
|
|
(27,075 |
) |
|
|
(15,571 |
) |
|
|
(11,504 |
) |
|
|
(74 |
)% |
General and administrative expenses |
|
|
(20,584 |
) |
|
|
(18,009 |
) |
|
|
(2,575 |
) |
|
|
(14 |
)% |
Research and development expenses |
|
|
(14,056 |
) |
|
|
(10,478 |
) |
|
|
(3,578 |
) |
|
|
(34 |
)% |
Total operating expenses |
|
|
(61,715 |
) |
|
|
(44,058 |
) |
|
|
(17,657 |
) |
|
|
(40 |
)% |
Operating loss |
|
|
(30,382 |
) |
|
|
(21,597 |
) |
|
|
(8,785 |
) |
|
|
(41 |
)% |
Interest expense |
|
|
(21 |
) |
|
|
(10 |
) |
|
|
(11 |
) |
|
|
(110 |
)% |
Other income |
|
|
2,141 |
|
|
|
307 |
|
|
|
1,834 |
|
|
|
597 |
% |
Loss before income taxes |
|
|
(28,262 |
) |
|
|
(21,300 |
) |
|
|
(6,962 |
) |
|
|
(33 |
)% |
Income tax expense |
|
|
(54 |
) |
|
|
(12 |
) |
|
|
(42 |
) |
|
|
(350 |
)% |
Net loss |
|
$ |
(28,316 |
) |
|
$ |
(21,312 |
) |
|
|
(7,004 |
) |
|
|
(33 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total net revenues increased by 44%, or $11.0 million, to $36.0 million, compared to $25.0 million in the corresponding period in the prior year. Our commercial revenue, which excludes BARDA revenue, was $35.7 million in the nine-months ended September 30, 2023, an increase of $11 million, or 45%, compared to $24.7 million in the corresponding period in the prior year. The growth in commercial revenues was largely driven by deeper penetration within individual customer accounts and the FTSD launch along with the commencement of commercial sales with our partner COSMOTEC in Japan.
Gross profit margin increased by 2% to 83.4% compared to 81.2% in the corresponding period in the prior year. The increase in gross profit margin is largely driven by higher production along with lower shipping costs.
BARDA income decreased 37% or $0.8 million to $1.4 million, compared to $2.2 million in the corresponding period in the prior year due to reimbursable clinical trials winding down.
Total operating expenses increased by 40% or $17.7 million to $61.7 million, compared with $44.1 million in the corresponding period in the prior year.
Sales and marketing expenses increased by 74%, or $11.5 million, to $27.1 million, compared to $15.6 million incurred in the corresponding period in the prior year. Higher costs in the current year were primarily attributed to higher salaries and benefits, commissions, recruitment fees and travel costs. The increase in salaries and benefits and recruitment fees are due to the preparation of the commercial launch of FTSD in June 2023. Higher commissions and travel costs were directly associated with the increase in revenues.
General and administrative expenses increased by 14%, or $2.6 million, to $20.6 million, compared to $18.0 million incurred in the same period in the prior year. The increase was attributable to deferred compensation expense, professional fees, and severance costs. The increase in deferred compensation expense is driven by our deferred compensation liability which generally tracks the movements in the stock market. Higher professional fees were primarily due to the timing of our annual general meeting in the current year. Severance costs in the current year were due to the termination of two former executive officers.
Research and development expenses increased by 34%, or $3.6 million, to $14.1 million, compared to $10.5 million incurred in the same period in the prior year. The increase is due to the development of the next generation RECELL GO for preparation of Spray-On Skin Cells, which resulted in a PMA submission in June 2023, and additional costs associated with the deployment of a team of Medical Science Liaisons, for the FTSD launch in June 2023. The increase was partially offset by lower clinical trial expenses for vitiligo, soft tissue and pediatrics as trial participants largely completed follow-up in 2022 reducing the associated expenditure in the current period.
28
Liquidity and Capital Resources
Overview
We expect to utilize cash reserves until U.S. sales of our products reach a level sufficient to fund ongoing operations. AVITA Medical 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. As of September 30, 2023, the Company had approximately $50.9 million in cash and cash equivalents and $9.3 million in marketable securities.
On October 18, 2023 (the “Closing Date”), the Company entered into a Credit Agreement (the “Credit Agreement”), by and between the Company, as borrower, and an affiliate of OrbiMed Advisors, LLC, as the lender and administrative agent (the “Lender”). The Credit Agreement provides for a five-year senior secured credit facility in an aggregate principal amount of up to $90.0 million (the “Loan Facility”), of which $40.0 million was borrowed on the Closing Date (the “Initial Commitment Amount”). In addition, an aggregate of $50.0 million will be made available in two separate $25.0 million tranches, at the Company’s discretion, subject to certain net revenue requirements. The first tranche of $25.0 million will be made available on or before December 31, 2024. The second tranche of $25.0 million will be made available on or prior to June 30, 2025, only if the first tranche was drawn upon. On the Closing Date, the Company closed on the Initial Commitment Amount, less certain fees and expenses payable to or on behalf of the Lender. The indebtedness under the Credit Agreement will be secured by substantially all of our assets and will accrue interest at a rate equal to the greater of (a) forward-looking one-month term SOFR rate and (b) four percent (4%) per annum, plus eight percent (8%). In the event that the Company does not meet certain twelve-month trailing revenue targets at the end of certain fiscal quarters, the outstanding balance of the loan must be repaid in equal quarterly installments of 5% of the funded amount through the maturity date. The Credit Agreement contains representations, warranties and covenants that are customary for this type of agreement.
On the Closing Date, the Company issued to an affiliate of the Lender a warrant (the “Warrant”) to purchase up to 409,661 shares of the Company’s common stock, at an exercise price of $10.9847 per share, with a term of 10 years from the issuance date. The Warrant contains customary share adjustment provisions, as well as weighted average price protection in certain circumstances.
As of the date of these financial statements, the Company believes it 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.
Financing Activities
On March 1, 2021, the Company completed an underwritten offering of its common stock for gross proceeds of approximately $69.1 million. AVITA Medical has benefited from cash inflows from the BARDA contract. We entered into the contract on September 29, 2015, and the scope has expanded through a number of amendments to the contract. The current contract period continues to December 31, 2023, with the option by BARDA to terminate earlier. The contract provided funding for the development of the RECELL System.
On April 14, 2023, the Company entered into a Sales Agreement with Cowen and Company, LLC pursuant to which the Company may sell from time-to-time up to 3,799,164 shares of its common stock (the “2023 ATM Program”). During the quarter ended September 30, 2023, the Company did not make any sales under the 2023 ATM Program.
On October 18, 2023, as discussed above, the Company closed a credit agreement with the Lender for an aggregate amount up to $90.0 million dollars. On the closing date of the agreement the Company drew $40.0 million dollars.
On October 18, 2023, as discussed above, the Company issued to an affiliate of the Lender a warrant to purchase up to 409,661 shares of the Company’s common stock, at an exercise price of $10.9847 per share, with a term of 10 years from the issuance date.
Given the above, we believe there is presently sufficient working capital to support our committed activities, our research and development programs and other activities over the next twelve months.
29
The following table summarizes our cash flows for the periods presented (in thousands):
|
|
|
|
|
|
|
||
|
|
Nine-Months Ended |
|
|||||
(In thousands) |
|
September 30, 2023 |
|
|
September 30, 2022 |
|
||
Net cash used in operations |
|
$ |
(27,148 |
) |
|
$ |
(15,654 |
) |
Net cash provided by/(used in) investing activities |
|
|
58,911 |
|
|
|
(16,174 |
) |
Net cash provided by financing activities |
|
|
942 |
|
|
|
1 |
|
Effect of foreign exchange rate on cash and cash equivalents |
|
|
(15 |
) |
|
|
(70 |
) |
Net increase/(decrease) in cash and cash equivalents |
|
|
32,690 |
|
|
|
(31,897 |
) |
Cash and cash equivalents at beginning of the period |
|
|
18,164 |
|
|
|
55,712 |
|
Cash and cash equivalents at end of the period |
|
|
50,854 |
|
|
|
23,815 |
|
Net cash used in operating activities was $27.1 million and $15.7 million during the nine-months ended September 30, 2023, and 2022, respectively. The increase in net cash used in operations was primarily due to higher operating costs and increased inventory build as part of the FTSD launch, partially offset by increased revenues.
Net cash provided by investing activities was $58.9 million and net cash used in investing was $16.2 million during the nine-months ended September 30, 2023 and 2022, respectively. The increase in cash provided by investing activities is primarily attributable to our maturities of marketable securities, whereas in the prior year we purchased marketable securities.
Net cash provided by financing activities was $0.9 million and $1 thousand during the nine-months ended September 30, 2023, and 2022, respectively. The increase in cash provided by financing activities is related to proceeds from the exercises of stock options.
Capital Management and Material Cash Requirements
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.
For the nine-months ended September 30, 2023, 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 or purchase commitments, except for lease obligations as of September 30, 2023. Refer to Note 6 of our Consolidated Financial Statements for further details on our lease obligations. In addition, 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. We have no committed plans to issue further shares on the market but will continue to assess market conditions.
Critical Accounting Estimates
There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in the Company’s Annual Report on Form 10-K for the year-ended December 31, 2022.
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 September 30, 2023, 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.
30
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 the SEC’s 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 third quarter of fiscal year 2023 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.
31
Part II - Other Information
Item 1. LEGAL PROCEEDINGS
We are not currently a party to any pending legal proceedings that we believe will have a material adverse effect on our business or financial condition. We may, however, be subject to various claims and legal actions arising in the ordinary course of business from time to time.
Item 1A. RISK FACTORS
In addition to the risk factors set forth below and the other information set forth in this report, you should carefully consider the factors discussed under Part I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the year-ended December 31, 2022 (the “2022 Annual Report”) and as updated in the Company’s subsequent Quarterly Reports on Form 10-Q. These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report. Except as disclosed below, there have been no material changes to the risk factors described in Part I, Item 1A, “Risk Factors,” included in our 2022 Annual Report.
The Company's cash, cash equivalents and marketable securities could be adversely affected by bank failures or other events affecting financial institutions and could adversely affect our liquidity and financial performance.
We regularly maintain domestic cash deposits in Federal Deposit Insurance Corporation (“FDIC”) insured banks, which exceed the FDIC insurance limits. We also maintain cash deposits in foreign banks where we operate, some of which are not insured or are only partially insured by the FDIC or other similar agencies. The failure or rumored failure of a bank, or events involving limited liquidity, defaults, non-performance, bankruptcy, receivership or other adverse developments in the financial or credit markets impacting financial institutions, may lead to disruptions in access to our bank deposits. These disruptions may adversely impact our liquidity and financial performance. There can be no assurance that our deposits in excess of the FDIC or other comparable insurance limits will be backstopped by the U.S. or applicable foreign government, or that any bank or financial institution with which we do business will be able to obtain needed liquidity from other banks, government institutions or by acquisition in the event of a failure or liquidity crisis. As such, those funds in bank deposit accounts in excess of the standard FDIC insurance limits are uninsured and subject to the risk of bank failure.
Currently, the Company has full access to all funds in deposit accounts or other money management arrangements. The failure of any bank in which the Company deposits its funds could reduce the amount of cash the Company has available for its operations or delay its ability to access such funds. In the event of such failure, the Company may experience delays or other issues in meeting its financial obligations, the Company’s ability to access its cash and cash equivalents may be threatened and could have a material adverse effect on the Company’s business and financial condition.
Future adverse developments with respect to specific financial institutions or the broader financial services industry may also lead to market-wide liquidity shortages.
Development and commercialization of our products require successful completion of the regulatory approval process and any delays or failures in obtaining regulatory approvals for improvements to or expanded indications for our current offerings, could prevent, delay or adversely impact commercialization of our products.
In the United States, as well as other jurisdictions, we have been and will be required to apply for and receive regulatory authorization before we can market our products. For instance, our RECELL System has been approved by the U.S. Food and Drug Administration and regulatory authorities in Australia, the EU and Japan for use in certain treatments of burns, acute wounds, scars and vitiligo. However, we will require additional clinical data or approvals from regulatory authorities within these countries to market the product for the treatment of other indications, and from any other jurisdictions in which we seek to market the product. This process can be time-consuming and complicated and may be unsuccessful or otherwise result in unanticipated delays or fail altogether. To secure marketing authorization, an applicant generally is required to submit an application that includes the data supporting preclinical and clinical safety and effectiveness as well as detailed information on the manufacturing and control of the product, proposed labeling and other additional information. Before marketing authorization is granted, regulatory authorities may require the inspection of the manufacturing facility or facilities and quality systems (including those of third parties) at which the product candidate is manufactured and tested, as well as potential audits of the non-clinical and clinical trial sites that generated the data cited in the marketing authorization application.
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We cannot predict whether any additional marketing authorizations will ultimately be granted or how long the applicable regulatory authority or agency will take to do so. Regulatory agencies, including the FDA, have substantial discretion in the approval process. In addition, the approval process and the requirements governing clinical trials vary from country to country. The policies of the FDA or other regulatory authorities may change, and additional government regulations may be enacted that could prevent, limit or delay the necessary approval of any products we may develop and commercialize. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or elsewhere. If we are slow or unable to adapt to new or changed requirements, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, and we may not achieve or sustain profitability.
Additionally, any future regulatory approvals that we receive may also contain requirements for costly post-marketing testing and surveillance to monitor the safety and effectiveness of the product. Once a product is approved, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export, and record keeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submission of safety and other post-marketing reports, registration, and continued compliance with good manufacturing practices for any clinical trials that we conduct post-approval.
Finally, per FDA regulations, changes made to products, specifications, or test data evaluation methodology would generally require communication with the FDA. There are several pathways for communicating with the FDA of such changes. As part of such review, the FDA may request additional information, at which time the product may become temporarily unavailable.
Certain of our products are dependent on specialized sources of supply potentially subject to disruption which could have a material, adverse impact on our business.
Due to the cost and regulatory requirements associated with qualifying multiple suppliers, in the prior year we single-sourced some of our material components. To the extent that any of these single sourced suppliers experienced disruptions in deliveries due to production, quality, or other issues, we were potentially subject to similar production delays or unfavorable cost increases. In the current quarter, we invested resources in obtaining additional suppliers for some of our key raw materials.
Servicing our debt requires a significant amount of cash and we are subject to a number of restrictive covenants relating to our indebtedness, which may restrict our business and financing activities.
Pursuant to the Credit Agreement that the Company entered with OrbiMed Advisors, LLC, we have incurred $40.0 million of indebtedness secured by substantially all of our assets, and have the ability to potentially incur an additional $50.0 million of indebtedness. This level of debt could have significant consequences on future operations, including increasing our vulnerability to adverse economic and industry conditions and limiting our flexibility in planning for, or reacting to, changes in our business and the markets in which we compete.
Our ability to make scheduled payments of interest depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt in cash and make necessary capital expenditures. In addition, if the Company’s net revenue does not equal or exceed a certain amount for upcoming fiscal periods as set forth in the Credit Agreement, then the Company will be required to repay in equal quarterly installments of five percent of the outstanding principal amount of its indebtedness along with a repayment fee and a prepayment fee.
If we are unable to generate sufficient cash flow to satisfy payment obligations under the Credit Agreement, we may be required to adopt one or more alternatives, such as obtaining additional equity capital on terms that may be onerous or highly dilutive. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.
The restrictions and covenants in the Credit Agreement may also prevent us from taking actions that we believe would be in the best interests of our business, and may make it difficult for us to successfully execute our business strategy or effectively compete with companies that are not similarly restricted. Our ability to comply with these covenants in future periods will largely depend on the success of our products, and our ability to successfully implement our overall business strategy. We cannot assure you that we will be granted waivers or amendments to restrictions and covenants in the agreements. The breach of any of these covenants and restrictions could result in a default under the Credit Agreement, which could result in an acceleration the repayment of our indebtedness.
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Our stock price may be volatile and purchasers of our securities could incur substantial losses.
Our stock price has been volatile. The market price for our common stock may be influenced by many factors, including the other risks described in our Annual Report on Form 10-K for the year ended December 31, 2022, subsequently filed Quarterly Reports on Form 10-Q, additional SEC filings we incorporate by reference herein and the following:
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In addition, the stock markets in general, and the markets for pharmaceutical, biopharmaceutical and biotechnology stocks in particular, have experienced extreme volatility that has often been unrelated to the operating performance of the issuer. Furthermore, the trading price of our common stock may be adversely affected by third parties trying to drive down the market price. Short sellers and others, some of whom post anonymously on social media, may be positioned to profit if our stock declines and their activities can negatively affect our stock price. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance.
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.
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Item 6. EXHIBITS
(a) The following exhibits are filed as part of the Quarterly Report on Form 10-Q:
Exhibit No. |
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Description |
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3.2 |
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3.3 |
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4.1 |
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10.1 |
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10.2 |
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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 |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document)
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† Management contract or compensation plan or arrangement
* Filed herewith
** Furnished herewith
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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.
Date: |
November 9, 2023 |
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AVITA MEDICAL, INC. |
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By: |
/s/ James Corbett |
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James Corbett |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
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By: |
/s/ David O'Toole |
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David O'Toole |
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Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
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Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James Corbett, certify that:
Date: November 9, 2023 |
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/s/ James Corbett |
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Name: |
James Corbett |
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Title: |
President and Chief Executive Officer |
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(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David O'Toole, certify that:
Date: November 9, 2023 |
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/s/ David O'Toole |
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Name: |
David O'Toole |
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Title: |
Chief Financial Officer (Principal Financial and Accounting Officer) |
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 September 30, 2023 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.
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Dated: November 9, 2023 |
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/s/ James Corbett
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Name: |
James Corbett |
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Title: |
President and Chief Executive Officer |
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(Principal Executive Officer) |
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Dated: November 9, 2023 |
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/s/ David O'Toole
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Name: |
David O'Toole |
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Title: |
Chief Financial Officer |
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(Principal Financial and Accounting 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.