Avita Medical Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 13, 2025

Key Takeaways

  • Transformation into multi‐product wound care leader: Expanded from single‐product ReCell to a portfolio including ReCell Go, ReCell Go Mini, Permoderm and CoHelix, boosting U.S. TAM from $500M to $3.5B and eyeing a CE mark mid‐year.
  • Strong revenue growth & guidance: Q4 revenues of $18.4M (+30% YoY) and FY24 revenues of $64M (+29%), with 2025 sales forecasted at $100–106M (+55–65%) and GAAP profitability targeted in Q4 2025.
  • Key product launches & regulatory milestones: ReCell Go Mini approved in December and rolling out in Q1, CoHelix FDA‐cleared with full commercial launch on April 1 under a consignment/RFID model, and Permoderm launched in April 2024.
  • Increased losses and operating expenses: Q4 net loss widened to $11.6M (vs. $7.1M prior) and FY24 net loss reached $61.8M, driven by expanded sales & marketing spend, though 2025 costs are expected to stabilize.
  • Cash position & debt covenant amendments: Ended Q4 with $35.9M in cash and securities, reduced quarterly cash burn to $8.5M, and secured lower revenue covenants on its OrbiMed facility to support runway into profitability.
AI Generated. May Contain Errors.
Earnings Conference Call
Avita Medical Q4 2024
00:00 / 00:00

Transcript Sections

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Operator

day and thank you for standing by. Welcome to the Avita Medical Fourth Quarter twenty twenty four Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your speaker today, Jessica Ekberg, Director of Investor Relations. Please go ahead.

Jessica Ekeberg
Jessica Ekeberg
Investor Relations Executive at AVITA Medical

Thank you, operator. Welcome to Avida Medical's fourth quarter and full year twenty twenty four earnings call. Joining me on today's call are Jim Corbett, Chief Executive Officer and David O'Toole, Chief Financial Officer. Today's earnings release and presentation are available on our website, www.avitamedical.com, under the Investor Relations section. Before we begin, I'd like to remind you that this call includes forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Jessica Ekeberg
Jessica Ekeberg
Investor Relations Executive at AVITA Medical

These statements are neither promises nor guarantees and involve known and unknown risks and uncertainties that could cause actual results to differ materially from any expectations expressed or implied by the forward looking statements. Please review our most recent filings with the SEC for comprehensive descriptions of the risk factors. Any forward looking statements provided during this call are based on management's expectations as of today. I will now turn the call over to Jim for his comments.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

Thank you, Jessica. Good afternoon to those in The U. S. And good morning to our Australian investors. Thank you for joining us today as we review a year of remarkable progress and complete transformation.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

Over the past year, we evolved from a single product company into a multi product leader in therapeutic acute wound care. This initiative began in 2023 as we launched our strategic growth plan and expanded our core business to treat trauma and surgical wounds under the full thickness skin defects indication. To support these efforts, we began building a scalable infrastructure, setting the stage for our first portfolio expansion. In January 2024, we announced Permioderm, the first addition to our multi product portfolio. By April 2024, we had launched it, marking a pivotal milestone in our transformation and aligning our portfolio with our mission.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

This mission shown on Slide three is a cornerstone of who we are and where we are headed. Let me explain its significance and how it is shaping our future success. Our mission is to position Aveda Medical as a leading therapeutic acute wound care company, delivering transformative solutions. Our technologies are designed to optimize wound healing, effectively accelerate the time to patient recovery. The words in this statement are meaningful.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

Let's break down what this means. Therapeutic means that our solutions are designed to actively heal and cure patients, not just be palliative forms of care. Acute defines the nature of our focus. We treat patients with event driven injuries, burns, traumatic or surgical wounds, not chronic wounds such as diabetic foot ulcers, venous leg ulcers or pressure sores. Simply put, our patients are victims of severe unexpected accidents or events like car crashes, industrial fires or traumatic burns.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

The common denominator is not their age, it's not their gender nor is it their ethnicity or rather the shared nature of their injuries. These injuries could be the result of a solo road incident, burns sustained from an industrial fire or worse, multiple injuries from a tragic event like the recent terror attack in New Orleans. Despite their diverse scenarios, these patients all have injuries due to traumatic events. Our mission to help patients heal faster not only reduces overall healthcare costs, but more importantly, helps patients return home to their loved ones more quickly. This underscores the power of our technologies and a driving force behind our expanded product portfolio.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

Please turn to Slide four to see the related markets that we serve as I explain how our product portfolio aligns with our mission. Let's start with our core product resell and review how it optimizes patient healing and accelerates patient recovery. First and foremost, what makes ReCell special is that it is skins bearing, allowing physicians to achieve closure using significantly less healthy donor skin, also known as autologous skin. Compared to traditional grafting techniques, resell expands the autologous sample eighty:one. Additionally, substantial clinical evidence demonstrates that patients treated with resell heal faster, experience less scarring and leave the hospital sooner.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

Resell GO, our next generation system combines the proven outcomes of Resell with enhanced features that simplify and streamline its use in both burn and trauma centers. The conversion to Resell Go is going very well. We've converted nearly all of our burn accounts and over 70% of our trauma center accounts for approximately 83% of our total unit volume. As a reminder, each of our standard Resell Go processing kits can treat up to nineteen twenty square centimeters, which is roughly 10% of total body surface area. However, most traumatic wounds are under four eighty square centimeters or about 2.5% total body surface area.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

This size difference created somewhat of a cognitive dissonance for the clinicians using a standard resell kit to treat a small wound, like using a sledgehammer to drive in a small nail. To address this, we redesigned ReCellGo Mini for wounds under four eighty square centimeters, filling a critical gap in our trauma care offering. As anticipated, we received approval for Resell GO! Mini on December 23. We are rolling out Resell GO!

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

Mini to burn in trauma centers that currently treat a significant volume of smaller wounds during Q1. Incidentally, ReCellGo Mini uses the same ReCellGo processing device as a standard ReCellGo processing kit. This innovation is a foundation of our portfolio, unlocking possibilities in therapeutic acute wound care with complementary solutions like CoHelix and Permuderm. Permuderm, a temporary biosynthetic dressing further strengthens our portfolio by supporting wound healing before and after grafting. It plays a role in helping clinicians heal patients faster, take patients home sooner and reduce hospital stays, thereby lowering overall cost of care.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

I want to take a moment to remind you about the unique qualities of Permuderm. First, it is porous, facilitating airflow to the wound, promote healing while enabling exudate drainage. Next, its porosity is flexible, which lets the clinicians adjust to moisture levels ensuring optimal healing conditions for each patient's unique wound needs. Finally, its transparent cover allows clinicians to monitor the skin to monitor the skin graft healing progress without disturbing it rather than lifting or removing the dressing, which can potentially disrupt the graft. Practitioners have a clear view of the progress making it uniquely effective.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

Taking our wound healing approach step further, our newly FDA cleared dermal matrix CoHelix represents a breakthrough and addressing the critical need for accelerated graft readiness. CoHelix is a collagen derived dermal matrix that we co developed with Regenity Biosciences. Our goal was clear, create a material that integrates into the wound bed and absorbs histologically, eliminating the need for removal before skin graft application and reducing the number of days to graft readiness. In a validated porcine model, our preclinical work demonstrated that when Cohelix is used as a dermal matrix on a large wound, it is ready for grafting in just seven days compared to twelve to twenty one days for alternative dermal matrices in the studies. This faster readiness translates directly to shorter hospital stays, reduced cost and better patient outcomes.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

In full thickness wounds, CoHelix provides a three d structure that supports tissue regrowth, the formation of new blood vessels and is eventually absorbed into the wound. To illustrate the significant benefits of faster healing, it's important to understand the complexities and challenges associated with treating full thickness wounds. By definition, a full thickness skin injury penetrates all layers of the skin, causing significant soft tissue loss and damage to the connective tissue structural integrity. Unlike a superficial knee abrasion where your own cells repopulate quickly and often heal overnight, whole fitness wounds lack the necessary healthy cells to rebuild the missing connective tissue. This leaves the wound open and at risk of severe infection and scarring, delayed timely surgery and delayed timely surgical intervention.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

For example, the standard of care is a two stage procedure. Let me describe it for you. If you were to clean the wound bed and immediately perform a split thickness skin graft to close the wound, the graft may not take due to insufficient connective tissue. Without first preparing the wound bed using a dermal metrics, there could be a loss of functionality or additionally an unsightly outcome resulting from the deep tissue loss and likely heavy scarring. This is why full thickness injuries require a structured two stage surgical approach to reconstruct the lost or damaged tissue.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

In cases of severe tissue loss such as a sharp bite or necrotizing bacterial infection, treatment may also involve excision of damaged tissue. Then the use of Cohelix to build a dermal base followed by split thickness skin graft closure and possibly an application of Permiderm to protect healing environment. It is important for us to develop human clinical data to support the launch of Cohelix. To accomplish this, we have initiated a post market clinical study known as Cohelyx one, which is currently pending IRB approval at multiple sites across The U. S.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

This study uses an objective performance criteria study design known as OPC to benchmark Cohelex performance against published data from alternative dermal matrices. We're measuring key outcomes over a twenty six week period, including days to graft readiness, days to closure and days to go home. We anticipate that this study will demonstrate accelerated seven day graft readiness and shorter overall time to wound closure compared to alternative dermal matrices further reinforcing the value of Cohelyx. Early patients have already been completed ahead of the formal enrollment of Cohelyx one. In fact, our first case has already shown promising results consistent with our preclinical findings.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

Let's turn to Slide number five to look at the highlights of this case. In mid January, a 67 year old woman sustained a third degree burn while cooking over her stove as shown in Image A. She was treated at the Ohio State Wexner Medical Center where she received an application of Cohelex as seen in image B. By day seven, as shown in image C, her wound was ready for grafting, consistent with our preclinical findings. Within a week and a half, she was discharged from the hospital.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

According to one of her clinicians, had she been treated with an alternative dermal matrix, her hospital stay would likely have extended to a month. This case highlights why as you can see on Slide six, the medical community has already started to recognize Cohelyx as a game changer in the treatment of acute wounds. According to our treating physician, not only does CoHelix reduce the amount of time a patient spends in the hospital, but he believes that it will allow physicians to treat more patients because of how easy it was to use in the Operating Room. Quite honestly, this outcome is a turning point for Avita Medical and a breakthrough in acute wound care, setting a new standard for treating and healing severe injuries while lowering the cost of care and shortening the time for patients to return home. Permioderm and Cohelix fit strategically within our portfolio as illustrated on Slide seven.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

By playing integral roles in the two stage standard of care for full thickness wounds by playing integral roles in the two stage standard of care for full thickness wounds. Consider a patient with a burn covering ten percent of their total body surface area. First, the procedure begins with a surgical excision of the burn. Next, Permaderm could be applied to temporize the wound bed, allowing the wound to improve for a short period of time. After clinicians have determined the wound bed is free from necrotic tissue and infection, Cohelix is applied to prepare the wound bed for grafting.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

Approximately seven days later, which is four to fourteen days faster than alternative dermal matrices, the wound graft is ready, meaning there is sufficient tissue regrowth to proceed to the second stage. The second stage begins with a split thickness meshed autograft combined with ReCell spray on skin cells placed over the newly generated tissue. As a reminder, ReCell supports definitive closure use significantly less hopefully skin compared to traditional autografting procedures. Remember that ReCell expands the autologous sample eighty:one. A layer of Permiderm is then applied over both the graft and the newly applied Brion skin cells and separately to the ReCell donor side to aid in the whole healing process of both wounds.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

This wound is continuously assessed to determine when the patient is ready to leave the hospital. This integrated approach improves clinical outcomes while significantly expanding Aveda Medical's market opportunity. Let's look at the total available market potential per patient. For a ten percent to twenty percent total body surface area wound, The average selling price for resell is $6,500 to $13,000 Permiderm adds $2,000 to $4,000 as addressing. When Cohelyx is applied to the same wound, it increases the potential average selling price between $20,000 to $40,000 In the aggregate, when all three products are used together, the potential average selling price ranges between $28,500 and $57,000 all the while providing substantial clinical and economic benefits by accelerating the time for the patient to return home.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

One last point, Cohelyx can also be used independently of resell as demonstrated in the Wexner Medical Center case discussed earlier, resulting in an additional increase of the total addressable market for Aveda Medical. On April 1, we will initiate the full commercial launch of CoHelix for large wounds using our consignment model with RFID tracking to simplify hospital adoption and inventory management. Our sales reps will use the RFID reader to track inventory for the hospital, our internal accounting and the FDA. We plan to price Cohelyx below current market leaders, further positioning it as a value driven solution. Competitive pricing coupled with a consignment model and a reduced time to graft are key benefits that we believe will help us progress through the value analysis committee process faster.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

With Cohelex, we add nearly $1,000,000,000 to our total addressable market or TAM just within the 120 plus burn centers on top of the approximate $500,000,000 TAM for resell and the 100,000,000 TAM for Permioderm in these same current centers. In trauma centers targeting full thickness wounds, Cohelix adds $1,350,000,000 in TAM, Permian derm contributes $135,000,000 in TAM and resell provides a potential of $1,500,000,000 in TAM. In the aggregate, Avida Medical now has a combined $3,500,000,000 TAM opportunity in The U. S. Alone.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

Let's take a moment and look backwards. Two years ago, our total TAM for RESET was $500,000,000 solely in burn centers. Just 18 ago, we received FDA approval for the full thickness indication, which dramatically expanded our TAM by allowing us to enter the trauma center market. In that time, we've gone from a $500,000,000 TAM in burns to a $3,500,000,000 TAM in burns and trauma centers. Looking ahead, our strategy is clear.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

Number one, expand ResellGo adoption. Number two, rollout ResellGo Mini during the first quarter focused on trauma centers. This will expand our trauma center market by approximately two hundred and seventy thousand full thickness acute wounds annually. To be clear, we will not be targeting chronic wounds or chronic wound centers. Number three, launch Cohelyx commercially.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

Number four, continue to roll out Permioderm. And finally, number five, we expect the notified body in the European Union to grant the CE mark for ResoCo by the middle of the year, opening up markets in Europe and Australia. We remain committed to generating free cash flow in the second half of the year and achieving GAAP profitability during Q4 of twenty twenty five. In summary, 2024 was a transformational year. Our expanded product portfolio, which now includes ReCell, ReCellGo, ReCellGo Mini, Permiderm and CoHelix has taken us from a $500,000,000 TAM, a single product focused solely on burn centers with $3,500,000,000 TAM and therapeutic acute wound care across both burns and trauma centers.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

I want to thank our team, customers and shareholders for their unwavering support as we continue to revolutionize the standard of care and therapeutic acute wound treatment. With that, I'll turn the call over to David for a closer look at our financial results and guidance. David?

David OÂ’Toole
David OÂ’Toole
Chief Financial Officer at AVITA Medical

Thank you, Jim. For the three months ended 12/31/2024, our commercial revenue was $18,400,000 representing a 30% increase compared to the same period in 2023. This growth was driven primarily by the continued deployment and adoption of Resil Go in our existing burn centers as well as new accounts in trauma centers. As we look forward to 2025, we expect ResellGo Mini and CoHelix to contribute substantially to our revenue growth following their launches in February and April respectively, with Permioderm's revenue also gaining momentum throughout the year. As expected, our gross profit margin for the fourth quarter improved to 87.6 recovering from the temporary decline last quarter and slightly increasing from 87.3% in the same period of 2023.

David OÂ’Toole
David OÂ’Toole
Chief Financial Officer at AVITA Medical

As I indicated during our third quarter conference call, Q3 operating expenses were elevated in that quarter due to one time non reoccurring expenses. In line with this previous statement, our Q4 operating expenses totaled $26,100,000 a $4,100,000 decrease from the Q3 total of $30,200,000 dollars We have no plans to increase our headcount or other operating expenses in 2025. As such, Q4 total operating expenses should be a consistent baseline for each quarter in 2025. Also note that the total operating expenses of $26,100,000 in the fourth quarter include non cash expenses of approximately $2,800,000 of stock based compensation expense and approximately $400,000 of depreciation and amortization. Q4 twenty twenty four operating expenses increased by $1,400,000 compared to the same period in 2023.

David OÂ’Toole
David OÂ’Toole
Chief Financial Officer at AVITA Medical

This increase was primarily due to $3,900,000 rise in sales and marketing expenses stemming from employee related costs within the expanded commercial sales organization. G and A expenses decreased by $600,000 due to lower salaries and benefits as well as reduced professional fees. Similarly, R and D expenses declined by $1,900,000 reflecting lower outside professional fees due to the completion of the Vitiligo TONE study. Other income expense shifted from $6,300,000 in income in the same period in the prior year to an expense of $300,000 in the current quarter. The 6,600,000 decrease primarily resulted from a one time non cash gain of $9,400,000 from the wind down of our foreign subsidiaries, offset by the change in fair value of the warrant liability.

David OÂ’Toole
David OÂ’Toole
Chief Financial Officer at AVITA Medical

For the fourth quarter, other income expense consisted of a non cash charge of $700,000 related to the change in fair value of the warrant liability, offset by $400,000 in investment income. Briefly, I'd like to address the guidance announcement made on January 7. We have gained a better understanding of the year end purchasing pattern among our key customers. At the end of Q4, several top accounts strategically chose not to finalize pending purchase orders due to year end cash preservation strategies, leading to an approximately $3,000,000 to $4,000,000 revenue shortfall. Importantly, these deferred purchases were due to timing decisions, not a lack of demand or commercial operational issues on our part.

David OÂ’Toole
David OÂ’Toole
Chief Financial Officer at AVITA Medical

During January, we experienced normal purchasing activities, which should result in renewed strong first quarter revenue growth. Moving on to the full year results. For the full year ended 12/31/2024, our commercial revenue increased 29% to $64,000,000 compared to $49,800,000 in 2023. It was disappointing to have the revenue miss in the fourth quarter. But as you can see from the slide, we do not want to lose sight of the fact that we have had significant year over year revenue growth for the last five years.

David OÂ’Toole
David OÂ’Toole
Chief Financial Officer at AVITA Medical

The 29% growth in 2024 was driven by the ResellGo transition, deeper penetration within existing accounts and new account growth targeting trauma centers. The gross margin for the full year was 85.8%, meeting the higher end of our previously given guidance of 85% to 86% and up 130 basis points from 84.5% in 2023. Total operating expenses were $111,800,000 compared to $86,400,000 in 2023. The increase is primarily attributable to $20,900,000 in higher sales and marketing expenses, reflecting employee related costs from our commercial teams expansion. G and A expenses rose by 4,900,000 due to increased headcount along with higher salaries and benefits and stock based compensation.

David OÂ’Toole
David OÂ’Toole
Chief Financial Officer at AVITA Medical

R and D costs declined by $500,000 primarily due to reduced professional fees, partially offset by higher employee related compensation costs within our medical science liaison team. Other income expense for the year decreased by $8,300,000 moving from $8,500,000 in income in the prior year to income of $200,000 in 2024. This change primarily resulted from a one time non cash gain of $9,400,000 in 2023 from the wind down of certain of our foreign subsidiaries, offset by a change in the fair value of the warrant liability. Interest expense increased by $4,200,000 year over year, attributable to the long term debt of $40,000,000 under the OrbiMed credit agreement. Net loss for the fourth quarter was $11,600,000 or a loss of $0.44 per basic and diluted share compared to a net loss of $7,100,000 or a loss of $0.28 per basic and diluted share in the same period in 2023.

David OÂ’Toole
David OÂ’Toole
Chief Financial Officer at AVITA Medical

Net loss for the full year 2024 was $61,800,000 or a loss of $2.39 per share compared to a net loss of $35,400,000 or a loss of $1.4 per share in the prior year. As of December 31, we had $35,900,000 in cash and marketable securities. As reported last quarter, we utilized $9,700,000 in cash during Q3. We continued this downward trend further reducing our use of cash to $8,500,000 in the fourth quarter. This reduction was achieved despite an increase in accounts receivable, which rose by $4,100,000 to a total of $11,800,000 as of 12/31/2024, compared to $7,700,000 as of 12/31/2023.

David OÂ’Toole
David OÂ’Toole
Chief Financial Officer at AVITA Medical

Note that our days sales outstanding or DSO did not increase. As we move towards generating free cash flow in the second half of twenty twenty five, we anticipate that our use of cash will continue to decline over the next three quarters. In connection with our debt facility with OrbiMed, we executed an amendment today to lower the trailing twelve month revenue covenant for quarters ending 03/31/2025 through 03/31/2026. The twelve month trailing covenant of $115,000,000 for quarters ending after 03/31/2026 remains unchanged. Looking ahead for the full year 2025, we expect commercial revenue to be in the range of $100,000,000 to $106,000,000 representing growth of 55% to 65% compared to 2024.

David OÂ’Toole
David OÂ’Toole
Chief Financial Officer at AVITA Medical

Additionally, we expect to generate free cash flow in the second half of this year and achieve GAAP profitability during Q4 of twenty twenty five. As previously stated, we do not foresee any further expansion of our commercial organization over the next eighteen to twenty four months. This revenue guidance and financial projections are consistent with our announcement made on January 7. We remain confident in the success of ResellGo, the April 1 full commercial launch of Cohelex and the rollout of ResellGo Mini, combined with the growing adoption of Permioderm. These strategic efforts position us to deliver strong results this year and drive significant shareholder value.

David OÂ’Toole
David OÂ’Toole
Chief Financial Officer at AVITA Medical

With that, I will turn the call back to the operator for your questions.

Operator

Thank

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

And

Operator

our first question comes from Matthew O'Brien with Piper Sandler. Your line is open.

Analyst

Hey, this is Phil on for Matt. Thanks for taking our questions. For starters, I guess just on the cadence of the guidance, would you expect similar sequential growth each quarter or might it be a little bit more back half weighted given the contributions from Cohelex and maybe some timing of VAX?

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

Yes. Well, now we have a little bit more complex of multi product rollouts will create some complexity and you're answering your questions. So let me try and do it simply. Consecutively from Q4, you should expect we'll be up notably in Q1. By that time, we'll be in full launch with RYSEL GO MINI and Permioderm is now additionally gaining a lot of momentum.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

So Q2 should then also be up sequentially. And yes, you're right that Cohelex has such big revenue impact in the back half, it could have a very significant effect. But I see us having a consecutive quarter cadence increasing over prior quarter with so to speak, we have plenty of gunpowder here and a lot to execute, but plenty to keep our revenue line driving. So I would expect that cadence to be rather strong during the year.

Analyst

That's helpful. And I guess just sticking with guidance and trying to dive down a little deeper as for what's assumed in the growth of the three product categories. I think in your prepared remarks, the guidance assumed somewhat significant contribution from Cohelex. I was hoping if you could provide a little bit more color on what that might entail as far as market share gains pretty quickly in the second half of twenty twenty five, maybe attachment rates to Cohelyx on current resell procedures, that sort of thing, just to get us a little bit more comfortable with that second half?

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

Yes. We're not going to break out, I think by product at this point today, but I'll give you a way to think about it. That when I gave you the breakout of what the TAM is per case, we do if you recall the the resale contribution, the Permaderm contribution, the potential Cohelic contribution. If you just looked at burns, for example, we treat about one thousand burn cases a month in the last quarter or two, right, at about that rate, it's growing. And those averaged in excess of 10% of total body surface area. So if you try to figure out how it's kind of an equation we don't know the answer to, which is how quickly we get through VAC. But as soon as you do, the revenue upside is considerable. So we'll get some experience about that.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

We've taken a very careful approach with limited market release here in Q1, where we're doing cases that where what we're doing is gathering clinical data because it's post approval. Then we're in the process of enrolling Cohelyx one, which by virtue of the very significant difference we're proving, right? Seven days to graph versus in some cases 20. You don't need a big number of patients to prove that statistically. In fact, it's approximately 40 patients to achieve full enrollment.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

So that will give us a lot of support in the first by the end of the first half. Thank you. You might think about that.

Analyst

Thanks so much.

Operator

Thank you. Our next question comes from Ross Osborne of Cantor Fitzgerald. Your line is open.

Matthew Park
Equity Research Associate at Cantor Fitzgerald

Hey, guys. This is Matthew Park on for Ross today. Thanks for taking the questions. I guess starting with Mini. Hi, how's it going?

Matthew Park
Equity Research Associate at Cantor Fitzgerald

As you continue to rollout Mini, are there any trends in adoption or feedback that stand out that kind of give you confidence once you go into this full commercial launch?

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

Well, actually, what's good about Mini is it's used in the same RPD, the same processing device. It's actually the cassette design is exactly the same from a manufacturing point of view. The three wells that you put scan and buffer and enzyme in are just smaller. And so it's very easy to use. And this concept where a doctor would feel like, wow, I'm using a 10% total body surface area treatment to treat a less than 2.5% total body surface area problem that seems wasteful.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

That's how they felt when we did the market research on it. So actually the vast majority of those 270,000 surgical and trauma wounds are under that four eighty square centimeters at two point five percent. So we're quite optimistic. It's been just less about just a month. So it's a little bit early for trends, but we of course don't have they've already got the resell processing device.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

So it's a rather easy additional choice for them. So we're quite optimistic about it.

Matthew Park
Equity Research Associate at Cantor Fitzgerald

Got it. That makes sense. And then just one more from me. Do you mind reminding us again what drove the high gross margin in the quarter? And I guess how we should think about the general cadence of gross margin in 2025?

David OÂ’Toole
David OÂ’Toole
Chief Financial Officer at AVITA Medical

Yes, this is David. Thanks for the question. As far as the gross margin for the quarter was over 87%. We believe that our gross margin for resell products will stay in that range, 85% to 87%. Overall gross margin is going to go down because of the distribution arrangements we have for CoHelix and Permeader, which we share gross margin on that basically fifty-fifty.

David OÂ’Toole
David OÂ’Toole
Chief Financial Officer at AVITA Medical

So as those products become more significant in our portfolio and our revenue mix, our gross margin overall is going to go down. But as I've said and as you probably know that profit margin all drops to the bottom line because there is no additional cost due to generate that revenue. So our overall gross margin may have a small decrease, But we're still going to be in a better position from an operating profit margin basis.

Matthew Park
Equity Research Associate at Cantor Fitzgerald

Got it. That makes sense. Thanks for taking the questions guys.

Operator

Thank you. Our next question comes from Ryan Zimmerman of BTIG. Your line is open.

Ryan Zimmerman
Managing Director & Medical Technology Analyst at BTIG

Good afternoon. Can you hear me okay?

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

Hear you well, Ryan. How are you doing?

Ryan Zimmerman
Managing Director & Medical Technology Analyst at BTIG

Good, good. Thanks for taking the question. A couple of questions for me guys. So first, Jim, I appreciate you're not breaking out guidance by product. How much of international sales is contemplated in the guidance? And when do you expect potentially clearance in Europe?

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

Yes, it's a great question. It's modest, Ryan. And the reason it's modest is we just we've been through the substantive review with the notified body. And as a fact, they are let me see exactly they had committed to us approval in October. So we're now in February and we don't have it yet.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

So we don't have any technical challenges, but we have an unpredictable process. So that's representative of our mid year expectation. Yet there's no more submission materials to be reviewed or submitted at this time. So it is modest.

Ryan Zimmerman
Managing Director & Medical Technology Analyst at BTIG

Okay. And then the inventory that was in the channel in the fourth quarter, Jim, a couple of questions on that. So one, how much of that was resell? How much of that was Permioderm? And was all of that worked down in the fourth quarter?

Ryan Zimmerman
Managing Director & Medical Technology Analyst at BTIG

Because David, to your comments that you expect the sales to pick up in the first quarter. Is there I guess I'm just wondering why there isn't inventory to be worked down in the first quarter necessarily from what was in the channel kind of late in December?

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

Yes. So a couple of comments. The majority of inventory for us resell I mean the PermodyDerm is still a small part of our inventory. I mean or excuse me, our sales fundamentally. We have inventory on the balance sheet.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

And what's different in the Permodyderm is the really rather large increase in evaluation. So we're getting the traction. It took us a little while to basically develop the clinical support materials that are necessary because it was not on the market really before even though it had been test launched, I guess, by Milligan before. With respect to your question, keep in mind, all of our customers have inventory on the shelf because of the nature of our business, right. We're therapeutic acute wound business, right.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

So when the patient shows up, they have to have it. So we are not having any signs that would suggest that there's inventory to work off to make our revenue successful in Q1. So I don't think that's going to be a big that's not showing as a challenge to us at the moment.

Ryan Zimmerman
Managing Director & Medical Technology Analyst at BTIG

Okay. Last one for me, just want to sneak one in. No, that's helpful, Jim. I mean, the last one for me, David, there's a little lease revenue this quarter. And so I'm just wondering if you expect that to be a bigger trend in the placement of systems over time, as you think about your guidance, the $103,000,000

David OÂ’Toole
David OÂ’Toole
Chief Financial Officer at AVITA Medical

Yes. So the lease revenue is just a portion of the overall resell sale of the RPKs and RPD our RPKs. We, as you may remember, provided our hospitals and facilities with the RPD, the processing unit at no cost. And for accounting purposes, and this is only for accounting, we have to allocate a portion of the revenue from the sale of the RPKs, the actual disposable kits between revenue and lease revenue. And that's what that is.

David OÂ’Toole
David OÂ’Toole
Chief Financial Officer at AVITA Medical

It really isn't lease revenue. It's an accounting treatment that is required.

Ryan Zimmerman
Managing Director & Medical Technology Analyst at BTIG

Okay. That's very clear.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

Right. It might even be very helpful to it really it's almost worth thinking about it as the amortization methodology for the cost of the RPD.

Ryan Zimmerman
Managing Director & Medical Technology Analyst at BTIG

No, so that's what I was trying to understand because I just was wondering if potentially the model is changing in terms of how you're placing systems necessary. That's what I was trying to understand. Yes, yes. Okay.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

Yes, yes, we're not.

Ryan Zimmerman
Managing Director & Medical Technology Analyst at BTIG

Thank you.

Operator

Thank you. Our next question comes from Brooks O'Neil of Lake Street Capital Markets. Your line is open.

Brooks O'Neil
Senior Research Analyst at Lake Street Capital Markets, LLC

Thank you. Good evening. So I have not had a chance to read the eight K related to the OrbiMed renegotiated credit agreement. But in the prior one, there was some question about the quarterly covenant that I considered it a giant deal to have to begin repaying that debt. But can you just give us a sense for how much of a cushion you've gotten in, for example, Q1, Q2 and Q3, as you look toward the end of this year?

David OÂ’Toole
David OÂ’Toole
Chief Financial Officer at AVITA Medical

Yes. Brooks, thanks for the question. All of the details are in the eight K, but I'll give you the details for these first two quarters. Sure. The revenue is on a trailing twelve month.

David OÂ’Toole
David OÂ’Toole
Chief Financial Officer at AVITA Medical

And for the first quarter, it is now $73,000,000 down from $75,000,000 for the last twelve months. For Q2, it's now $78,000,000 down from $90,000,000 dollars

David OÂ’Toole
David OÂ’Toole
Chief Financial Officer at AVITA Medical

There was a significant decrease, doesn't give any indication that that's what we think our revenue is going to be. It just gives, as you said, a little bit of cushion so that we don't have to repay the debt.

Brooks O'Neil
Senior Research Analyst at Lake Street Capital Markets, LLC

Right. And I'm guessing, but again, I haven't read it that the terms are substantially the same or has it been a big change in terms of the what happens if you happen to break the covenants under the new agreement?

David OÂ’Toole
David OÂ’Toole
Chief Financial Officer at AVITA Medical

The terms remain the same.

Brooks O'Neil
Senior Research Analyst at Lake Street Capital Markets, LLC

Terms the same, great. Okay. And then the second thing I was curious about is, it's my sense that with Cohelex, you've got the initial approval based not so much on human clinical evidence, but animal work. And I'm curious, you mentioned Jim mentioned the what sounded like tremendous success at, I think, Ohio State. But can you just give us some color on whether you're beginning to amass sufficient clinical evidence with humans to support the notion that Cohelex can be a material contributor to your revenues in the back part of 2025?

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

Yes, Brooks, I can. So we received approval for that dermal matrix consistent with the market in terms of how you get what the FDA requirements are. They're pretty clear. Now the work we did in the validated porcine model, that's quite a scientific project and we did it 18 times. So we've looked at a lot of different materials and we were looking for very precise qualities of histological absorption yet providing the matrix structure for in growth of blood vessels and yet have it go away, so they don't have to remove it, all those kinds of factors.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

And it has a lot to do with how you sterilize it and how you process the denatured collagen. So when we applied our preclinical data, we probably showed it to at least 50 physicians at this point. We haven't met one yet. We didn't want to try it. Okay.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

So that's a kind of a piece of information, right. We've done a number of cases because of course it's approved that are not in the study. And so far all of them have remarked how well it handles intra procedure and it is producing the clinical outcome in the short run. We had not all of them have reached the seven days because we only have done this recently, ready to graft, but none have taken longer at this point. So we really feel good about and those are on humans.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

So we plan on having 20 sites to enroll those 40 patients. So we expect that we'll be able to do a couple of things that is that are by design. And let me share them with you. So on one hand, it's a study with an IRB, it's under controlled follow-up. On another, it's a post market study.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

So in the agreement, during the course of the study, let's imagine that A site has five patients enrolled. That physician can share that data with us or on the podium or in an abstract during the period of the study. So we don't have to wait until the study fully enrolls and becomes published in its aggregate sometime late in the year, rather we will be able to use that data as it's developed. And that was very intentional as part of the study design. So in any event, that's I think we're going to have the data by April 1 that supports a strong launch at that time.

Brooks O'Neil
Senior Research Analyst at Lake Street Capital Markets, LLC

Great. I guess I'll just finish by saying, I'm amazed at how much you guys have accomplished. Congratulations and keep it up.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

Thanks, Brooks. Thank you, sir.

Operator

Thank you. Our next question comes from Joshua Jennings of TD Cowen. Your line is open.

Joshua Jennings
Managing Director at TD Cowen

Hi, good afternoon. Thanks for taking the questions and echo Brooks comments on congratulations on the progress. I'm hoping to follow-up on Brooks' question as well just on adoption pace of Cohealyx. And I think in Cohealyx, twenty minutes as you're going to be running a cost effectiveness study within, and I think cost effectiveness for resell and burns was a big driver of adoption utilization. Exciting the first case at Ohio State that the patient was discharged within ten days when surgeons expectations for her, the severity of her wound would have been closer to 30.

Joshua Jennings
Managing Director at TD Cowen

I mean, how big of a driver do you guys anticipate that length of stay reduction and cost effectiveness to be over time for Cochulics adoption utilization?

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

Josh, we think it's going to be a very large deal and it very well fits with the resell theme. As you know, there's a lot of data out there that demonstrate that patients treated with resell exit the hospital thirty percent sooner. And Cohelex fits that theme. And when we work to get cost justification for resell, that is a very important matter for hospitals these days and it should be. And so very important matter for the treating physicians and the patients they treat.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

So this seven days we think is going to be very determinant and giving us some leverage in terms of adoption. And by the way, the study contemplates inclusion with CoHelix alone or CoHelix with resell. So it won't it'll have both enrolled. So it's really looking at standard of care.

Joshua Jennings
Managing Director at TD Cowen

Great. And then just thinking about the COLLEX-one forty patients enrolled and just the VAC process, I mean, is that enough? I'm assuming your expectation is that that COLLEX-one will be enough for most VAX to get over the hump and give a positive decision? Or how do you see that playing out? Thanks for taking the questions.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

Josh, I think in the near term, what will be important will be the following. They will want to see the preclinical data in the VAC because it's in published publication now. They want to see the case studies that we have done in real time. Third, they will want to have us be at a price point that saves them money. Four, they will want to not have to buy the inventory and they will appreciate the consignment RFID system that we're going to market with.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

I think all of those will contribute to a faster back time.

Joshua Jennings
Managing Director at TD Cowen

Excellent. Thanks, Jim.

Operator

Thank you. That concludes our question and answer session. At this time, I would like to turn it back to Jim Corbett for closing remarks.

James Corbett
James Corbett
CEO, President & Executive Director at AVITA Medical

Thank you, operator. And thanks to all of you for calling in and listening. We are really excited about the transformation of our company, Avita Medical into a therapeutic acute wound care company. We have a lot of excitement for the year ahead. I'm looking forward to sharing it with you. Thank you.

Operator

This concludes today's conference call. Thank you for participating and you may now disconnect.

Analysts
    • Jessica Ekeberg
      Investor Relations Executive at AVITA Medical
    • James Corbett
      CEO, President & Executive Director at AVITA Medical
    • David OÂ’Toole
      Chief Financial Officer at AVITA Medical
    • Analyst
    • Matthew Park
      Equity Research Associate at Cantor Fitzgerald
    • Ryan Zimmerman
      Managing Director & Medical Technology Analyst at BTIG
    • Brooks O'Neil
      Senior Research Analyst at Lake Street Capital Markets, LLC
    • Joshua Jennings
      Managing Director at TD Cowen
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