# AVITA Medical, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [AVITA Medical, Inc.](/companies/rcel.md) (CIK 1762303)
- Form: 10-Q
- Filed: 2023-11-09
- Accepted by EDGAR: Nov 9, 2023, 16:07 ET
- Period: 2023-09-30
- Accession: 0000950170-23-062024
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1762303/000095017023062024/rcel-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1762303/000095017023062024/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $13.6m | us-gaap:Revenues |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $35.9m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $2.1m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $6.0m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $11.5m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $30.0m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $4.4m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $14.1m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$9.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$30.4m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $10.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $21.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $11.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $54.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$8.7m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$28.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.34 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $1.12 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.34 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $1.12 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 25,401,754 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 25,281,920 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$27.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $1.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $50.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $73.9m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $81.0m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $11.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $17.4m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $63.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 23,756 characters.

*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:

- Become the standard of care in the U.S. burns industry by increasing RECELL System penetration in burn centers and with burn physicians
- Continue to commercialize the RECELL System in the U.S. for treatment of full-thickness skin defects with both inpatient and outpatient reimbursement in place
- Expand our global presence within the European Union and Australia through the exclusive use of third-party distributors.
- Launch RECELL GO following FDA approval to increase market adoption, expand our customer base, and facilitate international commercialization
- Establish commercial payor coverage for the RECELL System in the U.S. for the treatment of vitiligo lesions, which we expect will begin during the third quarter of 2025
- Further invest in our RECELL System platform to automate and improve workflow, speed, and ease of use as it relates to specific indications, as well as to build upon our intellectual property estate
- Continue to build upon commercial activities in Japan through our partnership with COSMOTEC Company, Ltd with our current PMDA approval for RECELL with an indication in burns
- Develop and pursue viable commercial activities outside of the U.S. and Japan following the FDA approvals of the RECELL System for full-thickness skin defects and vitiligo
- Pursue business development opportunities that are complementary to our core RECELL System indications and/or our targeted markets
- Improve our margins and profitability by leveraging our current team and infrastructure across an expanding base of business in burns and in future indications

### 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.

**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).**

| Statement of Operations Data: | Three-Months Ended 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.

**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).**

| Statement of Operations Data: | Nine-Months Ended 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.

### 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 Agreemen**t”), 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.

The following table summarizes our cash flows for the periods presented (in thousands):

*(In thousands)*

|  | Nine-Months Ended 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.

## Controls and procedures

As filed, 1,508 characters.

### 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.

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.

## Risk factors

As filed, 13,886 characters.

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.

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.

***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:

- actual or expected fluctuations in our operating results;
- actual or expected changes in our growth rates or our competitors’ growth rates;
- results of clinical trials of our product candidates;
- results of clinical trials of our competitors’ products and announcements by competitors of related regulatory approvals;
- our ability to expand our sales organization to address effectively existing and new markets that we intend to target;
- regulatory actions with respect to our products or our competitors’ products;
- reports of one or more patient serious adverse events;
- publication of research reports by securities analysts about us or our competitors in the industry;
- our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may give to the market;
- the impact of inflation, interest rates and the war in Ukraine, as well as other global economic and social events on the capital markets and equity share prices;
- fluctuations of exchange rates between the U.S. dollar and the Australian dollar;
- issuances by us of debt or equity securities;
- litigation involving our company, including shareholder litigation;
- investigations or audits by regulators into the operations of our company;
- proceedings initiated by our competitors or clients;
- strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy;
- sales or perceived potential sales of the common stock or CDIs by us, our directors, senior management or our stockholders in the future;
- short selling or other market manipulation activities;
- announcement or expectation of additional financing efforts;
- terrorist acts, acts of war or periods of widespread civil unrest;
- natural disasters and other calamities;
- changes in market conditions for biopharmaceutical stocks;
- our inability to raise additional capital;
- changes in market prices for our product or for our raw materials;
- changes in market valuations of similar companies;
- changes in key personnel for us or our competitors;
- speculation in the press or investment community;
- changes or proposed changes in laws and regulations affecting our industry; and
- conditions in the financial markets in general or changes in general economic conditions, including inflationary pressures on the U.S. and global economy and rising interest rates.

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.

Filed Nov 9, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-062024. Last ingested by Listed: Nov 5, 2026, 18:04 ET. No prices; not investment advice.