My Top Stock to Buy in August Is This Small-Cap Biotech

My Top Stock to Buy in August Is This Small-Cap Biotech ...

The way that treatment for serious burns has changed little in decades. Surgeons often resort to a skin graft when a large patch of skin is injured or missing.

A skin graft is a device that looks like an apple peeler, which takes a healthy patch of skin from a patient's body and places it onto the injured area.

That leaves an individual with two large wounds that are at danger of infection, scarring, and lengthy healing times. It's far from an ideal therapy.

Get Avita Medical Inc. Reportwants to replace this outdated system with a simpler, more cost-effective procedure. It's well on its way, considering that more than 87% of U.S. burn surgeons are trained to use the company's revolutionary device and over 80% of U.S. burn clinics have ordered it.

The aim of the Valencia, Calif., company extends beyond burns. Over its technology platformAvita Medical intends to treat traumatic skin injuries, skin diseases such as vitiligo, and even age.

In the second half of 2022, investors are expecting data from two clinical studies. This small-cap biotech company is my top pick for buying in August 2022.

What Does Avita Medical Do?

Avita Medical has developed a spray-on skin technique powered by a medical device called ReCell. The method takes only a small patch of healthy skin from a patient, breaks it into individual cells, and then sprays the skin cells onto the patient's wound.

This allows for up to 80 times expansion, so a healthy patch of skin the size of a credit card might be used to treat a second-degree burn on an adult patient's entire back.

The development of the burns product was funded by the United States government and is now being kept in the country's strategic national stockpile in the event of a major natural catastrophe or terrorist attack.

ReCell received the first new marketing authorization for burns in over 20 years in 2018, according to the US Food and Drug Administration.

The product has taken time to commercialize due primarily to the relatively small size of the burn market in the United States, and the complex nature of regulatory approvals. For example, the product has been used only for certain types of burns to date. That might soon change.

Avita Medical received broad Medicare approval in 2021, allowing ReCell to treat burns of any size in adults and children. More important, the company received a new payment code that might allow the procedure to be used in other healthcare settings, such as hospitals.

Get Premier Inc. Reportthat could provide over 4,400 hospitals and 225,000 medical treatment centers with access to spray-on skin cells.

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The Medicare payment code and distribution arrangement with Premier will help tap into the almost $260 million serviceable addressable market opportunity treating burns in the United States. (SAM is the entire addressable market opportunity that can be realistically realized.)

Avita Medical anticipates to generate $30 million in revenue in 2022. That may increase rapidly if ReCell receives regulatory approval beyond burns in 2023.

Is Data Readouts a Strategy for Growth?

In the second half of 2022, Avita Medical expects to disclose data from two clinical studies.

Management anticipates to submit regulatory applications for each indication before the end of 2022, which might lead to FDA approvals by the end of 2023.

Although clinical studies are often accompanied by uncertainty, ReCell has a relatively high probability of success. This is due to the fact that the medication has already received international accreditation for burns, soft-tissue injuries, vitiligo, and chronic wounds. To date, the ReCell procedure has treated more than 15,000 individuals across all indications.

The clinical trials are not a slam dunk. The small vitiligo study, which is likely to yield mixed results in the eyes of regulators, puts the clinical study at risk of being redone for years.

The business is facing a number of tailwinds as a result.

Avita Medical intends to expand into Japan shortly through a commercial partner.

Avita recently received FDA approval for a second-generation medical device that's simpler to use, government sponsorship for its clinical study in soft-tissue injury, and can piggyback on Incyte's (INCY) recent FDA approval - Get Incyte Corporation ReportOpzelura in vitiligo to a larger market opportunity for ReCell.

Growth Investors Have a Hidden Gem

Avita Medical has been harmed by the biotech downturn. Then again, few stocks have been spared. However, Wall Street may be overlooking an attractive opportunity.

In a best-case scenario, the business has a relatively easy road to generating as much as $50 million in revenue in 2023.

If all goes well, the business may be self-sufficient by the middle of the decade, thanks to an 80 percent gross margin and low overhead costs.

This is my top stock to buy in August 2022 due to its low valuation risk, excellent value-creating products, and outstanding growth prospects in the next three years.

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