The standard of care for serious burns hasn't changed much in decades. When a large patch of skin is injured or missing, surgeons often turn to a skin graft.
A skin graft involves taking a device that looks like an apple peeler, taking a healthy patch of skin off a patient's body and putting it onto the injured area.
That leaves an individual with two large wounds that are at risk of infection, scarring, and lengthy healing times. It's far from an ideal therapy.
Get Avita Medical Inc. Reportwants to replace this older system with a simpler, more cost-effective procedure. It's well on its way, considering that more than 87 percent of US burn surgeons have trained to use the company's innovative device.
The company's ambitions extend 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 trials. This small-cap biotech is my top pick for buyability.
What Does Avita Medical Do?
Avita Medical has developed a spray-on skin application powered by a medical device called ReCell. The product 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 -- in other words, a healthy patch of skin the size of a credit card might be used to treat a second-degree burn covering an adult patient's entire back.
The creation of burns was funded by the US government and is now in the country's top national stockpile in the event of a major natural disaster or terrorist attack.
ReCell received the first new commercial authorization for burns in over 20 years by the US Food and Drug Administration.
The product has taken time to commercialize due primarily to the relatively small size of the U.S. burn market and the complicated nature of regulatory approvals. For example, the product has only been used in special burn centers and for certain types of burns to date. That may soon change.
Avita Medical obtained a broad spectrum of approval in 2021, allowing ReCell to treat burns of any size in adults and children. Most important, the business received a new payment code from Medicare that might enable the treatment to be used in other settings, such as hospitals.
Get Premier Inc. Reportthat could provide more 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 agreement with Premier will help tap into the nearly $260 million serviceable addressable market opportunity treating burns in the United States (SAM is the whole addressable market opportunity that can be realistically realized).
Avita Medical predicts $30 million in revenue in 2022. That might expand rapidly if ReCell obtains approvals beyond burns in 2023.
Is It Possible to Use Data Readouts to Drive Growth?
In the second half of 2022, Avita Medical expects to report results from two clinical trials.
Management expects to submit regulatory applications for each indication by the end of 2022, which might result in FDA approvals by the end of 2023.
ReCell has a relatively good probability of success because to its use in burns, soft tissue injuries, vitiligo, and chronic wounds. To date, the ReCell product has treated over 15,000 individuals across all indications.
A caveat: The clinical studies aren't a slam dunk. The steady vitiligo research is small, which might produce mixed results in the eyes of regulators. That puts the clinical study at risk of being redoed for years.
With that, the company faces a variety of tailwinds.
Avita Medical intends to expand into Japan soon through a commercial partner.
Avita has recently received FDA clearance for a second-generation device that's more comfortable to use, government funding for its clinical trial in soft tissue injury, and can leverage on Incyte's (INCY) recent FDA approval - Get Incyte Corporation ReportOpzelura in vitiligo to a larger market opportunity for ReCell.
Growth Investors' Hidden Gem
Avita Medical has been harmed by the biotech downturn. Fortunately, few stocks have been spared. However, Wall Street may be overlooking an attractive opportunity.
In a best-case scenario, the business has a fairly straight path to earning as much as $50 million in revenue in 2023.
If all goes well, the business might be self-sufficient by the middle of the decade, thanks to a gross margin of 80% and low overhead.
This is my top stock to buy in August 2022 due to its low valuation risk, a value-creating product, and excellent growth prospects in the next three years.