AVITA Medical Ltd

 
Stock's Details

Leadership in Therapeutic Approaches for Genetic Skin Diseases: AVITA Medical Ltd (ASX: AVH)is a regenerative medicine company which develops, manufactures and distributes innovative products for the regenerative medicine and respiratory markets, addressing both medical and aesthetic indications. As on 11 December 2019, the market capitalisation of the company stood at $1.15 billion. The company has appointed David McIntyre as Chief Financial Officer (CFO) effective from November 18, 2019.

AVITA to have Exclusive Licensing of Emerging Technologies Post Collaboration with Gate’s Center; The company recently announced a preclinical research collaboration to establish proof-of-concept and explore further development of a spray-on treatment of genetically modified cells for patients with epidermolysis bullosa (EB), with potential applicability to other genetic skin disorders. As per terms & conditions, AVITA Medical retains the option to exclusively license technologies for further development and commercialization. This agreement marks an important milestone in AVITA’s objective to harness the potential of regenerative medicine. The management believes that Spray-On Skin™ Cells technology combined with genetically corrected cells has the potential of becoming a game changer in the treatment of these diseases.

Superior Quarterly Performance: For the quarter ended 30 September 2019, sales of the company went up to $7.9 million from $2.97 million.During the full year FY19, net loss of the company went up by 109% to $35.16 million from $16.51 million in FY18. This resulted in the loss per share for the current year of $2.78 cents as compared to a loss of $1.77 cents per share for the previous period. This was mainly due to the higher operating costs offset by the higher sale of goods during the year. Apparently, it appears that the company has delivered a superior quarterly performance as compared to its annual yearly sales performance. However, quarterly performance is more volatile in nature, and hence, annual performance should form the basis of future performance of the company.


Financial Performance (Source: Company Reports)

Raising of Capital to support Clinical Trials and development projects to Boost sales: The company announced an institutional placement of $120.0 million at an issue price of $0.59 per fully paid ordinary share, to fund pipeline development of new indications, including optimizing support for clinical trials and development projects, as well as the Company’s continued U.S. commercial growth strategy.This initiative on the part of the management sales will enhance sales going forward.

What to Expect: In the upcoming year, AVITA is focusing on increasing US revenues of RECELL system and the continuous expansion of the clinical development of the RECELL system into additional applications beyond the treatment of burns. It also anticipates crucial trials to establish the safety and efficacy of the RECELL System for early intervention treatment of pediatric scald wounds and for soft tissue reconstruction and traumatic wounds. The company is focusing on evolving platform to deliver cells that need to be made healthy. It is also planning to capture skin rejuvenation market, which could represent over $500 MM opportunity. AVITA Medical Ltd. is also securing marketing approval and reimbursement for the RECELL System in Japan in collaboration with COSMOTEC.

Stock Recommendation: As per ASX, the stock of AVH gave a return of 598.72% in the last one year, 51.39% in the past 6 months, but a negative return of 14.17% in the last one month.Currently, the stock is trading towards its 52-week’s high level of $0.740. From the valuation standpoint, it reported a higher EV/Sales and P/BV multiples of 34.8x and 9.9x respectively on TTM basis against the industry median of 11.1x and 4.2x, respectively indicating the stock to be overvalued.Considering the price movement in the past one year, stretched valuations, and current trading levels, we are of the view that most of the positive factors have been discounted at the current levels. Hence, we give a “Sell” recommendation on the stock at the current market price of A$0.540 per share, down 0.917% on 11 December 2019.

 
AVH Daily Technical Chart (Source: Thomson Reuters)

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