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Sunday, October 25, 2015

U.S. HHS, FDA Provide Boost To Avita Medical

It has been a good past few weeks for Avita Medical (AVMXY) as it pertains to negotiations with the U.S. Government, specifically with the U.S. Department of Health and Human Services (HHS) and U.S. Food and Drug Administration (FDA). Both agencies made announcements that should help meaningfully move ReCell®, the company's spray-on-skin candidate currently in Phase 3 trials for the treatment of severe burns, forward and position Avita for long-term success once the product is commercialized in the United States.

Background On ReCell

ReCell is an autologous cell harvesting, processing and delivery technology that enables surgeons and clinicians to treat complicated skin defects, including chronic wounds, scars, burns, and depigmentation. The ReCell kit is made up of a proprietary enzyme formulation, a processing unit that includes three chambers, a sterile enzyme soak, buffer rinse, filtering chamber, a sterile tray for mechanical disaggregation of the skin sample, and a validated set of applicators designed to overlay the wound area with a suspension of healthy cells. ReCell allows rapid (30 minutes) creation of Regenerative Epithelial Suspension (RES), comprised of activated, autologous skin cells such as keratinocytes, fibroblasts, and melanocytes, as well as signaling factors including cytokines, chaperones like hsp90, and growth factors.

ReCell has been granted CE Mark in the EU for a new device that can cover up to 1920 cm2 of skin surface area with only one application, which equates to about 10% of total body surface area (TBSA) for an average adult, or significantly more for a child. This is particularly advantageous in treating burn victims with an affected area between 10-50% TBSA, or in treating subjects when split-thickness skin grafting (STSG) is not applicable due to a lack of spared healthy skin.

There are three distinct versions of the product, ReCell for severe burns, ReGenerCell for the treatment of chronic wounds, and ReNovaCell for aesthetics and pigmentation defects. Approval in Europe came on the backs of a randomized controlled trial (Gravante et al., 2007) and numerous case studies and single patient applications that demonstrate some very impressive results.

In the U.S., Avita is currently conducting a Phase 3 trial studying ReCell in the treatment of severe burns in patients requiring skin grafts (NCT02380612). The company's goal through the Phase 3 trial is to prove that ReCell, in combination with mesh grafting, results in superior outcomes for patients vs. mesh grafting alone. The first patient was enrolled in January 2015 and full enrollment is expected before year end. Enrollment is taking place at six of the leading burn centers in the country. Data is expected in 2016.

BARDA Awards Avita Up To $54 Million

On September 30, 2015, the U.S. The Biomedical Advanced Research and Development Authority (BARDA), a division under the Office of the Assistant Secretary for Preparedness and Response in the U.S. Department of Health and Human Services, awarded a contract to Avita Medical that could be worth up to $53.9 million in total funds to the company. The BARDA contract includes:

- An initial commitment of $16.9 million to support Avita's current Phase 3 trial designed to obtain U.S. approval of the product.
- Procurement of 5,000 ReCell devices to stockpile for emergency preparedness.
- Potential to receive another $37.0 million in funds to support additional clinical trials and provide surge capacity for up to 20,000 more ReCell devices.

This is a home run deal for Avita! Not only does it fund the current Phase 3 program and place an initial stockpiling order of 5,000 units, but it supports potential further clinical studies that are designed to expand the ReCell label, potentially into pediatric applications, and provide a pathway for which Avita can use these additional funds for market surveillance and supply additional product to the government if necessary. The U.S. Government see ReCell as an important product necessary in case of a major medical emergency or catastrophe that requires the treatment of burns.

This is not the first time the government has been interested in ReCell. I remind investors that the U.S. Department of Defence (DOD) funded the U.S. Phase 2 study through an Armed Forces Institute of Regenerative Medicine (AFIRM) grant totaling roughly $2.6 million. Avita's ReCell appeared in the online version of Army Technology Magazine in August 2015 as an important regenerative medicine product to watch for the treatment of severe burns. ReCell has the DOD's attention, and now it has BARDA's attention. The good news for Avita is, the BARDA contract last month is potentially 20x the commitment. 

FDA Doubles Compassionate Use Eligibility For ReCell

Earlier in October 2015, the U.S. FDA announced an expansion of Avita's compassionate use program under the current active investigational new drug (IND) application whereby the number of eligible patients has been doubled to 24. The FDA approved the initial use of the device in up to 12 subjects with life-threatening wounds in April 2014. All 12 patients have been treated at several leading institutions, including Wake Forest Baptist Medical Center, Maricopa Medical Center, Walter Reed National Military Medical Center, and MedStar Washington Hospital Center. Avtia and investigators have been active in presenting the data at various medical conferences over the past year. I'm not sure you can get much better validation than seeing the FDA come back roughly 18 months after the initial approval and doubling the eligibility.

For example, the Arizona Burn Center presented a poster at the 2015 American Burn Association highlighting the, "Compassionate Use of ReCell and Meshed Autografts in Three Patients with Extensive Burn Injury" in three patients with deep partial thickness or full thickness burns (K Foster, MD et al.). Three patients were treated with ReCell sprayed over meshed grafts and onto donor sites.

- Patient 1 was a 32 year-old male with a 59% TBSA flame burn to face, torso, and bilateral upper extremities.
- Patient 2 was a 21 year-old female with a 53% TBSA flame burn to face, hands, and bilateral lower extremities.
- Patient 3 was an 11 year-old female with a 47% TBSA flame burn to face, bilateral upper and bilateral lower extremities.

All underwent normal burn center management protocols including early tangential excision and allografting of burn wounds. Applications were submitted to the U.S. FDA for compassionate use of the ReCell investigational device and were approved. Patient 1 received autologous suspension over 1:1 meshed grafts on his posterior torso and thigh donor sites. Patient 2 received autologous suspension over 2:1 meshed grafts to bilateral lower extremities and back donor sites. Patient 3 received autologous suspension over 2:1 meshed grafts to bilateral lower extremities and back donor sites. Areas treated using ReCell in combination with meshed autografts were > 95% re-epithelialized in 1 week, and the usual mesh pattern associated with 2:1 expanded meshed graft was markedly diminished or absent. Long term follow-up demonstrated remarkable absence of contracture. Donor sites treated with autologous suspension were 100% healed and ready for re-harvesting one week after harvest and ReCell treatment.

Authors of the poster conclude that the use of ReCell in combination with mesh grafts helped reduce the number of grafting procedures required to achieve closure of the patient's burn injuries and yielded a result uncharacteristic of mesh grafting over full thickness injury in the limited appearance of mesh pattern scar and no observable contracture. ReCell use on donor sites also healed donor sites in one week. The authors believe, "This technology may decrease time to healing, decrease length of hospital stay, and decrease scarring."​


The clinical, case-study, and compassionate use data shows that ReCell works. For pediatric patients, we see ReCell as a breakthrough product. There are approximately 120,000 emergency room visits each year in the U.S. for pediatric patients due to a severe burn (source: Arizona Children's Center). Roughly 15,000 of these will require an overnight hospital stay, and sadly, almost 600 children die annually in the U.S from fire and burn related injuries. The recent BARDA contract win and FDA-approved expansion of the compassionate use program look like clear validation that ReCell is a product the U.S. government is keenly aware of and highly interested in.

Avita Medical currently trades with a market capitalization of only $32 million (USD), with institutional ownership at roughly 50%. The opportunity in the U.S. burn market is easily $100+ million in size. We believe the valuation is insanely low for a company that has a potential breakthrough product currently approved in Europe, in Phase 3 in the U.S., and significant interest from both burn centers and now the U.S. government of emergency and compassionate use.

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