AVITA Medical, Inc. Q4 FY2024 Earnings Call

Good day, and thank you for standing by. Welcome to the AVITA Medical Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jessica Ekeberg, Director of Investor Relations. Please go ahead.

Thank you, operator. Welcome to AVITA Medical's fourth quarter and full-year 2024 earnings call. Joining me on today's call are Jim Corbett, Chief Executive Officer; and David O'Toole, Chief Financial Officer. Today's earnings release and presentation are available on our website, www.avitamedical.com under the Investor Relations section. Before we begin, I'd like to remind you that this call includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are neither promises nor guarantees and involve known and unknown risks and uncertainties that could cause actual results to differ materially from any expectations expressed or implied by the forward-looking statements. Please review our most recent filings with the SEC for comprehensive descriptions of the risk factors. Any forward-looking statements provided during this call are based on management's expectations as of today. I will now turn the call over to Jim for his comments.

Thank you, Jessica. Good afternoon to those in the U.S., and good morning to our Australian investors. Thank you for joining us today as we review a year of remarkable progress and complete transformation. Over the past year, we evolved from a single product company into a multiproduct leader in therapeutic acute wound care. This initiative began in 2023 as we launched our strategic growth plan and expanded our core business to treat trauma and surgical wounds under the full-thickness skin defects indication. To support these efforts, we began building a scalable infrastructure, setting the stage for our first portfolio expansion. In January 2024, we announced PermeaDerm, the first addition to our multiproduct portfolio. By April 2024, we have launched it, marking a pivotal milestone in our transformation and aligning our portfolio with our mission. This mission, shown on Slide 3, is a cornerstone of who we are and where we are headed. Let me explain its significance and how it is shaping our future success. Our mission is to position AVITA Medical as a leading therapeutic acute wound care company, delivering transformative solutions. Our technologies are designed to optimize wound healing, effectively accelerating the time to patient recovery. The words in this statement are meaningful. Let's break down what this means. Therapeutic means that our solutions are designed to actively heal and cure patients, not just be palliative forms of care. Acute defines the nature of our focus. We treat patients with event-driven injuries, burns, traumatic or surgical wounds, not chronic wounds, such as diabetic foot ulcers, venous leg ulcers or pressure sores. Simply put, our patients are victims of severe unexpected accidents or events like car crashes, industrial fires or traumatic burns. The common denominator is not their age; it's not their gender, nor is it their ethnicity, but rather the shared nature of their injuries. These injuries could be the result of a solo road incident, burns sustained from an industrial fire, or worse, multiple injuries from a tragic event like the recent terror attack in New Orleans. Despite their diverse scenarios, these patients all have injuries due to traumatic events. And our mission to help patients heal faster not only reduces overall healthcare costs, but more importantly, helps patients return home to their loved ones more quickly. This underscores the power of our technologies and a driving force behind our expanded product portfolio. Please turn to Slide 4 to see the related markets that we serve as I explain how our product portfolio aligns with our mission. Let's start with our core product RECELL and review how it optimizes patient healing and accelerates patient recovery. First and foremost, what makes RECELL special is that it is skin-sparing, allowing physicians to achieve closure using significantly less healthy donor skin, also known as autologous skin. Compared to traditional grafting techniques, RECELL expands the autologous sample 80:1. Additionally, substantial clinical evidence demonstrates that patients treated with RECELL heal faster, experience less scarring, and leave the hospital sooner. RECELL GO, our next-generation system combines the proven outcomes of RECELL with enhanced features that simplify and streamline its use in both burn and trauma centers. The conversion to RECELL GO is going very well. We have converted nearly all of our burn accounts and over 70% of our trauma center accounts for approximately 83% of our total unit volume. As a reminder, each of our standard RECELL GO processing kits can treat up to 1,920 square centimeters, which is roughly 10% of total body surface area. However, most traumatic wounds are under 480 square centimeters or about 2.5% of total body surface area. This size difference created somewhat of a cognitive dissonance for the clinicians using a standard RECELL kit to treat a small wound, like using a sledgehammer to drive in a small nail. To address this, we designed RECELL GO mini for wounds under 480 square centimeters, filling a critical gap in our trauma care offering. As anticipated, we received approval for RECELL GO mini on December 23. We are rolling out RECELL GO mini to burn and trauma centers that currently treat a significant volume of smaller wounds during Q1. Incidentally, RECELL GO mini uses the same RECELL GO processing device as a standard RECELL GO processing kit. This innovation is the foundation of our portfolio, unlocking possibilities in therapeutic acute wound care with complementary solutions like Cohealyx and PermeaDerm. PermeaDerm, a temporary biosynthetic dressing, further strengthens our portfolio by supporting wound healing before and after grafting. It plays a role in helping clinicians heal patients faster, get patients home sooner, and reduce hospital stays, thereby lowering overall cost of care. I want to take a moment to remind you about the unique qualities of PermeaDerm. First, it is porous, facilitating airflow to the wound to promote healing while enabling exudate drainage. Next, its porosity is flexible, which lets the clinicians adjust to moisture levels, ensuring optimal healing conditions for each patient's unique wound needs. Finally, its transparent cover allows clinicians to monitor the skin graft healing progress without disturbing it rather than lifting or removing the dressing, which can potentially disrupt the graft. Practitioners have a clear view of the progress, making it uniquely effective. Taking our wound healing approach a step further, our newly FDA-cleared dermal matrix Cohealyx represents a breakthrough in addressing the critical need for accelerated graft readiness. Cohealyx is a collagen-derived dermal matrix that we co-developed with Regenity Biosciences. Our goal was clear: create a material that integrates into the wound bed and absorbs histologically, eliminating the need for removal before skin graft application and reducing the number of days to graft readiness. In a validated porcine model, our preclinical work demonstrated that when Cohealyx is used as a dermal matrix on a large wound, it is ready for grafting in just seven days, compared to 12 to 21 days for alternative dermal matrices in the studies. This faster readiness translates directly to shorter hospital stays, reduced cost, and better patient outcomes. In full-thickness wounds, Cohealyx provides a 3D structure that supports tissue regrowth in the formation of new blood vessels and is eventually absorbed into the wound. To illustrate the significant benefits of faster healing, it's important to understand the complexities and challenges associated with treating full-thickness wounds. By definition, a full-thickness skin injury penetrates all layers of the skin, causing significant soft tissue loss and damage to the connective tissue's structural integrity. Unlike a superficial knee abrasion where your own cells repopulate quickly and often heal overnight, full-thickness wounds lack the necessary healthy cells to rebuild the missing connective tissue. This leaves the wound open and at risk of severe infection and scarring and delays timely surgical intervention. For example, the standard of care is a two-stage procedure. If you were to clean the wound bed and immediately perform a split thickness skin graft to close the wound, the graft may not take due to insufficient connective tissue. Without first preparing the wound bed using a dermal matrix, there could be a loss of functionality or an unsightly outcome resulting from the deep tissue loss and likely heavy scarring. This is why full-thickness injuries require a structured two-stage surgical approach to reconstruct the lost or damaged tissue. In the cases of severe tissue loss, such as a shark bite or necrotizing bacterial infection, treatment may also involve excision of damaged tissue. Then the use of Cohealyx to build a dermal base, followed by split thickness skin graft closure and possibly an application of PermeaDerm to protect the healing environment. It is important for us to develop human clinical data to support the launch of Cohealyx. To accomplish this, we have initiated a post-market clinical study known as Cohealyx 1, which is currently pending IRB approval at multiple sites across the U.S. This study uses an objective performance criteria study design known as OPC to benchmark Cohealyx's performance against published data from alternative dermal matrices. We are measuring key outcomes over a 26-week period, including days to graft readiness, phase to closure, and days to go home. We anticipate that this study will demonstrate accelerated seven-day graft readiness and shorter overall time to wound closure compared to alternative dermal matrices, further reinforcing the value of Cohealyx. Early patients have already been completed ahead of the formal enrollment of Cohealyx 1. In fact, our first case has already shown promising results consistent with our preclinical findings. Let's turn to Slide #5 to look at the highlights of this case. In mid-January, a 67-year-old woman sustained a third-degree burn while cooking over her stove as shown in Image A. She was treated at the Ohio State Wexner Medical Center where she received an application of Cohealyx, as seen in Image B. By day 7, as shown in Image C, her wound was ready for grafting, consistent with our preclinical findings. Within 1.5 weeks, she was discharged from the hospital. According to one of our clinicians, had she been treated with an alternative dermal matrix, her hospital stay would likely have extended to a month. This case highlights why, as you can see on Slide 6, the medical community has already started to recognize Cohealyx as a game-changer in the treatment of acute wounds. According to our treating physician, not only does Cohealyx reduce the amount of time a patient spends in the hospital, but he believes that it will allow physicians to treat more patients because of how easy it was to use in the operating room. Quite honestly, this outcome is a turning point for AVITA Medical and a breakthrough in acute wound care, setting a new standard for treating and healing severe injuries while lowering the cost of care, shortening the time for patients to return home. PermeaDerm and Cohealyx fit strategically within our portfolio as illustrated on Slide 7. By playing integral roles in the two-stage standard of care for full-thickness wounds, consider a patient with a burn covering 10% of their total body surface area. First, the procedure begins with a surgical excision of the burn. Next, PermeaDerm could be applied to temporize the wound bed, allowing the wound to improve for a short period of time. After clinicians have determined the wound bed is free from necrotic tissue and infection, Cohealyx is applied to prepare the wound bed for grafting. Approximately seven days later, which is four to 14 days faster than alternative dermal matrices, the wound graft is ready, meaning there is sufficient tissue regrowth to proceed to the second stage. The second stage begins with a split thickness meshed autograft combined with RECELL spray on skin cells placed over the newly generated tissue. As a reminder, RECELL supports definitive closure using significantly less healthy skin compared to traditional autografting procedures. Remember that RECELL expands the autologous sample 80:1. A layer of PermeaDerm is then applied over both the graft and the newly applied spray on skin cells and separately to the RECELL donor site to aid in the healing process of both wounds. This wound is continuously assessed to determine when the patient is ready to leave the hospital. This integrated approach improves clinical outcomes while significantly expanding AVITA Medical's market opportunity. Let's look at the total available market potential per patient. For a 10% to 20% total body surface area wound, the average selling price for RECELL is $6,500 to $13,000. PermeaDerm adds $2,000 to $4,000 as a dressing. When Cohealyx is applied to the same wound, it increases the potential average selling price between $20,000 to $40,000. In the aggregate, when all three products are used together, the potential average selling price ranges between $28,500 and $57,000, all the while providing substantial clinical and economic benefits by accelerating the time for the patient to return home. One last point, Cohealyx can also be used independently of RECELL as demonstrated in the Wexner Medical Center case discussed earlier, resulting in an additional increase of the total addressable market for AVITA Medical. On April 1, we will initiate the full commercial launch of Cohealyx for large wounds using our consignment model with RFID tracking to simplify hospital adoption and inventory management. Our sales reps will use the RFID reader to track inventory for the hospital, our internal accounting, and the FDA. We plan to price Cohealyx below current market leaders, further positioning it as a value-driven solution. Competitive pricing, coupled with a consignment model and a reduced time to graft are key benefits that we believe will help us progress through the value analysis committee process faster. With Cohealyx, we add nearly $1 billion to our total addressable market, or TAM, just within the 120-plus burn centers on top of the approximate $500 million TAM for RECELL and the $100 million TAM for PermeaDerm in the same burn centers. In trauma centers, targeting full-thickness wounds. Cohealyx adds $1.35 billion in TAM, PermeaDerm contributes $135 million in TAM, and RECELL provides a potential of $1.5 billion in TAM. In the aggregate, AVITA Medical now has a combined $3.5 billion TAM opportunity in the U.S. alone. Let's take a moment and look backwards. Two years ago, our total TAM for RECELL was $500 million, solely in burn centers. Just 18 months ago, we received FDA approval for the full-thickness indication which dramatically expanded our TAM by allowing us to enter the trauma center market. In that time, we've gone from a $500 million TAM in burns to a $3.5 billion TAM in burns and trauma centers. Looking ahead, our strategy is clear: number one, expand RECELL GO adoption. Number two, roll out RECELL GO mini during the first quarter, focused on trauma centers. This will expand our trauma center market by approximately 270,000 full-thickness acute wounds annually. To be clear, we will not be targeting chronic wounds or chronic wound centers. Number three, launch Cohealyx commercially. Number four, continue to roll out PermeaDerm, and finally, number five, we expect the notified body in the European Union to grant the CE mark for RECELL GO by the middle of the year, opening up markets in Europe and Australia. We remain committed to generating free cash flow in the second half of the year and achieving GAAP profitability during Q4 of 2025. In summary, 2024 was a transformational year. Our expanded product portfolio, which now includes RECELL, RECELL GO, RECELL GO mini, PermeaDerm, and Cohealyx, has taken us from a $500 million TAM with a single product focused solely on burn centers to a $3.5 billion TAM in therapeutic acute wound care across both burns and trauma centers. I want to thank our team, customers, and shareholders for their unwavering support as we continue to revolutionize the standard of care and therapeutic acute wound treatment. With that, I will turn the call over to David for a closer look at our financial results and guidance.

Thank you, Jim. For the three months ended December 31, 2024, our commercial revenue was $18.4 million, representing a 30% increase compared to the same period in 2023. This growth was driven primarily by the continued deployment and adoption of RECELL GO in our existing burn centers as well as new accounts in trauma centers. As we look forward to 2025, we expect RECELL GO mini and Cohealyx to contribute substantially to our revenue growth following their launches in February and April, respectively, with PermeaDerm's revenue also gaining momentum throughout the year. As expected, our gross profit margin for the fourth quarter improved to 87.6%, recovering from the temporary decline last quarter and slightly increasing from 87.3% in the same period of 2023. As I indicated during our third quarter conference call, Q3 operating expenses were elevated in that quarter due to one-time nonrecurring expenses. In line with this previous statement, our Q4 operating expenses totaled $26.1 million, a $4.1 million decrease from the Q3 total of $30.2 million. We have no plans to increase our headcount or other operating expenses in 2025, and as such, Q4 total operating expenses should be a consistent baseline for each quarter in 2025. Also note that the total operating expenses of $26.1 million in the fourth quarter include noncash expenses of approximately $2.8 million of stock-based compensation expense and approximately $0.4 million of depreciation and amortization. Q4 2024 operating expenses increased by $1.4 million compared to the same period in 2023. This increase was primarily due to a $3.9 million rise in sales and marketing expenses stemming from employee-related costs within the expanded commercial sales organization. G&A expenses decreased by $0.6 million due to lower salaries and benefits, as well as reduced professional fees. Similarly, R&D expenses declined by $1.9 million reflecting lower outside professional fees due to the completion of the Vitiligo TONE study. Other income expense shifted from $6.3 million in income in the same period in the prior year, to an expense of $0.3 million in the current quarter. The $6.6 million decrease primarily resulted from a one-time noncash gain of $9.4 million from the wind down of our foreign subsidiaries, offset by the change in fair value of the warrant liability. For the fourth quarter, other income expense consisted of a noncash charge of $0.7 million related to the change in fair value of the warrant liability, offset by $0.4 million in investment income. Briefly, I'd like to address the guidance announcement made on January 7. We have gained a better understanding of the year-end purchasing patterns among our key customers. At the end of Q4, several top accounts strategically chose not to finalize pending purchase orders due to year-end cash preservation strategies leading to an approximately $3 million to $4 million revenue shortfall. Importantly, these deferred purchases were due to timing decisions, not a lack of demand, or commercial operational issues on our part. During January, we experienced normal purchasing activities, which should result in renewed strong first quarter revenue growth. Moving on to the full-year results. For the full-year ended December 31, 2024, our commercial revenue increased 29% to $64 million compared to $49.8 million in 2023. It was disappointing to have the revenue miss in the fourth quarter. But as you can see from the slide, we do not want to lose sight of the fact that we have had significant year-over-year revenue growth for the last five years. The 29% growth in 2024 was driven by the RECELL GO transition, deeper penetration within existing accounts, and new account growth targeting trauma centers. The gross margin for the full-year was 85.8%, meeting the higher end of our previously given guidance of 85% to 86% and up 130 basis points from 84.5% in 2023. Total operating expenses were $111.8 million compared to $86.4 million in 2023. The increase is primarily attributable to $20.9 million in higher sales and marketing expenses, reflecting employee-related costs from our commercial team's expansion. G&A expenses rose by $4.9 million due to increased headcount, along with higher salaries and benefits and stock-based compensation. R&D costs declined by $0.5 million primarily due to reduced professional fees, partially offset by higher employee-related compensation costs within our medical science liaison team. Other income expense for the year decreased by $8.3 million, moving from $8.5 million in income in the prior year to income of $0.2 million in 2024. This change primarily resulted from a one-time noncash gain of $9.4 million in 2023 from the wind down of certain of our foreign subsidiaries, offset by a change in the fair value of the warrant liability. Interest expense increased by $4.2 million year-over-year attributable to the long-term debt of $40 million under the OrbiMed credit agreement. Net loss for the fourth quarter was $11.6 million or a loss of $0.44 per basic and diluted share compared to a net loss of $7.1 million or a loss of $0.28 per basic and diluted share in the same period in 2023. Net loss for the full-year 2024 was $61.8 million or a loss of $2.39 per share compared to a net loss of $35.4 million or a loss of $1.40 per share in the prior year. As of December 31, we had $35.9 million in cash and marketable securities. As reported last quarter, we utilized $9.7 million in cash during Q3. We continued this downward trend, further reducing our use of cash to $8.5 million in the fourth quarter. This reduction was achieved despite an increase in accounts receivable, which rose by $4.1 million to a total of $11.8 million as of December 31, 2024, compared to $7.7 million as of December 31, 2023. Note that our days sales outstanding or DSO did not increase. As we move towards generating free cash flow in the second half of 2025, we anticipate that our use of cash will continue to decline over the next three quarters. In connection with our debt facility with OrbiMed, we executed an amendment today to lower the trailing 12-month revenue covenant for quarters ending March 31, 2025, through March 31, 2026. The 12-month trailing covenant of $115 million for quarters ending after March 31, 2026, remains unchanged. Looking ahead for the full-year 2025, we expect commercial revenue to be in the range of $100 million to $106 million, representing growth of 55% to 65% compared to 2024. Additionally, we expect to generate free cash flow in the second half of this year and achieve GAAP profitability during Q4 of 2025. As previously stated, we do not foresee any further expansion of our commercial organization over the next 18 to 24 months. This revenue guidance and financial projections are consistent with our announcement made on January 7. We remain confident in the success of RECELL GO, the April 1 full commercial launch of Cohealyx, and the rollout of RECELL GO mini, combined with the growing adoption of PermeaDerm. These strategic efforts position us to deliver strong results this year and drive significant shareholder value.

Thank you. Our first question comes from Matthew O'Brien with Piper Sandler. Your line is open.

Hey, this is Phil on for Matt. Thanks for taking our question. For starters, I guess just on the cadence of the guidance, would you expect similar sequential growth each quarter? Or might it be a little bit more back half weighted given the contributions from Cohealyx and maybe some timing of VAC?

Yes, we anticipate a more complex rollout with multiple products, which may complicate our responses. To keep it simple, you can expect a notable increase in Q1 compared to Q4. By then, we will have fully launched RECELL GO mini, and PermeaDerm is gaining significant traction. Consequently, Q2 should also show an upward trend. You’re correct that Cohealyx could greatly influence revenue in the latter half of the year, potentially having a substantial effect. However, I believe we will experience continuous growth each quarter compared to the previous ones. We have ample resources to execute our plans and continue driving revenue, so I expect this momentum to be strong throughout the year.

That's helpful. And I guess just sticking with guidance and trying to dive down a little deeper as for what's assumed in the growth of the three product categories I think in your prepared remarks, the guidance assumed somewhat significant contribution from Cohealyx. I was hoping if you could provide a little bit more color on what that might entail as far as market share gains pretty quickly in the second half of '25, maybe attachment rates to Cohealyx on current RECELL procedures, that sort of thing, just to get us a little bit more comfortable with that second half.

Yes. We're not going to provide specific product breakdowns today, but I can offer some perspective. When discussing the total addressable market per case, we consider contributions from RECELL, PermeaDerm, and potential from Cohealyx. For instance, we handle about 1,000 burn cases monthly over the past couple of quarters, and that number is growing, with cases averaging over 10% total body surface area. The pace at which we progress with VAC is uncertain, but once we have clarity, the revenue potential is significant. We're taking a cautious approach with a limited market release in Q1, focusing on gathering clinical data following approval. We're also enrolling patients for Cohealyx 1, where we anticipate a significant difference in outcomes—seven days to graft compared to up to 20 days—with only about 40 patients needed for complete enrollment. This will provide robust support by the end of the first half of the year.

Thanks so much.

Thank you. Our next question comes from Ross Osborn of Cantor Fitzgerald. Your line is open.

Hey guys, this is Matthew Park filling in for Ross today. I appreciate you taking my question. To start with mini, as you continue to implement it, are there any notable trends in adoption or feedback that give you confidence as you move towards a full commercial launch?

What's beneficial about mini is that it uses the same RPD and processing device. The cassette design is identical from a manufacturing perspective; the three wells for skin, buffer, and enzyme are simply smaller. This makes it very user-friendly. During our market research, doctors expressed concern that using a 10% total body surface area treatment for a problem affecting less than 2.5% seemed inefficient. In fact, most of the 270,000 surgical and trauma wounds are below that 2.5% threshold at 480 square centimeters. We're optimistic, although it's still early to identify trends since it has been just under a month. However, they already have the RECELL processing device, making it an easy additional option for them. So we are confident about the prospects.

Got it. That makes sense. And then just one more from me. Do you mind reminding us again what drove the high gross margin in the quarter? And I guess, how we should think about the general cadence of gross margin in 2025?

Yes, this is David. Thanks for the question. As far as the gross margin for the quarter was over 87%. We believe that our gross margin for RECELL products will stay in that range, 85% to 87%. Overall gross margin is going to go down because of the distribution arrangements we have for Cohealyx and PermeaDerm, which we share gross margin on that basically 50-50. So as those products become more significant in our portfolio and our revenue mix, our gross margin overall is going to go down. But as I've said and as you probably know, that profit margin all drops to the bottom line because there's no additional cost to generate that revenue. So our overall gross margin may have a small decrease, but we're still going to be in a better position from an operating profit margin basis.

Got it. That makes sense. Thanks for taking the questions, guys.

Thank you. Our next question comes from Ryan Zimmerman of BTIG. Your line is open.

Good afternoon. Can you hear me okay?

Hear you well, Ryan. How are you doing?

Good, good. Thanks for taking the question. A couple of questions for me, guys. So first, Jim, I appreciate you're not breaking out guidance by product. How much of international sales is contemplated in the guidance? And when do you expect potentially a clearance in Europe?

Yes, that's a great question. It's modest, Ryan. The reason it's modest is that we've just gone through a thorough review with the notified body. They committed to us for approval in October, and now that it's February, we still don't have it. While there are no technical challenges, the process is unpredictable. This reflects our midyear expectations, and there are no further submission materials to be reviewed or submitted at this time. So it is modest.

Okay. Regarding the inventory in the channel during the fourth quarter, I have a couple of questions, Jim. Firstly, how much of that inventory consisted of RECELL and how much was PermeaDerm? Was all of it reduced in the fourth quarter? David, you mentioned expecting sales to increase in the first quarter. I’m curious why there wouldn’t be any inventory left to reduce in the first quarter from what was present in the channel late in December.

Yes, I have a few comments. The majority of our inventory is RECELL, and PermeaDerm is still a minor part of our overall sales. We do have inventory recorded on our balance sheet. What sets PermeaDerm apart is the significant increase in evaluation. We're gaining traction, although it took some time to develop the necessary clinical support materials since it wasn't really available in the market before, despite a test launch by Milliken. Regarding your question, it's important to note that all our customers maintain inventory due to the nature of our business as a therapeutic acute wound provider. When a patient needs treatment, the product must be available. Currently, we haven't observed any signs that indicate an excess of inventory that could impact our revenue in the first quarter, so I don't foresee this being a challenge for us at this time.

Okay. I have one more question. There's a small lease revenue this quarter. Do you anticipate that this will become a larger trend in system placements as you consider your guidance of $103 million?

Yes. The lease revenue represents only a part of the total sales from the RPK and RPD systems. As you may recall, we provided our hospitals and facilities with the RPD, the processing unit, at no cost. For accounting purposes, we need to divide the revenue from the sale of the RPKs, which are the actual disposable kits, into two categories: revenue and lease revenue. This classification is primarily for accounting reasons and doesn't truly reflect lease revenue in the traditional sense.

Okay. That's very clear. Go ahead.

It might be very helpful to think of it as the amortization methodology for the cost of the RPD.

I was trying to understand if the model is changing regarding how you're placing systems.

We're not.

Thank you.

Thank you. Our next question comes from Brooks O'Neil of Lake Street Capital Markets. Your line is open.

Thank you. Good evening. So I have not had a chance to read the 8-K related to the OrbiMed renegotiated credit agreement. But in the prior one, there was some question about the quarterly covenant that I considered as a giant deal to have to begin repaying that debt. But can you just give us a sense for how much of a cushion you've gotten in, for example, Q1, Q2, and Q3 as you look toward the end of this year?

Yes, Brooks, thank you for the question. All the details are in the 8-K, but I can provide you with information for the first two quarters. The revenue is based on a trailing 12-month period, and for the first quarter, it stands at $73 million, down from $75 million over the last 12 months. For Q2, it is $78 million, down from $90 million. There has been a significant decrease, but this does not indicate what we expect our revenue to be. It simply provides some cushion so that we don't have to repay the debt.

I'm guessing that the terms are mostly unchanged, but I'm curious if there have been significant changes regarding the consequences of breaching the covenants in the new agreement.

The terms remain the same.

Great. And the second thing I was curious about is my understanding is that with Cohealyx, the initial approval was based more on animal studies than human clinical evidence. You mentioned, or Jim mentioned, the considerable success at Ohio State, but can you provide more insight on whether you are starting to gather enough clinical evidence with humans to support the idea that Cohealyx could significantly contribute to your revenues in the latter part of 2025?

Yes, we received approval for the dermal matrix in line with FDA requirements. Our work in the validated porcine model was extensive, conducted 18 times, examining various materials to achieve precise characteristics of histological absorption while ensuring the matrix allows for blood vessel ingrowth and is absorptive. The sterilization and processing of the denatured collagen played significant roles in this. We have shared our preclinical data with over 50 physicians, and all expressed interest in trying it. We have conducted several cases outside of the study since its approval, and feedback on its handling during procedures has been positive, showing promising short-term outcomes. None of the cases have led to prolonged recovery times thus far. We are optimistic about our approach, having plans to enroll 40 patients across 20 sites. This study will be conducted with IRB oversight and controlled follow-up, functioning both as a clinical trial and a post-market study. Physicians can share data with us at any point during the study, rather than waiting for the study's completion and publication, allowing us to utilize the information as it becomes available. We anticipate having data by April 1 to support a strong launch.

Great. I guess I'll just finish by saying I'm amazed at how much you guys have accomplished. Congratulations and keep it up.

Thanks, Brooks.

Thanks.

Thank you. That concludes our question-and-answer session. At this time, I would like to turn it back to Jim Corbett for closing remarks.

Thank you, operator, and thanks to all of you for calling in and listening. We are really excited about the transformation of our company, AVITA Medical into a therapeutic acute wound care company. We have a lot of excitement for the year ahead. I'm looking forward to sharing it with you. Thank you.

This concludes today's conference call. Thank you for participating, and you may now disconnect.