Earnings Call Transcript - RCEL Q1 2022

Operator, Operator

Good day and thank you for standing by. Welcome to the AVITA Medical’s First Quarter 2022 Earnings Conference. 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, Caroline Corner with Investor Relations. Please go ahead.

Caroline Corner, Investor Relations

Thank you, Operator. Welcome to AVITA Medical’s fiscal first quarter 2022 earnings call. Joining me on today’s call are Mike Perry, Chief Executive Officer; and Michael Holder, Chief Financial Officer. This call will include forward-looking statements within the meaning of the Private Securities Litigation and Reform Act of 1995. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements, including statements regarding the markets in which AVITA operates, trends, demand and expectations for its products and technology, its expected financial performance, expenses and position in the market, and the impact of COVID-19 on its operations and its customers' operations. These statements are neither promises nor guarantees and involve known and unknown risks and uncertainties that could cause actual results, performance or achievements to differ materially from any results, performance or achievements expressed or implied by the forward-looking statements. Please review AVITA Medical’s most recent SEC filings, particularly the risk factors described in AVITA Medical’s S-3 and 10-K filings, as well as in AVITA Medical’s quarterly report on Form 10-Q for the first quarter ended September 30, 2021 for additional information. Any forward-looking statements provided during this call, including projections for future performance, are based on management’s expectations as of today. AVITA Medical undertakes no obligation to update these statements except as required by applicable law. AVITA Medical’s press release for the first quarter results is available on its website, www.avitamedical.com under the Investors section and includes additional details about its financial results. AVITA Medical’s website also has the latest SEC filings, which you are encouraged to review. A recording of today’s call will be available on AVITA Medical’s website by 5 p.m. Pacific Time today. Now, I’d like to turn the call over to Mike for his comments on first quarter 2022 business highlights.

Mike Perry, CEO

Thank you, Caroline, and thank you everyone for joining us today. We are encouraged by our recent commercial performance and remain extremely excited about the opportunities ahead with our pipeline indications. Here at AVITA Medical, we are driven by our primary goal of commercializing our proprietary technology to enable healthcare providers to successfully address skin defects to save lives and improve the quality of life for our patients. As we grow from treating burns to trauma to vitiligo to cell and gene therapy, and to aesthetic and beyond, our focus is on delivering leading-edge therapeutic skin restoration solutions to our patients. While the company was founded with burns treatments in mind, our team is working to leverage our point-of-care autologous spray-on skin platform across many markets and indications. I’m very pleased to update you today on our latest developments. With that, I’d like to turn to our burns business. I’m pleased to report that our commercial revenues were $6.9 million in the first fiscal quarter compared to $6.7 million in the previous quarter and to June 2021. Last Tuesday, the Centers for Medicare and Medicaid Services, or CMS, approved AVITA Medical's application for a Transitional Pass-Through Payment device category C code that will provide separate payment for RECELL used in procedures that are performed in hospital outpatient facilities and in an ambulatory surgical center. The TPT device category code, intended to facilitate the adoption of new technology for Medicare beneficiaries by offsetting the cost of the device to facilities, will be effective January 1, 2022. This new code expands RECELL burn treatment to a new care setting with existing customers and lays a reimbursement foundation for our soft tissue repair indication that we are working towards. As a quick update on the product development front, at the end of June, we submitted to the FDA a PMA supplement application for our new version of the RECELL device with improved ease-of-use, which we hope will allow us to approach our future markets more readily. We anticipate FDA approval in the first half of calendar 2022 and a commercial launch thereafter. The improved ease-of-use device will allow AVITA Medical to better address our burn outpatient market facilitated by the new TPT code issuance, as well as our soft tissue repair indication once approved. More specifically, the ease-of-use device allows for improved surgeon and staff handling by only requiring one set of hands in the sterile field, as well as a reduction in device handling steps by one-third. We’ve been building our burns-focused salesforce for three years, and believe we have the largest and most experienced burns dedicated sales force in the market. However, at this time, due largely to COVID, our sales force is selling into a system that is experiencing staffing shortages. Our surgeons rely heavily on their experienced nursing staff, and high turnover and early retirements are impacting RECELL procedures. In response to the situation, we have prioritized our training and education efforts, and hope to see improvement in procedure rates as the pandemic continues to abate. Our commercial focus is on driving utilization and broadening penetration within our footprint of over 100 hospitals and over 250 trained physicians. Revenue from our top 20 accounts increased approximately 7.7% in fiscal Q1 over fiscal Q4, driven by growth in the top five accounts, which saw 18.3% growth. Our top five accounts have been less impacted by the staffing shortages being larger and with dedicated burn staff, which has enabled our growth here. It’s clear that nursing training has a tremendous impact on the hospital’s ability to perform procedures, and the nursing staff therefore has a substantial influence on the use of RECELL. We are continuing to train physicians, and we are approaching our training efforts with a strong focus on advanced practice providers. Training includes local, regional, and national events for both surgeons and their staff. In addition, in the last quarter, we have held almost 550 hands-on trainings in the field and we are currently performing approximately 200 in-hospital training sessions per month. Last weekend, we presented 10 abstracts at the ABA Southern Region Burn Conference, the largest ABA region and the largest U.S. burn conference next to the Annual ABA Meeting in the spring. The presentations covered topics such as small burns, pediatric burns, and integration of RECELL into practice, including synergistic combinations with RECELL and health economics. Additionally, later this week, we will have two RECELL presentations at the Northeast Region Burn Conference. Interest in RECELL remains high, and despite the pressure on procedure rates, we are completing cases and delivering on our mission to save and improve patients' lives. In the first quarter during Hurricane Ida, a family suffered severe burns when their gas grill they were using due to power outages exploded. The pregnant mother, her husband, and their toddler were all burned. The family was taken to University Medical Center in New Orleans, where they were treated by three different surgeons. All were successfully treated with RECELL. Today, I’m very pleased to tell you that all family members are recovering, and the mother who suffered burns to her legs is able to climb the stairs to her third-floor home and carry her toddler. While our commercial focus to date has been in burns, another area of important impact for us is injuries not originating from burns. The reopening of the economy and the corresponding increase in accidents meant that in our fiscal fourth quarter and first quarter, enrollment in our soft tissue reconstruction trial materially accelerated. This trial involved injuries such as resection of necrotizing, soft tissue infections and degloving injuries, which are wounds that commonly present at the same trauma centers where we are currently treating our burn patients. If you recall, we had our first patient in this pivotal trial enrolled in March 2020, and we saw slow enrollment for the first year due to the pandemic. Today, we have 19 of the 20 planned sites up and enrolling with 58 of 65 subjects enrolled to date. In October alone, we enrolled 10 new subjects spanning broad geographies. Since the close of the June quarter, a resounding 40% of the required 65 subjects have been enrolled. Assuming current trends continue and allowing for the typical slowdown in clinical research during the holiday season, we now plan to complete recruitment by Q1 of 2022, well ahead of our last update. With a six-month follow-up for patients in this trial, we’re aiming for an approval by the end of 2023. As a reminder, based on our internal calculations, we foresee a serviceable addressable market or SAM for trauma and soft tissue injury of $450 million. Patients presenting with a requirement for skin grafting and RECELL, whether for burns, trauma, or other skin repair, are routinely treated by the same surgeons within an institution. We plan to address this market through our existing hospital accounts and with the addition of 220 Level 1 and Level 2 trauma centers. After we have U.S. FDA approval, we plan to quickly leverage our existing trauma and burn center sales relationships to launch into trauma and acute wounds and we will incrementally expand our salesforce to address this opportunity. Moving on now from burns and trauma to our continued progress in vitiligo. For those unfamiliar with the condition, vitiligo is a skin disorder characterized by deep pigmented areas of skin that appear as white spots or patches and which are primarily attributed to an underlying autoimmune disorder in the patient. There are an estimated 100 million sufferers of vitiligo worldwide, including up to 6.5 million Americans. Of those in the U.S., we estimate approximately 1.3 million have stable vitiligo, our target population, meaning that their underlying autoimmune disease is being well-managed and that their disease is not continuing to spread. On October 22nd, the Global Vitiligo Foundation and the online community My-Vitiligo-Team hosted a public webinar on clinical trials for patients with vitiligo. As a proud sponsor of the GVF, our trial was featured and we’ve been very pleased with interest levels. Today, all 15 sites are up and running, and eight of 23 subjects have been enrolled. We continue to plan for completion of enrollment at the end of this calendar year and approval in 2023. To support the vitiligo opportunity, our products team is developing a new fully automated version of the RECELL System tailored for the dermatology setting. Dermatologists see high volumes of vitiligo patients, and this version of RECELL will automate some steps, specifically, the skin scraping step to make the best use of physician and nursing staff time. Work progresses in our collaborations with the University of Colorado, Gates Center for Regenerative Medicine in epidermolysis bullosa, EB, and with the Houston Methodist Research Institute for rejuvenation. Both groups have preliminary proof-of-concept experiments ongoing. The work to date gives us confidence that the methods developed will yield successful proof-of-concept in animal models by the end of this calendar year. I’d now like to walk you through the growth drivers we see ahead. We continue to drive forward on provider engagement and education, whether in-person or virtual. Our discussions have shifted from whether or not to use RECELL, and today our focus is on optimizing the use of RECELL, as well as training and refining the expertise of support staff. Our commercial team will be continuing to drive penetration into our burn center accounts. We are VAC approved in what we believe is a critical mass of burn centers, and with that, we are focused on penetration within those accounts. We have shown that our strategy of driving into smaller burns results in overall broader RECELL usage. To underscore our approach, today over one-third of RECELL procedures involve burns that are less than 10% TBSA or total body surface area, and these smaller burns represent about three-quarters of burn admissions. On November 2nd, CMS published the 2022 Medicare Outpatient Prospective Payment System, with payment going into effect in January of 2022. Based on this, a C code will be assigned to RECELL, which we anticipate will cover the cost of the device for all Medicare patients. We plan to then commence a pilot launch at key sites to ensure coverage with commercial carriers before proceeding with a broader nationwide launch in mid-2022. Our pipeline initiatives are continuing to move forward. More specifically, we are excited about progress within our vitiligo trial, which should complete enrollment at year-end, as well as our soft tissue trial, which now has 58 of 65 patients enrolled, with the uptick driven by the recent increase in trauma-related accidents. We continue to be optimistic about our preclinical pipeline work in epidermolysis bullosa and rejuvenation, and we are on track to demonstrate proof-of-concept by the end of the calendar year. We are determining our future steps and path forward with the FDA. Our next goal is to review the GLP data requirements to submit an IND application for first-in-human treatment, and once timelines are clear, I will update you accordingly. Moving to our last growth driver, we plan to broaden our geographic footprint over the coming years. COSMOTEC, our commercial partner in Japan, has revised its approval strategy to focus on burns initially, based on Japanese Health Authority, or PMDA, feedback. The Japanese Health Authority is working through a backlog of applications and we have been advised to expect approval in the first half of 2022. Upon approval, COSMOTEC will meet next year with the Japanese Ministry of Health, Labor and Welfare, or MHLW, to present RECELL for reimbursement review, which we anticipate will occur in June. COSMOTEC will then launch to burn customers shortly thereafter. Once we have vitiligo and soft tissue data from our U.S. pivotal trials, COSMOTEC will seek regulatory and reimbursement approval for those indications as well. In summary, despite continued pressure on procedures largely due to recent hospital staffing challenges, we have made substantial progress across our business. While we anticipate continued staffing headwinds in the near-term, I’m pleased with how our commercial team has responded, driving advanced practice training and keeping RECELL front and center in the minds of burn care practitioners. Finally, and looking further ahead, the substantial progress in our clinical trials for vitiligo and soft tissue trauma reflect a groundswell of interest in and the potential of these larger market opportunities.

Michael Holder, CFO

Thank you, Mike. Total revenue for the three months ended September 30, 2021, was $7 million, an increase of $2 million, or 39% over the $5.1 million reported for the same period in 2020. The increase was largely driven by broader utilization among our customer base, as well as deeper penetration within individual customer accounts. Gross profit margin for the three months ended September 30, 2021, was 85%, compared to 82% reported for the same period in 2020. The higher gross margin was driven by lower shipping costs and increased production at our Ventura facility. Total operating expenses for the three months ended September 30, 2021, were $12.3 million, a decrease of $2.7 million or 18% over the $14.9 million reported for the same period of 2020. The decrease in operating expenses is primarily attributable to lower stock-based compensation and higher costs in the prior year related to the AVITA Group’s redomiciliation to the United States, along with severance costs associated with a former executive. This was partially offset with higher travel costs in the current year due to fewer COVID-19-related travel restrictions. Lower stock-based compensation was driven by higher share-based compensation expenses in the prior year associated with certain performance milestones being met. Net loss for the three months ended September 30, 2021, was $5.9 million, a decrease of $4.3 million or 42% over the $10.2 million loss recognized during the same period last year. The decrease in net loss was driven by the lower operating expenses described above and the higher revenue during the three months ended September 30, 2021. As of September 30, 2021, the company had $60.4 million in cash and cash equivalents, and $49.5 million in short-term and long-term marketable securities, as well as no debt. Moving on to guidance for our second fiscal quarter, we expect total revenue in the second fiscal quarter to be approximately $7 million. This guidance reflects the anticipated impact of hospital staffing challenges, as well as uncertainty with the pandemic. I would also like to announce that the company will change to an effective calendar year basis for financial reporting starting December 31, 2021. With that, we thank you for your attention and now I will turn the call back over to the Operator for your questions.

Operator, Operator

Thank you. Our first question comes from Josh Jennings with Cowen. Your line is open.

Eric Anderson, Analyst

Hi. This is Eric on for Josh. Thanks for taking the question. I was hoping to touch on guidance for fiscal Q2; you’re expecting $7 million now and we’re almost halfway through the quarter. I was hoping if you could just talk about the trends that you’re seeing through October and early November that are driving your guidance and what is baked in for the remainder of the year?

Michael Holder, CFO

I’m going to toss that one over to Erin, our Chief Commercial Officer to respond to. Erin?

Erin Liberto, Chief Commercial Officer

Sure. There’s a lot of things that are going on in the market. Some are seasonal, which we anticipate, and some relate to the staffing challenges. So typically in the fall, we see a seasonality, right? We’re just coming out of that seasonality where you see a bit of a depression in terms of procedures, and then you see in the November, December timeframe really starting to pick up. November, December, January is generally very high and then several months of July are also quite high. So we have seasonality kind of coming out of that. And as I mentioned, into the holidays, we certainly see an uptick in terms of procedures. We have at the end of our year a rebate scheme where we often see customers wanting to buy up at the end of the year for the rebates. On the flip side, though, we are dealing with some staffing challenges, particularly nursing staffing challenges. What we’re encountering right now is there are burn procedures ongoing, but many of them are getting rescheduled, such as, night times or weekends. There’s a lot of traveling nurses covering the gaps and sometimes there’s just not the necessary staff needed. A lot of times surgeons are not comfortable doing a RECELL procedure without someone on staff who has experience with the procedure. So, we’re trying to fill in the gaps and do a lot of training. But at the end of the day, we can’t provide care. The surgeons want someone on their team who has done a case before, and we’re running into some challenges. So that is kind of the two dynamics that are contradicting each other.

Mike Perry, CEO

Thanks, Erin. Does that answer your question, Eric?

Eric Anderson, Analyst

That does. That’s great. Thank you. I have one more question regarding the vitiligo trial. You have eight out of 23 subjects enrolled, and I’m curious about any potential challenges you might face towards the end of the year regarding scheduling. How confident are you in reaching the enrollment goal? Are all 15 sites operational, and will that help speed things up? Is there any possibility that as your soft tissue enrollment improves, it could also benefit your vitiligo trial? I’m trying to get a clearer picture of where the additional patients will come from. Thank you.

Mike Perry, CEO

So we have a number of patients in the queue that are being evaluated. For specific detail on that, I’m going to pass it over to Andy Quick, our Chief Technology Officer. Andy?

Andy Quick, Chief Technology Officer

Thanks, Mike. Thanks, Eric, for your question. Soft tissue and vitiligo are different because, with vitiligo, we can drive recruitment. We've mentioned before our multimedia and online recruitment efforts, including radio, have enabled us to fill a pipeline. So beyond the eight who are enrolled today, eight more are scheduled and an additional 10-plus have met the criterion and are in the process of consenting and scheduling. This puts us over 23, and that’s really the basis for our confidence with soft tissue enrollment, which is more of a waiting game for someone to turn up with an injury.

Eric Anderson, Analyst

That’s helpful. Thank you, guys.

Michael Holder, CFO

Thanks so much. Just a quick clarification for Mike Perry; the commentary about soft tissue being Q1 2022 enrollment completed but then the approval by the end of 2023. Is that calendar or fiscal? I just want to make sure I’m clear on that?

Mike Perry, CEO

The calendar.

Matthew O'Brien, Analyst

Got it. Okay. And then just to follow-up a little bit on Eric’s question on this dynamic about staffing shortages and these strange times where some of these cases are scheduled? I’m just wondering when do you think some of these issues may abate a little bit more? Is it really Delta variant-driven, so maybe it continues here in this calendar or fiscal quarter and then less so next calendar year, or is this something that may be a headwind for the next several quarters?

Mike Perry, CEO

It could last longer. I’m not sure if it’s going to be several quarters. I really don’t believe that it’s specifically the Delta variant. It’s really the dynamic of what’s happening relative to vaccination requirements and some nurses not necessarily wanting to take the vaccination, as well as, as Erin mentioned earlier, these traveling nurses, getting paid substantially more than regular nursing staff. The regular nursing staff are either becoming traveling nurses or taking early retirement because they just don’t see the viability or the fairness in the situation.

Erin Liberto, Chief Commercial Officer

No, I think unfortunately we don’t have a crystal ball. I agree with you; it’s not necessarily related to Delta. Many burn nurses are simply burnt out. Interestingly, on the BTIG call this morning, some have decided that nursing is not for them anymore. At last week’s Southern ABA conference, the average age of a burn nurse was 59, which is significantly older, leading to retirements. Additionally, nursing is a specialized field, requiring six to twelve months of preceptorship to become proficient. There are many variables at play. I hope this situation doesn’t persist for long and that things will stabilize, but I certainly don’t think it will resolve within a quarter.

Matthew O'Brien, Analyst

Okay. But to be clear, though, you guys aren’t losing accounts; you still have those accounts? They’re just not as often.

Mike Perry, CEO

Yes, absolutely.

Matthew O'Brien, Analyst

And then just one more quick one. On the outpatient side, you mentioned the past update. Just wondering if you can give us a sense for how impactful that could be to the business as we enter calendar 2022?

Mike Perry, CEO

Sure, Matt. The CPT code is very valuable to us, especially in the long run. In the short term, it really has to do with the adoption curve. As we’ve said many times, the surgeons start out on larger burns and in combination with a full-thickness mesh skin graft. At the end of that adoption curve, they go to smaller wounds and then burns that could be treated in the outpatient setting. So initially, with only burns approved at this point, the impact is going to be relatively modest. But as we get soft tissue approved, that’s going to be a very important component of our revenue. Erin, anything to add on that?

Erin Liberto, Chief Commercial Officer

The only other thing I would say is, of our serviceable addressable market, the $260 million, $60 million of that is for burns under 10% total body surface area. Outpatient is a big chunk of that. With COVID, it’s a little murky in terms of how many are inpatient versus outpatient, because a lot have transitioned more so heavier to outpatient. But that’s the size of the segment that we’re targeting that the TPT will help us with.

Mike Perry, CEO

Thank you, Matt.

Operator, Operator

Thank you. Our next question comes from Lyanne Harrison with Bank of America. Your line is open.

Lyanne Harrison, Analyst

Good morning, all, and thank you for taking my question. I’m just going to follow on from the conversation that was previously had about the nursing staff and trying to understand if the approval or launch of RECELL 2.0 will help alleviate some of those nursing staff issues, particularly with ease-of-use and reduction in the handling of the device?

Mike Perry, CEO

Thank you, Lyanne, for your question. I think that the new device will help somewhat. Certainly, it only requires one set of hands in the sterile field, and as I mentioned, it’s cutting down the number of steps by approximately a third. That said, there are still issues with regard to burn nurses that are qualified, that have experience in doing the procedures; and having the burn surgeons comfortable that they have staff that are going to accurately utilize the device and have been trained sufficiently. Generally, the surgeons like to take the initial skin sample as well as do the spray-on, but they try to dedicate the other elements of the RECELL procedure to other practitioner nurses and advanced care specialists.

Lyanne Harrison, Analyst

Okay. Thank you. And just one more question on the Japanese markets. Obviously, some delays there with respect to approval. Can you give us an indication of the size of the Japanese market if you break it down in terms of burns versus the other indications, so that we can get a handle on how we think revenues might ramp up over time?

Mike Perry, CEO

Sure, let me start off and then I’ll pass it over to Erin. Generally, as a rule of thumb, we look at the Japanese market as one-tenth of the U.S. market. You can look at that on an indication-by-indication basis and take our numbers and calculate it that way. Erin, any additional comments about Japan?

Erin Liberto, Chief Commercial Officer

We will have an updated corporate deck on our website in about half an hour that includes a funnel for the burn segment in Japan. To provide you with more data, that's correct, it's roughly 10% of the market size now. There are about 6,000 patients with severe burns, meaning they are hospitalized and may require grafting. They estimate that around 1,400 patients will be targeted with RECELL, which is the population that COSMOTEC will initially focus on. We do not yet have information on the reimbursement price, but that will be included in the updated deck that will be posted on our website shortly.

Lyanne Harrison, Analyst

Right. Thank you very much. Very helpful.

Mike Perry, CEO

Sure, Lyanne.

Erin Liberto, Chief Commercial Officer

Thank you.

Operator, Operator

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

Brooks O'Neil, Analyst

Good afternoon, everyone. I’m hoping you could just amplify a little bit. When I think about the burn business, burns are happening there, I assume the patients are getting treated. So it comes down to a question of whether we’re going to do old-fashioned skin graft or use RECELLs. Are you saying that the phenomenon you’re seeing out there is that the nurses and doctors are opting for the old-fashioned treatment now because they don’t really know how to use your system? What are you seeing out there?

Mike Perry, CEO

Thank you for the question, Brooks. It’s really not the surgeons. The surgeons are, yes, a number are retiring, and some are moving from one center to another. But that’s not of substantial impact. What is impacted is the nursing staff, and when a physician or burn surgeon feels that they don’t have the right competency in the nursing staff, they will opt for a split-thickness skin graft. That’s what they’re taught, and that’s what the nurses know how to do. There’s not a lot that the nurses necessarily need to assist with in the procedure, as opposed to the aftercare, where the nurses are really involved in the older model using a split-thickness skin graft.

Brooks O'Neil, Analyst

I totally get the way the world worked out. It seems a little surprising to me, given the obvious benefits of RECELL for the patient, and frankly, from a clinical perspective, it seems to be a huge improvement over the old approach where we’re putting less trauma on the body of an already traumatized patient. You would think that that would be a direction we want to go even in an environment like we’ve been in the last year or so.

Mike Perry, CEO

You’re absolutely right. Let me transfer the call over to Erin to provide a bit more detail based on our field force. Erin?

Erin Liberto, Chief Commercial Officer

So when you look at our top 20 accounts or the bigger accounts that have dedicated burn teams, they have a higher chance of having someone that has experience with RECELL because they’re not rotating staff as often. That’s where we’re seeing strong growth. In our top 20 accounts, they have stable teams and always have someone there who is familiar with RECELL. When you look at smaller accounts with rotating teams or staff that isn’t around as often, the surgeon just doesn’t want to try something new. They’re nervous to try something new because RECELL is still perceived as new in many of these accounts, and I think there’s some nervousness there.

Michael Holder, CFO

This has impacted our caseload certainly less than to the degree of 10%, maybe 5% to 7%. So in the overall scheme of things, it hasn’t made a tremendous impact. We’ve spent a lot of time describing this qualitatively, but its overall impact is not that significant.

Brooks O'Neil, Analyst

Great. I was going to ask you just a little bit about how big an opportunity do you see in the outpatient market? I think Mike Perry made a comment that the TPT passed-through payment will facilitate reimbursement for soft tissue. I am curious for a little extra color on what you’re seeing there?

Mike Perry, CEO

Sure. The C code that CMS has approved will go into effect on January 1st next year and is actually indication agnostic. For traumatic wounds and individuals presenting to trauma centers with relatively small wounds that can be treated in the outpatient setting yet require skin grafting, this C code is really going to contribute to our revenues.

Brooks O'Neil, Analyst

Great. Makes total sense to me. And then just one final one; we’ve talked over the last year or so about the opportunities in cell and gene therapy. Since I’m not really a scientist, can you just talk a little bit about exciting opportunities for the company in that broad area?

Mike Perry, CEO

We’re starting with an orphan disease concerning correcting genodermatoses. We’ve started with epidermolysis bullosa, and that is moving along well. We anticipate having preclinical proof-of-concept, and generally, from EB, we believe we can take genetically modified skin cells and use that spray-on technology to create newly corrected skin. There are a lot of other diseases in addition to EB. Generally, the FDA wants to see clinical proof-of-concept across multiple orphan diseases to get a broader label, so they want you to study three or four various gene mutations to prove the platform's robustness.

Brooks O'Neil, Analyst

Okay.

Mike Perry, CEO

We’re also working on rejuvenation, where we’re using RNA telomerase. Assuming we get our proof-of-concept, we believe we’re almost there. We’re getting telomerase to skin cells and we've identified that. If that comes through, obviously, that’s a multi-billion dollar opportunity. We would look to develop it in a real indication beyond just rejuvenation to start to generate safety data, possibly in solar elastosis, where you have skin damage from excessive sun exposure.

Brooks O'Neil, Analyst

Okay.

Mike Perry, CEO

There are other indications as well, but we would go into a real disease as opposed to just wrinkles and people wanting to look younger, generate the safety data and then move on from there. We’re very excited about the opportunities ahead.

Brooks O'Neil, Analyst

Sounds great. Thank you very much.

Mike Perry, CEO

Thank you, Brooks.

John Hester, Analyst

Good afternoon, Mike. Just the quick question first, actually for Erin, just in relation to the hospitals? I mean, you’ve talked a lot about the nursing shortage there. How much focus are hospitals putting on correcting their problems? Is this something that’s not going to go away in a quarter or two, but is it a focus area for them do you think?

Mike Perry, CEO

Yes, definitely. We’re hearing about it in other contexts as well. It’s not just related to the RECELL platform; overall, there is a shortage of nursing staff, and hospitals are really pushing their nursing staff hard. We’re hearing a lot about it in general news media, as well as from other companies reporting. Erin, anything you want to add?

Erin Liberto, Chief Commercial Officer

Yeah. It’s not just nurses; it’s other support staff as well. There’s a general shortage across all resources.

Mike Perry, CEO

And a lot of it is burnout of those individuals who worked through the pandemic and didn’t get a break. Finally, some are reassessing their careers because they don’t perceive fairness in the situation. It’s something that hospitals will have to deal with. It won’t be an overnight correction. But I’m sure it will correct. Andy, anything to add?

Andy Quick, Chief Technology Officer

We had a keynote presentation by the President of the American Nursing Association at last week’s Southern Region of the ABA. The ANA is also taking an active role in combating this issue, engaging with hospitals to make sure there's a clear understanding that nurses are specializing. They’re working on an accreditation program specifically for burn nurses, and they're engaged on Capitol Hill to ensure that their voices are heard regarding what's needed to improve the situation. There's a lot of work ongoing from various angles to address this issue.

John Hester, Analyst

Okay.

Mike Perry, CEO

Did that answer your question?

John Hester, Analyst

Yeah. Just to confirm, it’s going to be a little while before we correct the nursing issue. You’ve got to retrain the new staff, so that's going to be an issue for a couple of quarters?

Michael Holder, CFO

Yes.

John Hester, Analyst

I just had a quick question for Mike Holder. Just in relation to allocating expenses, particularly in relation to R&D, is that likely to increase, decrease, or anything you may add?

Michael Holder, CFO

We actually expect that to increase somewhat as we launch into the clinical trials for soft tissue and vitiligo, so that number will be going up somewhat for the balance of the fiscal year.

John Hester, Analyst

Okay. That’s fine.

Michael Holder, CFO

The share-based compensation is spread out throughout the year, depending largely on when we hit various goals triggered in the stock compensation plan. So that will vary by quarter.

John Hester, Analyst

Great. Thank you very much. That’s all for me.

Mike Perry, CEO

Thanks, John.

Michael Holder, CFO

Thank you.

Operator, Operator

Thank you. That’s all the time we have for questions. This concludes today’s conference call. Thank you for participating, and you may now disconnect.