Skin Grafts Disruption: Avita Medical's Regenerative Medicine System Poised to Disrupt Traditional Skin Grafts, Says Analyst

Cantor Fitzgerald has initiated coverage on Avita Medical Inc RCEL at an Overweight rating and a price target of $23. 

The analyst notes that the company's RECELL system will disrupt traditional split-thickness skin grafts, requiring 97.5% less donor skin when used alone in second-degree burns and 32.0% less donor skin when used with autograft for third-degree burns.

It requires 56% and 60% fewer autograft procedures for pediatric and adult patients with >60% TBSA (total body surface area), respectively, a shorter length of hospital stay, and reduced scarring and pain.

After receiving an expanded indication for soft tissue, RCEL can tap into an additional 10,000 annual burn procedures and approximately 110,000 acute wound procedures, which suggests a total addressable market (TAM) of $1.0 billion.

Furthermore, an estimated 1.3 million stable vitiligo procedures are in the U.S., indicating a potential TAM of $5.2 billion.

However, that reimbursement for vitiligo is currently unavailable, suggesting that this market opportunity may be realized further in the future.

The analyst says Avita Medical deserves a premium valuation due to the company's superior growth and gross margin profile, with an FY22A gross margin of ~82% versus peers at ~69%.

RCEL's shares are currently trading at 6.5x EV/CY23E revenue versus slower-growing (RCEL 44% vs. Peer median 22% CY2023 revenue growth) MedTech peers at a median multiple of 6.5x. 

When considering growth, RCEL is trading at 14.5x EV/ CY23E revenue/growth versus the median peer multiple of 27.1. 

Price Action: RCEL shares are up 0.89% at $15.85 on the last check Tuesday.