AVITA Medical, Inc. (RCEL) Q4 2021 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. And welcome to AVITA Medical, Inc. Fourth Quarter 2021 Earnings Conference Call. At this time, all participant are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker for today, Caroline Corner. You may begin.

Thank you, Operator. Welcome to AVITA Medical’s fiscal fourth quarter and full year 2021 earnings call. Joining me on today’s call are Mike Perry, President and 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 and expectations for AVITA’s products and technology, trends and demands for AVITA’s products, AVITA’s expected financial performance, expenses and position in the market, and the impact of COVID-19 on AVITA’s operations and AVITA’s customer’s 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’s most recent filings with the SEC, particularly the risk factors described in AVITA’s S-3 and 10-K filing, and in AVITA’s quarterly report on Form 10-Q for the fourth quarter ended June 20, 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 undertakes no obligation to update these statements except those required by applicable law. AVITA’s press release for the fourth quarter and full year 2021 results is available on AVITA’s website, www.avitamedical.com under the Investors section and includes additional details about AVITA’s financial results. AVITA’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’s website by 5 p.m. Pacific Time today. Now, I’d like to turn the call over to Mike for his comments on fourth quarter 2021 business highlights.

Thank you, Caroline, and thank you everyone for joining us today. We made strong progress on our growth objectives in the fourth quarter. As you know from our pre-release in June, commercial revenues, non-including BARDA related revenues were strengthened substantially in the quarter, up 45% quarter-over-quarter, reflecting reopening of parts of the economy, which led to a corresponding increase in accidents, as well as continued penetration into our burn center accounts as we began to see some improved access to hospitals and increase procedures. While it would be premature to say that the pandemic is behind us, especially given recent developments with the Delta variant, we are encouraged by our recent commercial performance and remain extremely excited about the opportunities ahead with our pipeline indications. Here at AVITA, 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 quality of life for our patients. As we grow from treating burns to trauma to vitiligo to cell and gene therapy, and to aesthetics and beyond, our focus is on delivering leading edge therapeutic skin restoration solutions to our patients. While the company was founded with burn treatments in mind, our team is working to leverage our point-of-care autologous spray on skin platform across many markets and indications, and I’m very pleased to update you today on our latest developments. With that, I’d like to turn now to our burns business. As a quick update on the product development upfront here, at the end of June, we submitted to the FDA a PMA supplement for our new version of RECELL device with enhanced ease of use. We anticipate FDA approval in the first half of calendar 2022 and commercial launch thereafter. In our fiscal fourth quarter, we saw COVID abating in many geographies, which led to various degrees of economic and social recoveries, which in turn resulted in a corresponding increase in accidents. Our sales team was able to regain some momentum with our customers, which is reflected in our revenue results. I’m very proud to report that our RECELL commercial revenues were a record $6.7 million in the fiscal fourth quarter, compared to $4.6 million in the previous quarter ended March 2021. We realize this significant revenue growth primarily from the increase in burn cases, but also from our commercial teams’ further penetration in burn center accounts. Our organization remains well positioned to respond and quickly pivot to changes in burn related accidents. We have been building our burns focused sales force for over two and a half years, and believe we have the largest and most experienced burns dedicated sales force in the market. In the quarter, we saw increased penetration into accounts and procedures spanning all burn sizes, including smaller burns, which has been our focus of late. Approximately 80% of our burn cases come from these smaller wounds or wounds comprising less than 30% TBSA or total body surface area. We ended fiscal 2021 with over 100 hospital accounts, with the ABA estimating that there are 136 burn centers in the United States. And I have -- we have -- and as we’ve mentioned previously, we feel that we have established a solid footprint in burn center hospitals. Our focus is now on driving utilization and broadening penetration within this footprint. We believe our recent sales performance illustrates success with implementing this plan. Revenue from our top 20 accounts increased approximately 25% in fiscal Q4 over fiscal Q3, demonstrating strong growth. If we look back a year ago, our top 20 accounts were contributing 66% of our burn revenue. Today with a much larger revenue base, our top 20 accounts are delivering just over 40% of revenue, reflecting utilization across a broader base of burn centers, with over 50% of burn surgeons using RECELL in the quarter and over 80% of the approximately 300 U.S. burn surgeons trained to use the RECELL System, we have indeed established a broad user base. As we look ahead, our sales force will be focusing primarily on driving and expanding usage and adding surgeon users within our existing accounts. As the Delta variant spreads, we are seeing increased access restrictions and we anticipate a potential impact on the availability of burned beds, particularly in the South. Of note, data from an ABA sponsored series of surveys between April through August of 2020 showed that of 2,082 burn beds identified in the United States, only 845 beds or 40% were available in April of 2020 and the mere 572 burn beds or 27% were available in August of 2020. The impact we saw last year during the COVID peak did influence our sales and while we don’t currently think the Delta variant will be nearly as disruptive and we are not currently seeing an impact on burn bed availability, we are prepared to pivot and deploy our learnings from the prior waves of COVID. Moving forward, we continue to lay -- to leverage our sales forces deep relationships and experience, our training capabilities, physician engagement programs and new outreach efforts to educate and engage burn care providers. Today, our sales force is able to access most accounts to support cases and aftercare, and to perform training. During the fourth quarter we saw substantial traction in small off-site AVITA events and these live sessions drove physician understanding of incorporation of RECELL into their daily practice and correspondingly our revenue increase. This summer has been slow in terms of professional meetings due to the pandemic status and the impassioned restart of vacations. Yet we expect resumption of regional meetings in the fall. While meetings and conferences are currently planned to be in-person, they may change to virtual as a result of the spreading Delta variant. Fortunately, enthusiasm from physicians has been very high and we have been successful in the past at adeptly pivoting to virtual meetings. So we will continue to be flexible as necessary with our participation at meetings and with our physician interactions. With our recent label expansion to treat full thickness thermal burns in patients one month of age and older, in July, we rolled out a campaign targeting pediatric burn treatment. As you may know, unfortunately, nearly a quarter of all burn cases in the United States occur in children under 16 years of age. One of the main goals within the burn community and here at AVITA is to avoid painful surgeries, scarring and multiple grafting procedures. From analysis of our continued access and compassionate use data, RECELL significantly reduced the mean number of pediatric grafting procedures compared to national burn repository data. Our results showed 1.6 grafting procedures using RECELL in combination with graphs versus 3.6 procedures using conventional split thickness skin grafts, which is a very compelling improvement given the pain and scars that patients endure. While we do not expect the pediatric label expansion to move the needle significantly on our topline revenue in the near-term, we can now engage burn centers that are pediatric-only facilities and we are now providing a comprehensive commercial effort that is able to address the vast majority of burn patients. Our commercial team is finding that our new label is reinvigorating conversations. For example, after an extended sales effort, UC Davis one of the largest U.S. burn centers recently added RECELL to their formulary driven in part by the new expanded label. You may have seen a recent news report in late July in Yonkers, New York, of a mother and child being hit by an alleged drunk driver. The child was pinned under a car and was severely burned. I’m very pleased to tell you that RECELL was used successfully to help that child. And seeing these heartbreaking cases, it is truly a privilege to be in a position to make a meaningful difference in the lives of these children and their families. Another area of important impact for us is the subject of injuries not originating from burns. The reopening of the economy and the corresponding increase in accidents meant that in the fourth quarter enrollment in our soft tissue reconstruction trial accelerated. As a reminder, this trial involves non-burn wounds such as those with necrotizing soft tissue infections and degloving injuries, which are wounds that commonly present at the same trauma centers, where we are currently serving our burn patients. If you recall, we had our first patient in this pivotal trial enroll in March 2020 and we saw slow enrollment for the first year due to the pandemic. We have 17 participating sites, with 32 subjects enrolled and treated as of June 30th. Over the last two quarters, we have seen patient enrollment ticking upwards. For instance, during July, eight additional patients were enrolled. Three patients have been recruited so far in August and our goal is to complete recruitment of all 65 patients by late 2022. With a six month follow up for patients in this trial, we are aiming for an approval in calendar year 2024. We will be leveraging our existing trauma and burn center sales point and incrementally growing our sales force to address this opportunities. 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 already know some of our top accounts are using RECELL for trauma as they seek to find the best outcomes for their patients. As an example, a top surgeon at University Medical Center in New Orleans, which is one of our top 10 accounts has told us that approximately 10% of their RECELL procedures are currently performed on trauma patients. Based on our internal calculations, we foresee a serviceable addressable market or SAM for trauma and soft injury of $450 million. 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, meaning that their underlying autoimmune disease is being well managed and that their disease is not continuing to spread. We estimate the opportunity for RECELL to re-pigment stable vitiligo patients in the U.S., is at least $5 billion and there is no FDA approved product presently available to enable re-pigmentation for these patients. Recently, FDA approved our proposal for a single-arm vitiligo trial powered with 23 subjects, with each site required to complete treatment of a running subject for purposes of training. As a reminder, our original trial was a three-arm trial with 84 patients. While this means we will restart enrollment, we already have 15 centers up and running, a robust recruitment program and we continue to expect that enrollment will be completed by the end of calendar 2021 and we continue to plan for approval in 2023. To further support this opportunity, our products team is developing a new fully automated version of the RECELL System tailored for the dermatology setting. This is being designed to support our commercial plan for vitiligo and I look forward to updating you as we progress. Work advances in our collaboration with the University of Colorado, Gates Center for Regenerative Medicine in epidermolysis bullosa or EB and with the Houston Methodist Research Institute in rejuvenation. In both cases, we are successfully demonstrating the intended molecular and cellular changes in the laboratory setting and we are now shifting toward demonstrating that these modified cells will form new skin in animal models. These programs both aim to show preliminary proof-of-concept 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 physician engagement and education, whether in-person or virtual. Notably, our discussions with burn surgeons have largely shifted from whether or not to use RECELL to a focus on optimizing the use of RECELL, as well as training and refining the expertise of supporting 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. And looking ahead, we are leveraging our educational efforts and our expanded label and pediatric campaign to drive more engagement. In late July, CMS released the 2022 Medicare Outpatient Prospective Payment System proposed rule which contains a review of RECELL’s transitional path through or TPT payment application. We anticipate the final rule will be published before calendar year end, with payment going into effect in January of 2022. Assuming a successful outcome, a C code will be assigned to RECELL which we anticipate will cover the cost of the device for all Medicare and Medicaid patients. We would then commence a pilot launch at key sites to ensure coverage with commercial carriers before initiating a broader nationwide launch likely in mid-2022. Our pipeline initiatives are moving forward. Specifically our trauma and vitiligo clinical trials continue to make gains toward completion. We are especially excited about both our new single-arm vitiligo trial, as well as our soft tissue trial enrollment, which has 43 of 65 patients enrolled and appears to benefit from the recent increase in trauma related accidents. We continue to be optimistic about our pre-clinical pipeline work in epidermolysis bullosa and rejuvenation and expect to have demonstrated proof-of-concept by the end of the calendar year. I look forward to sharing our progress there. Today, we are much more than a burns business. Moving to our last growth driver, we anticipate broadening our geographic footprint over the coming years. Together with our commercial partner COSMOTEC, we continue to seek approval in Japan. As previously reported, we completed the three required non-clinical benchtop studies in August of 2020 as scheduled. The Japanese Health Authority has recently undertaken their Good Clinical Practice or GCP audit related to AVITA Medical with no exceptions noted to-date. COSMOTEC will meet with the Japanese reimbursement MHLW or Ministry of Health, Labor and Welfare to present RECELL for reimbursement review in the near future. Our efforts and interactions with COSMOTEC and the Japanese Regulatory Authority are ongoing and we continue to expect approval by calendar year end 2021 of our application for marketing approval of the RECELL System under Japan’s Pharmaceuticals and Medical Device Act or PMDA. We are also planning re-entry into other U.S. markets following U.S. approval of new political indications for the RECELL System. At that time, we expect to have sufficient economies of scale provided through multiple RECELL indications to provide adequate ROI to justify the significant investment required in sales force, infrastructure, training and reimbursement activities, so that we can leverage our existing RECELL CE Mark and TGA registration. In summary, we accomplished a lot over this past quarter. Our legacy burns business showed strong growth. We received approvals for expanded burn indication covering pediatrics and extensive burns. We submitted a PMA supplement for a new RECELL device. We made significant strides with our two lead clinical trials and we’ve made strong progress on our pipeline and product development upfront. With that, I’ll now turn it over to Michael for details on our financial performance in the quarter. Michael?

Thank you, Mike. In the fourth quarter ended June 30, 2021, total net revenue increased 166% to $10.3 million, compared to $3.9 million in the corresponding period ended June 30, 2020, and compared to $8.8 million in the prior quarter ended March 31, 2021. In the fourth quarter, RECELL commercial revenues increased 72% to $6.7 million compared to the prior quarter, while RECELL revenues associated with Biomedical Advanced Research and Development Authority, BARDA were $3.6 million and attributable to the delivery of RECELL units for emergency response preparedness. Gross profit margin was 80% for the fourth quarter of 2021, compared with 77% in the corresponding quarter last year. The increase in our gross profit margin resulted from lower shipping cost and increased production. Operating expenses were $13.4 million in the fourth quarter of 2021, compared with $16.5 million in the same quarter last year. The decrease in operating expenses is primarily attributable to lower stock-based compensation, along with higher costs in the prior period associated with the redomiciled transaction, partially offset by higher cost in research and development in the fourth quarter. Lower stock-based compensation in the fourth quarter was driven by certain performance milestones being met in the prior year. Higher research and development expenses have resulted from a ramping up of clinical trial related activities related to vitiligo and soft tissue, as well as other costs incurred to improve the company’s RECELL platform technology and further expand the company’s pipeline. Net loss was $4.7 million for the fourth quarter of 2021 and net loss per share was $0.19 on a weighted average basic and diluted share count of 24.9 million, compared to $12.9 million and a net loss per share of $0.60 on a weighted average basic and diluted share count of 21.4 million in the same period of the prior year. Cash was $110.7 million as of June 30, 2021. Moving on to guidance for our first fiscal quarter, we expect total commercial revenue in the first fiscal quarter to be approximately $7 million. With that, we thank you for your attention and now I will turn the call back over to the Operator for your questions.

Thank you. [Operator Instructions] Our first question comes from the line of Josh Jennings with Cowen. Your line is open.

Hi, Josh.

Hi. Good afternoon. Hi. Good afternoon, Mike and Michael. Thanks for taking the questions and great to see the recovery progress you guys made in the quarter even stronger than the preannouncement. I wanted to ask about fiscal 2Q guidance or, sorry, excuse me, fiscal 1Q guidance of $7 million commercial revenues. That’s a sequential improvement. It sounds like what you’re seeing to-date in August and July, you’re not seeing disruption from Delta. But I was wondering if you could just help us understand what type of headwinds you’re seeing in the burn space and then particularly what the trends in August has been like?

Thanks for your question, Josh. We are seeing some softening in August. I’m actually in addition to Michael and myself, I’ve got Erin Liberto, our Chief Commercial Officer, as well as Andrew Quick, our Chief Technology Officer with me here. So they’ll also be available to answer questions. And for this one, I’d like to pass it over to Erin to give you a little bit more color on the revenue growth and our estimate of $7 million for commercial revenue in the first quarter.

Sure. Hi, Josh. How are you? So I think what we’re seeing and what we’ve kind of anticipated is there’s a certain group degree of seasonality as you move towards the fall that we’re starting to see in the August timeframe and that we’re anticipating as we move into September. So I think that is separate from COVID. Related to the Delta variant, we’re certainly seeing that more so in the South. We’re seeing that kind of affect hospitals, the support staff. Not as much affecting sales yet. I mean certain procedures are getting affected, but it’s anything more so delayed than anything else. But again, I think that, we’ll have to just wait and see how that might pan out. But I think more so than anything, it’s the seasonality that I think that we’re anticipating more so.

Great. And then just one quick follow up on this topic. In terms of the burn beds and the metrics you gave from 2020, there’s a some significant reductions in burn bed availability. But just to be clear, you’re not seeing any reduction in burn bed availability so far with this Delta surge. Is that -- did I hear that correctly?

Not. No. That’s correct. Well, we’re not yet seeing any effect on bed availability and we’re hoping that we don’t going forward.

Great. One quick question on the pipeline, just on the vitiligo trial design optimization. I was wondering if you could just help share or you just share the signals maybe from feasibility trial or other data sets that have accrued -- that drove decision to optimize really from one to five, one to 10 expansion ratio arms? And did you need to show those signals or those data sets to the FDA to have them accepted trial design modification and just your optimism that this is the right way to go from an efficiency standpoint and a commercial standpoint in that one to 20 expansion ratio indication on vitiligo?

So I’ll start off with an answer to that question, Josh, and then pass it over to Andy. Definitely, we are solid in selecting the one to 20 expansion going forward in the single-arm trial design with 23 patients that’s powered to 90% and we’re feeling very comfortable to talk about the data sets that underpin that decision. I will pass it over to Andy.

Thanks, Mike. Hi, Josh. We have not relied on the feasibility data with respect to our FDA submission. But it’s in -- its early days in the -- in this feasibility program and in any case to-date nothing in those data would appear counter to the decision that we have made, which is a strategic decision to sort of consolidate study power into a single-arm and there are kind of multiple data points feeding into that. Recent publications are showing results, strong results at the one to 20 and higher expansions. And our own internal development work on the bench is showing that the fluid volumes associated with the preparation of the one to 20, those suspension are optimal for cell harvesting. So it’s really those data that we used in our FDA submission to consolidate the single-arm.

Excellent. Thanks for taking the questions.

Thanks, Josh.

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

Great. Thanks so much for taking my question. I know there’s some softening here in fiscal Q1 as a result of COVID, I get that. But what I’m really interested in is the sequential improvement you saw in fiscal Q4 and I know it’s a fourth quarter and a bigger push among the sales force. But that by my numbers is about a 40% sequential increase on a per surgeon basis versus fiscal Q3. So it seems like the strategy of going deeper in these existing accounts is really starting to get traction. So I’m just wondering, as we come out of COVID and some of the impacts you’re seeing there. I mean, the ability to drive deeper and deeper penetration seems like it’s proving out. So how quickly can you get back to doing that? And then, again, the revenue per doctor that I’m seeing right now out of fiscal Q4 is about $45,000 roughly. Where do you think that $45,000 can go over time?

Erin, do you want to take this one with Matt?

Yeah. So I think there’s -- there was few things that are happening last quarter that just to put in perspective. So, first of all, the pendulum somewhat swung, right, when the people were in massive lockdown and all of a sudden people got their vaccinations and were able to go out and live again. And because of that the accidents, the pendulum swung from, because of lockdown very little accidents to all of a sudden the accidents and the incidence of burns really increased exponentially. So I would say that our sales was driven by two -- in two parts. One part was accidents and abnormally high accidents, unlike I’ve ever seen an increase before. So and that was due to this desire for people to get out and live again, because they’d been cooped up. Two, it was also driven by -- the sales team was ready and able to go. They were able to start meeting with accounts live, they were able to have live events that were much more impactful than virtual events. We started having off-site training events, we started having just off-site engagement and live engagement that’s much more impactful. But you’re right. So we deepened penetration, but there was just a lot more cases of burns, actual incidence of burns was much higher. So it was those two things together. So I think the incidence of burns, the pendulum is coming back down. As I mentioned, kind of the seasonality or the incidence of burns is coming back down. We are seeing some tightening of restrictions due to Delta variants coming back into play as well. We are seeing kind of discussions of the fall burns meeting going back to virtual. We are now -- we’ve got one more live meeting planned but the rest of our live meetings that we have planned for the fall, we’re putting on pause until we see what happens kind of with the Delta variants. So there’s a few unknown variables that are going to play out here. But I think you’re absolutely right. I mean, we were very successful moving the needle in terms of penetrating with accounts, but there was a lot more variables to play there. And so it’s a -- I think there’s many more dynamics to kind of kind of look at, if that helps at all.

Okay. I guess maybe just to put -- it’s very helpful. Just to put a finer point on that, Erin. I mean, what I’m really curious about is, when they’re reaching for RECELL versus doing traditional skin grafts. I know there seems like the volume was strong here, is there any way to kind of parse out volume versus just your market you’re taking where people are saying, what, I’m not going to do traditional grafting, I’m going to use RECELL instead?

Yeah. And that’s the tough part about it, right, because we -- the NBR data that we get from the ABA is for the year. We don’t get that until a year later. We are starting to track skin grafting data, but we get that in a six month delay, right? So what we’re getting is just kind of ad hoc feedback from the sites on this kind of increase in admissions. So I don’t have hardcore data in terms of what those exact number of procedures are for the quarter and what our tax rate was, in terms of exact RECELL eligible for you to show or you want is the market share capture of eligible procedures, right? And that data…

Right.

… is challenging.

Okay. Okay. It certainly seems like it’s going in the right direction now. So thanks for that. And then as the follow up to my two question, first question, but our two part first question. But on Josh’s point on the single-arm vitiligo, I’m just wondering, 90 patients, I know it’s by year end, you said that before for the other study design, going down to a single-arm, though, can’t you crunch the data faster? Isn’t the cost of the trial going to be a little bit lower as a result of this? And then is there any risk that it’s not viewed as a more robust clinical study, because there’s that multi-arm in the eyes of clinicians once you do get the approval?

So let me again start out with a response here and then pass it over to Andy to add some color to it. But we’ve got 23 patients that will be enrolled in the pivotal trial, each site needs to do a run-in patient, as Andy previously mentioned, basically is a practice patient to make sure that they’ve got the procedure down right. And we don’t feel that we’re losing anything by not studying the one to five and one to 10 concentrations, because it’s not a linear basically rollout of availability of skin cells relative to diluent, when we look at the suspension and that’s what Andy’s talking about when he speaks about the laboratory results that his group has uncovered in the meantime. So there seems to be a greater efficiency as we’re at a one to 20 with that fluid volume and in the cellular suspension. So we feel very confident also seeing publications coming out with one to 20, one to 40 and getting good results with those patients. And I’ll pass it over to Andy now if you want to add any color?

I mean, you’re correct. This trial design is more cost effective for us and just to put a pin in what Mike is saying the, our data don’t predict the difference between the one to 10, one to five and one to 20. So that was really what underpinned our decision.

Does that answer your question, Matt.

That’s perfect. Thanks so much.

You are welcome.

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

Hi, Mike. Hi, Michael. I’m going to come back to the top 20 accounts, obviously, it’s great to see you’ve got a broader base of accounts there with the top 20 now holding 40%. But if I think about rising cases in the United States, can you give us a sense of of how many of those top 20 accounts might be in states where we’re seeing a significant increase in the Delta variant cases?

Erin, are you able to answer that?

Yeah. Well, I would say that, gosh, a good chunk. I mean, if you -- many of our largest accounts are in the top 20. So, yeah, I mean, I can -- if I look at the numbers? Oh, gosh, almost half of them are in the top 20 are in the areas that are affected with the Delta in terms of the actual proportionately the makeup of the total sales of the top 20 accounts. Does that make sense.

Okay. And with those accounts at the moment, as you say, with the Delta variants, are you seeing any material change in access to hospital, for those particular accounts?

So there are changes in access, but we’re still able to get in, right? So, for example, when I say that, there’s no what we call plus one, you can’t bring anybody with you. You are able to get in to support a case, to do a training, to be there for the after care. You are now for some hospitals required to have to be vaccinated. There are kind of more strict requirements to get in. But we are still able to get in. The other issue that is that many of the staff are out with COVID, many of the nurses are out with COVID. So we’re actually required to be in more often to help support cases or to train. So if anything, we’ve seen some cases get delayed because of that, but we haven’t to my knowledge actually lost the case because of that quite yet.

Okay. Thank you. And if I could follow up, with the approval for RECELL for pediatric thermal burn, can you give us an indication of what sort of traction you’re getting with the pediatric hospitals today?

So, again, I’ll start off and pass it over to Erin. We are getting traction and there is a specific pediatric campaign for pediatric only facilities. A good example is UC Davis, where they’re one of the top accounts and they’ve got their major hospital across the street, they’ve got Shriners Hospital for children only. And they signed on with us, partially because of that expanded label with pediatrics and so that’s just an example there. So we are getting additional traction. And I’ll pass it on to Erin for any additional color.

Yeah. So there’s not a lot of pediatric-only burns hospitals in the United States. And so those that are the ones that we’re now working with to try and get what we call VAC approval or Hospital Administration approval and so many of those hospitals are in that process right now. Typically, that process can take six months and sometimes longer to kind of get through that. So we haven’t had our approval for very long. So we’re just kind of getting through that process for the most part with most of those accounts. But the label has certainly been very, very helpful getting approval and also now accessing those conversations and starting the process off in those pediatric only accounts. And also it’s been helpful getting access into other accounts just to have new conversation, because that also is another excuse to get into hospitals. It’s considered a new product or new news and it is it does allow us entry into the hospital to talk about this, the new data that we have and the new label.

Okay. Great. Thank you very much.

You are welcome.

Thanks, Lyanne.

Thank you. [Operator Instructions] Our next question comes from the line of Ryan Zimmerman with BTIG. Your line is open.

Hey. Thanks for taking the questions. It’s great to see all the progress. Just I will ask my two questions up front and kind of follow up to Matt’s question. For you, Erin, I know we’re talking about all the utilization dynamics and things with that. What are you potentially displacing, whether it’s skin grafting or other products on some of these cases, I’d love to understand what you could be also replacing beyond skin grafting? And then the second question, and Mike, I know you’re going to prognosticate on pastor status. But if you read the comments from the FDA, there was a discussion around whether RECELL itself is a device and how they’re thinking about it. And so I love just your latest thoughts on what you think or what your interactions with the agency, CMS has been around this and kind of where your head’s at in terms of getting that pass-through label? Thanks for taking the questions.

Sure, Ryan. Why don’t I let Erin answer the first question about what are we displacing beyond skin grafts. I’ll take the second one on our pass-through payment.

So just be clear, our target is skin grafting. Skin grafting is the standard-of-care. Skin grafting is where the volumes add. The only other product, Epicel is the only other products in the market and the volumes with Epicel are so low, their price point is very, very high. But when you actually look at what that equates to in terms of procedural volume it is very, very low and that’s not meaningful for us in terms of volume. So that’s not our target. Our target is skin grafts. And anytime that you may require a skin graft, consider RECELL and essentially, TBSA or total body surface areas of 5% and higher is pretty much our sweet spot anytime you could require skin grafts. So it’s really it’s changing the standard-of-care. It’s a total paradigm shift. That’s what we’re focusing on.

And I’ll just follow up on the pass-through payment for outpatients. And you are correct that CMS and the Federal Register said that we basically check all the boxes. But they’re uncertain that we are or should be classified as a device. Of course, we do have a PMA approved, which is a device. We do have device breakthrough designation and the FDA has fully regulated us as a device. And there’s also a change of staff that has gone on at CMS and what I believe is that it’s really a reeducation program or process that we need to go through with the change of staff to get them up to speed and have them really understand the details of what’s been going on. And of course, during the open comment period, CMS is not going to provide any additional commentary on it. But we remain confident that this will come through with that being their only question, Erin, I don’t know, if you -- the reimbursement group reports to you, but anything to add?

No. I think you’ve covered it. I mean, hopefully, we’ll -- typically they will publish the final rule in November. Last year it was a little bit later in December. But, hopefully, we’ll know by year end. I think we’re more optimistic still. We -- I think we were surprised on that feedback, given everything that you said, but we’ll have to wait and see.

Okay. Appreciate the color. Thank you, guys. Congrats on all the progress this quarter.

Thank you, Ryan.

Thank you. Our next question comes from the line of John Hester with Bell Potter. Your line is open.

Good afternoon, everyone. Thank you for your time today. Michael, if you could just expand on your comments about the Japan market. It’s really fairly close now, actually you said like 2021 for an expected approval is presumably with the launch in calendar year 2022. Can you just run through the coupons on your commercial arrangements there with COSMOTEC, please?

Sure. And…

And some -- maybe some volume comments, sorry?

Sure. Why don’t I start off and then I may pass it to Michael Holder for some additional color commentary if he has any. But our arrangement with COSMOTEC, our partner in Japan is that it’s approximately a 50% revenue share. And you’ve heard of the progress, there’s a GCP audit that has begun. No findings to-date. There’s also some plan discussions with the Ministry of Health, Labor and Welfare on reimbursement, which are all very positive comments -- commentary relative to the approval coming up at calendar year end, which we’ve not changed our guidance on and we still do anticipate that and we do anticipate a launch in 2022. And so far as the volumes and how much we’ll sell or COSMOTEC will sell rather, it’s hard to say, until we actually get the label from PMDA, because COSMOTEC with us in collaboration. We have applied for a very broad label to include burns and we’re confident of getting the indication of burns. But it also includes soft tissue. It also includes vitiligo. It also includes potentially chronics. So dependent upon what indications are actually approved by the PMDA and given reimbursement by the MHLW, that will determine the volumes and then the revenue that’s going to be coming to us. That answer your question, John, but…

Thank you. Thank you, Mark. Just as a follow up…

…detail discussion…

Just as a follow up.

Sure.

Just as a follow up, Mark, what do you believe is the market in Japan for vitiligo? In terms of how many stable patients, there is 1.3 million in the U.S. How many -- you have any idea what that could be in Japan?

Generally, it’s 10% is rule of thumb. But let me pass it over to Erin to give you more detail if she may have.

Yeah. So China and Japan have a little bit -- are -- China, Japan and the U.S. are kind of the highest nations for vitiligo. So there’s about 2 million patients that suffer from vitiligo. So if you use the same proportions that we have in the US for stable, that’s just over 0.5 million that are have stable vitiligo.

Okay. And Mike, just finally, you also talked about other geographic expansion, is anything happening beyond Japan at this point?

At this point, no, we’re really waiting for additional indication approvals and once -- to be more specific, once we’ve got soft tissue and vitiligo approved in the United States, then we will have the necessary ROI that we need to go into each country. In Europe negotiate -- get a sales force going, negotiate reimbursement, do our economic models and really get into Europe, as well as back into Australia.

Excellent. Thank you.

Pleasure, John.

Thank you. I’m not sure any further questions in the queue. Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.