Avita Medical Declines 30% on Revised Guidance
Taking a Look at Avita Medical (RCEL).
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Hospital Inventory Adjustments Weigh on Results, Out of Management’s Control
Avita Medical (RCEL) recently announced its preliminary financial results for the fourth quarter and full-year 2024, issuing guidance that fell short of market expectations.
Q4 Revenue: Avita Medical now expects commercial revenue of approximately $18.4M for the quarter ended December 31, 2024. This represents about 30% growth over the same period in 2023, but falls short of the previously announced guidance of $22.3M to $24.3M (Yikes!).
Full-Year 2024 Revenue: The company anticipates full-year 2024 commercial revenue of around $64.3M, reflecting a 29% increase over 2023. This is slightly below the previous forecast of $68M to $70M.
Reasons for Revised Guidance
The main factor behind the lower-than-expected fourth-quarter revenue was slower purchasing activity. Several hospital accounts adjusted their inventory levels at the end of their fiscal year, resulting in reduced orders in December. While some level of year-end adjustment is typical, this was more pronounced than anticipated. Avita Medical expects normal purchasing patterns to resume in the first quarter, with deferred orders from the fourth quarter carrying over into the new year.
Product Expansion & Growth Strategy
Despite the shortfall, they continued to scale its business in 2024:
Launched PermeaDerm, a biosynthetic, transparent wound matrix.
Received FDA approval for RECELL GO, a next-generation device, in June, followed by approval in December for RECELL GO mini (See archive), designed for smaller wounds. Both are expected to drive adoption among new and existing accounts.
Secured FDA clearance in December for Cohealyx, a collagen-based dermal matrix co-developed with Regenity Biosciences.
These product launches and an expanded sales force support the company’s long-term growth strategy and broader business potential.
2025 Financial Guidance
They expect full-year 2025 commercial revenue to range from $100M to $106M, representing an increase of approximately 55% to 65% over projected 2024 revenues.
Updating its previous timeline, the company now aims to achieve cashflow break-even and GAAP profitability in Q4 of 2025, rather than the third quarter.
My Take
In my most recent article on Avita, I noted that management has worked to address past issues of overpromising and underdelivering. The latest guidance revision, in my view, was clearly beyond their control. However, Wall Street ultimately sets the tone, and the lower-than-expected numbers placed them in the “doghouse.” It’s also worth highlighting that the biotechnology sector as a whole continues to be neglected, so any hint of negative news can trigger an outsized sell-off, especially for companies that aren’t yet profitable.
While it’s certainly painful to watch a sharp decline in share price, it’s essential to remain rational and scrutinize both the immediate catalysts and the broader context. In this instance, the downward revision stemmed from factors outside management’s control, indicating a temporary setback rather than a longer-term structural issue. Knowing what you own is paramount: if the core thesis remains intact, a short-term hiccup shouldn’t overshadow the company’s underlying potential.
Looking ahead, their pipeline of products is ramping up, and once these offerings are fully integrated into their realistic addressable markets, the resulting boost to cash flow could be substantial—particularly given the strong gross margins already in place. I still anticipate that they will achieve breakeven in the second half of 2025, a milestone that reinforces its long-term prospects. Personally, I plan to add to my Avita position in my Roth IRA, with the size of the investment depending on where the stock settles in the near term.