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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-39059
AVITA MEDICAL, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
85-1021707
(IRS Employer
Identification No.)
28159 Avenue Stanford
Suite 220
Valencia, CA 91355
(Address of principal executive offices and Zip Code)
Registrant’s telephone number, including area code: (661) 367-9170
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.0001 per share
Trading
Symbol
RCEL
Name of each exchange
on which registered
The Nasdaq Stock Market LLC
Securities registered pursuant to section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the
definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☒
Accelerated filer
Smaller reporting company
☐
☒
☒
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has selected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to
previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive
officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting and nonvoting common equity held by non-affiliates of the registrant was approximately $117,461,038 on June 30, 2022, using the closing price on that
day of $4.75.
The number of shares of the registrant’s $0.0001 par value common stock outstanding as of February 13, 2023 was 25,296,086.
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FORWARD LOOKING STATEMENTS
TABLE OF CONTENTS
PART 1
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Party Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement and Schedules
Form 10-K Summary
SIGNATURES
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (this “Annual Report”) and our other public filings contain forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements give expectations or forecasts of future events. Forward-looking statements
can sometimes, but not always, be identified by words such as “believe,” “expect,” “anticipate,” “estimate,” “project,” “plan,” “should,” “intend,”
“may,” “will,” “would,” “potential” and similar expressions to future periods. Forward-looking statements are not based on historical facts but rather
represent current expectations and assumptions. Factors that may influence or contribute to the inaccuracy of the forward-looking statements or cause
actual results to differ materially from expected or desired results may include, without limitation: future revenues; solvency; future industry market
conditions; future changes in our capacity and operations; future operating and overhead costs; failure to obtain, maintain and enforce our intellectual
property rights; regulatory and related approvals; the conduct or outcome of pre-clinical or clinical (human) studies; operational and management
restructuring activities (including implementation of methodologies and changes in the board of directors); future employment and contributions of
personnel; our ability to attract and retain qualified personnel; effects on the global economy of the ongoing COVID-19 pandemic; tax and interest rates;
inflation, recession, financial market disruptions and other economic conditions; productivity, business process, rationalization, investment, acquisition
and acquisition integrations, consulting, operational, tax, financial and capital projects and initiatives; changes in the legal or regulatory environment;
and future working capital, costs, revenues, business opportunities, cash flows, margins, earnings and growth.
Forward-looking statements relate to the future and are subject to many risks, assumptions and uncertainties, including those risks set forth in this
Annual Report in Part I, Item IA Risk Factors and elsewhere. Although we believe the expectations reflected in the forward-looking statements are
reasonable, actual results, developments and business decisions could differ materially from those contemplated by such forward-looking statements. The
environment in which we operate is highly competitive, highly regulated and rapidly changing and it is not possible for our management to predict all
risks, as new risks emerge from time to time.
All subsequent written and oral forward-looking statements by or attributable to us or persons acting on our behalf are expressly qualified in their
entirety by these factors. We undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information,
future developments or otherwise, except as may be required by law.
Currency
In this Annual Report, all references to “dollars” or “$” are to the currency of the United States.
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Item 1. BUSINESS
GENERAL
PART I
AVITA Medical, Inc. and its subsidiaries (including AVITA Medical Pty Limited ("AVITA Australia") (collectively, “AVITA Medical”, “we”,
“our”, “us” or “Company”), is a regenerative medicine company leading the development and commercialization of devices and autologous cellular
therapies for skin restoration. Our patented and proprietary RECELL® System (“RECELL System” or “RECELL”) technology platform harnesses the
regenerative properties of a patient’s own skin to create Spray-On Skin™ Cells, an autologous skin cell suspension that is sprayed onto the patient to
regenerate natural healthy skin.
CORPORATE
Headquartered in Valencia, California, the Company began as a laboratory spin-off in the Australian State of Western Australia. AVITA
Medical's former parent company, AVITA Australia (formerly known as Clinical Cell Culture) was founded under the laws of the Commonwealth of
Australia in December 1992 and changed its name to AVITA Medical Ltd in 2008. AVITA Australia's ordinary shares originally began trading in Australia
on the Australian Securities Exchange (“ASX”) on August 9, 1993. AVITA Australia's American Depositary Shares (“ADSs”) traded over the counter on
the OTCQX under the ticker symbol “AVMXY” from May 14, 2012 through September 30, 2019 and its ADSs began trading on the Nasdaq on October 1,
2019, under the ticker symbol “RCEL”.
On June 29, 2020, AVITA Australia implemented a statutory scheme of arrangement under Australian law to effect a redomiciliation of AVITA
Medical from Australia to the United States (the “Redomiciliation”). The Redomiciliation was approved by shareholders on June 15, 2020 and approved
by the Federal Court of Australia on June 22, 2020.
Pursuant to the Redomiciliation, all ordinary shares in AVITA Australia were exchanged for shares of common stock in the Company (AVITA
Medical, Inc.). As a result, the Company became the sole shareholder of AVITA Australia. In conjunction with the Redomiciliation, an implicit
consolidation or reverse split on a 1 for 100 basis was implemented whereby shareholders of AVITA Australia received one share of common stock in the
Company for every 100 shares held in AVITA Australia.
Under the Redomiciliation, eligible shareholders in AVITA Australia received consideration in the form of:
•
•
five CHESS Depositary Interests (“CDIs”) in the Company for every 100 ordinary shares in AVITA Australia that were held by them; or
one share of common stock in the Company for every five ADSs in AVITA Australia that were held by them.
The Company’s CDIs are quoted on the ASX under AVITA Australia's former ASX ticker code, “AVH”. The Company’s shares of common
stock are quoted on Nasdaq under AVITA Australia's former Nasdaq ticker code, “RCEL”. One share of common stock on Nasdaq is equivalent to five
CDIs on the ASX.
As a result of the ‘implicit consolidation’ that occurred under the Redomiciliation, the number of shares of common stock issued and outstanding
in the Company (as set out in the consolidated financial statements) is less than the number of ordinary shares of AVITA Australia that was set out in the
consolidated financial statements of AVITA Australia prior to August 28, 2020.
COVID-19 IMPACT ON OUR BUSINESS
The ongoing pandemic caused by the spread of coronavirus (“COVID-19”) has created significant disruptions to the U.S. and global economies
and financial markets. The global impact of the pandemic has fluctuated since early 2020. At times, in the United States, state and local governmental
authorities have responded by issuing orders, of varying degrees, requiring quarantines, restrictions on travel and minimizing social gathering/interactions
and mandatory closures of certain non-essential businesses. Many of the restrictions have been periodically updated as infection rates in the U.S. have risen
and fallen, as new variants have emerged, as vaccines have become available, and new information about transmission has been discovered.
In response to the pandemic, we acted swiftly by implementing protocols to ensure continuity of our manufacturing, increasing our safety stock
and to provide for the safety of our employees. We implemented a number of measures designed to protect the health and safety of our employees, support
our customers and promote business continuity. Early on, our business and operations were impacted by the ongoing effects of the pandemic with
restrictions on travel and access to our customers or temporary suspension of treatment of burn patients or re-distribution of those patients to other
treatment facilities and resulted in a reduction in the volume of
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burn procedures using the RECELL following the implementation of those protective measures. In addition, we experienced periodic enrollment cessation
in our clinical trials due to COVID-19 as well as having individuals excluded due to contracting the virus.
As of the date of this filing, we have resumed on-site work schedules for all employees. The COVID-19 pandemic has not materially adversely
affected our financial results and business operations for the fiscal year-ended December 31, 2022; however, we are unable to predict the impact that
COVID-19 may have on our business, operations, and financial results and condition in the future because of the numerous uncertainties created by the
unprecedented nature of the pandemic.
STRATEGY
Our objective is to become the leading provider of regenerative medicine addressing unmet medical needs in burn injuries, trauma injuries, and
in dermatological and aesthetics indications, such as vitiligo. To achieve this objective, we intend to:
•
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•
•
•
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Become the standard of care in the U.S. burns industry by increasing RECELL System penetration in burn centers and with burn physicians;
Commercialize the RECELL System in the U.S. for use in soft tissue repair following approval of our pending premarket approval
(“PMA”) supplement, which was submitted to the U.S. Food and Drug Administration (“FDA”) in December 2022. Following anticipated
FDA approval of RECELL for soft tissue repair, we plan to commence a full commercial launch in July 2023 with both inpatient and
outpatient reimbursement in place;
Commercialize the RECELL System in the U.S. for use in treatment of vitiligo following approval of our pending PMA application, which
was submitted to the FDA in December 2022. Subsequent to anticipated FDA approval of RECELLfor vitiligo, we plan to commence a full
commercial launch following receipt of in-office reimbursement, which we believe will occur by January 2025;
Evaluate potential commercialization applications for the RECELL System related to skin rejuvenation and Epidermolysis Bullosa
indications;
Further invest in our RECELL System platform to automate and improve workflow, speed, and ease of use as it relates to specific
indications, as well as to build upon our intellectual property;
Continue to build upon commercial activities in Japan through our partnership with COSMOTEC Company, Ltd (“COSMOTEC”) with our
current Pharmaceuticals and Medical Devices Act (“PMDA”) approval for RECELL with an indication in burns;
Develop and pursue viable commercial activities outside of the U.S. and Japan once we have received FDA approval for RECELL System
indications in soft tissue and vitiligo;
Pursue business development opportunities that are complementary to our core RECELL System indications and/or our targeted markets;
and
Improve our margins and profitability by leveraging our current team and infrastructure across an expanding base of business in burns and
in future indications.
RECELL® PLATFORM
The RECELL System has a long-established safety profile, and clear potential for clinical and health-economic value propositions across a range
of skin-related clinical indications. The patented and proprietary platform technology underlying Spray-On Skin™ Cells originated in Australia, based on
the seminal work of Professor Fiona Wood and fellow scientist Marie Stoner. RECELL was initially launched in the E.U. in 2005, and then in Australia in
2006, ahead of pivotal outcomes data demonstrating clinical performance relative to standard care. Pivotal trials were conducted in the U.S. beginning in
2010. In September 2018, the FDA approved RECELL as a Class 3 device through a PMA for the treatment of acute thermal burn injuries in patients 18
years and older. Following receipt of our original PMA, we commenced commercialization of the RECELL System in January 2019 in the United States.
RECELL is a first-of-kind medical device approved through FDA’s Center for Biologics Evaluation and Research, and the first Class 3 device approved for
use in burn care in over 20 years.
The RECELL System is a single use (disposable), stand-alone, battery operated, autologous cell harvesting device containing enzymatic and
buffer solutions, sterile surgical instruments, and actuators to achieve the disaggregation and delivery of skin cells. The platform technology of the
RECELL System allows for the preparation and delivery of Spray-On Skin Cells, an autologous cellular suspension comprised of the patient’s own skin
cells necessary to regenerate natural healthy epidermis. These Spray-On Skin Cells are prepared at the point of care in as little as 30 minutes, providing a
new way to treat thermal burns, other wounds, skin injuries or defects of the skin. The skin cell suspension includes keratinocytes, fibroblasts, and
melanocytes, all of which play critical roles in skin regeneration. The treatment of burns with RECELL yields proven and significant reduction in the
harvesting of donor skin. Donor sites are of great concern amongst burn patients. Burn wounds treated using RECELL show comparable results in burn
wound healing outcomes relative to conventional grafting, despite the use of less donor site tissue. The ability of RECELL to retain melanocytes in the cell
suspension is notable as these cells are critical for the restoration of natural pigmentation to the area treated,
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which is being further evaluated in ongoing clinical trials. Skin cell suspension is a powerful therapeutic with the potential for addressing unmet needs in a
number of clinical indications, including burns, soft tissue repair, and vitiligo.
RESEARCH & DEVELOPMENT
The launch of the RECELL System into the U.S. market provided an opportunity to gain valuable, in-depth insight into the patient care pathway,
as well as the workflow for surgical management of burn wounds. We continue to commit significant and increasing resources in product development to
ensure that our device continues to evolve and has robust patent protection. In February 2022, the FDA approved the PMA supplement for RECELL
Autologous Cell Harvesting Device, an enhanced RECELL system aimed at providing clinicians a more efficient user experience and simplified workflow.
This new version of the RECELL System offers improved convenience along with an opportunity to expand our intellectual property portfolio.
Further product development is ongoing on a next generation device for more automated implementation of the core Spray-On Skin Cells
technology, to advance the user experience toward less hands-on processing time. With each iteration of our RECELL System development, we anticipate
preservation of the therapeutic power of Spray-on Skin Cells, deployed in devices that become appropriate for use in an increasing range of clinical
settings. This is particularly important as we aim to enter the dermatology space, where there is a shift toward an emphasis on the volume of patients treated
in a day.
In summary, our research and development efforts are currently focused on:
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Further clinical development of the RECELL System in additional skin-focused clinical indications where the platform can be leveraged.
Specifically, to expand our footprint within wounds and dermatology, such as soft tissue repair and vitiligo. These activities are generally
characterized by pivotal studies for which the FDA has approved an Investigational Device Exemption (“IDE”)
RECELL platform technology evolution to automate and improve workflow, speed, and ease of use
Further research and characterization of the RECELL System design and the composition and activity of the Spray-On Skin Cells
suspension to support further clinical development of the platform, and to expand our intellectual property estate
TARGET MARKETS
Burns
Acute thermal burns are life-threatening and debilitating injuries that are among the most challenging and expensive to manage. These injuries
require complex surgical procedures, long and costly hospitalization, and have a high potential for clinical complications and requirement for rehabilitation
and scar treatment. In the U.S., approximately 40,000 people have burn injuries severe enough to require hospital admission annually, and it is estimated
that 3,300 patients die each year. The majority of patients treated on an inpatient basis in the U.S. are treated in specialized burn centers.
Severe burns (typically defined as second- and third-degree) are commonly treated with autologous split-thickness skin grafts (“STSGs”) to
achieve definitive closure of the burn wound. In a STSG, or autograft, donor skin is harvested from a healthy area of the patient’s skin. The donor skin is
then typically perforated into a mesh that can be expanded and transferred to cover the prepared burn injury. Treatment with STSG results in additional
trauma for the patient due to creation of a new donor site wound. Although the use of STSG has been a standard treatment for more than 50 years,
autografting is associated with significant pain, itching, infection, dyschromia, dyspigmentation, delayed healing, and hypertrophic scarring of the donor
site.
The clinical benefits of earlier wound closure are well recognized and include increased survival, reduced hospital length of stay, decreased pain
duration, and reduced infection-related complications. However, in large burn injuries, the patient may have insufficient donor skin available to allow for
immediate and complete treatment of the entire burn injury area when using traditional grafting techniques. The lack of available healthy donor skin in
patients with large burn injuries is often the central problem impacting time to autografting and definitive closure of the wounds. In extensively burned
patients, surgeons often must wait until the donor sites have healed so they can re-harvest from the sites, resulting in delays in treatment and closure,
requiring multiple procedures, and extending hospital stay. While waiting for donor skin, the burn wounds may be temporarily covered by allogeneic skin
(allograft, cadaver skin) or xenograft (typically pig skin). The overall cost of treatment with STSG is expensive - for example it would cost approximately
$579,000 and 59.4 days in hospital for a patient with a 40% Total Body Surface Area (“TBSA”) mixed-depth burn injury to recover and return to normal
day to day activities.
The RECELL System was approved by the FDA in September 2018 for the treatment of second- and third-degree acute thermal burn injuries in
patients 18 years and older. In June 2021, the FDA approved an expanded indication for use to also include treatment of full-thickness (third-degree)
pediatric burns, which represent close to a quarter of all burn injuries in the U.S., as well as
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full-thickness burn injuries greater than 50% TBSA. As a result of having achieved an expanded indication for use in pediatric burns, the Biomedical
Advanced Research and Development Authority (“BARDA”) funded U.S. Pediatric Burns trial has been closed to new enrollment (refer to BARDA
Contract section below).
The pivotal studies leading to the RECELL System’s FDA PMA for the treatment of acute thermal burns demonstrated that the RECELL System
treated burns used 97.5% less donor skin when used alone in second-degree burns, and 32% less donor skin when used with autograft for third-degree
burns, compared to standard of care autografting. In these studies, a statistically significant reduction in donor skin required to treat burn patients with the
RECELL System was realized without any associated compromise to healing or safety outcomes. Donor site outcomes from the clinical trial for second-
degree burns also revealed a statistically significant reduction in patient-reported pain, increased patient satisfaction and improved scar outcomes.
The RECELL System offers fewer procedures required for definitive closure versus conventional autografts. In pediatric cases using the
RECELL System, there were 56% fewer mean surgical procedures (N = 284) compared to the American Burn Association’s National Burn Repository
(“NBR”). Additionally, in patients with >50% TBSA, the RECELL System provided 60% fewer mean surgical procedures versus NBR (N =318).
In addition to robust clinical data, RECELL has proven health economic benefits and a compelling cost-effectiveness model which shows that
treatment using the RECELL System for deep partial-thickness burns reduces total treatment costs by an average of 26%, or approximately $37,000, for
patients with 10% TBSA and approximately $150,000, for patients with 40% TBSA. For full-thickness burns, treatment using the RECELL System
reduced total treatment cost by 3%, or approximately $6,000 for patients with 10% TBSA and by 42% or approximately $243,000, for patients with 40%
TBSA. These cost reductions are attributed to decreasing the length of hospital stay, reducing the number of procedures required to close the burn wound,
and minimizing the donor site size and associated wound care. All of these cost savings estimates are net of the cost of the RECELL System.
A budget impact model was developed and has been used to calculate the annual budget impact of current standard of care for the treatment of
burns versus treatment using the RECELL System for a burn center with 200 patients. The model shows that treatment using the RECELL System reduces
annual total treatment costs from approximately $39.4 million to $32.6 million, saving 17% or approximately $6.8 million per year. In addition, real world
evidence has been published by the Doctors at IQVIA and funded by the Company and BARDA indicating that these economic savings are demonstrated
in a wide range of burn sizes.
The market for treatment of burns in the U.S. is highly concentrated, with approximately 150 burn centers and approximately 300 burn surgeons
who treat the majority of severe burns in the country (i.e., ~75%). Accordingly, our target market is predominantly focused on burn centers. Our goal is to
establish RECELL as the standard of care for any burn injury that requires grafting for patients with 5% TBSA injury or greater. In the U.S., we estimate
that there are approximately 35,000 patients annually that could benefit from our technology. Each RECELL System can treat up to 10% TBSA, and many
patients require more than one device.
AVITA Medical has a policy of providing the RECELL System to a provider only after they have been certified, which includes extensive
training in the use of the product and in the aftercare of the patient. In general, we have found that most U.S. burn centers follow the industry-standard
process of evaluating the RECELL System and then taking it through their hospital’s Value Analysis Committee (“VAC”) prior to purchasing. In general,
most surgeons follow a typical adoption curve, starting from where they see the greatest economic and clinical value, which is the use of RECELL for
treatment of larger burns. With time and continued use, surgeons typically progress to adoption of RECELL for smaller, less severe burns and facial burns.
In the U.S., several existing reimbursement codes were in place prior to the commencement of commercial sales of the RECELL System. For
inpatient treatment of burn patients, U.S. hospitals are reimbursed under DRG (Diagnosis Related Group) Codes based on diagnosis of a patient’s injuries.
For physicians, CPT (Current Procedural Terminology) codes for use in RECELL System procedures are recommended by the American Burn Association
and are the same for both inpatient and outpatient use. In August 2020, we filed a Transitional Pass-through Payment Application (“TPT”) with The
Centers for Medicare & Medicaid Services (“CMS”) to support a separate, additional Medicare payment for use of the RECELL System in the Outpatient
Setting. On November 3, 2021, the Company was informed that CMS approved our TPT submission with the code effective as of January 1, 2022. The new
“C” code provides additional payment which offsets the cost of the device in hospital outpatient facilities and ambulatory surgical centers for Medicare
beneficiaries over a 2-to-3-year period before converting to a permanent code. Following the granting of the code, the Company is working with
commercial carriers to ensure broader coverage. The new “C” code is not indication specific and lays the foundation for growth in other indications outside
of acute thermal burns (such as soft tissue repair).
Japan is the second largest healthcare market, with approximately 6,000 patients per year who suffer from severe burns in Japan. Large patient
populations coupled with healthy reimbursement coverage makes Japan an attractive market for the RECELL System. In February 2019, we entered into a
collaboration with COSMOTEC, an M3 Group company, to market and distribute the RECELL System in Japan. We worked with COSMOTEC to advance
our application for approval of the RECELL System in Japan
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pursuant to Japan’s Pharmaceuticals and Medical Devices Act (“PMDA”). In February 2022, our application for regulatory approval was approved by the
PMDA for both adult and pediatric burns. In September 2022, COSMOTEC commercially launched RECELL in Japan following Japan’s Ministry of
Health, Labor, and Welfare approval of reimbursement pricing.
Soft Tissue Repair
Soft tissue repair includes treatment of injuries caused by non-burn trauma, including excision of infected tissue, such as necrotizing soft tissue
infections. While minor skin defects may be primarily closed with sutures or standard wound care, larger open defects require more complicated
approaches, including skin grafts, tissue flaps and dermal matrices.
Similar to the burns indication, soft tissue repair is associated with large areas of skin loss and as such, some of the top unmet needs identified by
surgeons are closely aligned:
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Reduced donor skin harvesting
Reduced scarring
Reduced pain
Uniform pigmentation with surrounding skin
Given the interest to reduce donor skin harvesting, just as with the burns indication, we designed a clinical trial to demonstrate the use of less
donor skin without compromising healing outcomes relative to conventional autografting. The trial is essentially a repeat of the successful previous trial in
full-thickness burns, but with a population of patients with full-thickness, non-burn injuries.
On September 17, 2019, the FDA approved an Investigational Device Exemption (“IDE”) to conduct a pivotal trial evaluating the safety and
effectiveness of the RECELL System in combination with meshed autografting for the treatment of acute full-thickness skin defects. Subsequently, on
March 2, 2020, we initiated a prospective, multi-center, randomized controlled study for soft tissue repair with the enrollment of the first patient at the
Arizona Burn Center at Valleywise Medical Health Center in Phoenix, AZ. Each patient had a control wound treated with conventional skin grafting and a
wound treated with expanded skin grafting in combination with RECELL. Enrollment of this pivotal study was completed in January of 2022. In August
2022, the company announced positive topline results in which the study met both of its co-primary endpoints. Subsequently, the RECELL System earned
the FDA Breakthrough Device designation for the proposed indication of soft tissue repair in November 2022. In December 2022, the Company submitted
a PMA supplement application to the FDA. The supplement, if approved, will expand the indication of RECELL to include soft tissue repair.
Open wounds associated with traumatic injuries caused over 4.5 million hospital visits in the U.S. in 2017, and traumatic wounds rank among the
five most costly medical conditions. We estimate that the total annual addressable U.S. market for RECELL in soft tissue repair is approximately $1 billion.
The majority of our current burn accounts represent opportunities for use of RECELL in soft tissue repair. We plan to build out our existing field team to
cover approximately 1,500 acute wound accounts (representing both burn and trauma accounts). Our expansion allows for coverage of over 75% of total
targeted procedures. Based on market research, degloving (a type of injury where the skin is ripped from the underlying tissue), abrasions, and infectious
disease (e.g., necrotizing soft tissue infections, like flesh-eating disease) have the greatest stated intent to use. We anticipate RECELL being used in both
the inpatient & outpatient settings across a wide range of wound sizes. Market research indicates that surgeons treating soft tissue injuries believe RECELL
will offer benefits over current treatment options, allowing surgeons to address key unmet needs. From a reimbursement perspective, the same DRG code
that is currently being used to treat inpatient burns can be applied to soft tissue repair once FDA approval is received. Additionally, pending FDA approval
of the PMA supplement application, the outpatient TPT “C” code we have been granted for RECELL can also be utilized for soft tissue repair in the
outpatient setting.
Clinical study data and international product usage supports clinical benefits of RECELL use in soft tissue repair. In the pivotal study, RECELL
met both co-primary endpoints, demonstrating statistically significant donor sparing and non-inferior healing outcomes with RECELL versus standard of
care. In addition, RECELL has been successfully used outside the U.S. for many years and there exist several case reports on the treatment of traumatic
injuries (soft tissue repair) that have been the subject of peer-reviewed scientific publications and presentations at medical conferences.
Soft tissue repair represents a significant opportunity which AVITA Medical can pursue leveraging its existing and future resources while also
creating synergies with the burns market. As of February 23, 2023, approximately 50% of the U.S. burn centers are classified as Level 1 and Level 2
trauma centers. Those Level 1 and Level 2 trauma centers currently utilizing RECELL should be able to use RECELL to repair soft tissue immediately
following FDA approval as these centers have already approved RECELL through their respective VACs. Further, we will be expanding our burn market
opportunity by virtue of our soft tissue launch as we will be extending our reach to include trauma centers.
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Vitiligo
Vitiligo is a disease that causes the loss of skin pigmentation, or color, in patches. The extent of color loss from vitiligo is unpredictable, can
affect the skin on any part of the body, and may also affect hair and the inside of the mouth. Vitiligo occurs when melanocytes, the pigment-producing skin
cells, die or stop producing melanin, the pigment that gives skin, hair, and eyes color. Vitiligo is believed to be an autoimmune disorder in which a patient’s
immune system attacks and destroys the melanocytes in the skin. It may also be caused by heredity factors or a triggering event, such as sunburn, stress, or
exposure to industrial chemicals. Vitiligo affects people of all skin types, but it may be more noticeable in people with darker skin. It is estimated that
worldwide vitiligo prevalence is between 0.5 to 2% of the population. The condition is not life-threatening or physically painful, but it can significantly
alter physical appearance and have negative emotional and psychological consequences, thus causing a cascade of medical conditions with associated costs.
Vitiligo cannot be cured at present, and treatments generally fall into one of two categories:
1.
2.
Treatments to arrest the spread of vitiligo, such as steroid creams and non-steroidal anti-inflammatory creams. There are also a number of
therapies under development designed to target the underlying autoimmune disease. One challenge in terms of achieving the desired patient
outcome is that stopping the spread of vitiligo may not restore pigmentation to the areas already damaged.
Treatments to restore pigmentation include skin grafting, laser phototherapy (with and without topicals), and Melanocyte-Keratinocyte
Transplantation Procedure (“MKTP”). MKTP requires expensive and substantial laboratory equipment and is currently only available in a
handful of locations in the U.S.
RECELL does not treat underlying autoimmune disease. Rather, it works to restore pigmentation.
According to the FDA panel in 2021, there is a high level of depression, anxiety, and negative quality of life among vitiligo patients. Interest in
vitiligo treatment tends to increase in individuals who have lesions in more visible areas (such as the face, neck and hands) as well as the younger female
population. In 2022, over 400,000 patients pursued treatment for vitiligo in the U.S. We estimate that there are approximately 1.3 million people in the U.S.
with stable vitiligo and a total addressable market of approximately $5 billion. Vitiligo rates a ‘7.61’ on the Dermatology Life Quality Index (“DLQI”),
which is in the same range of other aesthetic dermatological disease analogs which receive healthy positive reimbursement such as Rosacea (5.2), Psoriasis
(9.3) and Atopic Dermatitis (12.79).
The market is expected to grow, especially over the next decade, with the advent of novel treatment options including oral and topical Janus
Kinase (“JAK”) inhibitors, such as Opzelura. Although these new products will both stabilize and re-pigment some patients, it is anticipated that many
patients will need additional modes of treatment for re-pigmentation. Products (immunosuppressants) working to stabilize vitiligo and RECELL (working
to restore pigmentation) are complementary. Further, large pharmaceutical companies with immunosuppressant assets in development will likely invest in
disease awareness campaigns which will further grow consumer awareness and the market.
On July 1, 2020, the FDA approved our IDE application for a pivotal study in vitiligo which is titled “A Prospective Multi-Arm Blinded-
Evaluator Within-Subject Randomized Controlled Clinical Study to Investigate the Safety and Effectiveness of RECELL for Repigmentation of Stable
Vitiligo.” The primary endpoint compared the incidence of successful (80%, by area) repigmentation for RECELL treatment versus that of standard of care
phototherapy. The Company commenced enrollment in the vitiligo pivotal study in September 2020. The last subject enrolled in the study was treated in
January 2022. In September 2022, the Company announced positive topline results in which its primary endpoint was met. Subsequently, the RECELL
System earned the FDA Breakthrough Device designation for the proposed indication of vitiligo in November 2022. In December 2022, the Company
submitted a PMA application to the FDA. The application, if approved, will expand the indication of RECELL to include treatment of vitiligo.
More than 1,000 patients have been successfully treated with the RECELL System for stable vitiligo outside of the U.S., and to date there are
eleven publications demonstrating the benefits of the RECELL System in vitiligo. We believe that RECELL would be the first point-of-care device which
provides a standardized in-office treatment to durably restore depigmented areas for patients with stable (or non-progressive) vitiligo.
Epidermolysis Bullosa
The RECELL System has been studied in a wide variety of indications and has been shown to enable patients to regenerate natural healthy skin
in instances where the patient’s outer skin covering, or epidermis, has been lost or damaged. In addition to these applications of the RECELL System, we
are pursuing related opportunities where the RECELL System’s ability to harness the natural
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healing capabilities of the body could be augmented with the use of genetically-modified cells for treatment of certain genetic skin disorders. In this way,
the RECELL System could potentially be used as a vehicle for other therapeutic offerings.
Epidermolysis Bullosa (“EB”) is a rare and incurable group of disorders caused by mutations in genes encoding structural skin proteins. EB is
characterized by skin fragility and blistering leading to chronic wounds due to normal mechanical trauma. Dystrophic EB (“DEB”) is often associated with
widespread blistering, pain, pruritus, extensive scarring, increased risk of squamous cell carcinoma with increased mortality. Signs typically occur at birth
and persist over a lifetime. Currently, there are no FDA-approved treatments. All treatment options are palliative—focused primarily on pain and
nutritional management, itching relief, and wound care (bandaging) with a significant cost burden ranging from $200,000-$500,000 per year per patient.
In November 2019, AVITA Medical entered into a research agreement with the Gates Center for Regenerative Medicine at the University of
Colorado School of Medicine (“Gates Center”) for the purpose of seeking to establish pre-clinical proof-of-concept for a spray-on treatment of genetically
corrected cells. Pursuant to this agreement, recessive dystrophic bullosa (“RDEB”) cells have been successfully reverse-differentiated and corrected,
yielding iPSCs (induced pluripotent stem cells). Further, iPSCs have been forward-differentiated, amplified, and used to successfully regenerate skin in an
immunocompromised mouse model. We have paired the RECELL System Spray-On Skin Cells technology and expertise with the Gates Center’s
innovative patent-pending combined reprogramming and gene-editing technology, with the intent to allow the skin cells of patients with EB to function
properly. Under the arrangement with the Gates Center, we retain the option to exclusively license technologies emerging from the partnership for further
development and commercialization. While we remain interested in the therapeutic potential of modified Spray-On Skin Cells, the sponsored research
agreement has concluded, and the Company is currently evaluating its potential next steps.
Rejuvenation
We believe that reversing aging at a cellular level has the potential to impact rejuvenation by driving functional changes to skin cells. This will be
significantly different from existing products, such as cosmeceuticals that supplement proteins to cells, and surgical approaches that do not alter cellular stat
but alter tissue morphology. An approach for molecular reversal of the underlying defects resulting in aging could have a profound effect on rejuvenation.
In November 2020, AVITA Medical announced a preclinical research agreement with the Houston Methodist Research Institute (“HMRI”) to
explore molecular reversal of cellular aging through a novel cell suspension delivery system. AVITA Medical retains the option to exclusively license
HMRI’s patented technology as well as the right of first negotiations to HMRI’s technologies emerging from the partnership for further development and
commercialization.
HMRI is a compelling partner for this work. Dr. John Cooke and his team have developed a novel, patented approach of telomerase reverse
transcriptase delivery to reverse cellular aging and have been widely recognized as leaders in this space with multiple peer reviewed publications, grants,
and awards. Further, HMRI has a strong program in translational medicine, including the Center for Rapid Device Translation that supports preclinical
testing and GLP environments which could enable rapid translation from research into clinical trials.
In collaboration with HMRI, skin cells harvested using the RECELL Device have been molecularly reverse-aged, and used to regenerate skin in
a mouse model, thereby establishing proof of concept. Work is ongoing to characterize the tissue to identify functional attributes associated with
rejuvenated skin.
SALES AND MARKETING
A primary objective of our field sales team is to build upon burn community awareness that has resulted from an extensive series of RECELL
System related burn conference presentations and scientific publications to further expand interest in the clinical and economic benefits of the RECELL
System. In addition, our field sales team provides robust clinical case support and staff training. It is not uncommon in the burn community to have rotating
staff and it is our commitment for all those working with RECELL to be comfortable with the technology both during the procedure as well as during
aftercare.
We sell the RECELL System in the U.S. through our direct commercial organization consisting of 26 field personnel who are supported by
corporate marketing, reimbursement, scientific and medical affairs, operations, and corporate leadership. The field sales team was recruited and hired
subsequent to the September 2018 FDA PMA and trained prior to the U.S. market launch of RECELL in January 2019. Our field organization is composed
of highly experienced medical sales representatives as well as former burn nurses.
We anticipate the U.S. market launch of RECELL for soft tissue repair in July 2023. The majority of our current burn accounts represent
opportunities for the use of RECELL in soft tissue repair; however, we plan to significantly expand the existing burns field team to cover both burn and
trauma accounts prior to the market launch of RECELL for soft tissue repair. The expansion plan allows for coverage of over 75% of total targeted
procedures.
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HUMAN CAPITAL
AVITA Medical’s investment in the U.S. commercial success of RECELL has led to the development of best-in-class teams supporting sales,
clinical education and training, reimbursement, medical affairs, as well as corporate management and infrastructure. As of December 31, 2022, we had 126
employees full-time and part-time employees. As of December 31, 2022, 98% of our workforce was based in the United States, with a significant number
of our management and professional employees having prior experience with leading medical product, biotech, or pharmaceutical companies. None of our
employees are covered by collective bargaining agreements.
We embrace differences, diversity and varying perspectives amongst our employee base and are proud to be an equal opportunity employer. We
do not discriminate based on race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic
information, marital status, sex, gender, gender identity, gender expression, age, military or veteran status, sexual orientation or any other protected
characteristic established by federal, state, or local laws. A diverse workforce as well as an inclusive culture and work environment are fundamentally
important and strategic to us beginning with our Board of Directors and CEO and extending to all levels of the Company. As of December 31, 2022, our
executive leadership team was 50% female, our senior leadership team was 38% female, and our total employee base was 47% female. In addition to
promoting gender diversity, we encourage ethnically diverse talent when recruiting as well as providing employee training and development focusing on
workplace diversity and inclusion.
INTELLECTUAL PROPERTY
We seek to protect our intellectual property, core technologies, and other know-how through a combination of patents, trademarks, trade secrets,
non-disclosure and confidentiality agreements, licenses, assignments of invention and other contractual arrangements with our employees, consultants,
partners, suppliers, customers, and others. Additionally, we rely on our research and development program, clinical trials, know-how and marketing
programs to advance our products and product candidates, and to expand our intellectual property rights.
As of December 31, 2022, we had been granted a total of 19 patents and had 27 patent applications pending worldwide. The Company’s patent
portfolio encompasses assets in the U.S., China, Japan, Australia, Brazil, Canada, France, Germany, Hong Kong, Italy, Spain, the United Kingdom, and
applications pending before the European Patent Office (“EPO”). Notably, as discussed more fully below, our core U.S. patent remains in force until
February 6, 2024, and we expect it to be extended through April 9, 2024. In addition to patent protection, we believe that the regulatory approval processes
around the world will continue to provide significant barriers to entry against meaningful competition.
AVITA Medical’s patent portfolio covers AVITA Medical’s core RECELL System, methods of using the RECELL System, the Regenerative
Epidermal Suspension (“RES®”), methods of preparing a cell suspension with exogenous agents to promote wound healing, as well as to one or more
automated systems for tissue processing and preparation of cell suspensions. AVITA Medical’s pending patent applications cover an all-in-one RECELL
System embodiment and methods of evaluating the therapeutic potential of RES, as well as new modifications to RES that are showing potential for
therapeutic results. We expect that our research and development pipeline, strategic partnerships with universities, and improvements to the RECELL
System and RES will result in additional and diverse patent applications for automated tissue processing and RES-related compositions of matter, along
with related methods of use, in the next calendar year.
In 2019, AVITA Medical filed a Patent Term Extension (“PTE”) application with the U.S. Patent and Trademark Office requesting an extension
of the patent term for U.S. Patent No. 9,029,140, “Cell suspension preparation technique and device” as a result of patent term lost to the FDA regulatory
process. If the term extension requested in the PTE application is approved, the patent term of U.S. Patent No. 9,029,140, which covers the RECELL
System, will be extended to April 9, 2024. An interim PTE application was approved on December 12, 2022, for U.S. Patent No. 9,029,140 that extends its
expiration date until February 6, 2024 while we wait for full approval of the PTE application. AVITA Medical’s other patents have expected expiration
dates ranging from 2032 to 2033, while AVITA Medical’s pending patent applications, if granted, would have expiration dates ranging from 2032 to 2041.
Additionally, AVITA Medical owns and defends a global trademark portfolio comprising 125 registered trademarks, common or state law
trademarks, and pending trademark applications. Recently, AVITA Medical received U.S. federal trademark registration on the marks “AVITA Medical”
and the AVITA Medical logo. AVITA Medical also owns trademark registrations for “RECELL,” “Spray-On Skin,” the RECELL System logo, “RES,” and
others in the U.S. and international markets. In addition to patent and trademark protection, we also rely on trade secrets, know-how, and other proprietary
information to develop and maintain our competitive position. We have robust confidentiality and invention disclosure procedures in place that incentivize
our employees to innovate and allow us to maintain our rights to AVITA Medical innovations.
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FACILITIES
AVITA Medical leases approximately 17,500 square feet of administrative and office space in Valencia, California that is currently leased
through October 31, 2026. The Company operates an FDA-registered production plant in Ventura, California, in a 27,480 square foot facility that is
currently leased through September 30, 2024. The Ventura facility has two 3-year options to extend the lease, at our sole option, which allows for a total
lease extension period through September 30, 2030. We also lease a limited amount of incubator space in Irvine, California for scientific research and
product development activities.
MANUFACTURING, SUPPLY AND PRODUCTION
We produce the RECELL System in the Ventura facility under current Good Manufacturing Practices (“cGMP”) and per ISO 13485, which also
meets the regulatory requirements of other jurisdictions in which we sell the RECELL System. We maintain a state of regulatory compliance and inspection
readiness at all times, and any future material changes to our production processes for the RECELL System will be submitted for approval to the FDA and
regulatory authorities in other jurisdictions as required.
Within the Ventura facility we perform the final manufacturing, assembly, packaging, and warehousing of the RECELL System. Also included
within the Ventura facility is a secure controlled-temperature warehouse that complies with the vendor-managed inventory (“VMI”) requirements of the
contract with BARDA. See below for details.
AVITA Medical sources multiple components, sub-assemblies, and materials from third-party suppliers, who are required to meet our cGMP
quality specifications and associated regulatory requirements. To ensure continuity of supply, we maintain multiple sources of supply for key components,
subassemblies and materials, and the majority of critical raw materials and services have multiple qualified suppliers. While a small number of materials
remain single sourced, we are actively working to qualify and validate additional suppliers for these materials as we continue to evaluate methods of
removing risk from the supply chain for the RECELL System. We believe that our current manufacturing capacity at the Ventura facility is sufficient to
meet the expected commercial demand for the RECELL System for burns, as well as other indications under development, for the foreseeable future.
AVITA Medical serves the U.S. burn market by shipping the RECELL System directly from our Ventura facility to U.S. burn centers. From time-
to-time we may also store small quantities of the RECELL System at satellite distribution sites within the U.S. to better support access of the RECELL
System to our U.S. customers.
BARDA CONTRACT
We have a contract with the BARDA, under the Assistant Secretary for Preparedness and Response, within the U.S. Department of Health and
Human Services, valued at approximately $53.3 million. The contract provided funding for the development of the RECELL System. The contract will
continue to provide funding for future use of the product as a medical countermeasure to assist disaster preparedness and response in the U.S. for mass
casualty events involving burn injuries. We entered into the contract on September 29, 2015, and the scope has expanded through a number of amendments
to the contract. The current contract period continues to December 31, 2023, with the option by BARDA to terminate earlier.
Under the contract, BARDA has provided funding and technical support for the development of the RECELL System. BARDA funded the
completion of two randomized, controlled pivotal clinical trials, as well as Compassionate Use and Continued Access programs, and development of the
health economic model demonstrating the cost savings associated with the RECELL System. BARDA exercised a contract option to fund a randomized,
controlled clinical trial for a pediatric early intervention study which commenced enrollment in March 2020, and closed to enrollment in June 2021,
subsequent to FDA-approval of an expanded RECELL indication for use that includes treatment of pediatric patients. Currently, the BARDA contract is
supporting the Company’s clinical trial in soft-tissue repair. Also included in the BARDA contract was a provision for procurement of the RECELL System
under a vendor-managed inventory system to bolster emergency preparedness in the amount of $7.6 million. Further, BARDA expanded the awarded
contract to provide supplemental funding of $1.6 million to support the logistics of emergency deployment of RECELL Systems for use in mass casualty or
other emergency situations. We are contracted to manage this inventory of product until the earlier of the federal government requesting shipment or at
contract termination on December 31, 2023. As of December 31, 2022, we had received cumulative payments of $37.9 million under the BARDA contract.
COMPETITION
The medical device, biotechnology and pharmaceutical industries are intensely competitive and subject to significant technological developments
and changes in practice. While we believe that our innovative technology, knowledge, experience, and scientific resources provide us with competitive
advantages, we may face competition from many different sources with respect to the
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RECELL System or any product candidates that we may seek to develop and commercialize in the future. Possible competitors may include medical
device, pharmaceutical and wound care companies, academic and medical institutions, governmental agencies, medical practitioners, and public and private
research institutions, among others. Any product that we successfully develop and commercialize will compete with both existing therapies and any new
therapies that may become available in the future.
Our primary competitor in the burns market is the current standard of care, primarily split-thickness autografts. Although the RECELL System is
complementary with autografts for the treatment of many burn injuries, we face competition from this traditional surgical procedure for many burn patients.
However, based on our clinical trials, we believe that the RECELL System has sustainable competitive clinical and economic advantages over this current
standard of care. We face additional competition in the burns market from other FDA-approved products such as Epicel® provided by Vericel Corporation
as well as from Stratagraft® provided by Mallinckrodt.
GOVERNMENT REGULATIONS
The production and marketing of the RECELL System and any additional product candidates developed in future ongoing research and
development activities are subject to regulation by numerous governmental authorities including the FDA in the U.S. and similar agencies in other
countries throughout the world. Pursuant to its authority under the Federal Food, Drug, and Cosmetic Act (the “FD&C Act”), the FDA has jurisdiction
over medical devices in the U.S. The FDA regulates the design, development, manufacturing, and distribution of medical devices to ensure that medical
products distributed domestically are safe and effective for their intended uses. The FD&C Act classifies medical devices into one of three categories based
on the risks associated with the device and the level of control necessary to provide reasonable assurance of safety and effectiveness. Devices deemed by
the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices, or devices deemed not substantially equivalent to a
previously 510(k) cleared device are categorized as Class III. These devices typically require submission and approval of a PMA. The RECELL System is
categorized as a Class III medical device, and in September 2018 the FDA granted our PMA for use in the treatment of acute thermal burns in patients 18
years and older. In June 2021, the FDA approved a supplement to our PMA to expand the use of RECELL in pediatric patients with full-thickness burns. In
December 2022, the Company submitted a PMA supplement to expand the use of RECELL for soft tissue repair and an original PMA application to
expand the use of RECELL for treatment of vitiligo.
To support PMA supplements in the U.S. or applications for approval in other regions, the completion of additional clinical and non-clinical
studies and supporting development activities will likely be required. Clinical trials can take many years to complete and require the expenditure of
substantial resources. The length of time varies substantially according to the type, complexity, novelty and intended use of the product candidate. We
cannot make any assurances that once clinical trials are completed by us or a collaborative partner, that we will be able to submit as scheduled a marketing
approval request to the applicable governmental regulatory authority, or that such request and application will be reviewed and cleared by such
governmental authority in a timely manner, or at all. Although we intend to make use of fast-track and abbreviated regulatory approval programs when
possible and commercially appropriate, we cannot be certain that we will be able to obtain the clearances and approvals necessary for clinical testing or for
manufacturing and marketing our product candidates. Delays in obtaining regulatory approvals could adversely affect the development and
commercialization of our product candidates and could adversely impact our business, financial condition, and results of operations. During the course of
clinical trials and non-clinical studies, product candidates may exhibit unforeseen and unacceptable safety considerations. If any unacceptable side effects
were to occur, we may, or regulatory authorities may require us to, interrupt, limit, delay or abort the development of our potential products.
Any products manufactured or distributed by us pursuant to regulatory approvals are subject to continuing regulation by the FDA and similar
agencies in other countries, including maintaining records supporting manufacturing and distribution under cGMP regulations, periodic reporting,
advertising, promotion, compliance with any post-approval requirements imposed as a conditional of approval, recordkeeping and reporting requirements,
including adverse events experiences. After approval, material changes to the approved product, such as adding new indications or other labeling claims, or
changes to the manufacturing process, are subject to prior approval by FDA and other regulatory agencies. Medical device manufacturers and their
subcontractors are required to register their establishments with the FDA, certain state agencies and international agencies. Subcontractors are subject to
periodic announced and unannounced inspections by the FDA and other agencies for compliance with cGMP requirements. We have established processes
in place for categorization of vendor criticality and the associated activities for qualification and monitoring of vendors. These activities include but are not
limited to, requiring certification of supplier in conformance to relevant cGMP regulations and other FDA and international agency regulatory
requirements, approved supplier lists, and regular Company conducted audits. In addition, all goods and services purchased from suppliers by us must be
purchased from only those suppliers on the approved supplier list. Furthermore, the Company itself will continue to comply with all relevant FDA
requirements and regulations and any applicable international agency regulatory requirements in its continued manufacturing and promotion of its FDA
approved commercial product.
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In addition to FDA approval in the U.S., the RECELL System has received various approvals and registrations in international markets. The
RECELL System is TGA-registered in Australia, received CE-mark approval in Europe, and received Japan’s Pharmaceuticals and Medical Devices Act
(PMDA) approval for burns in Japan.
HEALTHCARE LAWS AND REGULATIONS
AVITA Medical is a manufacturer of a medical device and therefore we are subject to regulations by the FDA and various federal and state
healthcare laws and regulations. These regulations govern our advertising and promotional practices, our interactions with healthcare providers (“HCPs”),
and our reporting of any payments made to HCPs. AVITA Medical is committed to the highest standards of business conduct in accordance with the
AdvaMed Code of Ethics.
Interactions with Healthcare Providers
Providing any benefits or advantages to HCPs in order to induce or encourage the use or referral of AVITA products is strictly prohibited by both
U.S. and international laws and regulations. Restrictions under applicable Federal and State healthcare laws and regulations include but are not limited to
the following:
•
•
•
The Federal healthcare Anti-Kickback Statute (“AKS”). AKS prohibits any person from soliciting, offering, receiving, or providing any
remuneration in cash or in kind, whether directly or indirectly, to induce or reward the referral, purchase, lease, order, or recommendation of
any item or service for which payment may be made in whole or in part under a federal healthcare program such as Medicare and Medicaid
The Federal False Claims Act (“FCA”). FCA may be enforced by either the U.S. Department of Justice or private whistleblowers should
they choose to bring civil (qui tam) actions on behalf of the federal government. The FCA imposes civil penalties, as well as liability for
treble damages and for attorneys’ fees and costs, on individuals or entities who knowingly present, or cause to be presented, claims for
payment that are false or fraudulent to the federal government. FCA also imposes similar penalties on those who make a false statement
material to a fraudulent claim, or who improperly avoid, decrease, or conceal an obligation to pay money to the federal government
State and foreign laws and regulations may apply to sales or marketing arrangements and claims involving healthcare devices or services
reimbursed by non-governmental third-party payors
Additionally, certain state laws require medical device companies to comply with voluntary guidelines in our interactions with healthcare
providers promulgated by global trade associations and relevant compliance guidance issued by the U.S. Department of Health and Human Services, Office
of Inspector General. Such laws prohibit medical device manufacturers from offering or providing certain types of payments or gifts to health care
providers; and/or require the disclosure of gifts or payments to healthcare providers.
Interactions with Foreign Officials and Entities
The U.S. Foreign Corrupt Practices Act (“FCPA”) prohibits any U.S. individual or business from paying, offering, or authorizing payment or
offering of anything of value, directly or indirectly, to any foreign official, political party, or candidate for the purpose of influencing any act or decision of
the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are
listed in the U.S. to comply with accounting provisions requiring the companies to maintain books and records that accurately and fairly reflect all
transactions of the companies, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for
international operations. We are also subject to similar regulations under the Australian bribery laws and other anti-corruption laws that apply in countries
where we do business.
Federal and State Reporting
Pursuant to the federal National Physician Payment Transparence Program (Open Payments) Act, AVITA Medical is required to report annually
to the Centers for Medicare and Medicaid Services within the U.S. Department of Health and Human Services. Additionally, in adhering to federal
reporting requirements, all relevant state marketing reporting regulations, any payments, and transfers of value to physicians and teaching hospitals, as well
as other categories of disclosures must be reported annually.
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Privacy
AVITA Medical must comply with the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) which imposes criminal
and civil liability for, among other conduct, making false statements relating to healthcare matters and executing a scheme to defraud any healthcare benefit
program. It also imposes criminal and civil liability and penalties on those who violate requirements such as mandatory contractual terms which are
intended to safeguard the security, transmission and use of individually identifiable health information.
Various state and foreign laws also govern the privacy and security of health information such as the European Union General Data Protection
Regulation (“GDPR”). GDPR governs the use of individual health data and other personal information and imposes strict obligations and restrictions on
the ability to use, access, process, and disseminate health data from clinical trials and adverse event reporting, among others.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
We are subject to extensive environmental, health and safety laws and regulations in a number of jurisdictions, primarily in California and the
U.S., governing, among other things: the use, storage, registration, handling, emission and disposal of chemicals, waste materials and sewage; chemicals,
air, water and ground contamination; and air emissions and the cleanup of contaminated sites, including any contamination that could result from spills due
to our failure to properly dispose of production waste materials. Our operations at our Ventura manufacturing facility produce a small amount of waste
materials that are considered minimally hazardous, and we use a third-party waste disposal company to remove any waste generated during operations from
the facility. Our activities require permits from various governmental authorities including local municipal authorities. Local and state authorities may
conduct periodic inspections in order to review and ensure our compliance with the various regulations. We are not presently aware of any violations or
deficiencies. These laws, regulations and permits could potentially require the expenditure by us for compliance or remediation.
AVAILABLE INFORMATION
The Company files annual, quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission
(“SEC”) under the Exchange Act. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC. The public can obtain any documents that we file with the SEC at www.sec.gov. In addition, copies of
announcements made by the Company to ASX are available on the ASX website (www.asx.com.au) and also, under the heading “Investors: Press
Releases” at the following link on our website (https://ir.avitamedical.com/press-releases). We maintain a website at www.avitamedical.com. Since
becoming a domestic U.S. issuer on July 1, 2020, our filings with the SEC, including without limitation, our annual reports on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are
available free of charge on our website under the heading “Investors: Financials _SEC Filings” at the following link on our website
(https://ir.avitamedical.com/financials/sec-filings), as soon as reasonably practicable after we file or furnish them electronically with the SEC. Information
contained on our website is not part of or incorporated into this annual report.
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ORGANIZATIONAL STRUCTURE
The Company has a total of six subsidiaries and their corporate details and business activities are listed below:
Subsidiary Name
AVITA Medical Pty Limited
AVITA Medical Americas, LLC
AVITA Medical Europe Limited
Visiomed Group Pty Ltd
C3 Operations Pty Ltd
Infamed Pty Ltd
Item 1A. RISK FACTORS
Place of
Incorporation
Australia
Delaware
United Kingdom
Australia
Australia
Australia
%
Held
100
100
100
100
100
100
Business Purpose
Operating Company
U.S. operations
EMEA operations
Asia Pacific Operations
Holding company
Inactive
Our business faces significant risks. You should carefully consider all of the information set forth in this annual report, including the following
risk factors. Our business, results of operations, and financial condition could be materially and adversely affected by any of these risks, and in such event,
the trading price of our common stock would likely decline, and you might lose all or part of your investment. This Annual Report also contains forward-
looking statements that involve risks and uncertainties, and our results could materially differ from those anticipated in these forward-looking statements.
See “Forward-Looking Statements” included elsewhere within this Annual Report for a discussion of certain risks, uncertainties and assumptions
associated with these statements.
Risks Related to Our Business Operations
We have experienced significant losses, expect losses to continue for the foreseeable future and may never achieve or maintain profitability.
Although we have begun full scale marketing and sales of our RECELL® System in the United States and other jurisdictions, such sales have
been limited to date and we have not yet obtained profitability. We had a total net loss of $26.7 million and $25.1 million for the year-ended December 31,
2022 and the year-ended December 31, 2021, respectively. We have incurred a cumulative deficit of $262.6 million through December 31, 2022. We
anticipate that we may continue to incur losses at least until U.S. sales of the RECELL System are adequate to fund operating expenses. We may not be
able to successfully achieve or sustain profitability. Successful transition to profitable operations is dependent upon achieving a level of revenues adequate
to support our cost structure, including in new markets for which we are not presently approved.
Provisions in our U.S. government contracts, including our contracts with BARDA, may affect our intellectual property rights.
Certain of our activities have been funded, and may in the future be funded, by the U.S. government, including through our contracts with
BARDA. When new technologies are developed with U.S. government funding, the government obtains certain rights in any resulting patents, including
the right to a nonexclusive license authorizing the government to use the invention and rights that may permit the government to disclose our confidential
information to third parties and to exercise “march-in” rights. The government can exercise its march-in rights if it determines that action is necessary
because we fail to achieve practical application of the U.S. government-funded technology, because action is necessary to alleviate health or safety needs,
to meet requirements of federal regulations, or to give preference to U.S. industry. In addition, U.S. government-funded inventions must be reported to the
government, U.S. government funding must be disclosed in any resulting patent applications, and our rights in such inventions may be subject to certain
requirements to manufacture products in the United States.
Development and commercialization of our products require successful completion of the regulatory approval process and may suffer delays or fail. We
may be unsuccessful in obtaining additional approvals for our RECELL System for soft tissue repair and skin conditions such as vitiligo.
In the United States, as well as other jurisdictions, we have been and will be required to apply for and receive regulatory authorization before we
can market our products. Although our RECELL System has been approved for use in the treatment of acute partial-thickness thermal burn wounds in
patients 18 years of age and older or application in combination with meshed autografting for acute full-thickness thermal burn wounds in pediatric and
adult patients in the United States, we are looking to expand the indications of the product for use in soft tissue repair and vitiligo. In December 2022, the
company submitted a PMA supplement to expand the use of RECELL for soft tissue repair and an original PMA application for the use of RECELL for
treatment of vitiligo. While clinical trials for such uses are nearing completion, there can be no assurance that we will be successful in those clinical trials
or ever receive approval by the FDA for the use of our RECELL System for such additional applications. Such a failure of approval would have a material
negative effect on our future prospects.
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In Australia, the RECELL System is approved to use for the treatment of burns, acute wounds, scars and vitiligo. In the EU the product has been
approved for the treatment of burns, chronic wounds, scars and vitiligo. We worked with COSMOTEC to advance our application for approval of the
RECELL System in Japan pursuant to Japan’s Pharmaceuticals and Medical Devices Act (“PMDA”). In February 2022, our application for regulatory
approval was approved by the PMDA for both adult and pediatric burns. We will require additional clinical data or approvals from regulatory authorities
within these countries to market the product for the treatment of other indications, and from any other jurisdictions in which we seek to market the product.
This process can be time consuming and complicated and may be unsuccessful or otherwise result in unanticipated delays or fail altogether. To secure
marketing authorization, an applicant generally is required to submit an application that includes the data supporting preclinical and clinical safety and
effectiveness as well as detailed information on the manufacturing and control of the product, proposed labeling and other additional information. Before
marketing authorization is granted, regulatory authorities may require the inspection of the manufacturing facility or facilities and quality systems
(including those of third parties) at which the product candidate is manufactured and tested, as well as potential audits of the non-clinical and clinical trial
sites that generated the data cited in the marketing authorization application.
We cannot predict whether any additional marketing authorizations will ultimately be granted or how long the applicable regulatory authority or
agency will take to do so. Regulatory agencies, including the FDA, have substantial discretion in the approval process. In addition, the approval process
and the requirements governing clinical trials vary from country to country. The policies of the FDA or other regulatory authorities may change, and
additional government regulations may be enacted that could prevent, limit or delay the necessary approval of any products we may develop and
commercialize. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action,
either in the United States or elsewhere. If we are slow or unable to adapt to new or changed requirements, or if we are not able to maintain regulatory
compliance, we may lose any marketing approval that we may have obtained, and we may not achieve or sustain profitability.
Additionally, any future regulatory approvals that we receive may also contain requirements for costly post-marketing testing and surveillance to
monitor the safety and effectiveness of the product. Once a product is approved, the manufacturing processes, labeling, packaging, distribution, adverse
event reporting, storage, advertising, promotion, import, export, and recordkeeping for the product will be subject to extensive and ongoing regulatory
requirements. These requirements include submission of safety and other post-marketing reports, registration, and continued compliance with good
manufacturing practices for any clinical trials that we conduct post-approval.
Finally, per FDA regulations, changes made to products, specifications, or test data evaluation methodology would generally require
communication with the FDA. There are several pathways for communicating with the FDA of such changes. As part of such review, the FDA may request
additional information, at which time the product may become temporarily unavailable.
Obtaining and maintaining regulatory approval for a product candidate in one jurisdiction does not mean that we will be successful in obtaining
regulatory approval for that product candidate in other jurisdictions.
Obtaining and maintaining regulatory approval for a product in one jurisdiction does not guarantee that we will be able to obtain or maintain
similar approval in other jurisdictions, while a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the
regulatory approval process in others. For example, even if the FDA grants marketing approval for use of our RECELL System for the treatment soft tissue
repair and/or vitiligo, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the
product candidate in those countries if not currently approved. Approval procedures vary among jurisdictions and can involve requirements and
administrative review periods different from, and greater than, those in the United States, including additional preclinical studies or clinical trials as clinical
trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a
medical device must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge
for our products is also subject to approval.
We are highly dependent on our regulatory approval in the United States and failure to maintain that approval would materially impact our business
and prospects.
Our business is highly dependent on the PMA we received in September 2018 from the FDA. This PMA allows us to sell our RECELL System
in the United States, our current primary market. In addition, maintaining this PMA also increases the probability of approval of secondary indications for
the PMA outside of burns. While we intend to take every action and precaution to ensure that our PMA remains effective, it is possible that the FDA could
take a position in the future that requires a modification, temporary suspension or revocation of our PMA. Any such action by the FDA would have a
material adverse effect on our business.
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We may encounter substantial delays in any further clinical studies necessary to support any regulatory applications for additional commercial
applications of our technology.
We cannot guarantee that any preclinical testing or clinical trials will be conducted as planned or completed on schedule, if at all. As a result, we
may not achieve the expected clinical milestones necessary for approval by the FDA, or other regulators, for the use of our RECELL System for additional
applications in the United States or other countries.
A failure in a clinical study or regulatory application can occur at any stage. Events that may prevent successful or timely
commencement, enrollment or completion of clinical development or a regulatory application include:
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delays in raising, or inability to raise, sufficient capital to fund the planned trials;
delays in reaching a consensus with regulatory agencies on trial design;
changes in trial design;
inability to identify, recruit and train suitable clinical investigators;
inability to add new clinical trial sites;
delays in reaching agreement on acceptable terms for the performance of the trials with prospective clinical research organizations and
clinical trial sites;
delays in recruiting suitable clinical sites and patients (i.e., subjects) to participate in clinical trials;
imposition of a clinical hold by regulatory agencies for any reason, including negative clinical results, safety concerns or as a result of an
inspection of manufacturing or clinical operations or trial sites;
failure by any relevant parties to adhere to clinical trial requirements;
failure to perform in accordance with the FDA’s Good Clinical Practice (“GCPs”), or applicable regulatory guidelines in other countries;
delays in the testing, validation, manufacturing and delivery of the product candidates to the clinical sites;
delays caused by clinical trial sites not completing a trial;
failure to demonstrate adequate effectiveness;
occurrence of serious adverse events in clinical trials that are associated with the product candidates that are viewed to outweigh its
potential benefits;
changes in regulatory requirements and guidance that require amending or submitting new clinical protocols;
adverse events, safety issues, product recalls, manufacturing or supply chain interruptions, or poor clinical outcomes where the RECELL
System is being used commercially; and
disagreements with regulatory agencies in the interpretation of the data from our clinical trials.
Delays, including delays caused by the above factors, can be costly and could negatively affect our ability to complete clinical trials for our
product candidates. If we are not able to successfully complete clinical trials or are not able to do so in a timely and cost-effective manner, we will not be
able to obtain regulatory approval for the use of our RECELL System for additional applications, all of which could have a material adverse effect on our
business, financial condition and results of operations.
We may be unsuccessful in commercializing our RECELL System, or other future products, due to unfavorable pricing regulations or third-party
coverage and reimbursement policies.
We cannot guarantee that we will receive favorable pricing and reimbursement for use of our products. The rules and regulations that govern
pricing and reimbursement for medical products vary widely from country to country or from indication to indication, and within the United States, can
also vary widely from one health system or hospital to the next. In some foreign jurisdictions, including the EU, the government largely controls pricing of
medical products. In other countries, coverage negotiations must occur at the regional or hospital level. Pricing negotiations can take considerable time
after the receipt of marketing approval for a medical product.
As a result, even after obtaining regulatory approval for a product in a particular country, we may be subject to price regulations or limited
reimbursement, which may delay or limit our commercial launch of the product and negatively impact the revenue we are able to generate from the sale of
the product in that country. Adverse pricing limitations may hinder our ability to recoup our total investment in our RECELL System or other future
products, even after obtaining regulatory approval.
If we are unable to promptly obtain coverage and profitable payment rates from hospital budget, government-funded and private purchasers for
the RECELL System or any future products, this could have a material adverse effect on our operating results, our ability to raise capital needed to
commercialize products and our overall financial condition.
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For example, we presently benefit from various reimbursement codes, including the following:
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Reimbursement for hospitals in inpatient services using Medicare Severity Diagnosis-Related Groups (“MS-DRGs”).
Specific International Classification of Disease, 10th revision, Procedure Classification System (“ICD-10-PCS”) code series describing our
“cell suspension technique” for the use of the RECELL System.
Current Procedural Terminology (“CPT”) codes to support physician reimbursement for professional healthcare services, ambulatory
surgical center (“ASCs”) reimbursement for facility services and hospital reimbursement for outpatient department services. Medicare
reimburses ASCs for services using CPT codes and reimburses hospitals for outpatient services using Ambulatory Payment Classifications
(“APCs”).
In addition, in 2022, we were approved for a Transitional Pass-through Payment (“TPT”) C code to support additional Medicare payment in the outpatient
hospital and the ASC setting. There can be no guarantee that the above reimbursement codes will not be withdrawn, reduced, consolidated or otherwise be
altered in a manner which is not supportive of ongoing commercial use of the RECELL System.
We have limited financial resources and will likely require additional financings to continue the development and commercialization of our RECELL
System or any future products, which may cause dilution to our existing stockholders or place restrictions on our operations. If additional financing is
not available, we may have to postpone, reduce or cease operations.
If we are unable to achieve profitability sufficient to permit us to fund our operations and other planned actions, we may be required to raise
additional capital. There can be no assurance that such capital would be available on favorable terms, or at all. If we raise additional capital through the
issuance of equity or convertible debt securities, the percentage ownership held by existing stockholders may be reduced, and the market price of our
common stock or CDIs could fall due to an increased number of shares or CDIs available for sale in the market. Debt financing, if available, may involve
restrictive covenants, which may limit our operating flexibility with respect to certain business matters. If we are unable to secure additional capital as
circumstances require, we may not be able to fund our planned activities or continue our operations.
We face manufacturing risks that may adversely affect our ability to manufacture products and could reduce our gross margins and negatively affect
our business and operating results.
Our success depends, in part, on our ability to manufacture our current and future products in sufficient quantities and on a timely basis to meet
demand, while adhering to product quality standards, complying with regulatory quality system requirements and managing manufacturing costs. We have
a manufacturing facility located in Ventura, California where we produce, package and warehouse the RECELL System. We also rely on global third-party
manufacturers for production of some of the components used in the RECELL System. If our facility, or the facilities of our third-party contract
manufacturers, suffer damage, or a force majeure event, this could materially impact our ability to operate.
We are also subject to other risks relating to our manufacturing capabilities, including:
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quality and reliability of components, sub-assemblies and materials that we source from third-party suppliers, who are required to meet our
quality specifications, some of whom are our single-source suppliers for the products they supply;
failure to secure raw materials, components and materials in a timely manner, in sufficient quantities or on commercially reasonable terms;
inability to secure raw materials, components and materials of sufficient quality to meet the exacting needs of medical device
manufacturing;
inability to increase production capacity or volumes to meet demand; and
As demand for our products increases, we will have to invest additional resources to purchase raw materials and components, sub-assemblies and
materials, hire and train employees and enhance our manufacturing processes. If we fail to increase our production capacity efficiently to meet demand for
our products, we may not be able to fill customer orders on a timely basis, our sales may not increase in line with our expectations and our operating
margins could fluctuate or decline. It may not be possible for us to manufacture our products at a cost or in quantities sufficient to make these products
commercially viable or to maintain current operating margins, all of which could have a material adverse effect on our business, financial condition and
results of operations. In addition, we are continually identifying additional third-party suppliers who could serve if necessary as replacement manufacturers
should the need arise.
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Certain of our products are dependent on specialized sources of supply potentially subject to disruption which could have a material, adverse impact on
our business.
We expect recent supply chain disruptions as a result of the pandemic combined with raw material shortages, and inflationary pressures, to
continue for the foreseeable future. These conditions have strained our suppliers and extended supplier delivery lead times. The Life Sciences industry is
experiencing market wide shortages for resin products used in our packaging. As a result of recent inflation, we are seeing increases in the costs of raw
materials.
We have single-sourced some of our material components due to the cost and regulatory requirements associated with qualifying multiple
suppliers. To the extent any of these single sourced suppliers may have disruptions in deliveries due to production, quality, or other issues, we may also
experience related production delays or unfavorable cost increases associated with qualifying alternate suppliers. The impact of delays resulting from
disruptions in supply for these items could negatively impact our revenue, our reputation with our customers, and our results of operations. In addition,
significant price increases from single-source suppliers could have a negative impact on our profitability to the extent that we are unable to recover these
cost increases on our fixed price contracts.
We rely on third parties to conduct, supervise and monitor our clinical trials. If these third parties do not successfully carry out their contractual duties
or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our drug product candidates and our business could
be substantially harmed.
We rely on clinical research organizations (“CRO”), and clinical trial sites to ensure our clinical trials are conducted properly and on time. While
we will have agreements governing their activities, we will have limited influence over their actual performance. CROs manage and monitor the clinical
trials, duties and functions, and we will control only certain aspects of our CROs’ activities. Nevertheless, we will be responsible for ensuring that each of
our clinical trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on the CROs does not
relieve us of our regulatory responsibilities.
We and our CROs are required to comply with the FDA’s GCPs for conducting, recording and reporting the results of clinical trials to assure that
the data and reported results are credible and accurate and that the rights, integrity and confidentiality of clinical trial participants are protected. The FDA,
and comparable foreign regulatory authorities, enforces these GCPs through periodic inspections of trial sponsors, principal investigators and clinical trial
sites. If we or our CROs fail to comply with applicable GCPs, the clinical data generated in our future clinical trials may be deemed unreliable and the FDA
or other foreign regulatory authorities may require us to perform additional clinical trials before approving any marketing applications.
If our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of
the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements, or for any other reasons, our
clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize, our product
candidates. If any such event were to occur, our financial results and the commercial prospects for our product candidates would be harmed, our costs could
increase, and our ability to generate revenues could be delayed. If any of our relationships with these third-party CROs terminate, we may not be able to
enter into arrangements with alternative CROs or to do so on commercially reasonable terms. Further, switching or adding additional CROs involves
additional costs and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result,
delays occur, which could materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships
with our CROs, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have a
material adverse impact on our business, financial condition and prospects.
As a result of the ongoing COVID-19 pandemic, other pandemics, inadequate funding or other reasons, the FDA and other government agencies may
have resource constraints which could limit their ability to review and approve our applications in a timely manner, thus negatively impacting our
business.
The FDA’s ability to review and approve regulatory submissions can be affected by a variety of factors, including government budget and
funding levels, statutory, regulatory, and policy changes, the FDA’s ability to hire and retain key personnel and accept the payment of user fees, federal
government shutdowns, and other events that may otherwise affect the FDA’s ability to perform routine functions. The time to review submissions can
vary from time to time.
If a prolonged government shutdown occurs, or if global health concerns continue to prevent or delay the FDA or other regulatory authorities
from conducting, at all or in a timely manner, their regular inspections, reviews, or other regulatory activities (including pre-submission engagements), it
could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have
a material adverse effect on our business.
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Product recalls or inventory losses caused by unforeseen events may adversely affect our operating results and financial condition.
Our products are manufactured, stored and distributed using technically complex processes requiring specialized facilities, highly specific raw
materials and other production constraints. The complexity of these processes, as well as strict company and government standards for the manufacture,
storage and distribution of our product candidates, subjects us to risks. In addition, process deviations or unanticipated effects of approved process changes
may result in production runs of our RECELL System not complying with stability requirements or specifications. The occurrence or suspected occurrence
of production and distribution difficulties can lead to lost inventories and in some cases product recalls, with consequential reputational damage and the
risk of product liability. The investigation and remediation of any identified problems can cause production delays, substantial expense, lost sales and
delays of new product launches. In the event our production efforts require a recall or result in an inventory loss, our operating results and financial
condition may be adversely affected.
A cyber security incident could be disruptive to our business, compromise confidential data, cause reputation harm, and subject us to litigation and
federal and state governmental inquiries.
We collect and store sensitive business and other information, including intellectual property and trade secrets, on our networks. Our business
operations are dependent upon the secure maintenance of this information. Despite our efforts to secure this information, there can be no assurance that
cyberattacks and other threats from malicious persons and groups will not cause harm to or disrupt our business and operations. As a result, cyber security
and the continued development and enhancement of our controls, processes and practices designed to protect our information systems from attack, damage
or unauthorized access remain a priority for us. We may be required to expend significant additional resources to protect against cyber threats. A cyber-
attack may result in a material adverse effect on our financial position and results of operations and harm our business reputation.
We rely on information technology systems for critical business functions and the operations of our business.
We rely upon complex, integrated information technology (IT) systems in our business functions including our quality systems to operate our
business. If any of our IT systems were to be disrupted or fail, our business could suffer irreparable harm, financial loss, and our operations would be
adversely impacted.
The markets in which we operate are highly competitive and innovative. Our competitors may develop products that render our products less attractive
or obsolete and our business may deteriorate.
The markets for our products are highly competitive and our competitors may develop products that may more effectively compete with our
products, thus negatively impacting our sales, financial conditions and business prospects. Our competitors may have significantly more financial and
other resources to invest in product development. We must continue to develop and market new products, or we risk our products becoming obsolete, in
which case, our revenues may decline, and our business prospects may suffer.
Product development is an expensive, uncertain and lengthy process.
We have significant product development projects ongoing that, if successful, are intended to improve the ease and use of our device in our
current burn indication as well as in soft tissue repair, vitiligo and future indications. The costs, timeline and ultimate success of these product development
programs are subject to risk and uncertainty. If the Company is not able to develop and obtain regulatory approval for these products in development in a
timely fashion and within budget, our business prospects and financial condition may suffer.
Compliance with environmental, health and safety requirements is costly and, if not achieved, could result in material financial fines and penalties,
expensive lawsuits, cessation of business operations, and a material adverse impact on the business.
Our manufacturing and other processes may involve the use of hazardous materials subject to federal, state, and local and foreign environmental
requirements. Under some environmental laws and regulations, we could be held responsible for costs at third-party sites that we have used for waste
disposal, or for contamination at our past or present facilities. Failure to comply with current environment laws, or future laws, could result in significant
fines, penalties and expenses which could have an adverse impact on our financial condition.
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We may be subject to civil and criminal penalties if the FDA determines that we have marketed or promoted our products for off-label usage.
We are prohibited from promoting our products for uses that are inconsistent with the uses that have been approved by the FDA - also known as
“off-label” uses. More specifically, we may not make claims, in our promotion materials, website or otherwise, about the use of any RECELL products
which are outside of their approved labeling and indications. If the FDA determines that our marketing activities constitute off-label promotion, the FDA
could impose fines and penalties on the Company and our executives, withdraw or recall our approved product from the market, as well as limit our
product from off-label usage.
Risks Relating to our Industry and Intellectual Property
We face competition from the existing standard of care and any future potential changes in medical practice and technology and the possibility that our
competitors may develop products, treatments or procedures that are similar, more advanced, safer or more effective than ours.
The medical device, biotechnology and pharmaceutical industries, specifically relating to the areas where we currently or intend to market our
RECELL System, are intensely competitive and subject to significant changes due to technology and medical practice standards. We may face competition
from any number of different sources with respect to any products we develop and commercialize.
Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products, treatments or procedures
that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than our RECELL System or any future
products we develop. Many of our current or future competitors may have significantly greater financial resources and experience and expertise in research
and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we
may have. Mergers and acquisitions in the pharmaceutical, medical device, and biotechnology industries or wound care markets may result in increased
concentration of resources among a smaller number of our competitors. Other early-stage companies may also prove to be significant competitors,
particularly through collaborative arrangements with large and established companies. These companies compete with us in recruiting and retaining
qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies
complementary to, or necessary for, our programs.
We could be subject to product liability lawsuits, which could result in costly and time-consuming litigation and significant liabilities.
The development of medical device products, such as our RECELL System, involves an inherent risk of product liability claims and associated
financial liability and adverse publicity. Any products we may develop could be found to be harmful or to contain harmful substances and expose us to
substantial liability and risk of litigation or may force us to discontinue production. We may be unable to obtain or maintain insurance on reasonable terms
or otherwise protect ourselves against potential product liability claims that could impede or prevent further business development of any products we may
create and commercialize. Furthermore, a product liability claim could damage our reputation, whether or not such claims are covered by insurance or have
merit. A product liability claim against us or the withdrawal of a product from the market could have a material adverse effect on our business or financial
condition. Furthermore, product liability lawsuits, regardless of their success, would likely be time consuming and expensive to resolve and would divert
management’s time and attention, which could seriously harm our business.
If we are unable to effectively protect our intellectual property, we may not be able to operate our business and third parties may be able to use and
profit from our technology, both of which would impair our ability to be competitive.
Our success will be heavily dependent on our ability to obtain and maintain meaningful patent protection for our technologies and products
throughout the world. Patent law relating to the technology fields in which we will operate is still evolving. The amount of ongoing protection for our
proprietary rights therefore is uncertain. We will rely on patents to protect a significant part of our intellectual property and to enhance our competitive
position. However, our presently pending or future patent applications may be denied, and any patent previously issued to us or our subsidiaries may be
challenged, invalidated, held unenforceable or circumvented. In particular, we filed a patent Term Extension application with the U.S. Patent and
Trademark Office requesting an extension of our commercial patent that covers the RECELL System, U.S. Patent No. 9,029,140. If the term extension is
approved, the patent term will be extended to April 9, 2024. Without such approval, our RECELL System patent will expire in February 2024, which could
prevent us from defending our patent in the event a competitor infringes on our RECELL System by producing the same type of product. Furthermore, the
patent protections we have been granted may not be broad enough to prevent competitors from producing products similar to ours.
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In markets other than the USA, where we continue to have patent protection on the RECELL System, the expiration of these patents means the
Company may not be able to deter a competitor from introducing a product similar to the RECELL System in those jurisdictions. If this were to occur, our
ability to successfully market and sell our products in such markets could be materially impaired.
In addition, the laws of various foreign countries in which we may compete may not protect our intellectual property to the same extent as do the
laws of the United States. If we fail to obtain adequate patent protection for our proprietary technology, our ability to be commercially competitive will be
materially impaired.
In the ordinary course of business and as appropriate, we intend to apply for additional patents covering both our technologies and products, as
we deem appropriate. Our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from practicing our
technologies or developing competing products and technologies. In addition, because patent law is evolving in the life science industry, the patent
positions of companies like ours are uncertain. As a result, the validity and enforceability of our patents cannot be predicted with certainty.
We may find it difficult to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on all of our technologies and products in every jurisdiction is expensive. Competitors could reverse
engineer our technologies in jurisdictions where we have not obtained patent protection to develop their own products. These products may compete with
our products and may not be covered by any patent claims or other intellectual property rights.
The laws of some countries do not protect intellectual property rights to the same extent as the laws of the United States and many companies
have encountered significant problems in protecting and defending such rights in foreign jurisdictions. This lack of protection, particularly in relation to
biotechnology, could make it difficult for us to stop the infringement of our patents. Proceedings to enforce our patent rights in foreign jurisdictions could
result in substantial cost and divert the efforts and attention of key personnel from other aspects of our business.
We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights and we may be
unable to protect our rights to, or use of, our technology.
If we choose to go to court to stop someone else from using the intellectual property claimed in our patents or our licensed patents, that
individual or company has the right to ask the court to rule that these patents are invalid and/or should not be enforced against that third party. These
lawsuits are expensive and would distract our key personnel and consume time and other resources, even if we were successful in stopping the infringement
of these patents. In addition, there is a risk that a court will decide that these patents are invalid or unenforceable and that we do not have the right to stop
the other party from using the inventions or, even if the validity or enforceability of these patents is upheld, the court may refuse to stop the other party
because the competitors’ activities do not infringe our rights.
If third parties make claims of intellectual property infringement against us, or otherwise seek to establish their intellectual property rights equal or
superior to ours, we may have to spend time and money in response and potentially discontinue certain of our operations.
While we currently do not believe it to be the case, third parties may claim that we are employing their proprietary technology without
authorization or that we are infringing on their patents. If such claims were made, we could incur substantial costs coupled with diversion of our
management and key technical personnel in defending against these claims. Furthermore, parties making claims against us may be able to obtain injunctive
or other equitable relief which could effectively halt our ability to further develop, commercialize and sell products. In the event of a successful claim of
infringement, courts may order us to pay damages and obtain one or more licenses from third parties. We may not be able to obtain these licenses at a
reasonable cost, if at all. Defense of any lawsuit or failure to obtain any of these licenses could prevent us from commercializing available products and
have a material negative effect on our business.
Our current and future relationships with investigators, health care professionals, consultants, third-party payors, and customers will be subject to
applicable healthcare regulatory laws, which could expose us to penalties.
Our business operations and current and future relationships with investigators, healthcare professionals, consultants, third-party payors and
customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations. These
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laws regulate the business or financial arrangements and relationships through which we conduct our operations, including how we research, market, sell
and distribute our products for which we obtain marketing approval. Such laws include:
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the federal Anti-Kickback Statute prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering,
receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an
individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service, for which payment may be made, in
whole or in part, under a federal healthcare program such as Medicare and Medicaid. A person or entity does not need to have actual
knowledge of the federal Anti-Kickback Statute or specific intent to violate it to have committed a violation; in addition, the government
may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or
fraudulent claim for purposes of the civil False Claims Act;
the federal false claims laws including the civil False Claims Act, which can be enforced through civil whistleblower or qui tam actions, and
civil monetary penalties laws, which impose criminal and civil penalties against individuals or entities for knowingly presenting, or causing
to be presented to the federal government, claims for payment that are false or fraudulent, knowingly making, using or causing to be made
or used, a false record or statement material to a false or fraudulent claim, or knowingly making, or causing to be made, a false statement to
avoid, decrease or conceal an obligation to pay money to the federal government; in addition, the government may assert that a claim
including items and services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for
purposes of the civil False Claims Act;
HIPAA imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme
to defraud any healthcare benefit program or making false or fraudulent statements relating to healthcare matters. Similar to the federal
Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have
committed a violation;
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also
imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of
individually identifiable health information on health plans, health care clearing houses, and certain health care providers, known as covered
entities, and their business associates, defined as independent contractors or agents of covered entities that create, receive or obtain
protected health information in connection with providing a service for or on behalf of a covered entity as well as their covered
subcontractors;
a number of federal, state and foreign laws, regulations, guidance and standards that impose requirements regarding the protection of health
data that are applicable to or affect our operations;
the federal transparency requirements, sometimes referred to as the “Sunshine Act,” under the Patient Protection and Affordable Care Act,
which requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare,
Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the government information related to
payments or other "transfers of value" made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors)
and teaching hospitals, and requires applicable manufacturers and group purchasing organizations to report annually to the government
ownership and investment interests held by the physicians described above and their immediate family members. Beginning in 2022,
applicable manufacturers are also required to report such information regarding their relationships with physician assistants, nurse
practitioners, clinical nurse specialists, certified registered nurse anesthetists and certified nurse midwives during the previous year; and
analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to our business practices,
including but not limited to, research, distribution, sales, and marketing arrangements and claims involving healthcare items or services
reimbursed by non-governmental third-party payors, including private insurers, or otherwise restrict payments that may be made to
healthcare providers and other potential referral sources; and state laws that require medical device companies to comply with
the industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government; state laws
that require medical device manufacturers to report information related to payments and other transfers of value to physicians and other
healthcare providers, marketing expenditures or drug pricing, as well as state and local laws that require the registration of sales
representatives; and state and foreign laws governing the privacy and security of health information in some circumstances, many of which
differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Defending against any such actions can be costly, time-consuming and may require significant financial and personnel resources. Therefore, even
if we are successful in defending against any such actions that may be brought against us, our business may be impaired.
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The continued successful commercialization of the RECELL system for FDA approved and pending indications, will depend in part on the extent to
which government authorities and health insurers establish adequate reimbursement levels and pricing policies.
Continued sales of the RECELL System depend in part on the availability of coverage and reimbursement from third-party payers such as
government insurance programs, including Medicare and Medicaid, private health insurers, health maintenance organizations and other health care related
organizations, who are increasingly challenging the price of medical products and services.
Both the federal and state governments in the United States continue to propose and pass new legislation, regulations, and policies affecting
coverage and reimbursement rates, which are designed to contain or reduce the cost of health care. Further federal and state proposals and healthcare
reforms are likely, which could limit the prices that can be charged for the RECELL System and may further limit our commercial opportunity. For
example, on August 16, 2022, President Biden signed the Inflation Reduction Act of 2022, or the IRA, into law, which among other things, extends
enhanced subsidies for individuals purchasing health insurance coverage in Affordable Care Act marketplaces through plan year 2025. The IRA also
eliminates the “donut hole” under the Medicare Part D program beginning in 2025 by significantly lowering the beneficiary maximum out-of-pocket cost
through a newly established manufacturer discount program. It is possible that the Affordable Care Act will be subject to judicial or Congressional
challenges in the future. Accordingly, we continue to evaluate the effect that the Affordable Care Act has on our business.
There also may be future changes unrelated to the IRA that result in reductions in potential coverage and reimbursement levels for our product
and we cannot predict the scope of any future changes or the impact that those changes would have on our operations. Cost control initiatives may decrease
coverage and payment levels and, in turn, the price that we will be able to charge and/or the volume of our sales. We are unable to predict all changes to the
coverage or reimbursement methodologies that will be applied by private or government payers. Any denial of private or government payer coverage, such
as the Affordable Care Act, the IRA, as well as other federal, state, and foreign healthcare reform measures that have been and may be adopted in the
future, or inadequate reimbursement could harm our business and reduce our revenue. Additionally, if rebate obligations associated with them are
substantially greater than we expect, our future net revenue and profitability could be materially diminished.
Macroeconomic and Social Risks
Our business, results of operations and financial condition may be adversely impacted by the COVID-19 pandemic.
The ongoing COVID-19 pandemic has negatively affected the U.S. and global economies, disrupted global supply chains, resulted in significant
travel and transport restrictions, and created significant disruption of the financial markets. We continue to closely monitor the impact of the COVID-19
pandemic on all aspects of our business, including how it is impacting our employees, product development, customers and supply chain. We continue to
be unable to predict the ultimate impact that the COVID-19 pandemic may have on our business, future results of operations, financial position or cash
flows. The extent to which our operations may be impacted by the COVID-19 pandemic and recovery will depend largely on future developments, which
are highly uncertain and cannot be accurately predicted.
We may experience additional operating costs due to increased challenges with our workforce (including as a result of illness, absenteeism or
government orders), access to supplies, capital, and fundamental support services (such as shipping and transportation). Even after the COVID-19
pandemic has subsided, we may experience materially adverse impacts to our business due to any resulting supply chain disruptions, economic recession or
depression. Furthermore, the impacts of potential worsening of global economic conditions, inflation resulting from government interventions and stimulus,
and continued disruptions to and volatility in the financial markets remain unknown.
The impact of the COVID-19 pandemic may also exacerbate other risks discussed in this section, any of which could have a material adverse
effect on us. This situation continues to change rapidly, and additional impacts may arise that we are not aware of currently, including the emergence of
additional variants which may or may not be resistant to currently available vaccines and therapeutic treatments.
Adverse changes in general economic conditions or uncertainty about future economic conditions, including economic uncertainty from the departures
of critical personnel from the industry, could adversely affect us.
We are subject to the risks arising from adverse changes in general economic market conditions, including the negative impact to the U.S. and
global economy from the COVID-19 pandemic. Uncertainty about future economic conditions could negatively affect our current and prospective
customers causing them to delay the purchase of our products. Poor economic conditions could harm our business, financial condition, operating results
and cash flows. In addition, a number of nurses and other critical personnel in burn centers who are trained and well versed in the use of the RECELL
system have determined to change occupations, possibly as a result of the ongoing pandemic. Nationally, this has been termed the “great resignation”. The
fact that many burn center employees
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have moved on to other positions or industries may limit our ability to increase adoption of our RECELL system as we will be required to train a new
group of nurses and other personnel critical to the implementation of the RECELL system.
Customer and consumer demand for our products may be impacted by weak economic conditions, recession, equity market volatility or other
negative economic factors in the U.S. or other nations. The severity and length of time that a downturn in economic and financial market conditions may
persist, as well as the timing, strength and sustainability of any recovery from such downturn, are unknown and are beyond our control. Many predict that
the U.S. economy will enter a recession in fiscal year 2023.
We continue to take precautions due to the COVID-19 pandemic that could negatively impact our business.
In response to the COVID-19 pandemic, we have taken measures intended to protect the health and well-being of our employees, customers, and
communities, which could negatively impact our business. While the COVID-19 pandemic has not materially adversely affected our financial results and
business operations through the fiscal year-ended December 31, 2022, we are unable to predict the impact that COVID-19 will have on our business,
operations, and financial results and condition because of the numerous uncertainties created by the unprecedented nature of the pandemic. We are closely
monitoring the evolving impact of the pandemic on all aspects of our business. We have implemented a number of measures designed to protect the health
and safety of our employees, support our customers and promote business continuity. We continue to evaluate the Company’s liquidity and operational
performance, communicate with and monitor the actions of our customers, third-party manufacturers and suppliers, and review our near-term financial
performance as we manage the Company through this period of uncertainty.
Risks Relating to Our Common Stock and CDIs
We have never paid a dividend on our common stock and CDIs and do not intend to do so in the foreseeable future, and consequently, investors’ only
opportunity to realize a return on their investment in the Company is through the appreciation in the price of our common stock and CDIs.
We do not anticipate paying cash dividends on our common stock and CDIs in the foreseeable future and intend to retain all earnings, if any, for
our operations. If we decided to pay dividends at some future time, we may not have sufficient funds legally available to do so. Even if funds are legally
available for distribution, we may be unable to pay any dividends to our stockholders because of limitations imposed by a lack of liquidity. Accordingly,
our stockholders may have to sell some or all of their common stock or CDIs (as applicable) in order to generate cash flow from their investment. Our
stockholders may not receive a gain on their investment when they sell their common stock or CDIs and may lose some or all of their investment. Any
determination to pay dividends in the future on our common stock and CDIs will be made at the discretion of our Board of Directors and will depend on
our results of operations, financial conditions, contractual restrictions, restrictions imposed by applicable law, capital requirements, and other factors that
our Board of Directors deems relevant.
As long as we remain subject to the rules of the ASX and of Nasdaq, we will be unable to access equity capital without stockholder approval if such
equity capital sales would result in an equity issuance above regulatory thresholds and consequently, we may be unable to obtain financing sufficient to
sustain our business if we are unsuccessful in soliciting requisite stockholder approvals.
Our ability to access equity capital is currently limited by ASX Listing Rule 7.1, which provides that a company must not, subject to specified
exceptions, issue or agree to issue during any consecutive 12-month period any equity securities, or other securities with rights to conversion to equity, if
the number of those securities in aggregate would exceed 15% of the number of outstanding common shares at the commencement of that 12-month period
unless stockholder approval is obtained.
Our equity issuances will be limited by ASX Listing Rule 7.1 so long as we continue to be listed on the ASX and this constraint may prevent us
from raising the full amount of equity capital needed for operations without prior stockholder approval.
In addition to ASX Listing Rule 7.1, we are also subject to Nasdaq Listing Rule 5635(d), commonly referred to as the Nasdaq 20% Rule, which
requires stockholder approval of a transaction other than a public offering involving the sale, issuance, or potential issuance by a company of common
stock (or securities convertible into or exercisable for common stock) equal to 20% or more of the common stock, or 20% or more of the voting power
outstanding before the issuance for less than the greater of book or market value of the shares. While less restrictive than ASX Listing Rule 7.1, the
operation of the Nasdaq 20% rule could limit our ability to raise capital through issuance of common stock or convertible securities without jeopardizing
our listing status. If we were to violate the Nasdaq 20% rule, the Company would be subject to delisting from Nasdaq and share prices and trading volumes
would likely suffer.
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There has been relatively limited trading volume in the markets for our common stock and CDIs, and more active, liquid trading markets for such
securities may never develop.
Trading in our common stock on Nasdaq and our CDIs on the ASX is often thin and susceptible to wide fluctuations in trading prices due to such
limited trading volume and other factors, some of which may have little to do with our operations or business prospects. Limited liquidity in the trading
markets for our common stock and CDIs may adversely affect a stockholder’s ability to sell its shares of our common stock or our CDIs at the time it
wishes to sell them or at a price that it considers acceptable. In addition, if a more active, liquid public trading market does not develop we may be limited
in our ability to raise capital by selling shares of common stock or CDIs. We cannot assure you that more active, liquid public trading markets for our
common stock and CDIs will develop or, if developed, will be sustained.
The market price and trading volume of our common stock and CDIs may be volatile and may be affected by variability in our performance from
period to period and economic conditions beyond management’s control.
The market price of our common stock (including common stock represented by CDIs) may be highly volatile and could be subject to wide
fluctuations. This means that our stockholders could experience a decrease in the value of their common stock or CDIs regardless of our operating
performance or prospects. The market prices of securities of companies operating in the medical device and biotech sectors have often experienced
fluctuations that have been unrelated or disproportionate to the operating results of these companies. In addition, the trading volume of our common stock
and CDIs may fluctuate and cause significant price variations to occur. If the market price of our common stock or CDIs declines significantly, our
stockholders may be unable to resell our common stock or CDIs at or above their purchase price, if at all. There can be no assurance that the market price
of our common stock and CDIs will not fluctuate or significantly decline in the future.
Some specific factors that could negatively affect the price of our common stock and CDIs or result in fluctuations in their price and trading
volume include:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
actual or expected fluctuations in our operating results;
actual or expected changes in our growth rates or our competitors’ growth rates;
results of clinical trials of our product candidates;
results of clinical trials of our competitors’ products;
regulatory actions with respect to our products or our competitors’ products;
reports of one or more patient serious adverse events;
publication of research reports by securities analysts about us or our competitors in the industry;
our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may give to the market;
fluctuations of exchange rates between the U.S. dollar and the Australian dollar;
issuances by us of debt or equity securities;
litigation involving our company, including stockholder litigation;
investigations or audits by regulators into the operations of our company;
proceedings initiated by our competitors or clients;
strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in
business strategy;
sales or perceived potential sales of the common stock or CDIs by us, our directors, executive management team or our stockholders in the
future;
short selling or other market manipulation activities;
announcement or expectation of additional financing efforts;
terrorist acts, acts of war or periods of widespread civil unrest;
economic and social effects of the COVID-19 virus, including any emerging variants or other pandemics;
natural disasters and other calamities;
changes in market conditions for biopharmaceutical stocks;
our inability to raise additional capital, limiting our ability to continue as a going concern;
changes in market prices for our product or for our raw materials;
changes in market valuations of similar companies;
changes in key personnel for us or our competitors;
speculation in the press or investment community;
changes or proposed changes in laws and regulations affecting our industry; and
conditions in the financial markets in general or changes in general economic conditions.
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The requirements of being a public company in the United States and listed on the ASX may strain our resources and divert management’s attention.
As a public company, we are subject to the reporting requirements of the Exchange Act, the U.S. Sarbanes-Oxley Act of 2002 (the “Sarbanes-
Oxley Act”), the Dodd-Frank Act and the listing standards and the rules and regulations of Nasdaq. We are also subject to the reporting requirements under
the ASX Listing Rules due to the listing of our CDIs on ASX. We expect that the requirements of these rules and regulations will increase our legal,
accounting and financial compliance costs, make some activities more difficult, time consuming and costly, and place significant strain on our personnel,
systems and resources. As a result of our disclosure of information in filings required of a public company, our business and financial condition is more
visible, which may result in threatened or actual litigation, including by competitors, stockholders or third parties. If such claims are successful, our
business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and
resources necessary to resolve them, could divert the resources of our management and harm our business and operating results.
We are an emerging growth company, and the reduced disclosure requirements applicable to emerging growth companies may make our common stock
less attractive to investors.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). For as long as we
continue to be an emerging growth company, we may take advantage of certain exemptions and relief from various U.S. reporting requirements that are
applicable to other public companies that are not emerging growth companies, including (i) not being required to comply with the auditor attestation
requirements of Section 404 of the Sarbanes-Oxley Act, (ii) having the option of delaying the adoption of certain new or revised financial accounting
standards, (iii) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and (iv) exemptions from the
requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously
approved. We have taken, and in the future may take, advantage of these exemptions until such time that we are no longer an emerging growth company.
Accordingly, the information contained herein and in other reports we file with the SEC may be different than the information our investors receive from
other public companies in which they hold stock. Further, we have elected to take advantage of the extended transition period for complying with new or
revised accounting standards until those standards would otherwise apply to private companies. As a result, our operating results and financial statements
may not be comparable to the operating results and financial statements of other companies who have adopted the new or revised accounting standards. It is
possible that some investors will find our common stock and CDIs less attractive as a result, which may result in a less active trading market for our
common stock and CDIs and higher volatility in our stock and CDI price.
We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of the date of
the first sale of our common stock pursuant to an effective registration statement under the Securities Act which, given the filing of the S-8 Registration
Statement on August 27, 2020, will be December 31, 2025, (ii) the last day of the fiscal year in which we have total annual gross revenue of at least
$1.07 billion, (iii) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act,
or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
If research analysts publish unfavorable commentary or downgrade our common stock or CDIs it could adversely affect our share price and trading
volume.
The trading market for our common stock and CDIs depends, in part, on the research and reports that research analysts publish about us and our
business and industry. If one or more research analysts downgrade our shares or CDIs, publish unfavorable commentary about the Company or cease
publishing reports about us or our business, the price of our common stock and CDIs could decline. If one or more of the research analysts ceases coverage
of our company or fails to publish reports on us regularly, demand for our common stock and CDIs could decrease, which could cause our share price or
trading volume to decline.
General Risk Factors
If we fail to manage our growth effectively, our business could be disrupted.
Our future financial performance and ability to successfully commercialize our products, which is not guaranteed, and to compete in the market
will depend, in part, on our ability to manage any future growth effectively. We expect to make significant investments to facilitate our future growth
through, among other things:
•
•
new product development;
commercial development of our RECELL System to such areas soft tissue repair and vitiligo;
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•
•
clinical trials for additional indications; and
funding of our marketing and sales infrastructure.
Any failure to manage future growth effectively could have a material adverse effect on our business and results of operations.
Our growth and success depend on our ability to attract and retain additional highly qualified and skilled sales and marketing, research and
development, operational, managerial and finance personnel.
Competition for skilled personnel is intense and the unexpected loss of an employee with a particular skill could have a material adverse effect
on our operations until a replacement can be found and trained. If we cannot attract and retain skilled scientific and operational personnel for our research
and development and manufacturing operations on acceptable terms, we may not be able to develop and commercialize our products. Further, any failure to
effectively integrate new personnel could prevent us from successfully growing our company.
Our operations are subject to anti-corruption laws, including Australian bribery laws, and the FCPA and other anti-corruption laws that apply in
countries where we do business.
Anti-corruption laws generally prohibit us and our employees and intermediaries from bribing, being bribed or making other prohibited
payments to government officials or other persons to obtain or retain business or gain some other business advantage. We participate in collaborations and
relationships with third parties whose actions could potentially subject us to liability under these anti-corruption laws. In addition, we cannot predict the
nature, scope, or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might
be administered or interpreted.
There is no assurance that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws or other laws
including trade related laws. If we are not in compliance with these laws, we may be subject to criminal and civil penalties, disgorgement and other
sanctions and remedial measures, and legal expenses, which could have an adverse impact on our business, financial condition, results of operations and
liquidity.
Likewise, any investigation of any potential violations of these laws by respective government bodies could also have an adverse impact on our
reputation, our business, results of operations and financial condition.
Item 1B. UNRESOLVED STAFF COMMENTS
None
Item 2. PROPERTIES
Our principal corporate office is located at 28159 Avenue Stanford, Suite 220, Valencia, California 91355. We lease the 17,500 square foot
facility under a lease agreement that, as amended, expires on October 31, 2026. Our production plant in Ventura, California is a 27,480 square foot facility
that we lease through September 30, 2024 with the right to extend the lease, at our sole option, as a result of two, three-year, options that allow us to extend
the lease up to an additional six years in total. We do not own any real property. We believe that leased facilities are adequate to meet current needs and that
additional facilities will, if required, be available for lease to meet future needs.
Item 3. LEGAL PROCEEDINGS
We are currently not aware of any material pending legal proceedings to which we are a party or of which any of our property is the subject, nor
are we aware of any such proceedings that are contemplated by any governmental authority. From time to time, as an operating business, we are involved in
routine disputes (both formal and informal) with customers, manufacturing partners and employees.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Market Information
The Company’s common stock is quoted on the Nasdaq Capital Market under the ticker symbol “RCEL” and the Company’s CDIs are quoted on
the ASX under the ticker code “AVH”. One share of common stock on Nasdaq is equivalent to five CDIs on the ASX.
Holders
As of January 31, 2023, the Company had approximately 23,190 unique stockholders of record of our common stock (which includes 23,120
holders of the Company’s CDIs, with each representing 1/5 of a share of common stock, and CHESS Depositary Nominees Pty Ltd, holds the legal title to
all of the outstanding common stock underlying the CDIs of the Company).
Dividends
We have never paid cash dividends to our stockholders or, prior to the Redomiciliation, to the holders of ordinary shares in the former parent
company, AVITA Australia (being AVITA Medical Pty Limited). We intend to retain future earnings for use in our business and do not anticipate paying
cash dividends on our common stock and CDIs in the foreseeable future. Any future dividend policy will be determined by our board of directors and will
be based upon various factors, including our results of operations, financial condition, current and anticipated cash needs, future prospects, contractual
restrictions and other factors as our board of directors may deem relevant.
Item 6. [Reserved]
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Objective
The purpose of this Management's Discussion and Analysis is to better allow our investors to understand and view our company from
management's perspective. We are providing an overview of our business and strategy including a discussion of our financial condition and results of
operations. The following discussion and analysis of our financial condition and results of operations for the year-ended December 31, 2022 and 2021,
should be read in conjunction with our consolidated financial statements and related notes included in this Annual Report.
Overview
AVITA Medical, Inc. is a regenerative medicine company leading the development and commercialization of devices and autologous cellular
therapies for skin restoration. Our patented and proprietary RECELL® System technology platform harnesses the regenerative properties of a patient’s own
skin to create Spray-On Skin™ Cells, an autologous skin cell suspension that is sprayed onto the patient to regenerate natural healthy skin.
Our objective is to become the leading provider of regenerative medicine addressing unmet medical needs in burn injuries, trauma injuries, and
in dermatological and aesthetics indications, such as vitiligo. To achieve this objective, we intend to:
•
•
•
•
•
•
•
•
•
Become the standard of care in the U.S. burns industry by increasing RECELL System penetration in burn centers and with burn physicians
Commercialize the RECELL System in the U.S. for use in soft tissue repair following approval of our pending PMA supplement, which was
submitted to the FDA in December 2022. Following anticipated FDA approval for soft tissue repair, we plan to commence a full
commercial launch in July 2023 with both inpatient and outpatient reimbursement in place
Commercialize the RECELL System in the U.S. for use in treatment of vitiligo following approval of our pending PMA application, which
was submitted to the FDA in December 2022. Subsequent to FDA approval for vitiligo, we will commence a full commercial launch
following receipt of in-office reimbursement, which we anticipate will occur by January 2025
Evaluate potential commercialization applications for the RECELL System related to skin rejuvenation and Epidermolysis Bullosa
indications
Further invest in our RECELL System platform to automate and improve workflow, speed, and ease of use as it relates to specific
indications, as well as to build upon our intellectual property estate
Continue to build upon commercial activities in Japan through our partnership with COSMOTEC Company, Ltd with our current PMDA
approval for RECELL with an indication in burns
Develop and pursue viable commercial activities outside of the U.S. and Japan once we have received FDA approval with RECELL System
indications in soft tissue and vitiligo
Pursue business development opportunities that are complementary to our core RECELL System indications and/or our targeted markets
Improve our margins and profitability by leveraging our current team and infrastructure across an expanding base of business in burns and
in future indications
Business Environment and Current Trends
The outbreak of the global pandemic and the associated response measures implemented by governments and businesses around the world, as
well as subsequent accelerated and robust recovery in global business activity, have increased uncertainty in the business environment. These
macroeconomic environment implications, including supply chain shortages, increased cost of healthcare, increased inflation rates, competitive and tight
labor market, and other related global economic conditions and geopolitical conditions, remain unknown. Additionally, there have been various economic
indicators that the United States economy may be entering a recession in upcoming quarters.
Changes in reimbursement rates by third party payors, may place additional financial pressure on hospitals and the broader healthcare system.
Healthcare institutions may take actions to mitigate any persistent pressures on their budgets and such actions could impact the future demand for our
products. Geopolitical conditions may also impact our operations. Although we do not have operations in Russia or Ukraine, the continuation of the Russia-
Ukraine military conflict and/or an escalation of the conflict beyond its current scope may further weaken the global economy and could result in additional
inflationary pressures and supply chain constraints.
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Although we do not believe that these trends have had a material effect on our business, financial condition or results of operations, it may in the
future. If these conditions continue or worsen, they could adversely impact our future operating results. An economic recession could potentially impact the
general business environment and the capital markets, which may have a material negative impact on our financial results.
Results of Operations
Year-Ended December 31, 2022, compared to the Year-Ended December 31, 2021
The table below summarizes the results of our continuing operations for each of the periods presented (in thousands).
Statement of Operations Data:
Revenues
Cost of sales
Gross profit
BARDA income
Operating Expenses:
Sales and marketing expenses
General and administrative expenses
Research and development expenses
Total operating expenses
Operating loss
Interest expense
Other income
Loss before income taxes
Provision for income tax
Net loss
*not meaningful
$
$
Year-Ended
December 31, 2022
Year-Ended
December 31, 2021
$
%
Change
Change
34,421 $
(6,041)
28,380
3,215
(21,913)
(23,330)
(13,857)
(59,100)
(27,505)
(16)
892
(26,629)
(36)
(26,665) $
33,025 $
(6,104)
26,921
1,590
(16,267)
(21,693)
(15,669)
(53,629)
(25,118)
(29)
47
(25,100)
(42)
(25,142)
1,396
63
1,459
1,625
(5,646)
(1,637)
1,812
(5,471)
(2,387)
13
845
(1,529)
6
(1,523)
4%
1%
5%
102%
(35)%
(8)%
12%
(10)%
(10)%
45%
nm*
(6)%
14%
(6)%
Total net revenue increased 4% or $1.4 million to $34.4 million, compared to $33.0 million in the corresponding period in the prior year which
included $7.9 million from our delivery of units to managed inventory for the Biomedical Advanced Research and Development Authority (“BARDA”) (of
the Office for the Assistant Secretary for Preparedness and Response) for emergency response preparedness. Total commercial revenue, which excludes
BARDA revenue, increased by 36% or $9.0 million to $34.0 million in the full year-ended December 31, 2022, compared to $25.1 million in the
corresponding period in the prior year. The growth in commercial revenues was largely driven by deeper penetration within individual customer accounts
along with the commencement of commercial sales with our partner COSMOTEC in Japan.
Gross profit margin was 82% and relatively flat compared to the corresponding period in the prior year.
BARDA income consisted of funding from BARDA, under the Assistant Secretary for Preparedness and Response, within the U.S. Department
of Health and Human Services, under ongoing USG Contract No. HHSO100201500028C. Under the BARDA contract, income of $3.2 million was
recognized during the year-ended December 31, 2022, compared to income of $1.6 million for the same period in the prior year. BARDA income
increased as a result of funding by BARDA for the pivotal trial for use of the RECELL System for soft tissue repair.
Total operating expenses increased 10% or $5.5 million to $59.1 million, compared to $53.6 million in the corresponding period in the prior year.
Sales and marketing expenses increased 35%, or $5.6 million, to $21.9 million, compared to $16.3 million recognized in the corresponding
period in the prior year. Increased costs in the current year were primarily driven by higher selling costs, pre-commercialization costs and higher salaries
and benefits. Higher selling costs are attributable to increased commissions due to increased revenue and higher costs for travel, hands-on professional
education, and training. Increased pre-commercialization costs are driven by activities related to future RECELL launches in soft tissue repair and vitiligo.
Higher salaries and benefits were primarily due to additional field personnel added to deepen penetration within individual customer accounts.
General and administrative expenses increased 8%, or $1.6 million, to $23.3 million, compared to $21.7 million recognized in the corresponding
period in the prior year. The increase was primarily driven by higher salaries and benefits and share-based
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compensation expenses. Higher salaries and benefits costs were due to the expansion of our workforce to support overall operations along with severance
costs associated with the termination of a former executive officer. Higher share-based compensation expense was due to the new equity grants in the
current period, partially offset by the reversal of expense for unvested awards related to the termination of a former executive officer in the current year.
Research and development expenses decreased 12%, or $1.8 million, to $13.9 million, compared to $15.7 million recognized in the
corresponding period in the prior year. Research and development costs were lower due to the following: pediatric burn study was closed for enrollment,
soft tissue repair and vitiligo trial participants were in less costly follow-up phases this period compared to more costly recruitment and treatment phases in
the prior period, and lower expense for sponsored research toward pipeline development in the current period. This is partially offset by higher
development expenses in the current year from ongoing development of next generation devices for an automated preparation of Spray-On Skin™ Cells as
compared to the prior year due to early prototype development and testing.
Net loss increased 6%, or $1.5 million, to $26.7 million, over the $25.1 million recognized in the corresponding period in the prior year. The
increase in net loss was driven by higher operating expenses as described above, partially offset by higher revenue.
Transition Period Ended December 31, 2021, compared to the Six Months Ended December 31, 2020
The table below summarizes the results of our continuing operations for each of the periods presented (in thousands).
Statement of Operations Data:
July 1 - December 31, 2021
Transition Period
Six Months Ended
December 31, 2020
$
%
Change
Change
$
Revenues
Cost of sales
Gross profit
BARDA income
Operating Expenses:
Sales and marketing expenses
General and administrative expenses
Research and development expenses
Total operating expenses
Operating loss
Interest expense
Other income
Loss before income taxes
Income tax benefit (expense)
Net loss
$
13,956 $
(1,905)
12,051
580
(8,472)
(10,996)
(7,586)
(27,054)
(14,423)
(17)
38
(14,402)
(25)
(14,427) $
10,163
(1,750)
8,413
1,045
(6,865)
(11,703)
(6,735)
(25,303)
(15,845)
(10)
8
(15,847)
(21)
(15,868)
3,793
(155)
3,638
(465)
(1,607)
707
(851)
(1,751)
1,422
(7)
30
1,445
(4)
1,441
37%
9%
43%
(44)%
23%
(6)%
13%
7%
(9)%
70%
375%
(9)%
19%
(9)%
Total net revenue increased 37% to $14.0 million, compared to $10.2 million in the corresponding period in the prior year. RECELL®
commercial revenues were $13.8 million, while RECELL revenues associated with the U.S. Department of Health and Human Services’ Biomedical
Advanced Research and Development Authority within the Office of the Assistant Secretary for Preparedness and Response (“BARDA”) were $0.2
million. Revenues associated with BARDA were attributable to the vendor managed inventory associated with the purchase of RECELL units for
emergency preparedness by BARDA.
Gross profit margin was 86% compared with 83% in the corresponding period in the prior year, driven largely by the extension of our shelf-life
and lower shipping costs.
BARDA income consisted of funding from BARDA, under the Assistant Secretary for Preparedness and Response, within the U.S. Department
of Health and Human Services, under ongoing USG Contract No. HHSO100201500028C. Under the BARDA contract, income of $0.6 million was
recognized during the transition period ended December 31, 2021, compared to income of $1.0 million for the same period in the prior year. BARDA
income declined as a result of wind-down of certain activities associated with continued pivotal trials for the treatment of pediatric scald injuries.
Total operating expenses increased 7% to $27.1 million, compared to $25.3 million in the corresponding period in the prior year.
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Sales and marketing expenses increased 23%, or $1.6 million, to $8.5 million, compared to $6.9 million recognized in the corresponding period
in the prior year. Increased costs in the current year are driven primarily by pre-commercialization planning for RECELL launches in soft tissue repair and
vitiligo as well higher travel costs and increased hands-on professional education and training events. Higher travel costs along with professional and
training events in the current period are driven by fewer COVID-19 related travel restrictions.
General and administrative expenses decreased 6%, or $0.7 million, to $11.0 million, compared to $11.7 million recognized in the corresponding
period in the prior year. The decrease was driven by certain one-time professional services costs incurred in the prior period with establishing the Company
as a domestic filer with the SEC following completion of the Redomiciliation, and severance costs associated with a former executive employee in the prior
year.
Research and development expenses increased 13%, or $0.9 million, to $7.6 million, compared to $6.7 million recognized in the corresponding
period in the prior year. The increase was primarily attributed to ongoing development of a next generation device for more automated preparation of
Spray-On Skin™ Cells for vitiligo. In addition, we had higher costs associated with an increased rate of enrollment into our soft tissue repair clinical trial,
as well as other research and development costs associated with furthering the Company’s pipeline.
Net loss decreased 9%, or $1.4 million, to $14.4 million, over the $15.9 million recognized in the corresponding period in the prior year. The
decrease in net loss was driven by higher revenue during the year, partially offset by higher operating expenses as described above.
Liquidity and Capital Resources
Overview
We expect to utilize cash reserves until U.S. sales of our products reach a level sufficient to fund ongoing operations. AVITA Medical has
historically funded its research and development activities, and more recently its substantial investment in sales and marketing activities, through raising
capital by issuing securities, and it is expected that similar funding will be obtained to provide working capital if and when required. As of December 31,
2022, the Company had approximately $18.2 million in cash and cash equivalents and $68.1 million in marketable securities and believes it has sufficient
cash reserves to fund operations for the next 12-months. If the Company is unable to raise capital in the future, the Company may need to curtail
expenditures by scaling back certain research and development or other programs.
Financing Activities
On March 1, 2021, the Company issued 3,214,250 shares of common stock at an offering price of $21.50 per share in a registered underwritten
offering. The gross proceeds from the offering were approximately $69.1 million.
AVITA Medical also benefits from cash inflows from the BARDA contract (discussed earlier in this Annual Report). We entered into the contract
on September 29, 2015, and the scope has expanded through a number of amendments to the contract. The current contract period continues to December
31, 2023, with the option by BARDA to terminate earlier. The contract provided funding for the development of the RECELL System. The contract will
continue to provide funding for future use of the product as a medical countermeasure to assist disaster preparedness and response in the U.S. for mass
casualty events involving burn injuries.
Under the contract, BARDA has provided funding and technical support for the development of the RECELL System. BARDA funded the
completion of two randomized, controlled pivotal clinical trials, as well as Compassionate Use and Continued Access programs, and development of the
health economic model demonstrating the cost savings associated with the RECELL System. BARDA exercised a contract option to fund a randomized,
controlled clinical trial for a pediatric early intervention study which commenced enrollment in March 2020, and closed to enrollment in June 2021,
subsequent to FDA-approval of an expanded RECELL indication for use that includes treatment of pediatric patients. Currently, the BARDA contract is
supporting the Company’s clinical trial in soft-tissue repair. Also included in the BARDA contract was a provision for procurement of the RECELL System
under a vendor-managed inventory system to bolster emergency preparedness in the amount of $7.6 million. Further, BARDA expanded the awarded
contract to provide supplemental funding of $1.6 million to support the logistics of emergency deployment of RECELL Systems for use in mass casualty or
other emergency situations. We are contracted to manage this inventory of product until the federal government requests shipment or at contract
termination on December 31, 2023. As of December 31, 2022, we had received cumulative payments of $37.9 million under the BARDA contract. For the
year-ended December 31, 2022, we recognized $370,000 of revenue related to BARDA services provided to BARDA for emergency preparedness.
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Given the above, we believe there is presently sufficient working capital to support our committed research and development programs and other
activities over the next twelve months and the Company believes it has the ability to realize its assets and pay its liabilities and commitments in the normal
course of business.
The following table summarizes our cash flows for the periods presented:
(In Thousands)
Net cash used in operations
Net cash used in investing activities
Net cash provided by financing activities
Effect of foreign exchange rate on cash and cash equivalents and restricted cash
Net increase/(decrease) in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash at beginning of year
Cash and cash equivalents and restricted cash at end of year
Year-Ended
December 31,
2022
Year-Ended
December 31,
2021
$
(19,090) $
(19,332)
900
(26)
(37,548)
55,712
18,164
(18,024)
(50,208)
64,065
(87)
(4,254)
59,966
55,712
Net cash used in operating activities was $19.1 million during the year-ended December 31, 2022, and $18.0 million during the year-ended
December 31, 2021. The increase was primarily resulted from higher operating costs, partially offset by increased revenues.
Net cash used in investing activities was $19.3 million during the year-ended December 31, 2022 and $50.2 million during the during the year-
ended December 31, 2021. Cash flows used for investing activities were primarily attributable to investing excess cash in marketable securities in the prior
year.
Net cash provided by financing activities was $0.9 million and $64.1 million for the year-ended December 31, 2022 and 2021 respectively. The
decrease in cash provided by financing activities was due to the issuance of common stock during March 2021.
Capital Management and Material Cash Requirements
We aim to manage capital so that the Company continues as a going concern while also maintaining optimal returns to stockholders and benefits
for other stakeholders. We also aim to maintain a capital structure that ensures the lowest cost of capital available to the Company. We regularly review the
Company’s capital structure and seek to take advantage of available opportunities to improve outcomes for the Company and its stockholders.
For the annual period ended December 31, 2022, there were no dividends paid and we have no plans to commence the payment of dividends. We
have no purchase commitments or long-term contractual obligations or purchase commitments, except for lease obligations as of December 31, 2022. Refer
to Note 6 of our Consolidated Financial Statements for further details on our lease obligations. In addition, we have no off-balance sheet arrangements (as
defined in the rules and regulations of the SEC) that have or are reasonably likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material investors. We have no
committed plans to issue further shares on the market but will continue to assess market conditions and the Company’s cash flow requirements to ensure
the Company is appropriately funded in order to pursue its various opportunities.
There is no significant external borrowing at the reporting date. Neither the Company nor any of the subsidiaries are subject to externally
imposed capital requirement.
Critical Accounting Policies and Estimates
The SEC defines “critical accounting policies” as those that require the application of management’s most difficult, subjective, or complex
judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.
The preparation of consolidated financial statements in conformity with U.S. Generally Accepted Accounting Practices, or U.S. GAAP, requires
us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base those estimates on historical experience
and on various assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.
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The following listing is not intended to be a comprehensive list of all of our accounting policies. Our significant accounting policies are
described in Note 2 to our consolidated financial statements contained elsewhere in this Annual Report. In many cases, the accounting treatment of a
particular transaction is dictated by U.S. GAAP, with no need for our judgment in its application. There are also areas in which our judgment in selecting an
available alternative would not produce a materially different result. We have identified the following as our critical accounting policies.
Revenue Recognition
The Company adopted ASC Topic 606 – Revenue from Contracts with Customers, on July 1, 2018. Under Topic 606, the Company recognizes
revenue when its customers obtain control of promised goods or services, in an amount that reflects the consideration which the Company expects to be
entitled in exchange for those goods or services.
To determine revenue recognition for arrangements that are within the scope of Topic 606, the Company performs the following five steps:
1.
2.
3.
4.
5.
Identify the contract with a customer
Identify the performance obligations
Determine the transaction price
Allocate the transaction price to the performance obligations
Recognize revenue when/as performance obligation(s) are satisfied
In order for an arrangement to be considered a contract, it must be probable that the Company will collect the consideration to which it is entitled
for goods or services to be transferred. Once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services
promised with each contract, determines whether those are performance obligations and the related transaction price. The Company then recognizes the
sale of goods based on the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied.
The Company’s revenue consists primarily of the sale of the RECELL System to hospitals or other treatment centers, COSMOTEC and to
BARDA (collectively, “customers”), predominately in the United States. The Company evaluated the BARDA contract and concluded that a portion of the
arrangement, such as the procurement of the RECELL system and the emergency preparedness, represents a transaction with a customer and as such are in
the scope of ASC 606. Amounts received from BARDA for the research and development of the Company’s product are classified as BARDA income in
the consolidated statement of operations and are accounted for under IAS 20. For further details refer to BARDA Income and Receivables below.
Revenues for commercial customers (COSMOTEC, hospitals and treatment centers) are recognized as control of the product is transferred to
customers, at an amount that reflects the consideration expected to be received in exchange for the product. Revenues are recognized net of volume
discounts. As such, revenue is recognized only to the extent a significant reversal of revenues is not expected to occur in subsequent periods. For the
Company’s contracts that have an original duration of one year or less, the Company used the practical expedient applicable to such contracts and does not
consider the time value of money. Further, because of the short duration of these contracts, the Company has not disclosed the transaction price for the
remaining performance obligations as of each reporting period or when the Company expects to recognize this revenue. The Company has further applied
the practical expedient to exclude sales tax in the transaction price and expense contract fulfilment costs such as commissions and shipping and handling
expenses as incurred.
For revenues related to the BARDA contract with-in the scope of ASC 606, the Company identified two performance obligations (i) the
procurement of 5,614 RECELL units, (ii) emergency preparedness services. Through this contract the Company promises to procure the product through a
vendor management inventory arrangement and to stand ready to provide emergency deployment services related to the product. Emergency preparedness
services include procuring necessary storage containers, housing, and maintaining the containers (and product), and providing shipping and handling
services in the event of an emergency situation. This stand ready obligation is a series of distinct services that are substantially the same and have the same
pattern of transfer to the customer, overtime as services are consumed.
The total transaction price for the portion of the BARDA contract that is with-in the scope of ASC 606, was determined to be $9.2 million. The
transaction price was allocated on a stand-alone selling price basis as follows: $7.6 million to the procurement of the RECELL product, which is classified
as revenues when recognized in the consolidated statement of operations and $1.6 million to the emergency deployment services is be classified as
revenues when recognized in the consolidated statement of operations. The
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$1.6 million for emergency deployment includes variable consideration which is deemed immaterial to the contract as a whole. The Company estimated
the stand-alone selling price of the procurement of the RECELL product based on historical pricing of the Company’s product at the initial execution of the
contract. The Company estimated the stand-alone selling price of the emergency deployment services performed based on the Company’s projected cost of
providing the services plus an applicable profit margin as denoted in the contract.
The Company’s performance obligations are either satisfied at a point in time or over time as services are provided. The product procurement
performance obligation is satisfied at a point in time, upon transfer of control of the product. As such, the related revenue for these performance obligations
is recognized at a point in time as revenue within the Company’s consolidated statement of operations. In addition to guidance under ASC 606, the
Company recognizes revenue from the sales of RECELL product to BARDA for placement into vaccine stockpiles in accordance with Securities and
Exchange Commission (SEC) Interpretation, Commission Guidance regarding Accounting for Sale of Vaccines and BioTerror Countermeasures to the
Federal Government for Placement into the Pediatric Vaccine Stockpile or the Strategic National Stockpile (SNS). Under this guidance, revenue is
recognized when product is placed in the BARDA vendor-managed inventory (“VMI”) as control of the product has been transferred to the customer at the
time of delivery to the VMI. RECELL units that have been delivered to BARDA have a product replacement obligation at no cost to BARDA due to
product’s limited shelf-life. The estimated cost of the expired inventory over the term of the contract is accrued on a per unit basis at the time of
delivery. The liability is released upon replacement of the product along with a corresponding reduction to inventory. The emergency preparedness services
performance obligation is satisfied over time. Revenue for the emergency deployment will be recognized on a straight-line basis during the term of the
contract as services are consumed over time. Services recognized are included in sales within the consolidated statement of operations. Contract costs to
fulfil the performance obligation are incremental and expected to be recovered are capitalized and amortized on a straight-line basis over the term of the
contract. Contract costs are included in other long-term assets.
Contract Liabilities
The Company receives payments from customers based on contractual terms. Trade receivables are recorded when the right to consideration
becomes unconditional. The Company satisfies its performance obligation on product sales when the products are shipped or delivered, depending on the
terms of the sale. Payment terms on invoiced amounts are typically 30-90 days, and do not include a financing component. Contract liabilities are recorded
when the Company receives payment prior to satisfying its obligation to transfer goods to a customer.
See Note 14 to our Consolidated Financial Statements included in this Annual Report for additional detail on revenue recognition.
Government Grants / BARDA Income and Receivables
AVITA Medical was granted a BARDA contract in September 2015, wherein BARDA provided funding to the AVITA Medical to support the
ongoing U.S. clinical regulatory program towards FDA premarket approval, Compassionate Use program, clinical and health economics research, and U.S.
pediatric burn programs.
Income under the BARDA contract is earned under a cost-plus-fixed-fee arrangement in which the Company is reimbursed for direct costs
incurred plus allowable indirect costs and a fixed-fee earned. Billings under the contracts are based on approved provisional indirect billing rates, which
permit recovery of fringe benefits, general and administrative expenses and a fixed fee.
The Company has concluded that grants are not within the scope of ASC 606, as they do not meet the definition of a contract with a “customer”.
The Company has further concluded that Subtopic 958-605, Not-for-Profit-Entities-Revenue Recognition also does not apply, as the Company is a business
entity, and the grants are with governmental agencies. Government grants and related receivables are recognized when there is reasonable assurance that
the grant will be received, and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognized as income over the
periods necessary to match the grant on a systematic basis to the costs that it is intended to compensate. When the grant relates to an asset, the fair value is
credited to deferred income and is released to the profit or loss over the expected useful life of the relevant asset by equal annual installments.
Share-Based Compensation
The Company records compensation expense for share-based payments to employees, including grants of stock options, restricted stock units and
performance-based awards based on the fair market value of the awards on the date of grant. The fair value of share-based compensation awards is
amortized over the vesting period of the award. Compensation expense for performance-based awards is measured based on the number of shares
ultimately expected to vest, estimated at each reporting date based on management’s expectations regarding the relevant performance criteria.
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The Company estimates the fair value of tenure-based share options using the Black-Scholes option pricing model on the date of grant. The
Company estimates the fair value of options with a performance condition and market condition using the Monte-Carlo simulation model. Restricted stock
units are valued based on the market price on the grant date.
The following assumptions were used in the valuation of stock options.
•
•
•
•
Expected volatility – determined using the average of the historical volatility using daily intervals over the expected term and the derived
volatility using the longest term available of 12 months.
Expected dividends – None, based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in
the foreseeable future.
Expected term – the expected term of the Company’s stock options for tenure only vesting has been determined utilizing the
“simplified” method as described in the SEC’s Staff Accounting Bulletin No. 107 relating to stock-based compensation.
The simplified method was chosen because the Company has limited historical option exercise experience due to its short operating history of
awards granted, the first plan was established in 2016 and was primarily used for Executives awards. Further, the Company does not have
sufficient history of exercises in the U.S. market given the Company’s redomiciliation from Australia to the United States in 2020. The expected
term of options with a performance condition or market condition was set to the contractual term of 10 years.
Risk-free interest rate – the risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for a period approximately
equal to the expected term of the award.
See Note 15 to our Consolidated Financial Statements included in this Annual Report for additional detail on share-based compensation.
Income Taxes
Income taxes are accounted for using the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that a portion of the deferred tax asset will
not be realized.
The Company reviews its uncertain tax positions regularly. An uncertain tax position represents the Company’s expected treatment of a tax
position taken in a filed return or planned to be taken in a future tax return or claim that has not been reflected in measuring income tax expense for
financial reporting purposes. The Company recognizes the tax benefit from an uncertain tax position when it is more-likely-than-not that the position will
be sustained upon examination on the basis of the technical merits or the statute of limitations for the relevant taxing authority to examine and challenge the
tax position has expired.
See Note 16 to our Consolidated Financial Statements included in this Annual Report for additional detail on income taxes.
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Table of Contents
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide the information required by this item.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our financial statements and supplementary data are attached hereto beginning on Page F-1 and are incorporated by reference herein.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures of a company that are designed to ensure that information required to be
disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure
that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to
the company’s management, including its chief executive officer and chief financial officer, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure. As required by Rules 13a-15(b) and 15d-15(b) under the Exchange Act, our management, with the
participation of our chief executive officer and chief financial officer, conducted an evaluation of the effectiveness of our disclosure controls and
procedures as of December 31, 2022. Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls
and procedures were effective as of December 31, 2022.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for our company, as this term
is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. As required by Rules 13a-15(e) and 15d-15(e) under the Exchange Act, our
management, with the participation of our chief executive officer and chief financial officer, conducted an evaluation of the effectiveness of our internal
control over financial reporting as of December 31, 2022, based on the criteria set forth in the Internal Control—Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over
financial reporting was effective as of December 31, 2022.
This report does not include an attestation report of our independent registered public accounting firm regarding our internal control over
financial reporting, in accordance with applicable SEC rules that permit us to provide only management’s report in this report.
Changes in Internal Control over Financial Reporting
During the three-months ended December 31, 2022, there were no material changes made in our internal control over financial reporting (as such
term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act).
Inherent Limitations on Disclosure Controls and Procedures
Management recognizes that any controls and procedures, no matter how well-designed and operated, can provide only reasonable assurance of
achieving their objectives, and management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their
costs. Because of these inherent limitations, our disclosure controls and procedures may not prevent or detect all instances of fraud, misstatements, or other
control issues. In addition, projections of any evaluation of the effectiveness of disclosure or internal controls to future periods are subject to risks,
including, among others, that controls may become inadequate because of changes in conditions or that the degree of compliance with policies or
procedures may deteriorate.
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Item 9B. OTHER INFORMATION
None
Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Identification of Directors
PART III
Name
Age
Position with the Company and Principal Occupation
Director Since
Lou Panaccio
Jeremy Curnock Cook
Professor Suzanne Crowe
Jan Stern Reed
James Corbett
65
73
72
63
64
Chairman of the Board of Directors
Non-Executive Director
Non-Executive Director
Non-Executive Director
Executive Director and Chief Executive Officer
July 2014
October 2012
January 2016
July 2021
July 2021
Board Term
Expires
December 2023
December 2023
December 2023
December 2023
December 2023
Lou Panaccio has served as Non-Executive Chairman of the Board of Directors since July 2014. Mr. Panaccio is a successful healthcare
businessman with extensive experience leading companies from concept to commercialization. Mr. Panaccio possesses more than 35 years of executive
leadership experience in healthcare services and life sciences, including more than 25 years of board-level experience. Mr. Panaccio is currently a Non-
Executive Director of ASX50 company and one of the world’s largest medical diagnostics companies, Sonic Healthcare Limited, where he has served since
2005. In addition, Mr. Panaccio is a Non-Executive Director of Unison Housing Limited, was a Non-Executive Chairman of Genera Biosystems Limited
until June 2019, is a Non-Executive Chairman of Adherium Limited and a Non-Executive Director of Rhythm Biosciences Limited, both are publicly listed
(ASX) development-stage medical diagnostics/device companies. We believe Mr. Panaccio is qualified to serve on our board of directors based on his
extensive experience in the healthcare services and life sciences and his experience serving on boards.
Jeremy Curnock Cook has served as a Non-Executive Director of since October 2012. He is a veteran in the life sciences/healthcare industry
and has been actively supporting the commercialization of healthcare innovations and helping entrepreneurs build their international businesses over the
past 45 years. Founder and Managing Director of BioScience Managers, Mr. Curnock Cook brings his decades of international experience to our Board of
Directors. Over his career, Mr. Curnock Cook has successfully managed in excess of US $1 billion in equity investments. He launched the first dedicated
biotechnology fund for the Australian market and is a former head of the life science private equity team at Rothschild Asset Management, an early pioneer
and significant investor in the sector. In his early career he founded the International Biochemicals Group which he successfully sold to Royal Dutch Shell.
Mr. Curnock Cook co-created a European-focused seed fund with Johnson & Johnson and built the International Biotechnology Trust. Mr. Curncock Cook
has served on more than 40 boards of directors in the life science sector, in the UK, Europe, USA, Canada, Japan, and Australia. In addition to serving on
our Board of Directors, Mr. Curnock Cook serves on the following boards: International BioScience Managers Ltd appointed March 2000, Bioscience
Managers Pty Ltd appointed January 2003, REX Bionics appointed February 2012, Sea Dragon appointed October 2012, Adherium Ltd appointed April
2015, Bioscience Managers UK Ltd appointed August 2017, Marine Department Ltd, appointed on January 2019, JLCC Ltd appointed December 2019,
CRiL appointed November 2020 and Humanetix appointed September 2021. We believe Mr. Curnock Cook is qualified to serve on our board of directors
based on his extensive experience in the life sciences.
Professor Suzanne Crowe AO has served as a Non-Executive Director since January 2016. Australian-based, she is a physician-scientist and
ASX/Nasdaq-listed company director with expertise in supporting companies with their medical and scientific strategies. A Fellow of the Australian
Institute of Company Directors, and Emeritus Professor, Monash University Melbourne, she is currently a Non-Executive Director of Sonic Healthcare Ltd,
a large global medical diagnostic company. Past board positions include St. Vincent's Health Australia Ltd (2012-2021), the country’s largest not-for-profit
health and aged care provider. After 35 years at both, she has recently retired from the Burnet Institute, having served as Associate Director and The Alfred
Hospital Melbourne, where she held the appointment of Senior Specialist Physician in Infectious Diseases. She was appointed as Officer of the Order of
Australia (AO) in 2020 in recognition of her services to health, clinical governance, biomedical research, and education. We believe Professor Crowe is
qualified to serve on our board of directors based on her technical experience and extensive expertise in supporting companies with their medical and
scientific strategies.
Jan Stern Reed has served as a Non-Executive Director since July 2021. She has more than 35 years of legal, management and business
leadership experience primarily within the healthcare industry, and brings significant expertise in corporate governance, compliance and risk management.
Ms. Reed served as Senior Vice President, General Counsel and Corporate Secretary at Walgreens Boots Alliance, Inc., a global pharmacy-led, health and
wellbeing company. Prior to Walgreens, Ms. Reed was Executive Vice President, Human Resources, General Counsel and Corporate Secretary of Solo Cup
Company, where she was responsible for the legal, human resources, internal audit, corporate communications, and compliance functions. Prior to Solo
Cup Company, she was Associate General Counsel, Corporate Secretary and Chief Corporate Governance Officer at Baxter International, Inc. Ms. Reed
holds
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a Bachelor of Arts degree from the University of Michigan and a Juris Doctor from the Northwestern University Pritzker School of Law. Ms. Reed
currently serves as a board member of Stepan Co. (NYSE:SCL), a major manufacturer of specialty and intermediate chemicals used in a broad range of
industries, and AngioDynamics, Inc. (Nasdaq: ANGO), an industry-leading and transformative medical technology company focused on restoring healthy
blood flow in the body’s vascular system, expanding cancer treatment options, and improving quality of life for patients. We believe Ms. Reed is qualified
to serve on our Board of Directors based on her extensive experience in legal, human resources, corporate governance, general management and business
leadership, primarily within the healthcare industry.
James Corbett was appointed as President and CEO of the Company effective as of September 28, 2022. Mr. Corbett served as a Non-Executive
Director from July 2021 to September 28, 2022. He has approximately 40 years of leadership experience in the medical device field, most recently, as CEO
of CathWorks Ltd., a software-based medical technology company. Mr. Corbett has extensive global commercial and operating experience, serving as an
expatriate General Manager of Baxter Japan and later as General Manager and President of Scimed Life Systems Inc. and Boston Scientific International
respectively. During his career he has served as CEO of three publicly listed companies; Microtherapeutics Inc (MTIX), ev3 Inc (evvv), Alphatec Spine
(ATEC). Mr. Corbett has also led two privately funded companies as CEO: Home Diagnostics Inc. and Vertos Medical. Mr. Corbett has extensive capital
market and governance experience from both public and private environments. Mr. Corbett holds a Bachelor of Science in Business Administration from
the University of Kansas. Mr. Corbett is a board member of two privately held medical device companies. We believe Mr. Corbett is qualified to serve on
our board of directors based on his global commercial and operating expertise in supporting companies with their medical and scientific strategies.
Identification of Executive Officers
Name
James Corbett*
Sean Ekins
Erin Liberto
Andrew Quick
Donna Shiroma
Age
64
48
48
52
60
Position
Chief Executive Officer
Interim Chief Financial Officer
Chief Commercial Officer
Chief Technology Officer
General Counsel
Date First Elected or
Appointed
September 2022
January 2023
August 2017
April 2019
June 2018
*
Mr. Corbett was appointed as President and CEO of the Company effective as of September 28, 2022.
James Corbett is discussed above under “Identification of Directors”.
Sean Ekins has served as the interim Chief Financial Officer since January 2023. A versatile financial leader with more than 20 years of
experience in technology, high-tech manufacturing and entertainment industries, Mr. Ekins joined AVITA Medical in 2017 and currently serves as Senior
Vice President of Finance. Over the course of his career, Mr. Ekins has demonstrated expertise across all aspects of management and operational
accounting, inclusive of SEC and financial reporting, systems analysis and implementation, and team development. Prior to joining the company, Mr. Ekins
served as the North American Controller for IXIA, a test, visibility, and security solutions provider, where he led all accounting operations, including the
transition and successful integration into Keysight Technologies following the company’s acquisition. Previously, Mr. Ekins held accounting positions with
The Walt Disney Company, Countrywide Financial Corporation, and 3D Systems, Inc. Mr. Ekins is a Certified Public Accountant and earned his Bachelor
Science in Accounting from the University of Southern California.
Erin Liberto has served as Chief Commercial Officer since August 2017. Ms. Liberto has more than 20 years of multifaceted global commercial
experience developing, launching, managing, and optimizing healthcare portfolios with products that span therapeutic and aesthetic indications for
international organizations including Allergan and Johnson & Johnson. Ms. Liberto’s proficiency in long-term strategic planning has led to more than a
dozen successful product launches across the United States, Europe, and Asia Pacific. Ms. Liberto holds an International MBA with a concentration in
Global Marketing from Thunderbird School of Global Management in Arizona and a Bachelor of Commerce from McMaster University in Canada.
Andrew Quick was appointed Chief Technology Officer in April 2019 and previous to that served as Senior Vice President, Clinical
Development. Mr. Quick joined the company in July of 2010 and has more than 25 years of experience in medical device design, development, clinical
research and medical affairs. Mr. Quick has previously held leadership positions in the development of diagnostic instrumentation and active implantable
therapeutics, including most recently with Boston Scientific Neuromodulation / Advanced Bionics from 2006 to 2010 where he led U.S. investigational
device and post-market clinical research in the cochlear implant business. He also served in a series of positions with SonaMed Corporation from 1994 to
2005, including Vice President, Products and Clinical Affairs. Mr. Quick has B.S. and M.S. degrees in Biomedical Engineering from Boston University.
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Donna Shiroma has served as General Counsel since June 2018. Ms. Shiroma has more than 20 years of legal and compliance experience in the
pharmaceutical and medical device industries and has played an instrumental role in transitioning companies from clinical to commercial entities. Prior to
joining the Company, she served in roles of increasing responsibility as corporate counsel, general counsel, vice president of legal, chief privacy and
compliance officer, and chief commercial officer for Astex Pharmaceuticals from 2017 to 2018, Ascend Therapeutics from 2008 to 2017, PDL BioPharma
from 2006 to 2008, and several Johnson & Johnson companies. Ms. Shiroma holds a B.S. in Environmental Sciences from University of California,
Berkeley, and a Juris Doctor degree from Santa Clara University School of Law. She is licensed in the State of California as an attorney.
Term of Office
Our Directors are elected for a term of one year and until their respective successors are elected and qualified, or until their earlier resignation,
disqualification, or removal. Our executive officers are appointed by our Board of Directors and hold office for such terms as may be prescribed by our
Board of Directors and until their successors are appointed, or until their earlier resignation or removal.
Family Relationships
There are no family relationships between our Directors or executive officers.
Involvement in Certain Legal Proceedings
None of our Directors or executive officers has been involved in any of the following events during the past ten years:
a)
b)
c)
d)
e)
f)
any bankruptcy petition filed by or against any business or property of such person or any partnership or business in which such person was
a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
any conviction in a criminal proceeding or being a named subject of a pending criminal proceeding (excluding traffic violations and other
minor offences);
being the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business,
securities or banking activities;
being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
being the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently
reversed, suspended or vacated, relating to an alleged violation of: (i) any federal or state securities or commodities law or regulation; or
(ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent
injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease- and-desist order, or removal or
prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory
organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(40) of the Commodity
Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons
associated with a member.
Gender Diversity
Under the 4th Edition of the ASX’s Corporate Governance Principles and Recommendations the Company is required to set measurable
objectives for achieving gender diversity in the composition of its board, senior executives and workforce generally.
In the Company’s 2021 Form 10-KT, the Company confirmed that it had set a target of having at least 30% of its Directors being of each gender
by 2024. As of the date of this Form 10-K, the Company has achieved that target as the Directors of the Company are 40% female and 60% male.
The Company is also in the process of developing measurable objectives for achieving gender diversity in the composition of its senior
executives and workforce generally in accordance with its Code of Ethics and Business Conduct. The Company will disclose its measurable objectives, the
time period for achieving those objectives and the Company’s progress towards achieving those objectives in future reporting periods.
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Performance Evaluations
At least annually, the Nominating and Corporate Governance Committee will lead the Board of Directors in a self-evaluation to determine
whether the board, its committees and individual directors are functioning effectively. The board completed its last self-evaluation during the fiscal year-
ended December 31, 2022.
Additionally, the Nominating and Corporate Governance Committee, Compensation Committee and Audit Committee conduct an annual
evaluation of each Board committee as it relates to the composition of each committee, the frequency and length of meetings, each committees primary
responsibilities, and the effectiveness of the each of the committee’s duties. The Nominating and Corporate Governance Committee and Compensation
Committee completed its self-evaluation during the fiscal year-ended December 31, 2022.
The Company's Compensation Committee has historically undertaken a review of the performance of the Company's CEO and the executive
management team annually during the first quarter of the calendar year.
Code of Ethics
We have adopted a Code of Conduct, or the Code, that constitutes a “code of ethics” as that term is defined in paragraph (b) of Item 406 of
Regulation S-K and that applies to our executive officers, non-executive Directors, management and employees of the Company. A copy of the Code is
available on our website at www.avitamedical.com.
If we make any amendments to the Code or grant any waivers, including any implicit waiver, from a provision of the Code, we will disclose the
nature of such amendment or waiver on our website. The information on our website is not incorporated by reference into this Annual Report.
Section 16(a) Beneficial ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act requires the Company’s Directors and certain of its executive officers and persons who beneficially
own more than 10% of the Company’s common shares to file reports of and changes in ownership with the SEC. Based solely on the Company’s review of
copies of SEC filings it has received or filed, the Company believes that each of its Directors, executive officers, and beneficial owners of more than 10%
of the shares satisfied the Section 16(a) filing requirements during the fiscal year-ended December 31, 2022.
Election of Directors
Our Board of Directors consists of five members. Directors are elected at our annual general meeting of stockholders and hold office for a term
of one year and until their successors have been elected and qualified or until the earlier of their resignation or removal. Our Directors were most recently
elected at our 2022 annual general meeting on December 12, 2022, to hold office for a term of one year or until his or her successor is duly elected and
qualified. Any newly created directorship or any vacancy occurring on our Board of Directors may be filled only by a majority of the remaining members
of our Board, even if such majority is less than a quorum, and each Director so elected shall hold office until the expiration of the term of office of the
Director whom he or she has replaced or until his or her successor is elected and qualified. Under ASX Listing Rule 14.4, any Directors of the Company
(except a managing Director) must not hold office without re-election past the third annual general meeting following the Director’s appointment or three
years, whichever is longer.
Stockholder Nominees for Director
There have been no material changes to the procedures by which stockholders may recommend nominees to the Board of Directors.
Committees of the Board of Directors
Our Board of Directors has established an audit committee, a compensation committee, and a nominating and corporate governance committee,
each of which operates pursuant to a written charter adopted by our Board of Directors. Our Board of Directors may also establish other committees from
time to time to assist the Board of Directors. The composition and functioning of all of our committees comply with all applicable requirements of the
Sarbanes-Oxley Act, Nasdaq and SEC rules and regulations and the ASX Listing Rules and also align with the ASX Corporate Governance Council’s 4th
Edition Corporate Governance Principles and
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Recommendations. Each committee has a charter, which is available on our website at www.avitamedical.com. As of the date of this report, the
composition of our audit, compensation, and nominating and corporate governance committees were as follows:
Director
Lou Panaccio
Jeremy Curnock Cook
Professor Suzanne Crowe
Jan Stern Reed
Audit Committee
Independent
X
X
X
X
Compensation
Committee
Member
Member
Chair
Member
Audit
Committee
Member
Interim Chair
Member
Nominating and
Corporate
Governance
Committee
Member
Member
Chair
Member
Nasdaq Marketplace Rules require us to establish an audit committee comprised of at least three members, each of whom is financially literate
and satisfies the respective “independence” requirements of the SEC and Nasdaq and one of whom has accounting or related financial management
expertise at senior levels within a company. In addition, the ASX Listing Rules and the 4th Edition of the ASX’s Corporate Governance Principles and
Recommendations require us to have an Audit Committee comprised of at least three members, all of whom are non-executive Directors and a majority of
whom are “independent” Directors, and which is chaired by an independent Director who is not the chair of the Board.
We have a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. Our Audit
Committee assists our Board of Directors in overseeing the accounting and financial reporting processes of our company and audits of our financial
statements, including the integrity of our financial statements, compliance with legal and regulatory requirements, our registered public accounting firm’s
qualifications and independence, and such other duties as may be directed by our Board of Directors. The Audit Committee is also required to assess risk
management in conjunction with the Board of Directors.
Our Audit Committee currently consists of three Board members, each of whom satisfies the “independence” requirements of the SEC, Nasdaq
Marketplace Rules, the ASX Listing Rules and the 4th Edition of the ASX’s Corporate Governance Principles and Recommendations. Our Audit
Committee is currently composed of Jeremy Curnock Cook, Lou Panaccio and Jan Stern Reed. Each qualifies as an “independent director” within the
meaning of Nasdaq Marketplace Rules and the 4th Edition of the ASX’s Corporate Governance Principles and Recommendations. Mr. Corbett was the
Chairman of the Audit Committee from February 23, 2022 through September 28, 2022. Mr. Corbett stepped down from his role on the Audit Committee
following his appointment to President and CEO of the Company on September 28, 2022. Prior to his appointment to President and CEO, Mr. Corbett was
an independent director. Mr. Curnock Cook is the current Interim Audit Committee Chair and was appointed to that role as of September 28, 2022,
following Mr. Corbett’s transition to President and CEO of the Company. Our Board of Directors has determined that Jeremy Curnock Cook is an “audit
committee financial expert,” as defined in item 407(d)(5)(ii) of Regulations S-K. The Audit Committee meets at least two times per year. See below for
summary of attendance.
The Audit Committee held a total of six meetings during the annual period ended December 31, 2022. The meetings attended by each Director,
and the number of meetings that they were each eligible to attend, is as follows:
Lou Panaccio
Jeremy Curnock Cook
Jan Stern Reed
James Corbett
Dr. Michael Perry
Audit Committee Meeting Attendance
Meetings attended/Eligible to attend
4/6
4/6
6/6
6/6
3/3
Compensation Committee
Our Board of Directors has established a Compensation Committee, which is comprised of independent Directors, within the meaning of Nasdaq
Marketplace Rules and also the 4th Edition of the ASX’s Corporate Governance Principles and Recommendations. The Compensation Committee must be
comprised solely of non-executive directors in accordance with the ASX Listing Rules and must also be chaired by an independent Director in accordance
with the 4th Edition of the ASX’s Corporate Governance Principles and Recommendations. The Compensation Committee is responsible for reviewing the
salary, incentives, and other benefits of our directors, senior executive officers and employees, and to make recommendations on such matters for approval
by our Board of
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Directors. The Compensation Committee is also responsible for overseeing and advising our Board of Directors with regard to the adoption of policies that
govern our compensation programs. Professor Suzanne Crowe, Jeremy Curnock Cook, Jan Stern Reed and Lou Panaccio are the current members of the
Compensation Committee, and each qualifies as an “independent Director” within the meaning of Nasdaq Marketplace Rules and the 4th Edition of the
ASX’s Corporate Governance Principles and Recommendations. Professor Suzanne Crowe is the chair of this committee (being an independent Director
who is not the chair of the Board).
The Compensation Committee held a total of 10 meetings during annual period ended December 31, 2022. The meetings attended by each
Director, and the number of meetings that they were each eligible to attend, is as follows:
Lou Panaccio
Jeremy Curnock Cook
Professor Suzanne Crowe
Jan Stern Reed
James Corbett
Dr. Michael Perry
Compensation Committee Meeting Attendance
Meetings attended/Eligible to attend
9/10
9/10
10/10
10/10
6/6
4/4
Nominating and Corporate Governance Committee
Our Board of Directors has established a Nominating and Corporate Governance Committee. Under the 4th Edition of the ASX’s Corporate
Governance Principles and Recommendations, our Nominating and Corporate Governance Committee should have at least three members, a majority of
whom are independent, and should also be chaired by an independent director. Professor Suzanne Crowe, Lou Panaccio, Jan Stern Reed and Jeremy
Curnock Cook are the current members of the Nominating and Corporate Governance Committee and each qualifies as an “independent director” within
the meaning of Nasdaq Marketplace Rules and the 4th Edition of the ASX’s Corporate Governance Principles and Recommendations. Professor Suzanne
Crowe is the Chair of this committee (being an independent director). The Nominating and Corporate Governance Committee is responsible for identifying
individuals qualified to become members of our Board of Directors, recommending nominees for election at the stockholders meetings or to fill vacancies
that arise on our Board of Directors, and recommending qualified and experienced directors to serve on the committees of our Board of Directors. In
addition, the Nominating and Corporate Governance Committee is responsible for leading the Board of Directors to complete a self-evaluation of the
board, its committees, and the individual directors.
The Nominating and Corporate Governance Committee held a total of four meetings during the annual period ended December 31, 2022. The
meetings attended by each Director, and the number of meetings that they were each eligible to attend, is as follows:
Nominating and Corporate Governance Committee Meeting Attendance
Lou Panaccio
Jeremy Curnock Cook
Professor Suzanne Crowe
Jan Stern Reed
James Corbett
Dr. Michael Perry
Board of Directors’ Meetings
Meetings attended/Eligible to attend
2/4
4/4
4/4
4/4
4/4
3/3
The Board of Directors held a total of 12 meetings during the annual period ended December 31, 2022. The meetings attended by each Director,
and the number of meetings that they were each eligible to attend, is as follows:
Lou Panaccio
Jeremy Curnock Cook
Professor Suzanne Crowe
Jan Stern Reed
James Corbett
Dr. Michael Perry
Board of Directors' Meeting Attendance
Meetings attended/Eligible to attend
10/12
11/12
12/12
12/12
12/12
9/12
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Item 11. EXECUTIVE COMPENSATION
The particulars of the compensation paid to the below listed “named executive officers” of our company are set out in the summary compensation below.
•
James Corbett, Chief Executive Officer
• Michael Holder, Chief Financial Officer*
•
Erin Liberto, Chief Commercial Officer
• Michael Perry, Former Chief Executive Officer
Pursuant to the listing requirements of ASX, we are also providing the particulars of the compensation paid to the following executive officers of
the Company.
•
•
•
Andrew Quick, Chief Technology Officer
Donna Shiroma, General Counsel
Kathy McGee, Chief Operating Officer*
*Ceased to be Executive Officers on January 19, 2023
The following table sets forth for our named executive officers the following information for the annual period ended December 31, 2022 and
SUMMARY COMPENSATION TABLE
December 31, 2021.
Name and
Position
James Corbett
Chief Executive Officer
Michael Holder
Chief Financial Officer
Kathy McGee
Chief Operating Officer
Erin Liberto,
Chief Commercial Officer
Andrew Quick
Chief Technology Officer
Donna Shiroma
General Counsel
Michael Perry
Former Chief Executive Officer
Year
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
2022
2021
Salary
($)
156,992
-
430,128
335,064
411,434
353,872
421,999
342,063
411,857
336,024
416,902
342,063
461,512
537,006
Stock
Awards (1)
Bonus
($)
100,726
-
184,900
148,668
176,451
119,398
180,812
115,413
176,484
113,376
178,662
115,413
-
424,637
($)
-
-
178,672
97,020
178,672
97,020
178,672
97,020
178,672
97,020
178,672
97,020
-
772,244
Option
Awards (2)
($)
All Other
Compensation (3)
($)
1,232,747
-
82,524
2,056,809
82,524
1,983,811
82,524
90,337
82,524
90,337
82,524
90,337
-
323,137
5,119 (4)
-
48,988 (5)
65,333
46,946 (6)
52,490
42,286 (7)
33,088
27,518 (8)
18,665
47,155 (9)
18,688
342,986 (10)
183,365
Total
($)
1,495,584
-
925,212
2,702,894
896,027
2,606,591
906,293
677,921
877,055
655,422
903,915
663,521
804,498
2,240,389
(1)
(2)
(3)
Amounts in this column represent awards of restricted stock units with the aggregate grant date fair value computed in accordance with FASB
ASC Topic 718. The fair value determined at the date of grant in accordance with U.S. GAAP based on the closing price of our common stock
on the applicable grant date. The vesting of these stock awards are subject to various performance or related criteria, including continuation of
employment over the relevant vesting period.
Amounts in this column represent awards of stock options with the aggregate grant date fair value computed in accordance with FASB ASC
Topic 718. Amounts in this column represent option awards issued to the individuals noted, based on the fair value determined at the date of
grant in accordance with U.S. GAAP. See Note 13- Share-Based Payment Plans to our Consolidated Financial Statements included in Part II,
Item 8. “Financial Statements and Supplementary Data” for the assumptions used in determining the grant date fair value of option awards. The
vesting of these option awards are subject to various performance or tenure related criteria.
Amounts in this column represent all other compensation for the covered fiscal year that the smaller reporting company could not properly
report in any other column of the Summary Compensation Table. This includes the non-qualified deferred compensation, employer match,
401(k) match, and fringe benefits such as relocation costs, car allowance, accommodations and medical benefits, along with related taxes on
grossed up fringe benefits.
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(4)
(5)
(6)
(7)
Relates to accommodation costs associated with the executive commuting from his home to our offices in Valencia, California (including an
amount necessary to gross up these cost for income tax purposes under U.S. federal and California State laws).
Comprised of (a) $30,688 in non-qualified deferred compensation employer match and (b) $18,300 in 401(k) employer match contribution.
Comprised of (a) $28,646 in non-qualified deferred compensation employer match and (b) $18,300 in 401(k) employer match contribution.
Comprised of (a) $14,400 in car allowance, (b) $9,586 in non-qualified deferred compensation employer match and (c) $18,300 in 401(k)
employer match.
Comprised of (a) $18,300 in 401(k) employer match contribution and (b) $9,218 in non-qualified deferred compensation employer match.
Comprised of (a) $28,855 in non-qualified deferred compensation employer match and (b) $18,300 in 401(k) employer match contribution.
(8)
(9)
(10) Comprised of (a) $145,585 in relation to the travel, flight and accommodation costs associated with the executive commuting from his home to
our offices in Valencia, California (including an amount necessary to gross up these cost for income tax purposes under U.S. federal, California
and Colorado State laws); (b) $47,359 associated with medical benefits (including an amount necessary to gross up these cost for income tax
purposes under U.S. federal, California and Colorado State laws), (c) $96,154 in vacation buy-out (d) $35,588 associated with deferred
compensation employer matching contributions and (e) $18,300 in employer 401(k) match contribution
Employment Contracts
The following table outlines the specified terms of the relevant employment contracts for the named executive officers of the Company. For
compensation information of named executives refer to the table above.
Role
Name
Contract Duration
Period of Notice (2) (3)
Chief
James Corbett
Termination by the Company with or without Cause– No notice period.
Termination by executive- with or without Good Reason - 90 days prior written notice.
Three years with
automatic one-year
extensions on each
anniversary.
Open ended contract
Michael Holder
Involuntary termination without Cause or resignation with Good Reason: 3-month notice period
9 months
Kathy McGee
Open ended contract
Involuntary termination without Cause or resignation with Good Reason: 3-month notice period
9 months
Erin Liberto
Open ended contract
Involuntary termination without Cause or resignation with Good Reason: 3-month notice period
9 months
Andrew Quick
Open ended contract
Involuntary termination without Cause or resignation with Good Reason: 3-month notice period
9 months
Donna Shiroma
Open ended contract
Involuntary termination without Cause or resignation with Good Reason: 3-month notice period
9 months
Executive
Officer(CEO)
Chief Financial
Officer
Chief
Operating
Officer (COO)
Chief
Commercial
Officer (CCO)
Chief
Technology
Officer (CTO)
General
Counsel
(GC)
(1)
Termination payments only in the event of employment termination for involuntary termination without cause or termination for “good reason.”
46
Termination
payments
provided for
by contract
(1)
12 months
Table of Contents
(2)
(3)
“Cause” - For the Former CFO, Former COO, CCO, CTO and GC, Cause is defined as: conviction of, or a plea of guilty or nolo contendere to,
a felony or crime involving moral turpitude; participation in an act of fraud or theft; willful and material breach of any contractual, statutory,
fiduciary or common law duty owed to the Company; intentional and repeated failure of Executive to perform Executive's job duties after
receiving notice of the stated deficiencies and Executive willfully falling to address the deficiencies and deliberately continuing to not perform
stated job duties; or any willful, deliberate, premeditated act by Executive that materially and demonstrably injures the reputation, business or a
business relationship of the Company. For the CEO, "Cause" shall mean the occurrence of any of the following events: (i) Executive's
unauthorized misuse of the Company's trade secrets or proprietary information, (ii) Executive's conviction or plea of nolo contendere to a
felony or a crime involving moral turpitude, (iii) Executive's committing an act of fraud against the Company, or (iv) Executive's gross
negligence or willful misconduct in the performance of his duties that has had or is likely to have a material adverse effect on the Company.
Except for a failure, breach or refusal which, by its nature, cannot reasonably be expected to be cured, Executive shall have ten (10) business
days from the delivery date of the Company's written notice of termination within which to cure any acts constituting Cause.
“Good Reason” - For the Former CFO, Former COO, CCO, CTO and GC, Good Reason is defined as (i) a material diminution in executive’s
authority, duties or responsibilities in effect at the time of this agreement; (ii) any reduction in the executive’s then-current base salary, (iii)
relocation of executive’s principal place of work by a distance of fifty miles or more from the executive’s then current principal place of work
without the executive’s consent; (iv) material breach by the company of any provision of the executive’s employment agreement or (v) the
occurrence of a change in control provided (i) through (iv) if such conduct is not cured within thirty days of receipt of written notice by the
executive. For the CEO, Good Reason is defined as (i) a material reduction in Executive's Base Salary unless a proportionate reduction is made
to the Base Salary of all members of the Company's senior management, (ii) a permanent relocation of Executive's principal place of
employment by more than 50 miles from the location in effect immediately prior to such relocation, (iii) any material by the Company of any
material provision of this Agreement, or (iv) a material diminution in the nature or scope of Executive's authority or responsibilities from those
applicable to Executive as of the Effective Date (date of hire).
Compensation Principles
The Compensation Committee has a formal Compensation Governance Framework which, at the core, consists of a Compensation Committee
Charter (the “Charter”). The Charter outlines responsibilities and duties of the members, sets forth the frequency of meetings, establishes and reviews the
overall compensation policies and practices of the Company and also sets forth the process to review and approve the executive compensation program for
the Chief Executive Officer and other executive officers, and make appropriate recommendations to the Board of Directors.
Compensation Committee
The Compensation Committee approves or makes recommendations to our Board of Directors on decisions concerning compensation of the
executive management team and Board of Directors on a periodic basis to ensure that it is consistent with our short-term and long-term goals. The
Compensation Committee assess the appropriateness of the nature and amount of compensation of our executives by reference to relevant employment
market conditions with the overall objective of ensuring maximum stakeholder benefit from the recruitment and retention of a high-quality board and
executive team.
Additionally, the Compensation Committee is responsible for evaluating the performance of the Company’s key senior executives. The
Company’s Chief Executive Officer and other members of management regularly discuss the Company’s compensation issues with Compensation
Committee members. The Compensation Committee reviews and recommends to the Board of Directors the overall bonus and equity incentive awards for
employees of the Company Additionally, the Company’s Chief Executive Officer makes recommendations to the Compensation Committee for review,
modification (if applicable) and approval in relation to bonuses and equity incentive awards for members of the executive management team.
Resignation, Retirement, Termination for Cause, or Resignation without Good Reason Arrangements
The Company does not have any agreements or plans other than the current employment contracts in place for the named executive officers that
would provide additional compensation in connection with a retirement.
Potential Payments upon Involuntary Termination, Resignation without Good Reason or Change-In-Control
The employment contract provides for the following severance payments upon termination by us without cause or by the employee for good
reason (as defined in the particular employment agreement): (i) payment of the employee’s then-current base
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salary for a period of nine months or twelve months (in the case of the CEO), following termination; (ii) a pro-rated target bonus for the period during
which the employee was employed in the year of termination; and (iii) continued coverage under our group health and benefits plan consistent with the
term of the base salary; and (iv) immediate acceleration of unvested stock options. Further, in the case of the Chief Executive Officer, if his employment
terminates as a result of disability or death, he or his representative will be entitled to receive: (i) a lump sum payment equal to 12 months of the
employee’s then-current base salary, (ii) unpaid annual bonus, and (iii) any unpaid vacation. Payment in each case is subject to the employee’s, or
representative’s execution of a release.
Outstanding Equity Awards at Fiscal Year-End
The following table presents information regarding outstanding equity awards held by our named executive officers as of December 31, 2022 (in
US dollars).
Option awards
Stock awards
Name
James Corbett, Chief Executive Officer
Michael Holder, Chief Financial Officer
Kathy McGee, Chief Operating Officer
Erin Liberto, Chief Commercial Officer
Andrew Quick, Chief Technology Officer
Donna Shiroma, General Counsel
Number of
securities
underlying
unexercised
options (#)
exercisable
Number of
securities
underlying
unexercised
unearned
options (#)
Option
exercise
price ($)
(2)
4,192
—
9,375
22,500
1,731
—
65,250
1,731
—
40,000
21,100
59,700
1,731
—
45,187
5,000
30,212
30,300
1,731
—
17,000
26,100
64,700
1,731
—
3,283 $
226,296 $
28,125 $
90,000 $
5,194 $
20,650 $
62,750 $
5,194 $
20,650 $
— $
— $
— $
5,194 $
20,650 $
— $
— $
— $
10,100 $
5,194 $
20,650 $
— $
— $
— $
5,194 $
20,650 $
12.18
5.64
22.25
19.91
20.21
4.97
21.88
20.21
4.97
5.03
6.38
5.99
20.21
4.97
6.32
6.38
5.99
21.35
20.21
4.97
4.38
6.38
5.99
20.21
4.97
Option
expiration
date
(2)
12/12/2031
9/28/2032
3/22/2031
5/11/2031
7/6/2031
7/1/2032
3/4/2031
7/6/2031
7/1/2032
9/6/2027
11/1/2028
11/30/2028
7/6/2031
7/1/2032
5/18/2027
11/1/2028
11/30/2028
4/1/2029
7/6/2031
7/1/2032
6/25/2028
11/1/2028
11/30/2028
7/6/2031
7/1/2032
Number of
unearned
shares, units
or other rights
have not
vested
(#)
Market or
payout value
of unearned
shares, units
or other rights
have not
vested ($)
(1)
5,783 $
38,168
43,825 $
289,245
43,825 $
289,245
43,825 $
289,245
43,825 $
289,245
43,825 $
289,245
(1)
(2)
Amounts in this column are calculated by multiplying the closing market price of the Company’s stock as of December 31, 2022 by the number
of shares or units of stock awards.
Represents range of exercise price and expiration dates as options were granted on different dates throughout their tenure.
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Director Compensation
The following table sets forth certain information regarding the compensation earned by or awarded to each non-employee Director who served
on our Board during the fiscal year-ended December 31, 2022 (in US dollars). We do not provide separate compensation to our executive Directors, such as
Dr. Michael Perry, who served as our Chief Executive Officer during the fiscal year-ended December 31, 2022 until September 28, 2022, except in the case
of Mr. James Corbett who served as a non-executive director only until his appointment as Chief Executive Officer effective as at September 28, 2022.
Non-Executive Directors
L Panaccio - Chairman
J Curnock Cook
L Drapeau*
S Crowe
J Corbett
J Reed
Total Non-Executive Directors
Fees earned in cash
($) (1)
Stock awards
($) (2)
Option awards
($) (3)
Total
($)
$
$
126,250
90,833
26,667
95,000
73,542
92,500
504,792
$
$
87,494
87,494
-
87,494
-
87,494
349,976
$
$
31,248
31,248
-
31,248
-
31,248
124,992
$
$
244,992
209,575
26,667
213,742
73,542
211,242
979,760
* Mr. Drapeau retired from the Board of Directors during April 2022.
(1)
(2)
(3)
Amounts are composed of the following: $70,00 for fees as a Board Member, $35,000 for Chair of the Board, $20,000 for Audit Committee
Chair, $15,000 for Compensation Committee Chair, $10,000 for Nominating and Corporate Governance Chair, $10,000 for Audit Committee
Member, $7,500 for Compensation Committee Member, and $5,000 for Nominating and Corporate Governance Member. Note that Mr.
Drapeau's and Mr. Corbett's fees are prorated based on his terms as non-executive Directors.
Amounts in this column represent awards of restricted stock units with the aggregate grant date fair value computed in accordance with FASB
ASC Topic 718. The fair value determined at the date of grant in accordance with U.S. GAAP based on the closing price of our common stock
on the applicable grant date. The vesting of these stock awards are subject to various performance or related criteria, including continuation of
employment over the relevant vesting period.
Amounts in this column represent awards of stock options with the aggregate grant date fair value computed in accordance with FASB ASC
Topic 718. Amounts in this column represent option awards issued to the individuals noted, based on the fair value determined at the date of
grant in accordance with U.S. GAAP. See Note 13- Share-Based Payment Plans to our Consolidated Financial Statements included in Part II,
Item 8. “Financial Statements and Supplementary Data” for the assumptions used in determining the grant date fair value of option awards. The
vesting of these option awards are subject to various performance or tenure related criteria.
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Equity Compensation Plan Information as of December 31, 2022
Plan Category
Equity compensation plans approved by security holders
2016 Equity Incentive Plan
Stock Options
2020 Equity Incentive Plan
Stock Options
RSUs
2021 AGM Awards
Stock Options
RSUs
2022 AGM Awards
Stock Options
RSUs
Equity compensation plans not approved by
security holders
Total
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
(2)
885,095 $
1,079,875 $
398,596 $
22,600 $
11,566 $
247,876 $
50,356 $
-
2,695,964
12.46
14.02
-
12.18
-
5.75
-
-
Number of securities
remaining available
for future issuance
under equity
compensation
plans (excluding
securities reflected
in column (a))
(c)
— (1)
244,675
-
-
-
244,675
(1)
(2)
Upon closing of the Redomiciliation, the 2016 Plans were terminated with respect to future grants and accordingly, there are no more shares
available to be issued under the 2016 Plans.
The 2016 Plans were previously approved and adopted by the shareholders of AVITA Australia, the former parent company.
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Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
Principal Stockholders and Management
The following table provides certain information regarding the ownership of our common stock (including our CDIs), as of January 31, 2023 by
each person or group of affiliated persons known to us to be the beneficial owner of more than 5% of our common stock (including our CDIs); each of our
named executive officers; each of our Directors; and all of our executive officers and Directors as a group. The table also sets out the names of all persons
(of which the Company is aware) who have disclosed pursuant to the Corporations Act 2001 (Cth) that they are “substantial shareholders” of the Company
and carry 5% or more of the voting rights attached to the issued securities of the Company.
Unless otherwise indicated in the table or the related notes, the address for each person named in the table is c/o AVITA Medical, Inc., 28159
Avenue Stanford Suite 220, Valencia, CA 91355.
Title of Class
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Name and Address of Beneficial Owner
More than 5% stockholders:
None
Directors and named executive officers:
Lou Panaccio
Lou Drapeau
Jeremy Curnock Cook
Professor Suzanne Crowe
Jan Stern Reed
James Corbett
Sean Ekins
Erin Liberto
Andrew Quick
Donna Shiroma
Michael Perry
Michael Holder
Kathy McGee
All executive officers and directors as a group (13 persons)
Amount and Nature
of Beneficial
Ownership (1)
Percentage
of Class (2)
26,964
(3)
339
(4)
6,900
(5)
11,012
(6)
11,434
(7)
11,434
(7)
38,735
(8)
(9)
125,156
125,155 (10)
112,156 (11)
256,232 (12)
180,200 (13)
158,200 (14)
*
*
*
*
*
*
*
*
*
*
1.01%
*
*
1,063,917
4.21%
*
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Represents beneficial ownership of less than 1% of the outstanding common stock.
Except as otherwise indicated, we believe that the beneficial owners of the common stock listed above, based on information furnished by such
owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. Beneficial
ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.
Percentage of ownership is based on 25,296,086 shares of our common stock issued and outstanding as of January 31, 2023. Common stock subject
to options or RSUs exercisable within 60 days of January 31, 2023, are deemed outstanding for purposes of computing the percentage ownership of
the person holding such option or RSUs but are not deemed outstanding for purposes of computing the percentage ownership of any other person.
Reflects 4,350 shares of common stock, 100,320 CDIs, which translates into 20,064 shares of the common stock. CDIs include 29,860 CDIs which
translates into 5,972 shares of common stock that are held by The Panaccio Superannuation Fund. In addition, amount includes 2,550 shares of
stock options to acquire 2,550 shares of our common stock exercisable within 60 days of January 31, 2023.
Reflects 1,695 CDIs which translates into 339 shares of our common stock.
Reflects 4,350 shares of common stock and 2,550 shares of stock options to acquire 2,550 shares of our common stock exercisable within 60 days of
January 31, 2023.
Reflects 4,350 shares of common stock, 20,560 CDIs, which represent 4,112 shares of our common stock and 2,550 shares of stock options to
acquire 2,550 shares of our common stock exercisable within 60 days of January 31, 2023.
Reflects 7,242 shares of common stock and 4,192 shares of stock options to acquire 4,192 shares of our common stock exercisable within 60 days of
January 31, 2023.
Amount represents stock options to acquire shares of our common stock exercisable within 60 days of January 31, 2023.
Reflects 2,625 shares of common stock and 122,531 shares of stock options to acquire 122,531 shares of our common stock exercisable within 60
days of January 31, 2023.
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(10) Reflects 2,625 shares of common stock and 122,530 shares of stock options to acquire 122,530 shares of our common stock exercisable within 60
days of January 31, 2023.
(11) Reflects 2,625 shares of common stock and 109,531 shares of stock options to acquire 109,531 shares of our common stock exercisable within 60
days of January 31, 2023.
Includes of 634,602 CDI’s which translates into 126,920 shares of common stock, 129,312 shares of common stock.
(12)
(13) Reflects 2,625 shares of common stock and 177,575 shares of stock options to acquire 177,575 shares of our common stock exercisable within 60
days of January 31, 2023.
(14) Reflects 2,625 shares of common stock and 155,575 shares of stock options to acquire 155,575 shares of our common stock exercisable within 60
days of January 31, 2023.
Australian Disclosure Requirements
In addition to the Company’s primary listing on the Nasdaq Capital Market, the Company’s shares of common stock are also quoted in the form
of CDIs on the ASX and trade under the ticker symbol “AVH”. As part of our ASX listing, we are required to comply with the various disclosure
requirements as set out under the ASX Listing Rules. The following information is intended to comply with the ASX Listing Rules (where that information
has not been provided elsewhere in this Annual Report).
Jurisdiction of incorporation and restrictions on the acquisition of securities
The Company is incorporated in the State of Delaware in the United States of America. As a foreign company registered in Australia, the
Company is not subject to Chapters 6, 6A, 6B and 6C of the Corporations Act 2001 (Cth) dealing with the acquisition of its shares (including substantial
holdings and takeovers).
Under the Delaware General Corporation Law, the Company’s shares are generally freely transferable, subject to restrictions imposed by United
States federal or state securities laws, by the Company’s certificate of incorporation or by-laws or by an agreement signed with the holders of shares on
issue. The Company’s certificate of incorporation and bylaws do not impose any specific restrictions on the transfer of its shares. Repurchases of the
Company’s securities are governed by the safe harbor provisions set forth in Rule 10b-18 of the Securities Exchange Act of 1934. However, provisions of
the Delaware General Corporation Law, the Company’s certificate of incorporation and the Company’s by-laws could make it more difficult to acquire the
Company by means of a tender offer (takeover), a proxy contest or otherwise, or to remove incumbent officers and directors of the Company. These
provisions could discourage certain types of coercive takeover practices and takeover bids that the Company’s board may consider inadequate and
encourage persons seeking to acquire control of the Company to first negotiate with the board.
Australian Corporate Governance Statement
The Board of Directors and employees of the Company are committed to developing, promoting and maintaining a strong culture of good
corporate governance and ethical conduct. The Board of Directors confirm that the Company’s corporate governance framework is generally consistent
with the ASX’s Corporate Governance Council’s “Corporate Governance Principles and Recommendations” (4th Edition) (“ASX Governance
Recommendations”). The Company’s Corporate Governance Statement is available for viewing at https://ir.avitamedical.com/corporate-governance. The
Corporate Governance Statement sets out the ASX Governance Recommendations and the Company’s response as to how and whether it follows those
recommendations. Where the Company’s practices depart from a recommendation, the Board of Directors have disclosed in the Corporate Governance
Statement the departure along with reasons for the adoption of its own practices. The Company’s most recent Corporate Governance Statement, dated
February 23, 2023 and approved by the Board of Directors remains accurate as of the date of this Annual Report on Form 10-K.
Issued capital
As of January 31, 2023, the Company’s issued share capital was as follows:
•
•
•
25,296,086 shares of common stock, of which:
10,691,469 shares of common stock were held by 78 stockholders and quoted on Nasdaq; and
14,604,617 shares of common stock were held by CHESS Depositary Nominees Pty Limited (“Authorized Nominee”) (on behalf of 23,120
CDI holders) representing 73,023,085 CDIs quoted on ASX.
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As of January 31, 2023, the following unquoted securities are on issue, which entitle the holders of those securities, upon vesting of their
conversion rights, to be issued shares of common stock (including in certain cases in the form of CDIs) of the Company:
•
the equivalent of 2,262,246 unquoted options held amongst 129 option holders. Specifically:
•
•
the equivalent of 233,771 options are on issue to Mr. James Corbett, CEO;
the equivalent of 2,028,475 options were granted (and are on issue) to 128 employees and directors of the Company under Avita
Australia's 2016 Equity Incentive Plan and 2020 Equity Incentive Plan and the Company's 2021 and 2022 AGM Awards; and
•
the equivalent of 372,868 unquoted restricted stock units (“RSUs”) held as follows:
the equivalent of 5,783 RSUs held by Mr. Corbett, CEO; and
the equivalent of 367,085 RSUs held by 37 employees of the Company under Avita Australia's 2020 Employee Incentive Plan and the
Company's 2021 and 2022 AGM Awards.
•
•
Voting Rights
The Company’s bylaws provide that each stockholder has one vote for every share of common stock entitled to vote held of record by such
stockholder. If holders of CDIs wish to attend and vote at the Company’s general meetings, they will be able to do so, provided, in case of voting, that the
relevant steps as set out below are complied with by the CDI holder. Under the ASX Listing Rules and ASX Settlement Operating Rules, the Company
must allow CDI holders to attend any meeting of the holders of the underlying securities, unless relevant United States laws at the time of the meeting
prevent CDI holders from attending those meetings.
In order to vote at such meetings, CDI holders have the following options:
•
•
instruct the Authorized Nominee (as the legal owner of the shares of common stock) to vote the common stock represented by their CDIs in
a particular manner. A voting instruction form will be sent to CDI holders with the notice of meeting or proxy statement for the meeting and
that instruction form must be completed and returned to the Company’s registry prior to the record date fixed for the relevant meeting
(“CDI Voting Instruction Receipt Time”), which is notified to the CDI holder in the voting instructions included in the notice of meeting;
or
inform the Company that they wish to nominate themselves or a third party to be appointed as the Authorized Nominee’s proxy with respect
to their common stock underlying their CDIs for the purposes of attending and voting at the meeting. The instruction form must be
completed and returned to the Company’s registry prior to the CDI Voting Instruction Receipt Time.
Alternatively, a CDI holder can convert their CDIs into a holding of common stock and vote those shares of common stock at a meeting of
stockholders. Such a conversion must be undertaken prior to the record date fixed by the Company’s Board of Directors for determining the entitlement of
stockholders to attend and vote at the meeting. However, if the former CDI holder later wishes to sell their investment on the ASX, it would be necessary to
convert those shares of common stock back to CDIs.
As CDI holders will not appear on the Company’s register as the legal holders of the underlying common stock, they will not be entitled to vote
at a stockholder meeting unless one of the above steps is undertaken. As each CDI represents 1/5 of a share of common stock, if the CDI holder takes one
of the steps noted above to allow it to vote at a stockholder meeting, the CDI holder will be entitled to one vote for every five CDIs it holds.
Holders of options, warrants and RSUs are not entitled to vote.
Substantial Stockholders
The information required in relation to the substantial shareholders of the Company is included in this Annual Report at Item 12 of Part III.
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Distribution of Common Stock and CDI Holders at January 31, 2023
Below is a distribution schedule of the number of holders of CDIs, categorized by the size of their holdings, based on the Company’s registers as
at January 31, 2023 (assuming all issued shares of common stock are held as CDIs).
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 - and over
Number of Holders
Number of CDIs
CDIs
15,059
5,806
1,228
997
100
23,190
5,374,180
14,130,360
9,209,515
25,505,825
72,260,550
126,480,430
The number of stockholders and/or CDI holders holding less than a marketable parcel of shares of common stock and/or CDIs (where a
“marketable parcel” means a parcel of securities worth at least A$500, pursuant to the ASX Operating Rules) was 5,750 based on the closing market price
of the Company’s common stock and CDIs as of January 31, 2023.
There is no current on-market buy-back of our securities.
Twenty Largest CDI Holders as of January 31, 2023
Below is a statement of the 20 largest holders of CDIs, and the number and percentage of issued CDIs held by those holders, based on the
Company’s registers as January 31, 2023 (assuming all shares of common stock of the Company are held as CDIs, with 5 CDIs representing a beneficial
ownership interest in one share of common stock in the Company).
Rank
Name
Number of
CDIs Held (1)
% of CDIs
Outstanding
1 The Vanguard Group, Inc.
2 Pura Vida Investments, LLC
3 BlackRock Institutional Trust Company, N.A.
4 Michael Perry
5 Thorney Investment Group
6 Australian Eagle Asset Management Pty Ltd
7 Geode Capital Management, L.L.C.
8 Renaissance Technologies LLC
9 Private Clients of Hub24
10 Millennium Management LLC
11 Norges Bank Investment Management (NBIM)
12 Polar Asset Management Partners Inc.
13 Columbia Threadneedle Investments (US)
14 XY Capital Limited
15 Goldman Sachs International
16 Arlene Perry
17 MLC Navigator Platform
18 Evan Clucas & Leanne Weston
19 Caption Management, LLC
20 David Deelen
5,738,820
4,337,590
2,341,715
1,779,235
1,500,000
1,295,235
1,259,790
1,192,900
904,150
901,210
855,815
768,000
748,435
706,830
662,080
631,525
592,810
560,535
534,795
530,605
4.54%
3.43%
1.85%
1.41%
1.19%
1.02%
1.00%
0.94%
0.71%
0.71%
0.68%
0.61%
0.59%
0.56%
0.52%
0.50%
0.47%
0.44%
0.42%
0.42%
(1)
Including shares of common stock represented as though they are held as CDIs (with 5 CDIs representing a beneficial ownership interest in one
share of common stock in the Company).
General Information
The name of our Secretary is Donna Shiroma.
The Company’s ASX liaison officer who is responsible for communications with the ASX is Mark Licciardo.
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The complete mailing address, including zip code, of our principal executive office is 28159 Avenue Stanford, Suite 220, Valencia, CA 91355,
USA. The telephone number is +1(661) 367-9170.
The address of our registered office in Australia is c/o Acclime Ltd (formerly Merton’s Corporate Services), Level 7, 330 Collins Street,
Melbourne VIC 3000, Australia and our telephone number there is +61 3 8689 9997.
Registers of securities are held as follows:
•
•
for CDIs in Australia at Computershare Investor Services Pty Limited, Level 2, 45 St Georges Terrace, Perth WA 6000 Australia, Investor
Enquiries +61 8 9323 2000 (within Australia) +61 3 9415 4677 (outside Australia); and
for common stock in the United States at Computershare Investor Services, 250 Royall Street, Canton, MA 02021 USA, Tel: 866-644-4127.
Application of funds
The Company advises that it has used the cash and assets in a form readily convertible to cash that it had at the time of the Company’s admission
to the Official List of ASX in a way that is consistent with its business objectives.
Directors’ Declaration
As at the date of this Annual Report, the directors confirm that they are of the opinion that there are reasonable grounds to believe that the
members of the “extended closed group” identified in Note 19, being the Company and the Australian Subsidiaries that are party to the deed of cross
guarantee that is detailed in Note 19, will be able to meet any liabilities to which they are, or may become, subject, by virtue of the deed of cross guarantee.
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Item 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions with Related Persons
SEC rules require us to disclose any transaction or currently proposed transaction in which the Company is a participant and in which any related
person has or will have a direct or indirect material interest involving the lesser of $120,000 or 1% of the average of the Company’s total assets as of the
end of the last two completed fiscal years. A related person is any executive officer, director, nominee for director, or holder of 5% or more of the
Company’s Common Stock, or an immediate family member of any of those persons. Since January 1, 2021, the Company has not participated in any such
related party transaction.
Director Independence
The Company’s Board of Directors has determined that all members of our Board of Directors, except Mr. James Corbett, are independent
directors for purposes of the rules of Nasdaq and the SEC and for the purposes of the ASX Listing Rules and the ASX Corporate Governance Council’s 4th
Edition Corporate Governance Principles and Recommendations. In making this determination, our Board of Directors considered the relationships that
each non-executive director has with us and all other facts and circumstances that our Board of Directors deemed relevant, including the beneficial
ownership of our common stock by each non-executive director and Mr. Corbett’s executive role within AVITA Medical.
The composition and functioning of the Company’s Board of Directors and each of its committees complies with all applicable requirements of
Nasdaq and the rules and regulations of the SEC as well as the ASX Listing Rules and the ASX Corporate Governance Council’s 4th Edition Corporate
Governance Principles and Recommendations.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Principal Accounting Fees and Services
Grant Thornton LLP, the U.S. member of Grant Thornton International Ltd, independent registered public accountants have served as our
independent public accountant for the year-ended December 31, 2022, the transition period ended December 31, 2021 and the year-ended June 30, 2021.
Grant Thornton Audit Pty Ltd, a subsidiary of Grant Thornton Australia Ltd, independent registered public accountants served as our independent public
accountant prior to the Redomiciliation. The following table sets forth fees billed or accrued by our independent registered public accountants during the
year-ended December 31, 2022, the transition period ended December 31, 2021 and the year-ended June 30, 2021.
Year-Ended
December 31, 2022
Transition Period Ended
December 31, 2021
Year-Ended
June 30, 2021
Audit fees - Grant Thornton LLP (1)
Audit fees - Grant Thornton Audit Pty Ltd (1)
Grant Thornton UK LLP (1)
Tax fees - Grant Thornton LLP (2)
Total fees
$
$
605,900
-
46,832
87,281
740,013
$
$
400,000
-
44,698
147,222
591,920
$
$
1,038,645
25,845
-
126,929
1,191,419
(1)
(2)
Audit fees consist of fees for professional services by the principal accountant for the audit of the registrant’s annual financial statements and review
of financial statements included in the registrant’s Form 10-K or services that are normally provided by the accountant in connection with statutory
and regulatory filings or engagements.
Tax fees include the aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax
compliance, tax advice, and tax planning.
Pre-Approval Policies and Procedures
The Audit Committee’s policy is for the Audit Committee to approve all audit and non-audit services prior to such services being performed by
the independent registered public accounting firm. Before engaging an independent registered public accountant firm to render audit or non-audit services,
the engagement is approved by the Company’s Audit Committee or the engagement to render services is entered into pursuant to pre-approval policies and
procedures established by the audit committee. The Audit Committee pre-approved all audit services provided by independent registered public
accountants during the year-ended December 31, 2022, the transition period ended December 31, 2021 and the year-ended June 30, 2021.
56
Table of Contents
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
The following documents are filed as part of this Annual Report:
(1)
All Financial Statements
See Index to Financial Statements in Part II, Item 8 of this Annual Report.
(2)
Financial Statement Schedules
All financial statement schedules have been omitted since the required information was not applicable or was not present in amounts
sufficient to require submission of the schedules, or because the information required is included in the financial statements or the
accompanying notes.
(3)
Exhibits
The exhibits listed in the following Index to Exhibits are filed, furnished or incorporated by reference as part of this Annual Report
Exhibit
Number
Exhibit
Description
EXHIBITS
2.1
Scheme Implementation Agreement (incorporated by reference to Exhibit 99.2 of Form 6-K of Avita Medical Limited dated April 20,
2020)
3.1
3.2
3.3
4.1
10.1
10.2
10.3
Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the registrant’s Form 8-K12B filed on June 30, 2020)
Certificate of Amendment of Certificate of Incorporation (incorporated by reference to Exhibit 3.2 to the registrant’s Form 10-KT filed on
February 28, 2022)
Amended and Restated Bylaws (incorporated by reference to Exhibit 3.3 to the registrant’s Form 10-KT filed on February 28, 2022)
Description of Capital Stock**
Employee Incentive Option Plan (incorporated by reference to Exhibit 4.1 of the Form 20-F of Avita Medical Limited filed September 27,
2019)†
Employee Share Plan (incorporated by reference to Exhibit 4.2 of the Form 20-F of Avita Medical Limited filed September 27, 2019)†
Award Contract dated September 29, 2015 by and between the registrant and the U.S. Department of Health and Human Services
Biomedical Advanced Research and Development Authority (BARDA) (incorporated by reference to Exhibit 4.3 of the Form 20-F of Avita
Medical Limited filed September 27, 2019)*
10.4
Award Contract dated September 29, 2015 by and between the registrant and BARDA (incorporated by reference to Exhibit 4.4 of the Form
20-F of Avita Medical Limited filed September 27, 2019) *
10.5
Amendment of Solicitation/Modification of Contract dated June 24, 2016 by and between the registrant and BARDA (incorporated by
reference to Exhibit 4.5 of the Form 20-F of Avita Medical Limited filed September 27, 2019) *
10.6
Amendment of Solicitation/Modification of Contract dated September 28, 2017 by and between the registrant and BARDA (incorporated
by reference to Exhibit 4.6 of the Form 20-F of Avita Medical Limited filed September 27, 2019) *
10.7
Amendment of Solicitation/Modification of Contract dated July 2, 2018 by and between the registrant and BARDA (incorporated by
reference to Exhibit 4.7 of the Form 20-F of Avita Medical Limited filed September 27, 2019) *
10.8
Lease Agreement between the registrant and Hartco Ventura Inc. dated January 25, 2018 (incorporated by reference to Exhibit 4.8 of the
Form 20-F of Avita Medical Limited filed September 27, 2019)
10.9
Lease Agreement between the registrant and RIF-Avenue Stanford LLC, dated October 3, 2016, as amended (incorporated by reference to
Exhibit 4.9 of the Form 20-F of Avita Medical Limited filed September 27, 2019)
57
Table of Contents
Exhibit
Number
Exhibit
Description
10.10
Third Amendment to the Lease Agreement between the registrant and RIF III-Avenue Stanford LLC, dated November 17, 2020, as
amended) (incorporated by reference to Exhibit 10.10 to the registrant’s Form 10-KT filed on February 28, 2022)
10.11
Executive Employment Agreement between the registrant and Dr. Michael Perry, dated November 12, 2019 (incorporated by reference to
Exhibit 10.11 to the registrant’s Form 10-KT filed on February 28, 2022) †
10.12
RSUs – Confirmatory Deed between the registrant and Dr. Michael Perry, dated November 12, 2019 (incorporated by reference to Exhibit
10.12 to the registrant’s Form 10-KT filed on February 28, 2022) †
10.13
Option Confirmatory Deed between the registrant and Dr. Michael Perry, dated November 12, 2019 (incorporated by reference to Exhibit
10.13 to the registrant’s Form 10-KT filed on February 28, 2022) †
10.14
Executive Employment Agreement between the registrant and Michael Holder, dated effective March 22, 2021 (incorporated by reference
to Exhibit 10.14 to the registrant’s Form 10-KT filed on February 28, 2022) †
10.15
Executive Employment Agreement between the registrant and Kathy McGee, dated effective December 1, 2020 (incorporated by reference
to Exhibit 10.15 to the registrant’s Form 10-KT filed on February 28, 2022) †
10.16
Executive Employment Agreement between the registrant and Erin Liberto, dated effective August 28, 2017 (incorporated by reference to
Exhibit 10.16 to the registrant’s Form 10-KT filed on February 28, 2022) †
10.17
Executive Employment Agreement between the registrant and Andrew Quick, dated effective April 1, 2019 (incorporated by reference to
Exhibit 10.17 to the registrant’s Form 10-KT filed on February 28, 2022) †
10.18
Executive Employment Agreement between the registrant and Donna Shiroma, dated effective June 25, 2018 (incorporated by reference to
Exhibit 10.18 to the registrant’s Form 10-KT filed on February 28, 2022) †
10.19
10.20
10.21
10.22
10.23
10.24
21.1
23.1
31.1
31.2
32.1
Form of Stock Option Grant**†
Form of RSU Agreement**†
2020 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.29 to the registrant’s Form 10-KT filed on February 28, 2022) †
Fourth Amendment to the Lease Agreement between the registrant and RIF III-Avenue Stanford LLC, dated August 25, 2021, as amended)
(incorporated by reference to Exhibit 10.30 to the registrant’s Form 10-KT filed on February 28, 2022)
Stock Option Grant Agreement between the registrant and James Corbett, dated effective September 28, 2022.** †
Fifth Amendment to the Lease Agreement between the registrant and 28159 Avenue Stanford Properties, LLC, (formerly RIF III-Avenue
Stanford LLC), dated January 26, 2023, as amended) **
Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to the registrant’s Form 10-KT filed on February 28, 2022)
Consent of Independent Registered Public Accounting Firm**
Certification of CEO pursuant to Section 302 of The Sarbanes-Oxley Act of 2002 **
Certification of CFO pursuant to Section 302 of The Sarbanes-Oxley Act of 2002 **
Certification of CEO and CFO pursuant to Section 906 of The Sarbanes-Oxley Act of 2002***
101.INS
Inline XBRL Instance Document.
101.SCH Inline XBRL Taxonomy Extension Schema Document.
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.
58
Table of Contents
Exhibit
Number
Exhibit
Description
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104
Cover Page Interactive Data File (embedded within the Inline XBRL document)
†
*
**
***
Management contract or compensation plan or arrangement.
Certain identified confidential information has been redacted from this exhibit because it is both (i) not material and (ii) would be competitively
harmful if publicly disclosed.
Filed herewith
Furnished herewith
Item 16. Form 10-K Summary
None
59
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: February 23, 2023
Date: February 23, 2023
AVITA Medical, Inc.
(Registrant)
/s/ James Corbett
James Corbett
Chief Executive Officer (Principal Executive Officer)
/s/ Sean Ekins
Sean Ekins
Interim Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Name
/s/ James Corbett
James Corbett
/s/ Sean Ekins
Sean Ekins
/s/ Lou Panaccio
Lou Panaccio
/s/ Jeremy Curnock Cook
Jeremy Curnock Cook
/s/ Suzanne Crowe
Suzanne Crowe
/s/ Jan Stern Reed
Jan Stern Reed
Title
Chief Executive Officer and Director
(Principal Executive Officer)
Interim Chief Financial Officer
(Principal Financial and Accounting Officer)
Director
Director
Director
Director
60
Date
February 23, 2023
February 23, 2023
February 23, 2023
February 23, 2023
February 23, 2023
February 23, 2023
Table of Contents
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
(PCAOB ID Number 248)
Consolidated Balance Sheets as of December 31, 2022, December 31, 2021 and June 30, 2021
Consolidated Statements of Operations for the Year-Ended December 31, 2022, the Transition Period Ended December 31, 2021, and the Year-
Ended June 30, 2021
Consolidated Statements of Comprehensive Loss for the Year-Ended December 31, 2022, the Transition Period Ended December 31, 2021, and
the Year-Ended June 30, 2021
Consolidated Statements of Shareholders’ Equity for the Year-Ended December 31, 2022, the Transition Period Ended December 31, 2021 and
the Year-Ended June 30, 2021
Consolidated Statements of Cash Flows for the Year-Ended December 31, 2022, the Transition Period Ended December 31, 2021, and the Year-
Ended June 30, 2021
Notes to Consolidated Financial Statements
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-8
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
AVITA Medical, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of AVITA Medical, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of
December 31, 2022, December 31, 2021 and June 30, 2021, the related consolidated statements of operations, comprehensive loss, changes in
shareholders’ equity, and cash flows for the year ended December 31, 2022, the six-month period ended December 31, 2021, and the fiscal year ended June
30, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2022, December 31, 2021 and June 30, 2021, and the results of its operations and its
cash flows for the year ended December 31, 2022, the six-month period ended December 31, 2021, and the fiscal year ended June 30, 2021, in conformity
with accounting principles generally accepted in the United States of America.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2020.
Los Angeles, California
February 23, 2023
F-2
Table of Contents
AVITA MEDICAL, INC.
Consolidated Balance Sheets
(In thousands, except share and per share data)
December 31, 2022
As of
December 31, 2021
June 30, 2021
ASSETS
Cash and cash equivalents
Marketable securities
Accounts receivable, net
BARDA receivables
Prepaids and other current assets
Restricted cash
Inventory
Total current assets
Marketable securities long-term
Plant and equipment, net
Operating lease right-of-use assets
Corporate-owned life insurance asset
Intangible assets, net
Other long-term assets
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities
Accrued wages and fringe benefits
Other current liabilities
Total current liabilities
Non-qualified deferred compensation liability
Contract liabilities
Operating lease liabilities, long term
Other long-term liabilities
Total liabilities
Non-qualified deferred compensation plan share awards
Contingencies (Note 12)
Shareholders' equity:
Common stock, $0.0001 par value per share, 200,000,000 shares authorized,
25,208,436, 24,925,743 and 24,895,864 shares issued and outstanding at
December 31, 2022, December 31, 2021 and June 30, 2021, respectively
Preferred stock, $0.0001 par value per share, 10,000,000 shares authorized, no
shares issued or outstanding at December 31, 2022, December 31, 2021 and June
30, 2021.
Company common stock held by the non-qualified deferred compensation plan
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total shareholders' equity
Total liabilities, non-qualified deferred compensation plan share awards and
shareholders' equity
$
$
18,164 $
61,178
3,515
898
1,578
-
2,125
87,458
6,930
1,200
851
1,238
465
122
98,264 $
3,002
6,623
1,068
10,693
1,270
698
306
-
12,967
557
55,511 $
29,649
3,118
308
1,213
201
2,132
92,132
19,692
1,262
1,544
304
443
638
116,015 $
2,708
5,363
1,075
9,146
262
952
918
113
11,391
-
3
3
-
(127)
339,825
7,627
(262,588)
84,740
-
-
332,484
8,060
(235,923)
104,624
110,746
-
3,467
3,936
1,333
201
1,647
121,330
-
1,458
1,480
-
472
761
125,501
3,120
3,321
949
7,390
-
1,075
878
503
9,846
-
3
-
328,889
8,259
(221,496)
115,655
$
98,264 $
116,015 $
125,501
The accompanying notes form part of the consolidated financial statements
F-3
Table of Contents
Revenues
Cost of sales
Gross profit
BARDA income
Operating expenses:
Sales and marketing expenses
General and administrative expenses
Research and development expenses
Total operating expenses
Operating loss
Interest expense
Other income
Loss before income taxes
Provision for income tax
Net loss
Net loss per common share:
Basic
Diluted
Weighted-average common shares:
Basic
Diluted
AVITA MEDICAL, INC.
Consolidated Statements of Operations
(In thousands, except share and per share data)
Year-Ended
December 31, 2022
Transition Period
July 1 - December 31, 2021
Year-Ended
June 30, 2021
$
$
$
$
$
34,421
(6,041)
28,380
3,215
(21,913)
(23,330)
(13,857)
(59,100)
(27,505)
(16)
892
(26,629)
(36)
(26,665)
(1.07)
(1.07)
$
$
$
$
13,956
(1,905)
12,051
580
(8,472)
(10,996)
(7,586)
(27,054)
(14,423)
(17)
38
(14,402)
(25)
(14,427)
(0.58)
(0.58)
$
$
$
29,232
(5,949)
23,283
2,055
(14,660)
(22,400)
(14,818)
(51,878)
(26,540)
(22)
17
(26,545)
(38)
(26,583)
(1.17)
(1.17)
25,000,180
25,000,180
24,915,414
24,915,414
22,674,313
22,674,313
The accompanying notes form part of the consolidated financial statements
F-4
Table of Contents
AVITA MEDICAL, INC.
Consolidated Statements of Comprehensive Loss
(In thousands)
Year-Ended
December 31, 2022
Transition Period
July 1 - December 31, 2021
Year-Ended
June 30, 2021
Net loss
Foreign currency translation gain/(loss)
Net unrealized loss on marketable securities, net of tax
Comprehensive loss
$
$
(26,665) $
(111)
(322)
(27,098) $
(14,427) $
(95)
(104)
(14,626) $
(26,583)
113
-
(26,470)
The accompanying notes form part of the consolidated financial statements
F-5
Table of Contents
AVITA MEDICAL, INC.
Consolidated Statements of Shareholders’ Equity
(In thousands, except shares)
Common Stock
Balance at June 30, 2020
21,467,912 $
Shares
Amount
-
Net loss
Issuance of common stock under direct
placement
Issuance costs associated with direct placement
Share-based compensation
Exercise of stock options
Vesting of restricted stock units
Translation gain
Balance at June 30, 2021
3,214,250
-
-
14,359
199,343
-
24,895,864 $
Net loss
Share-based compensation
Exercise of stock options
Vesting of restricted stock units
Translation loss
Net unrealized loss on marketable securities,
net of tax
Balance at December 31, 2021
Net loss
Share-based compensation
Exercise of stock options
Vesting of restricted stock units
Company common stock held by the NQDC
Change in classification of deferred
compensation share awards
Change in redemption value of share awards in
NQDC plan
Other comprehensive loss
Balance at December 31, 2022
-
-
1,125
28,754
-
-
24,925,743 $
-
-
150,125
114,641
17,927
-
-
-
25,208,436 $
3 $
-
-
-
-
-
-
-
3 $
-
-
-
-
-
-
3 $
-
-
-
-
-
-
-
-
$
3
Company
common stock
held by the
NQDC
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Gain (Loss)
Accumulated
Deficit
Total
Shareholders'
Equity
- $
259,165 $
8,146 $
(194,913) $
-
-
-
-
-
-
-
- $
-
-
-
-
-
-
- $
-
-
(26,583)
69,106
(5,109)
5,664
63
-
-
328,889 $
-
3,588
7
-
-
-
-
-
-
-
113
8,259 $
-
-
-
-
(95)
-
-
-
-
-
-
(221,496) $
(14,427)
-
-
-
-
-
332,484 $
(104)
8,060 $
-
(235,923) $
-
-
-
-
(127)
-
6,527
900
-
127
-
(192)
-
-
-
-
-
-
(26,665)
-
-
-
-
-
(192)
-
-
(127) $
(21)
-
339,825 $
-
(433)
7,627 $
-
-
(262,588) $
(21)
(433)
84,740
72,401
(26,583)
69,106
(5,109)
5,664
63
-
113
115,655
(14,427)
3,588
7
-
(95)
(104)
104,624
(26,665)
6,527
900
-
-
The accompanying notes form part of the consolidated financial statements
F-6
Table of Contents
AVITA MEDICAL, Inc.
Consolidated Statement of Cash Flows
(in thousands)
Cash flow from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Share-based compensation
Non-cash lease expense
Loss on fixed asset disposal
Patent impairment loss
Remeasurement and foreign currency transaction (gain)/loss
Excess and obsolete inventory related charges
BARDA deferred costs
Contract cost amortization
Provision (benefit) for doubtful accounts
Amortization of (premium)/discount of marketable securities
Non-cash changes in the fair value of NQDC plan
Changes in operating assets and liabilities:
Trade and other receivables
BARDA receivables
Prepaids and other current assets
Inventory
Operating lease liability
Corporate-owned life insurance asset
Other long-term assets
Accounts payable and accrued expenses
Accrued wages and fringe benefits
Other current liabilities
Non-qualified deferred compensation plan liability
Contract liabilities
Other long-term liabilities
Net cash used in operations
Cash flows from investing activities:
Purchase of marketable securities
Maturities of marketable securities
Cash paid for property and equipment
Cash paid for patent filing fees
Net cash used in investing activities
Cash flow from financing activities:
Proceeds from direct placement of common stock
Issuance cost associated with direct placement
Principal repayment of finance lease
Proceeds from exercise of stock options
Net cash provided by financing activities
Effect of foreign exchange rate on cash and restricted cash
Net increase/(decrease) in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash beginning of the period
Cash and cash equivalents and restricted cash end of the period
Supplemental Disclosure of Cash Flow Information
Cash paid for income taxes
Cash paid for interest
Plant and equipment purchases not yet paid
$
$
$
$
The accompanying notes form part of the consolidated financial statements
F-7
Year-Ended
December 31,
2022
Transition Period Ended Year-Ended
December 31,
2021
June 30,
2021
$
(26,665) $
(14,427)
$
(26,583)
568
6,998
692
3
-
(85)
375
130
338
(5)
(281)
38
(395)
(590)
(366)
(371)
(720)
(1,084)
178
282
1,272
(92)
994
(254)
(50)
(19,090)
(74,362)
55,555
(452)
(73)
(19,332)
-
-
-
900
900
(26)
(37,548)
55,712
18,164 $
17 $
15 $
33 $
330
3,588
328
-
42
(72)
44
(278)
167
(2)
104
-
350
3,627
119
(530)
(334)
(304)
(43)
(392)
2,046
186
262
(123)
(189)
(5,501)
(49,550)
-
(65)
(67)
(49,682)
-
-
-
7
7
(59)
(55,235)
110,947
55,712
8
17
35
$
$
$
$
715
5,664
591
130
-
228
226
343
129
12
-
-
(1,399)
(3,580)
(342)
(745)
(594)
-
(889)
(1,333)
493
155
-
640
238
(25,901)
-
-
(894)
(280)
(1,174)
69,106
(5,109)
(11)
63
64,049
133
37,107
73,840
110,947
42
3
20
Table of Contents
1. The Company
AVITA MEDICAL, INC.
Notes to Consolidated Financial Statements
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”). These financial statements include the assets, liabilities, revenues and expenses of all wholly-owned
subsidiaries.
Nature of the Business
AVITA Medical, Inc. and its subsidiaries (collectively, “AVITA Medical”, “we”, “our”, “us”, or “Company”), is a regenerative medicine
company leading the development and commercialization of devices and autologous cellular therapies for skin restoration. The Company’s RECELL®
System technology platform harnesses the regenerative properties of a patient’s own skin to create Spray-On Skin™ cells. In September 2018, the United
States Food & Drug Administration (“FDA”) granted premarket approval (“PMA”) to the RECELL System for use in the treatment of acute thermal burns
in patients eighteen years and older. Following receipt of our original PMA, we commenced commercialization of the RECELL System in January 2019 in
the United States. In June 2021, the FDA approved expanded use of the RECELL System in combination of meshed autografting for acute full-thickness
thermal wounds in pediatric and adult patients. In February 2022, the FDA approved a PMA supplement for the RECELL Autologous Cell Harvesting
Device, an enhanced ease-of-use device aimed at providing clinicians a more efficient user experience and simplified workflow. In addition, the FDA has
granted the Company Investigational Device Exemptions (“IDEs”), which enabled the Company to conduct pivotal clinical trials to further expand the
indications of the RECELL System to include soft tissue repair and vitiligo. Enrollment of those clinical studies is complete, with topline results recently
announced for both the soft tissue repair and vitiligo trials. Results from those studies are intended to support the Company’s pursuit of FDA approval to
market the RECELL System in the United States for those indications. In connection to FDA approval, the Company submitted a PMA Supplement for soft
tissue repair and a PMA application for vitiligo in December 2022.
In February 2019, we entered into a collaboration with COSMOTEC, an M3 Group company, to market and distribute the RECELL System in
Japan. We worked with COSMOTEC to advance our application for approval of the RECELL System in Japan pursuant to Japan’s Pharmaceuticals and
Medical Devices Act (“PMDA”). In February 2022, COSMOTEC’s application for regulatory approval was approved by the PMDA with labelling for
burns only. In September 2022, COSMOTEC commercially launched RECELL in Japan following Japan’s Ministry of Health, Labor, and Welfare approval
of reimbursement pricing. COSMOTEC potentially plans to submit a further application for soft tissue repair and vitiligo indications.
In March 2020, the World Health Organization declared the outbreak of a novel strain of the coronavirus (“COVID-19”) a pandemic. We
continue to closely monitor the impact surrounding the spread and potential resurgence of COVID-19 due to existing and future variants. As of the date of
this filing, we continue to be unable to predict the full impact that the ongoing COVID-19 pandemic will have on our future results of operations, liquidity,
and financial condition due to numerous uncertainties, including the duration of the pandemic and the actions that may be taken in the future by
government authorities across the United States in response to new variants. The Company has assessed the potential impact of COVID-19 on certain
accounting matters including, but not limited to, the allowance for doubtful accounts, inventory reserves and return reserves, and impairment considerations
for long-lived assets, marketable securities and intangibles, as of December 31, 2022, and through the date of this report. With respect to future operating
results, it is not possible at this time to predict, with any degree of precision, the effects of COVID-19. Consequently, actual results for accounting
estimates and assumptions, particularly those relating to the recoverability of certain intangible assets and estimates of expected credit losses on accounts
receivable could differ from these estimates. However, we do not currently believe that COVID-19 will result in any significant changes in costs going
forward. We will continue to monitor the performance of our business and reassess the impacts of COVID-19 and its variants.
CHANGE OF YEAR-END
On November 8, 2021, the Company changed its fiscal year-end from June 30th to December 31st. The decision to change the fiscal year-end to
a calendar year end was to align our reporting cycle more closely with how we manage our business.
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2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany
transactions and balances have been eliminated upon consolidation.
Reclassification of prior year presentation
Certain prior year amounts within other long-term assets and other long-term liabilities have been reclassified to Corporate-owned life insurance
asset and Non-qualified deferred compensation plan liability, respectively, in the Consolidated Balance Sheets and Consolidated Statement of Cash flows,
for consistency with current period presentation. These reclassifications had no effect on the reported results of operations or financial position or net cash
used in operations.
Use of Estimates
The preparation of the accompanying consolidated financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts (including doubtful accounts, carrying value of long-lived asset, the useful lives of long-lived assets,
accounting for marketable securities, income taxes, stock-based compensation and the stand-alone selling price for the BARDA contract) and related
disclosures. Estimates have been prepared on the basis of the current and available information. However, actual results could differ from estimated
amounts.
Foreign Currency Translation and Foreign Currency Transactions
The financial position and results of operations of the Company’s operating non-U.S. subsidiaries are generally determined using the respective
local currency as the functional currency of that subsidiary. Assets and liabilities of these subsidiaries are translated at the exchange rate in effect at each
period end. Income statement accounts are translated at the average rate of exchange prevailing during the period. Adjustments arising from the use of
differing exchange rates from period to period are included in accumulated other comprehensive gain (loss) in shareholders’ equity. Gains and losses
resulting from foreign currency transactions are included in general and administrative expenses and were gain of $91,000 and $35,000 and a loss of
$97,000 for the year-ended December 31, 2022, the transition period ended December 31, 2021 and the year-ended June 30, 2021, respectively.
The Company’s subsidiaries that use the U.S. dollar as their functional currency remeasure monetary assets and liabilities at exchange rates in
effect at the end of each period, nonmonetary assets and liabilities at historical rates. Gains and losses resulting from these remeasurements and foreign
currency transactions are included in general and administrative expenses and were a loss of $6,000 a gain $37,000 and a loss of $131,000 for the year-
ended December 31, 2022, the transition period ended December 31, 2021 and the year-ended June 30, 2021, respectively.
Comprehensive Loss
The components of comprehensive loss consist of net loss, foreign currency translation adjustments from its subsidiaries not using the U.S. dollar
as their functional currency and unrealized gains and losses in investments available for sale. The Company did not have reclassifications from other
comprehensive loss to net loss during the year-ended December 31, 2022, the transition period ended December 31, 2021, and the year-ended June 30,
2021.
Revenue Recognition
The Company recognizes revenue when its customers obtain control of promised goods or services, in an amount that reflects the consideration
which the Company expects to be entitled in exchange for those goods or services.
To determine revenue recognition for arrangements that are within the scope of Topic 606, the Company performs the following five steps:
1.
2.
3.
4.
5.
Identify the contract with a customer
Identify the performance obligations
Determine the transaction price
Allocate the transaction price to the performance obligations
Recognize revenue when/as performance obligation(s) are satisfied
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In order for an arrangement to be considered a contract, it must be probable that the Company will collect the consideration to which it is entitled
for goods or services to be transferred. Once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services
promised with each contract, determines whether those are performance obligations and the related transaction price. The Company then recognizes the
sale of goods based on the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied.
The Company’s revenue consists primarily of the sale of the RECELL System to hospitals or other treatment centers, COSMOTEC and to
BARDA (collectively, “customers”), predominately in the United States. The Company evaluated the BARDA contract and concluded that a portion of the
arrangement, such as the procurement of the RECELL system and the emergency preparedness, represents a transaction with a customer and as such are in
the scope of ASC 606. Amounts received from BARDA for the research and development of the Company’s product are classified as BARDA income in
the consolidated statement of operations and are accounted for under International Accounting Standards 20 (“IAS 20”). For further details refer to
BARDA Income and Receivables below.
Revenues for commercial customers (hospitals, treatment centers and COSMOTEC) are recognized as control of the product is transferred to
customers, at an amount that reflects the consideration expected to be received in exchange for the product. Revenues are recognized net of volume
discounts. As such, revenue is recognized only to the extent a significant reversal of revenues is not expected to occur in subsequent periods. For the
Company’s contracts that have an original duration of one year or less, the Company elected the practical expedient applicable to such contracts and does
not consider the time value of money. Further, because of the short duration of these contracts, the Company has not disclosed the transaction price for the
remaining performance obligations as of each reporting period or when the Company expects to recognize this revenue. The Company has further applied
the practical expedient to exclude sales tax in the transaction price and expense contract fulfilment costs such as commissions and shipping and handling
expenses as incurred.
For revenues related to the BARDA contract within the scope of ASC 606, the Company identified two performance obligations (i) the
procurement of 5,614 RECELL units, (ii) emergency preparedness services. Through this contract the Company promises to procure the product through a
vendor management inventory arrangement and to stand ready to provide emergency deployment services related to the product. Emergency preparedness
services include procuring necessary storage containers, housing, and maintaining the containers (and product), and providing shipping and handling
services in the event of an emergency situation. This stand ready obligation is a series of distinct services that are substantially the same and have the same
pattern of transfer to the customer, overtime as services are consumed.
The total transaction price for the portion of the BARDA contract that is with in the scope of ASC 606, was determined to be $9.2 million. The
transaction price was allocated on a stand-alone selling price basis as follows: $7.6 million to the procurement of the RECELL product, which is classified
as revenues when recognized in the consolidated statement of operations and $1.6 million to the emergency deployment services which is classified as
revenues when recognized in the consolidated statement of operations. The $1.6 million for emergency deployment includes variable consideration which
is deemed immaterial to the contract as a whole. The Company estimated the stand-alone selling price of the procurement of the RECELL product based
on historical pricing of the Company’s product at the initial execution of the contract. The Company estimated the stand-alone selling price of the
emergency deployment services performed based on the Company’s projected cost of providing the services plus an applicable profit margin as denoted in
the contract.
The Company’s performance obligations are either satisfied at a point in time or over time as services are provided. The product procurement
performance obligation is satisfied at a point in time, upon transfer of control of the product. As such, the related revenue for these performance obligations
is recognized at a point in time as revenue within the Company’s consolidated statement of operations. In addition to guidance under ASC 606, the
Company recognizes revenue from the sales of RECELL product to BARDA for placement into vaccine stockpiles in accordance with Securities and
Exchange Commission (SEC) Interpretation, Commission Guidance regarding Accounting for Sale of Vaccines and BioTerror Countermeasures to the
Federal Government for Placement into the Pediatric Vaccine Stockpile or the Strategic National Stockpile (SNS). Under this guidance, revenue is
recognized when product is placed in the BARDA vendor-managed inventory (“VMI”) as control of the product has been transferred to the customer at the
time of delivery to the VMI. RECELL units that have been delivered to BARDA have a product replacement obligation at no cost to BARDA due to
product’s limited shelf-life. The estimated cost of the expired inventory over the term of the contract is recognized on a per unit basis at the time of
delivery. The estimated liability is released upon replacement of the product along with a corresponding reduction to inventory. The emergency
preparedness services performance obligation is satisfied over time. Revenue for the emergency deployment will be recognized on a straight-line basis
during the term of the contract as services are consumed over time. Services recognized are included in sales within the Consolidated Statement of
Operations. Contract costs to fulfil the performance obligations are incremental and expected to be recovered are capitalized and amortized on a straight-
line basis over the term of the contract. As of December 31, 2022, contract costs are included in other current asset, in prior-years amounts were included in
other long-term assets.
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Contract Liabilities
The Company receives payments from customers based on contractual terms. Trade receivables are recorded when the right to consideration
becomes unconditional. The Company satisfies its performance obligation on product sales when the products are shipped or delivered, depending on the
terms of the sale. Payment terms on invoiced amounts are typically 30-90 days, and do not include a financing component. Contract liabilities are recorded
when the Company receives payment prior to satisfying its obligation to transfer goods to a customer.
Cost of Sales
Cost of sales related to products includes costs to manufacture or purchase, package, and ship the Company’s products. Costs also include
relevant production overhead and depreciation and amortization. These costs are recognized when control of the product is transferred to the customer and
revenue is recognized.
Income Taxes
Income taxes are accounted for using the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income or loss in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the
enactment date. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that a portion of the deferred tax asset will not be
realized. We recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated
statement of operations. Accrued interest and penalties are included on the related tax liability line in the Consolidated Balance Sheet.
The Company reviews its uncertain tax positions regularly. An uncertain tax position represents the Company’s expected treatment of a tax
position taken in a filed return, or planned to be taken in a future tax return or claim that has not been reflected in measuring income tax expense for
financial reporting purposes. The Company recognizes the tax benefit from an uncertain tax position when it is more-likely-than-not that the position will
be sustained upon examination on the basis of the technical merits or the statute of limitations for the relevant taxing authority to examine and challenge the
tax position has expired.
Cash and Cash Equivalents
Consists of cash held at deposit institutions and cash equivalents. Cash equivalents consist of short-term highly liquid investments with original
maturities of three months or less from the date of purchase and consist primarily of money market funds. The Company holds cash at deposit institutions
in the amount of $4.1 million, $4.4 million and $54.2 million of which $737,000 and $203,000 and $273,000 is denominated in foreign currencies in
foreign institutions as of December 31, 2022, December 31, 2021, and June 30, 2021 respectively. As of December 31, 2022, December 31, 2021, and June
30, 2021, the Company held cash equivalents in the amount of $14.1 million and $51.1 million, and $56.5 million, respectively.
Restricted Cash
Pursuant to a contractual agreement with American Express to maintain the business credit card, the Company was required to maintain
restricted cash deposits which amounted to approximately $201,000 as of December 31, 2021 and June 30, 2021. As of December 31, 2022, the Company
is no longer required to maintain a balance.
Concentrations
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, trade
receivables, BARDA receivables and other receivables. As of December 31, 2022, December 31, 2021 and June 30, 2021, substantially all of the
Company’s cash was deposited in accounts at financial institutions, and amounts may exceed federally insured limits. Management believes that the
Company is not exposed to significant credit risk due to the financial strength of the depository institutions in which its cash is held.
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As of December 31, 2022 and December 31, 2021, one commercial customer accounted for approximately 10% of net accounts receivable. As of
June 30, 2021, no single commercial customer accounted for more than 10% of accounts receivable. For the year-ended December 31, 2022, one
commercial customer accounted for more than 10% of total revenues. For the transition period ended December 31, 2021 and the year-ended June 30,
2021, no single commercial customer accounted for more than 10% of total revenues. BARDA revenues for the procurement of the RECELL system
accounted for approximately 1%, 1% and 27% of total revenues for the year-ended December 31, 2022, the transition period ended December 31, 2021 and
the year-ended June 30, 2021, respectively. BARDA receivables for the procurement of the RECELL system and emergency preparedness accounted for
approximately 2%, 3%, and 91% of BARDA receivables as of December 31, 2022, December 31, 2021 and June 30, 2021, respectively. See table below
for breakdown of BARDA receivables (in thousands).
As of
December 31,
2022
As of
December 31,
2021
As of
June 30,
2021
BARDA procurement and emergency
preparedness services
BARDA expense reimbursements
Total
$
$
16 $
882
898 $
9 $
299
308 $
3,583
353
3,936
Fair Value of Financial Instruments
The carrying values of the Company’s financial instruments, consisting of cash and cash equivalents, marketable securities, trade receivables,
prepaids and other receivables, accounts payable, accrued liabilities and contract liabilities, approximate fair value due to the relative short-term nature of
these instruments.
Marketable Securities
We classify all highly liquid investments with original maturities of three months or less from the date of purchase as cash equivalents and all
highly liquid investments with stated maturities of greater than three months as marketable securities. The Company classifies marketable securities as
short-term when they have remaining contractual maturities of one year or less from the balance sheet date, and as long-term when the investments have
remaining contractual maturities of more than one year from the balance sheet date. Classification is determined at the time of purchase and re-evaluated
each balance sheet date. Short-term marketable securities represent investment of cash available for current operations. We account for our marketable
securities as available-for-sale securities.
All marketable securities, which consist of corporate debt securities, asset backed securities, U.S treasury and commercial paper are denominated
in the U.S. dollars, have been classified as “available for sale”, and are carried at fair value. Unrealized gains and losses, net of any related tax effects, are
excluded from earnings and are included in other comprehensive income (loss) and reported as a separate component of stockholders equity until realized.
Realized gains and losses on marketable securities are included in interest and other income, net, in the accompanying Consolidated Statements of
Operations. The cost of any marketable securities sold is based on the specific identification method. The amortized cost of marketable securities is
adjusted for amortization of premiums and accretion of discounts to maturity. Interest on marketable securities is included in other income. In accordance
with the Company’s investment policy, management invests to diversify credit risk and only invests in securities with high credit quality, including U.S.
government securities, and the maximum final maturity from the date of purchase is thirty-seven months.
If necessary, the Company will recognize an allowance for credit losses on available-for-sale debt securities on an individual basis, and will no
longer consider other than-temporary impairment or immediately reduce the cost basis of the investment provided that it is more likely than not that the
security will be held to recovery or maturity. Further, the Company will recognize any improvements in estimated credit losses on available-for-sale debt
securities immediately in earnings and reduce the existing allowance for credit losses. The Company will disaggregate its available-for-sale debt securities
into the following categories: commercial paper, corporate debt, government and agency securities and money market funds. The Company’s corporate
bonds are comprised of predominantly high-grade corporate bonds while its government and agency securities are U.S. treasury bonds, and U.S. agency
bonds. The Company has analyzed both corporate bonds and government and agency securities and identified that both types of securities have similar risk
characteristics in that they are traded infrequently and have contractual interest rates and maturity dates.
To evaluate for impairment, management reviews credit rating changes, securities trends, interest rate movements and unrealized loss at the
security level of the Company’s available for sale debt securities. If any of these give rise to a potential credit concern, the Company performs a discounted
cash flow analysis to determine the credit portion of the impairment. The discounted cash flow analysis will be performed either internally or through the
assistance of a qualified third party. Once the credit component of
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the impairment is determined, the Company will record the impaired amount as an allowance to the available-for-sale debt securities balance and as a
charge to other income in the accompanying Consolidated Statements of Operations, not to exceed the amount of the unrealized loss. The Company
assesses expected credit losses at the end of each reporting period and adjusts the allowance through other income.
Accounts Receivable
Accounts receivable are recorded net of customer allowances for doubtful accounts. The Company estimates an allowance for expected credit
losses (i.e., the inability of our customers to make required payments). These estimates are based on a combination of past experience and current trends. In
estimating the allowance for expected credit losses, consideration is given to the current aging of receivables, a specific review for potential bad debts and
an evaluation of historic write-offs. The resulting bad debt expense is included in sales and marketing expenses in the Consolidated Statement of
Operations. Receivables are written-off when deemed uncollectible. As of December 31, 2022, December 31,2021, and June 30, 2021, the allowance for
doubtful accounts was $24,000 $28,000, and $30,000, respectively.
A rollforward of the activity in the Company’s allowance for doubtful account is as follows (in thousands):
Allowance for doubtful accounts, at beginning of year $
Bad debt expense
Deductions
Allowance for doubtful accounts, at end of year
$
28 $
5
(9)
24 $
30 $
2
(4)
28 $
18
12
-
30
Year-ended
December 31, 2022
Transition Period Ended
December 31, 2021
Year-ended
June 30, 2021
BARDA Income and Receivables
The Company was awarded a BARDA grant in September 2015. Under this grant BARDA supports the Company’s research and development
for the Company’s product, including the ongoing U.S. clinical regulatory program targeted towards FDA PMA, our compassionate use program, clinical
and health economics research, and U.S. pediatric burn programs.
Consideration received under the BARDA grant is earned and recognized under a cost-plus-fixed-fee arrangement in which the Company is
reimbursed for direct costs incurred plus allowable indirect costs and a fixed-fee earned. Billings under the contracts are based on approved provisional
indirect billing rates, which permit recovery of fringe benefits, general and administrative expenses and a fixed fee.
The Company has concluded that grants under the BARDA grant are not within the scope of ASC 606, as they do not meet the definition of a
contract with a “customer.” The Company has further concluded that Subtopic 958-605, Not-for-Profit-Entities-Revenue Recognition also does not apply, as
the Company is a business entity and the grants are with governmental agencies or units. With respect to the BARDA grant, we considered the guidance in
IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, by analogy. BARDA income and related receivables are recognized
when there is reasonable assurance that the grant will be received, and all attaching conditions have been complied with. When the grant relates to an
expense item, the grant received is recognized as income over the period when the expense was incurred.
Inventory
Inventory is valued at the lower of cost or estimated net realizable value and is reflected in cost of sales. Costs incurred in bringing each product
to its present location and condition are accounted for at purchase cost on a first-in, first-out basis (“FIFO”). The Company capitalizes inventory costs
associated with the Company’s products when, based on management’s judgment, future commercialization is considered probable and the future economic
benefit is expected to be realized; otherwise, such costs are expensed as research and development. Inventory is evaluated for impairment periodically to
identify inventory obsolescence when an inventory item’s cost basis is in excess of its net realizable value. These adjustments are based upon multiple
factors, including inventory levels, projected demand, and product shelf life.
Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and costs to complete the
sale.
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Leases
The Company has operating leases for corporate office space, manufacturing and warehouse facility. The Company has finance leases for
equipment and furniture, which are not material to the consolidated financial statements. The Company’s operating leases have remaining lease terms of
one year to two years, some of which include options to renew the lease. At contract inception, the Company determines whether the contract is a lease or
contains a lease. A contract contains a lease if the Company is both able to identify an asset and can conclude it has the right to control the identified asset
for a period of time. Leases with an initial term of twelve months or less are not recorded on the Consolidated Balance Sheet.
Right-of-use (“ROU”) assets represent the Company’s right to control an underlying asset for the lease term, and lease liabilities represent the
Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at commencement date based on the
present value of lease payments over the lease term. As the Company’s leases do not provide an explicit rate, the Company used its incremental borrowing
rate (“IBR”) based on the information available at commencement date in determining the discount rate used to present value lease payments. In
determining the IBR, the Company considered its credit rating and current market interest rates. The IBR used approximates the interest that the Company
would be required to pay for a collateralized loan over a similar term. The Company’s leases typically do not include any residual value guarantees or asset
retirement obligations.
The Company’s lease terms are only for periods in which it has enforceable rights. A lease is no longer enforceable when both the lessee and the
lessor each have the right to terminate the lease without permission from the other party with no more than an insignificant penalty. The Company has
options to renew some of these leases for three years after their expiration. The Company considers these options, which may be elected at the Company’s
sole discretion, in determining the lease term on a lease-by-lease basis. Lease expense is recognized on a straight-line basis over the lease term and is
primarily included in general and administrative expenses in the accompanying consolidated statements of operations.
The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component for all underlying
asset classes. Some leases require variable payments for common area maintenance, property taxes, parking, insurance and other variable costs. The
variable portion of lease payments is not included in operating lease assets or liabilities. Variable lease costs are expensed when incurred.
Property, Plant and Equipment
The Company’s property, plant and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation is computed
based on the straight-line method over the estimated useful lives of the various asset classes, generally three to seven years. Leasehold improvements are
amortized over the shorter of the life of the related asset or the remaining term of the lease. Costs associated with customized internal-use software systems
that have reached the application development stage and meet recoverability tests are capitalized and include external direct costs utilized in developing or
obtaining the applications and payroll and payroll-related expenses for employees who are directly associated with the application development.
Maintenance and repairs are expensed as incurred.
Intangible Assets
The Company maintains definite-lived intangible assets related to patents initially measured at cost and amortized over estimated useful lives of
approximately 3—20 years. The Company had capitalized patent costs of $558,000, $673,000 and $700,000 as of December 31, 2022, December 31, 2021,
and June 30, 2021 respectively, related to regulatory approval of the RECELL System, and are being amortized over their estimated useful lives.
Impairment of Long-Lived Assets
The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. If the sum of the estimated, undiscounted future cash flows is less than the carrying amount of the asset, then an impairment
is recognized for the amount by which the carrying value of the asset exceeds its estimated fair value. Fair value is determined using the market, income, or
cost approaches as appropriate for the asset. Any write-downs are treated as permanent reductions in the carrying amount of the asset and recognized as an
operating loss. The Company recorded $42,000 of impairments intangible assets during the transition period ended December 31, 2021. There were no
impairments of long-lived assets for the year-ended December 31, 2022 and June 30, 2021.
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Sales and Marketing Expenses
Sales and marketing expenses consist primarily of compensation and employee benefits of sales and marketing personnel and related field sales
organization, marketing events, advertising costs, travel, trade shows and other marketing materials. The Company expenses all selling and marketing costs
as incurred. Advertising expenses were $216,000, $16,000, and $73,000 for the year-ended December 31, 2022, the transition period ended December 31,
2021, and the year-ended June 30, 2021, respectively.
Research and Development Expenses
Research and development expenses represent costs incurred to develop the Company’s products. Research and development expenses consist
primarily of salaries and other personnel costs, clinical trial costs, regulatory costs and manufacturing costs for non-commercial products. The Company
expenses all research and development costs in the periods in which they are incurred.
Stock-Based Compensation
The Company records compensation expense for stock options and RSUs based on the fair market value of the awards on the date of grant. The
fair value of stock-based compensation awards is amortized over the vesting period of the award. Compensation expense for performance-based awards is
measured based on the number of shares ultimately expected to vest, estimated at each reporting date based on management’s expectations regarding the
relevant performance criteria, if any. The Black-Scholes option pricing model and Monte Carlo Simulation were used to estimate the fair value of the time-
based and performance-based options, respectively. Under ASU 2016-09, Compensation – Stock Compensation (“ASC 718”) Improvements to Employee
Share-Based Payment Accounting, the Company elected to account for forfeitures as they occur.
The following assumptions were used in the valuation of stock options.
•
•
•
•
Expected volatility – determined using the average of the historical volatility using daily intervals over the expected term and the derived
volatility using the longest term available of 12 months.
Expected dividends – none, based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in
the foreseeable future.
Expected term – the expected term of the Company’s stock options for tenure only vesting has been determined utilizing the
“simplified” method as described in the SEC’s Staff Accounting Bulletin No. 107 relating to share-based compensation.
The simplified method was chosen because the Company has limited historical option exercise experience due to its short operating history of
awards granted, with the first plan being established in 2016 which was primarily used for executive awards. Further, the Company does not
have sufficient history of exercises in the U.S. market given the Company’s redomiciliation from Australia to the United States in 2020. The
expected term of options with a performance condition or market condition was set to the contractual term of 10 years. The contractual term was
used for options with a performance or market condition as these are primarily awarded to executives and the Company assumes that they will
hold them longer than rank and file employees.
Risk-free interest rate – the risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for a period approximately
equal to the expected term of the award.
Loss per Share
Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period.
Diluted earnings per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period, assuming
potentially dilutive ordinary shares from option exercises, employee share awards, and other dilutive instruments that have been issued. For periods where
the Company has presented a net loss, potentially dilutive securities are excluded from the computation of diluted net loss per share as they would be anti-
dilutive. In accordance with ASC 710-10, shares of common stock held by the rabbi trust are excluded from the denominator in the basic and diluted EPS
calculations.
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Non-Qualified Deferred Compensation Plan Liability and Corporate-Owned Life Insurance Asset
The Company’s non-qualified deferred compensation plan (the "NQDC plan"), which became effective in October 2021, allows highly
compensated key employees to elect to defer a portion of their salary, bonus, commissions and RSU awards to later years. Management determined that the
cash deferrals under the NQDC plan shall be accounted for similarly to a defined benefit plan under ASC 715, Compensation – Retirement Benefits, and
should follow accounting treatment that is similar to a cash balance plan. Management determined that the employee portion and employer portion of the
deferred compensation should be recognized as a compensation expense with a corresponding credit to deferred compensation liability. The matching
contribution will be accrued over the vesting period of two years with 25% vesting in the first year and 75% vesting in the second year. Employees aged 55
or older immediately vest in employer matching contributions. The change in the liability between each reporting period is accounted for as compensation
expense with a corresponding adjustment to deferred compensation liability. Upon distribution, the Company will record the distribution as a decrease to
compensation liability with a corresponding credit to cash. The Company funds the NQDC plan through a Corporate-Owned Life Insurance (“COLI”). Per
the ASC 325-30-25-1A, Investments – Other, COLI is recorded as an asset in on the Consolidated Balance Sheets as it does not meet the definition of a
plan asset under ASC 715. The Company invests in COLI policies relating to its deferred compensation plan. Investments in COLI policies are recorded at
their cash surrender values as of each balance sheet date. Changes in the cash surrender value during the period are recorded as a gain or loss in the
statements of operations in Other income.
Rabbi Trust
During April 2022, we established a rabbi trust for a select group of participants in which share awards granted under the 2020 Omnibus
Incentive Plan (“2020 Plan”) and deferred under the NQDC plan may be deposited. In addition to the deferral of shares, the rabbi trust holds the assets in
the COLI for the NQDC plan. The rabbi trust is an irrevocable trust and no portion of the trust fund may be used for any purpose other than the delivery of
those assets to the participants. The assets held in the rabbi trust are subject to the claims of our general creditors in the event of bankruptcy or insolvency.
The value of the assets of the rabbi trust is consolidated into our financial statements.
The NQDC plan permits diversification of vested shares (common stock) into other equity securities subject to a six-month and one day holding
period subsequent to vesting. Per ASC 710-10-25-15, accounting for deferred common stock will be under plan type C or D. Accounting will depend on
whether or not the employee has diversified the common stock. Under Plan type C, diversification is permitted but the employee has not diversified. Under
Plan type D, diversification is permitted and the employee has diversified.
For common stock that have not been diversified, the employer stock held in the rabbi trust is classified in a manner similar to treasury stock and
presented separately on the Consolidated Balance Sheets as Company common stock held by the non-qualified deferred compensation plan. Common
stock will be recorded at fair value of the stock at the time it vested, subsequent changes in the value of the common stock will not be recognized. The
deferred compensation obligation is measured independently at fair value of the common stock with a corresponding charge or credit to compensation cost.
Fair value is determined as the product of the common stock and the closing price of the stock each reporting period.
Under plan type D, assets held by the rabbi trust are subject to applicable GAAP. As diversified common stock will be invested in mutual funds,
assets held by the rabbi trust will be subject to accounting in ASC 321 - Investments - Equity Securities. The deferred compensation obligation is measured
independently at fair value of the underlying assets. As of December 31, 2022, deferred common stock has not been diversified.
Non-qualified deferred compensation share awards
In accordance with ASC 718, Compensation — Stock Compensation, the deferred RSU awards under the NQDC plan are classified as an equity
instrument and changes in fair value of the amount owed to the participant are not recognized. As the plan permits diversification, presentation outside of
permanent equity in accordance with ASR 268, Redeemable Preferred Stock is appropriate. The redemption amounts are based on the vested percentage
and are recorded outside of equity as non-qualified deferred compensation share awards on the Consolidated Balance Sheets. Deferred awards will be
presented outside of permanent equity until the awards are vested.
The redemption value of unvested and deferred RSU awards is recorded outside of equity as Non-qualified deferred compensation plan share
awards. Once awards are vested, they are reclassified back to permanent equity as Company common stock held by the non-qualified deferred
compensation plan in the Consolidated Balance Sheets. For further details refer to Note 18.
F-16
Table of Contents
Segment Reporting
Operating segments are defined as components of an enterprise for which separate discrete financial information is available for evaluation by
the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company’s chief operating decision-
maker is its Chief Executive Officer. To date, the Company has viewed its operations and manages its business as one segment.
3. Accounting Standards Update
Recently Adopted Accounting Pronouncements
In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government
Assistance.” ASC 832 requires business entities to provide certain disclosures when they (1) have received government assistance and (2) use a grant or
contribution accounting model by analogy to other accounting guidance. The guidance will require business entities to disclose the nature of the
transactions, accounting policies used to account for the transactions, and state which line items on the balance sheet and income statement are affected by
these transactions and the amount applicable to each financial statement line. Business entities will also have to disclose significant terms and conditions of
transactions with a government such as the duration of the agreement, any commitments made by either side, provisions, and contingencies. The guidance
in ASU 2021-10 is effective for all entities for fiscal years beginning after December 15, 2021. Entities may apply the provision either (1) prospectively to
all transactions within the scope of ASC 832 that are reflected in the financial statements as of the adoption date and all new transactions entered into after
the date of adoption or (2) retrospectively. The Company adopted this standard as of January 1, 2022. The adoption did not have a material impact on the
consolidated financial statements or disclosures.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, or ASU 2019-12, which includes amendments
to simplify the accounting for income taxes by removing certain exceptions to the general principles in ASC 740, Income Taxes, or ASC 740. The
amendments also improve consistent application of and simplify U.S. GAAP for other areas of ASC 740 by clarifying and amending existing guidance.
The new guidance is effective for the Company for annual periods beginning after December 15, 2021 and interim periods within fiscal years beginning
after December 15, 2022. Early adoption of the amendments is permitted. The Company adopted this standard as of January 1, 2022. The adoption did not
have a material impact on the consolidated financial statements.
Recent Accounting Pronouncements Not Yet Adopted
All other newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.
F-17
Table of Contents
4. Marketable Securities
The following table summarizes the amortized cost and estimates fair values of debt securities available for sale:
(in thousands)
Cash equivalents:
Money market funds
Current marketable securities:
U.S Treasury securities
Commercial paper
Corporate debt securities
U.S Government agency obligations
Total current marketable securities
Long-term marketable securities:
Asset backed securities
U.S Treasury securities
U.S Government agency obligations
Total long-term marketable securities
(in thousands)
Cash equivalents:
Money market funds
Current marketable securities:
Commercial paper
Corporate debt securities
Asset backed securities
Total current marketable securities
Long-term marketable securities:
U.S Treasury securities
Corporate debt securities
Total long-term marketable securities
As of December 31, 2022
Gross
Unrealized
Holding
Gains
Gross
Unrealized
Holding
Losses
Carrying
Value
Amortized
Cost
14,089 $
43,092 $
12,743
3,865
1,901
61,601 $
3,568 $
2,416
949
6,933 $
- $
1 $
-
-
-
1 $
7 $
-
-
7 $
- $
14,089
(393) $
-
(23)
(8)
(424) $
(3) $
(6)
(1)
(10) $
42,700
12,743
3,842
1,893
61,178
3,572
2,410
948
6,930
As of December 31, 2021
Gross
Unrealized
Holding
Gains
Gross
Unrealized
Holding
Losses
Carrying
Value
Amortized
Cost
51,112 $
19,586 $
7,068
3,002
29,656 $
18,043 $
1,746
19,789 $
- $
- $
-
-
- $
- $
-
- $
- $
51,112
- $
(7)
-
(7) $
(89) $
(8)
(97) $
19,586
7,061
3,002
29,649
17,954
1,738
19,692
$
$
$
$
$
$
$
$
$
$
The maturities of debt securities available for sale are summarized in the following table using contractual maturities. Actual maturities may differ
from contractual maturities due to obligations that are called or prepaid.
Due in one year or less
Due after one year through three years
As of December 31, 2022
As of December 31, 2021
Amortized
Cost
Carrying
Value
Amortized
Cost
Carrying
Value
$
$
61,601 $
6,933 $
61,178 $
6,930 $
29,656 $
19,789 $
29,649
19,692
Gross unrealized gains and losses on the Company’s marketable securities were an unrealized gain of $8,000 and an unrealized loss of $434,000 as
of December 31, 2022 which resulted in a net unrealized loss of $426,000. Gross unrealized gains and losses on the Company’s marketable securities were
an unrealized gain of $0 and an unrealized loss of $104,000 as of December 31, 2021 which resulted in a net unrealized loss of $104,000.
F-18
Table of Contents
During the year-ended December 31, 2022 and the transition period ended December 31, 2021, the Company did not recognize credit losses. The
Company did not have any marketable securities as of June 30, 2021. The Company has accrued interest income of $168,000, $72,000 and $0 as of
December 31, 2022 and, 2021 and June 30, 2021, recorded in Prepaids and Other Current Assets. Money market funds were included in the cash and cash
equivalents line item.
5. Fair Value Measurements
The authoritative guidance on fair value measurements establishes a framework with respect to measuring assets and liabilities at fair value on a
recurring basis and non-recurring basis. Under the framework, fair value is defined as the exit price, or the amount that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants, as of the measurement date. The framework also establishes a three-tier
hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring
that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are
developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s
assumptions about the factors market participants would use in valuing the asset or liability and are developed based on the best information available in
the circumstances. The hierarchy consists of the following three levels:
Level 1: Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the
measurement date.
Level 2: Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3: Inputs are unobservable inputs for the asset or liability
The following tables present information about the Company’s financial assets measured at fair value on a recurring basis, based on the three-tier
fair value hierarchy:
(in thousands)
Cash equivalents:
Money market funds
Current marketable securities:
U.S Treasury securities
Commercial paper
Corporate debt securities
U.S Government agency obligations
Total current marketable securities
Long-term marketable securities:
Asset backed securities
U.S Treasury securities
U.S Government agency obligations
Total long-term marketable securities
Total marketable securities and cash equivalents
As of December 31, 2022
Level 1
Level 2
Level 3
Total
$
14,089 $
- $
- $
14,089
-
-
-
-
-
-
-
-
-
$
14,089 $
F-19
42,700
12,743
3,842
1,893
61,178
3,572
2,410
948
6,930
68,108 $
-
-
-
-
-
-
-
-
-
- $
42,700
12,743
3,842
1,893
61,178
3,572
2,410
948
6,930
82,197
Table of Contents
(in thousands)
Cash equivalents:
Money market funds
Current marketable securities:
Commercial paper
Corporate debt securities
Asset backed securities
Total current marketable securities
Long-term marketable securities:
U.S Treasury securities
Corporate debt securities
Total long-term marketable securities
Total marketable securities and cash equivalents
As of December 31, 2021
Level 1
Level 2
Level 3
Total
$
51,112 $
- $
- $
51,112
-
-
-
-
-
-
-
$
51,112 $
19,586
7,061
3,002
29,649
17,954
1,738
19,692
49,341 $
-
-
-
-
-
-
-
- $
19,586
7,061
3,002
29,649
17,954
1,738
19,692
100,453
The Company’s Level 1 assets include money market instruments and are valued based upon observable market prices. Level 2 assets consist of
commercial paper, asset back securities and corporate debt securities, U.S. Government Agency obligations and U.S Treasury securities. Level 2 securities
are valued based upon observable inputs that include reported trades, broker/dealer quotes, bids and offers. As of December 31, 2022 and December 31,
2021, the Company had no investments that were measured using unobservable (Level 3) inputs. There were no transfers between fair value measurement
levels during the year-ended December 31, 2022 and the transition period ended December 31, 2021. For the year-ended June 30, 2021, the Company did
not have any marketable securities. Cash equivalents consist of money market funds and are classified as a Level 1.
6. Leases
During August 2021, the Company remeasured the lease liability for an office lease due to a change in the lease term. As a result of the
remeasurement of the lease liability, there was an increase of approximately $392,000 to the operating lease ROU assets and operating lease liabilities.
There was no impact on earnings as a result of the modification.
The following table sets forth the Company’s operating lease expenses which are included in general and administrative expenses in the
Consolidated Statements of Operations (in thousands):
Operating lease cost
Variable lease cost
Total lease cost
Year-Ended
December 31,
2022
Transition Period
Ended
December 31,
2021
Year-Ended
June 30, 2021
$
$
775 $
51
826 $
284
25
309
$
$
731
48
779
Supplemental cash flow information related to operating leases was as follows (in thousands):
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows from operating leases
$
803 $
288
735
Year-Ended
December 31,
2022
Transition Period
Ended
December 31,
2021
Year-Ended
June 30, 2021
F-20
Table of Contents
Supplemental balance sheet information, related to operating leases was as follows (in thousands):
Reported as:
Operating lease right-of-use assets
Total right-of-use assets
Other current liabilities:
Operating lease liabilities, short-term
Operating lease liabilities, long term
Total operating lease liabilities
Operating lease weighted average remaining lease term
(years)
Operating lease weighted average discount rate
As of
December 31,
2022
As of
December 31,
2021
As of
June 30, 2021
$
$
$
$
851
851
$
$
1,544
1,544
$
$
612
306
918
$
$
1.44
6.71%
720
918
1,638
$
$
2.30
6.51%
1,480
1,480
702
878
1,580
2.67
6.70%
As of December 31, 2022, maturities of the Company’s operating lease liabilities are as follows (in thousands):
2023
2024
Total lease payments
Less imputed interest
Total operating lease liabilities
Operating Leases
649
314
963
(45)
918
$
At December 31, 2022 there were no leases entered into that had not yet commenced. On February 1, 2023, the Company executed the fifth
amendment to the lease of the administrative and office space in Valencia, California. The lease was extended for 39 months and is currently leased
through October 31, 2026, with an average monthly base rent charge of approximately $37,000.
7. Inventory
The composition of inventories is as follows (in thousands):
Raw materials
Work in process
Finished goods
Total inventory
December 31, 2022
As of
December 31, 2021
June 30, 2021
$
$
1,131 $
384
610
2,125 $
1,222 $
176
734
2,132 $
982
241
424
1,647
The Company has reduced the carrying value of its inventories to reflect the lower of cost or net realizable value. Charges for estimated excess and
obsolescence are recorded in cost of sales in the Consolidated Statement of Operations and were $375,000, $44,000 and $226,000 for the year-ended
December 31, 2022, the transition period ended December 31, 2021, and the year-ended June 30, 2021, respectively.
F-21
Net
Carry
Amount
74
122
144
44
38
-
3
-
-
47
(190) $
(16)
(19)
(2)
(1)
-
-
-
-
-
Table of Contents
8. Intangible Assets
The composition of intangible assets is as follows (in thousands):
As of December 31, 2022
As of December 31, 2021
As of June 30, 2021
Weighted
Average Life
Gross
Amount
Accumulated
Amortization
Net
Carry
Amount
Gross
Amount
Accumulated
Amortization
Net
Carry
Amount
Gross
Amount
Accumulated
Amortization
Patent 1
Patent 2
Patent 3
Patent 5
Patent 6
Patent 7
Patent 8
Patent 10
Patent 11
Trademarks
Total intangible
assets
2 $
13
14
19
20
13
19
19
19
Indefinite
17 $
137
194
89
43
2
13
3
6
54
(16) $
(28)
(39)
(6)
(4)
-
-
-
-
-
1 $
109
155
83
39
2
13
3
6
54
209 $
123
192
46
39
2
3
3
6
50
(182) $
(18)
(25)
(3)
(2)
-
-
-
-
-
27 $
105
167
43
37
2
3
3
6
50
264 $
138
163
46
39
-
3
-
-
47
$
558 $
(93) $
465 $
673 $
(230) $
443 $
700 $
(228) $
472
During the year-ended December 31, 2022, the Company did not identify any events or changes in circumstances that indicated the carrying
value of its intangibles may not be recoverable. As such, there was no impairment of intangibles assets recognized for the year-ended December 31, 2022.
During the transition period ended December 31, 2021, the Company recorded impairment charge of $42,000 in general and administrative expenses.
During the year-ended June 30, 2021, the Company did not identify any events or changes in circumstances that indicated the carrying value of its
intangibles may not be recoverable. As such, there was no impairment of intangibles assets recognized for the year-ended June 30, 2021. Amortization
expense of intangibles included in the Consolidated Statements of Operations was $58,000, $56,000 and $109,000 for the year-ended December 31, 2022,
the transition period ended December 31, 2021 and the year-ended June 30, 2021, respectively.
The Company expects the future amortization of amortizable intangible assets held at December 31, 2022 to be (in thousands):
2023
2024
2025
2026
2027
Thereafter
Total
Estimated Amortization
Expense
$
$
34
33
33
33
33
245
411
F-22
Table of Contents
9. Property and Equipment, net
The composition of property and equipment, net is as follows (in thousands):
Computer equipment
Computer software
Construction in progress
Furniture and fixtures
Laboratory equipment
Leasehold improvements
RECELL Moulds
Less: accumulated amortization and
depreciation
Total plant and equipment, net
Useful Lives
As of
December 31,
2022
As of
December 31,
2021
As of
June 30,
2021
3 years $
3 years
7 years
5 years
Lesser of life or lease
term
5 years
755 $
871
258
439
643
257
129
740 $
811
29
440
566
242
129
722
775
48
440
523
242
129
$
(2,152)
1,200 $
(1,695)
1,262 $
(1,421)
1,458
Depreciation expense related to plant and equipment was $510,000, $274,000 and $606,000 for the year-ended December 31, 2022, the transition
period ended December 31, 2021, and the year-ended June 30, 2021, respectively.
10. Prepaids and Other Current Assets and Other Long—Term Assets
Prepaids and other current assets consisted of the following (in thousands):
As of
December 31,
2022
As of
December 31,
2021
As of
June 30,
2021
Prepaid expenses
Lease deposits
Accrued investment income
BARDA contract costs
Other receivables
Total prepaids and other current assets
$
$
921 $
110
168
252
127
1,578 $
1,124 $
2
72
-
15
1,213 $
Prepaid expenses primarily consist of prepaid benefits and insurance.
Other long-term assets consisted of the following (in thousands):
As of
December 31,
2022
As of
December 31,
2021
As of
June 30,
2021
BARDA contract costs
Long-term lease deposits
Long-term prepaids
Total other long-term assets
$
$
- $
25
97
122 $
504 $
124
10
638 $
853
-
-
-
480
1,333
613
126
22
761
F-23
Table of Contents
Other current liabilities consisted of the following (in thousands):
Operating lease liability
Other current liabilities
BARDA deferred costs
Total other current liabilities
11. Reporting Segment and Geographic Information
As of
December 31,
2022
As of
December 31,
2021
As of
June 30,
2021
$
$
612 $
262
194
1,068 $
720 $
355
-
1,075 $
702
170
77
949
The Company views its operations and manages its business in one reporting segment. Long-lived assets were primarily located in the United States
as of December 31, 2022, December 31, 2021, and June 30, 2021, with an insignificant amount located in Australia and the United Kingdom.
Revenue by region were as follows (in thousands):
Revenue:
United States
Foreign:
Japan
Australia
United Kingdom
Total
Year-ended
December 31, 2022
Transition period ended
December 31, 2021
Year-ended
June 30, 2021
$
$
33,257 $
13,764 $
729
275
160
34,421 $
-
136
56
13,956 $
28,955
-
207
70
29,232
Revenue by Customer type were as follows (in thousands):
Year-ended
December 31, 2022
Transition period ended
December 31, 2021
Year-ended
June 30, 2021
Revenue:
Commercial sales
BARDA:
Product sales
Services for emergency preparedness
Total
34,051
—
370
34,421 $
13,771 $
—
185
13,956 $
21,483
7,595
154
29,232
$
Cost of sales by Customer type were as follows (in thousands):
Year-ended
December 31, 2022
Transition period ended
December 31, 2021
Year-ended
June 30, 2021
Cost of sales
Commercial cost
BARDA:
Product cost
Emergency preparedness service cost
Total
$
$
5,573 $
130
338
6,041 $
2,017 $
(278)
166
1,905 $
3,931
1,889
129
5,949
F-24
Table of Contents
12. Contingencies
The Company is subject to certain contingencies arising in the ordinary course of business. The Company records accruals for these contingencies to
the extent that a loss is both probable and reasonably estimable. If some amount within a range of loss appears to be a better estimate than any other amount
within the range, that amount is accrued. Alternatively, when no amount within a range of loss appears to be a better estimate than any other amount, the
lowest amount in the range is accrued. The Company expenses legal costs associated with loss contingencies as incurred. As of December 31, 2022, the
Company does not have any outstanding or threatened litigation that would have a material impact to the financial statements.
13. Common and Preferred Stock
The Company’s CDIs are quoted on the ASX under AVITA Medical’s previous ASX ticker code, “AVH”. The Company’s shares of common
stock are quoted on Nasdaq under AVITA Medical’s previous Nasdaq ticker code, “RCEL”. One share of common stock on Nasdaq is equivalent to five
CDIs on the ASX.
The Company is authorized to issue 200,000,000 shares of common stock, par value $0.0001 per share, and 10,000,000 shares of preferred stock,
par value $0.0001 per share, issuable in one or more series as designated by the Company’s board of directors. No other class of capital stock is authorized.
The Company has 25,208,436, 24,925,743, and 24,895,864 shares of common stock issued and outstanding as of December 31, 2022, December 31, 2021,
and June 30, 2021, respectively. The Company has no shares of preferred stock outstanding during any period.
On March 1, 2021, the Company issued 3,214,250 shares of common stock at the offering price of $21.50 per share. The gross proceeds from the
offering were approximately $69.1 million while the Company incurred $5.1 million in capital issuance expenses. The offering was made pursuant to a
shelf registration statement on Form S-3 (File No. 333-249419) that was previously filed with the Securities and Exchange Commission (the “SEC”) on
October 9, 2020, and declared effective on October 16, 2020. It was also publicly released on the ASX. The final prospectus supplement relating to and
describing the terms of the offering was filed with the SEC on February 25, 2021 (in the United States) and released on the ASX on March 1, 2021 (in
Australia).
14. Revenue
The Company’s revenue consists of sale of the RECELL System to hospitals or other treatment centers, COSMOTEC and to BARDA
(collectively “customers”), predominately in the United States. In addition, the Company records service revenue for the emergency preparedness services
provided to BARDA.
Performance Obligations
For commercial contracts, we identified the hospital or treatment center and COSMOTEC as the customer in Step 1 of the ASC 606 5 step model
and have determined a contract exists with those customers in Step 1. As these contracts typically have a single performance obligation (i.e. product
delivery), no allocation of the transaction price is required in Step 4 of the model. Control of the product is transferred to the customer at a point in time.
Specifically, we determined the customer obtains control of the product at point in time at which the goods are either shipped or delivered to our customers’
facilities, depending on the terms of the contract. The transaction price is stated within the contract and is therefore fixed consideration. The transaction
price does not include the sales tax that are imposed by governmental authorities.
For the contract with BARDA, the Company identified two performance obligations (i) the procurement of 5,614 RECELL units, (ii) emergency
preparedness services. The Company’s performance obligations are either satisfied at a point in time or over time as services are provided. The product
procurement performance obligation is satisfied at a point in time, upon transfer of control of the product. RECELL units that have been delivered to
BARDA have a product replacement obligation at no cost to BARDA due to product’s limited shelf-life. The estimated cost of the expired inventory over
the term of the contract is recognized on a per unit basis at the time of delivery. The estimated liability is released upon replacement of the product along
with a corresponding reduction to inventory. The Company has estimated deferred cost of approximately $194,000, $64,000 and $343,000 as of December
31, 2022, December 31, 2021, and June 30, 2021, respectively, for the rotation cost of the product. Such amounts are recorded in other current liabilities in
the amounts of $194,000, $0, and $77,000 and other long-term liabilities in the amount of $0, $64,000, and $266,000 as of December 31, 2022, December
31, 2021, and June 30, 2021, respectively. The emergency preparedness services performance obligation is satisfied over time. Revenue for the emergency
deployment will be recognized on a straight-line basis during the term of the contract as services are consumed over time. Services recognized of $370,000,
$185,000 and $154,000 for the year-ended December 31, 2022, the transition period ended December 31, 2021, and the year-ended June 30, 2021,
respectively, and are included in sales within the Consolidated Statement of Operations. Contract costs to fulfil the performance obligation are incremental
and
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expected to be recovered are capitalized and amortized on a straight-line basis over the term of the contract. As of December 31, 2022, contract cost of
$252,000 are included in other current assets. As of December 31, 2021 and June 30, 2021 contract costs of $504,000, and $613,000 are included in other
long-term assets, respectively.
Remaining Performance Obligations
Revenues from remaining performance obligations are calculated as the dollar value of the remaining performance obligations on executed
contracts and relate to BARDA and COSMOTEC. The estimated revenue expected to be recognized in the future related to performance obligations that
are unsatisfied (or partially unsatisfied) pursuant to the Company’s existing customer agreements is $698,000, $952,000, and $1.1 million as of December
31, 2022, December 31, 2021, and June 30, 2021, respectively. As of December 31, 2022, December 31, 2021 and June 30, 2021, the Company had
$274,000, $517,000 and $665,000, respectively, in contract liabilities related to our contract with BARDA for the purchase, delivery and storage of the
RECELL system for emergency response preparedness. The Company expects to recognize this amount as services are provided to BARDA. We are
contracted to manage this inventory of product until the federal government requests shipment or at contract termination on December 31, 2023. Related to
the contract with COSMOTEC, the Company had $424,000, $435,000, and $435,000 in contract liabilities as of December 31, 2022, December 31, 2021,
and June 30, 2021, respectively. The Company expects to recognize revenue on a straight-line basis over the term of the contract commencing with the
generation of commercial sales to COSMOTEC.
Variable Consideration
The Company evaluates its contracts with customers for forms of variable consideration, which may require an adjustment to the transaction
price based on their estimated impact. For commercial customers, revenue from the sale of goods is recognized net of volume discounts. The Company
uses the expected value method when estimating variable consideration. Revenue is only recognized to the extent that it is probable that a significant
reversal will not occur. Variable consideration under the BARDA contract is not material to the consolidated financial statements.
Volume Discounts — The Company generally provides contracted customers with volume discounts that are explicitly stated in the Company’s
customer contracts. The RECELL system is sold with respective volume discounts based on aggregated sales over a 12-month period on a customer-by-
customer basis. Revenue from these sales is recognized based on the price specified in the contract, net of estimated volume discounts, and net of any sales
tax charged. Goods sold are not eligible for return. The Company has determined such discounts are not distinct from the Company’s sale of products to the
customer and, therefore, these payments have been recorded as a reduction of revenue and as a reduction to accounts receivable, net.
Contract Assets and Contract Liabilities
Contract assets include amounts related to the Company’s contractual right to consideration for both completed and partially completed
performance for which the Company does not have the right to payment. As of December 31, 2022, December 31, 2021 and June 30, 2021 the Company
does not have any contract assets.
Contract liabilities are recorded when the Company receives payment prior to satisfying its obligation to transfer goods to a customer. The
Company had $698,000, $952,000, and $1.1 million of contract liabilities as of December 31, 2022, December 31, 2021, and June 30, 2021, respectively.
The balance relates to the unsatisfied performance obligation for emergency preparedness under the BARDA contract and COSMOTEC. Performance
obligation will be recognized over time over the term of the contract. For the year-ended December 31, 2022 and the transition period ended December 31,
2021, the Company recognized $370,000, and $185,000 of BARDA revenue from amounts included in the beginning balance of contract liabilities. For the
year-ended June 30, 2021, amounts recognized were not significant. The Company recognized $11,000 of revenue for COSMOTEC for amounts included
in the beginning balance of contract liabilities. The Company did not recognize any revenue for the transition period ended December 31, 2021 and the
year-ended June 30, 2021 related to COSMOTEC for amounts included in the beginning balance of contract liabilities.
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Cost to Obtain and Fulfill a Contract
Contract fulfillment costs include commissions and shipping expenses. The Company has opted to immediately expense the incremental cost of
obtaining a contract when the underlying related asset would have been amortized over one year or less. The Company generally does not incur costs to
obtain new contracts.
BARDA Contract Costs
Cost to fulfil the BARDA emergency preparedness performance obligation, which primarily consist of billed costs to BARDA incurred in
connection with the emergency deployment services, are incremental and expected to be recovered. Costs are capitalized and amortized on a straight-line
basis over the term of the contract. As of December 31, 2022, the Company had $252,000 of contract costs included in other current assets. As of
December 31, 2021 and June 30, 2021, the Company had $504,000 and $613,000 of contracts costs included in other long-term assets. Amortization
expense related to deferred contract costs were $338,000, $167,000, and $129,000 during the year-ended December 31, 2022, the transition period ended
December 31, 2021 and the year-ended June 30, 2021, respectively, and are classified as cost of sales on the accompanying Consolidated Statements of
Operations. There was no impairment loss in relation to deferred contract costs during the year-ended December 31, 2022, the transition period ended
December 31, 2021, and the year-ended June 30, 2021.
Disaggregated Revenue
The Company disaggregates revenue from contracts with customers into geographical regions and by customer type. As noted in the segment
footnote, the Company’s business consists of one reporting segment. A reconciliation of disaggregated revenue by geographical region and customer type
is provided in Segment Note 11.
15. Share-Based Payment Plans
Overview of Employee Share-Based Compensation Plans
Our former parent company, AVITA Medical, adopted the Employee Share Plan and the Incentive Option Plan (collectively, the “2016 Plans”).
Upon completion of the Redomiciliation, the 2016 Plans were terminated with respect to future grants and accordingly, there are no more shares available
to be issued under the 2016 Plans. In addition, upon completion of the Redomiciliation, the Company had an implicit consolidation or reverse stock split of
100:1 and all share information presented below in relation to the 2016 Plans has been presented on a reverse split stock basis. During November 2020, the
Company, pursuant to Rule 416 under the Securities Act of 1933, filed a registration statement on form S-8 to register a total of 1,750,000 shares of
common stock which may be issued pursuant to the terms of the Company’s 2020 Omnibus Incentive Plan (“2020 Plan”). On December 22, 2021, the
Company’s stockholders approved the issuance of options and awards to the Board of Directors and the former CEO (“Former CEO”). These awards are
subject to the vesting and performance conditions as denoted in the individual agreements. On December 12, 2022, the Company’s stockholders approved
the issuance of options and awards to the Board of Directors and the CEO. These awards are subject to the vesting and performance conditions as denoted
in the individual agreements.
The 2020 Plan provides for the grant of the following Grants: (a) Incentive Stock Options, (b) Nonstatutory Stock Options, (c) Stock
Appreciation Rights, (d) Restricted Stock Grants, (e) Restricted Stock Unit Grants, (f) Performance Grants, and (g) Other Grants. The 2020 Plan will be
administered by the Compensation Committee or by the Board acting as the Compensation Committee. Subject to the general purposes, terms and
conditions of the 2020 Plan, applicable law and any charter adopted by the Board governing the actions of the Compensation Committee, the
Compensation Committee will have full power to implement and carry out the 2020 Plan. Without limitation, the Compensation Committee will have the
authority to interpret the plan, approve persons to receive grants, determine the terms and number of shares of the grants, determine vesting and
exercisability of grants, and make all other determinations necessary or advisable in connection with the administration of this Plan.
The contractual term of awards granted under the 2020 Plan is ten years from the date of its grant. Unless otherwise specified, the vesting period
of awards under the 2020 Plan was: (i) vest over a four-year period in four equal installments, 25% at the end of each year from the date of grant, and /or
(ii) subject to other performance criteria and hurdles, as determined by the Compensation Committee
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The following table summarizes information about the Company’s share-based award plans as of December 31, 2022:
2016 Equity Incentive Plan
2020 Equity Incentive Plan
2021 AGM Awards
2022 AGM Awards
Share-Based Payment Expenses
Outstanding
Options
885,095
1,079,875
22,600
247,876
Outstanding
Restricted
Stock
Units
Shares
available
for future
issuance
-
398,596
11,566
50,356
-
-
244,675
-
Share-based payment transactions are recognized as compensation expense based on the fair value of the instrument on the date of grant. The
Company uses the graded-vesting method to recognize compensation expense. Compensation cost is reduced for forfeitures as they occur in accordance
with ASU 2016-09, Simplifying the Accounting for Share-Based Payments ("ASU 2016-09"). During the year-ended December 31, 2022, the transition
period ended December 31, 2021, and the year-ended June 30, 2021, the Company recorded share-based compensation expense of $7.0 million, $3.6
million and $5.7 million, respectively. No income tax benefit was recognized in the Consolidated Statement of Operations for share-based payment
arrangements for the year-ended December 31, 2022, the transition period ended December 31, 2021, and the year-ended June 30, 2021.
The Company has included share-based compensation expense as part of operating expenses in the accompanying Consolidated Statements of
Operations as follows (in thousands):
Year-ended
December 31, 2022
Transition period
ended
December 31, 2021
Year-ended
June 30, 2021
Sales and marketing expenses
General and administrative expenses
Research and development expenses
Total
$
$
1,393 $
4,668
937
6,998 $
663 $
2,318
607
3,588 $
925
4,095
644
5,664
A summary of share option activity as of December 31, 2022 and changes during the year then ended is presented below:
Service
Only
Share
Options
Performance
Based
Share
Options
Market
Awards
Total
Share
Options
Weighted
-Average
Exercise
Price
1,129,126
737,676
(75,125)
(10,425)
(57,000)
599,994
-
(75,000)
(6,900)
(6,900)
27,600
-
-
-
(27,600)
1,756,720 $
737,676
(150,125)
(17,325)
(91,500)
14.86
5.57
5.99
14.60
12.95
Weighted
-Average
Remaining
Contractual
Term
(in years)
7.83
Aggregate
Intrinsic
Value
$ 5,118,309
1,724,252
511,194
-
2,235,446
12.47
7.71
1,530,263
Exercisable at December 31, 2021
Granted
Exercised
Expired
Forfeited
Outstanding shares at December 31,
2022
Exercisable at December 31, 2022
682,749
310,858
-
993,607 $
12.40
6.17
$ 587,632
The weighted-average grant-date fair value of options granted during the year-ended December 31, 2022, transition period ended December 31,
2021, and the year-ended June 30, 2021 was $4.64, $10.35, and $14.08, respectively. The total intrinsic value of options exercised during the year-ended
December 31, 2022, the transition period ended December 31, 2021, and the year-ended June 30, 2021 was $179,000, $13,000, and $221,000 and,
respectively. Intrinsic value is measured using the fair market value at the date of exercise for options exercised, or at balance sheet date for outstanding
options, less the applicable exercise price.
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Cash received from the exercise of options was approximately $900,000, $7,000, and $63,000 for the year-ended December 31, 2022, transition
period ended December 31, 2021, and the year-ended June 30, 2021, respectively.
As of December 31, 2022, there was approximately $5.4 million of total unrecognized compensation cost related to share-based compensation
expense. Of this amount $4.3 million relates to service only share options to be recognized over a weighted average period of 1.65 years, $1.1 million
related to performance-based share options to be recognized over a weighted average period of 1.60 years.
Restricted Stock Units
Restricted stock units (“RSUs”) are granted to executives as part of their long-term incentive compensation. RSUs granted as a result of
stockholder approval at the December 22, 2021 AGM and December 14, 2022 AGM arise out of contracts between the Company and the holders of such
securities. These RSU awards were approved by the Compensation Committee as determined necessary. All RSU awards have a contractual term of 10
years and vest in accordance with the tenure or performance conditions as determined by the Compensation Committee and set out in the contracts between
the Company and the holders of such securities. The grant date fair value is determined based on the price of the Company stock price on the date of grant
(stock price determined on Nasdaq). RSUs primarily consist of awards to the Former CEO and other executives as well as Non-Executive Directors (as
occurred following the 2021 AGM and 2022 AGM). The Former CEO RSU awards are described below.
A summary of the status of the Company’s unvested RSUs as of December 31, 2022, and changes that occurred during the year is presented
below:
Unvested Shares
Unvested RSUs outstanding at December 31,
2021
Granted
Vested
Forfeited
Unvested RSUs outstanding at December 31,
2022
Service
Condition RSU
Performance
Condition RSU
Market
Condition
Total RSU's
Weighted
Average
Grant Date
Fair Value
per Unit
114,757
135,093
47,640
297,490 $
384,806
(75,041)
(29,650)
-
(57,527)
(11,920)
-
-
(47,640)
384,806
(132,568)
(89,210)
394,872
65,646
-
460,518 $
19.66
5.28
26.43
7.71
6.30
The weighted-average grant-date fair value of the RSUs granted during the year-ended December 31, 2022, transition period ended December
31, 2021, and the year-ended June 30, 2021 were $5.28, $13.57, and $22.65 per unit, respectively. The total fair value of shares vested during the year-
ended December 31, 2022, the transition period ended December 31, 2021, and the year-ended June 30, 2021 were $894,000, $599,000, $4.9 million,
respectively.
As of December 31, 2022, there was $1.9 million of total unrecognized compensation cost related to RSU awards. Of this amount $1.6 million
relates to service only RSUs to be recognized over a weighted average period of 1.53 years, $341,000 related to performance-based awards to be
recognized over a weighted average period of 1.51 years.
2019 Former CEO RSUs
On November 2019, the equivalent of 395,542 RSUs were issued to the Former CEO with the following vesting terms:
a)
b)
Tenure – the equivalent of 142,521 RSUs with a vesting period of three-years commencing on June 1, 2020. On June 1, 2022, the last
tranche of 47,507 RSUs vested and the shares were appropriately released.
Milestone performance – 253,021 of the RSUs will vest upon satisfaction of various performance conditions. During the first quarter of
2022 the last performance milestone was achieved, the RSUs vested and were appropriately released.
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Table of Contents
2021 AGM Awards
On December 22, 2021, as part of the Company's 2021 AGM, the Company's stockholders approved the grant of stock option awards and RSUs
to the Former CEO and the Board of Directors. These awards are referred to as the 2021 AGM awards.
Awards to the Former CEO under the 2021 AGM Awards
On December 22, 2021, the Former CEO was issued an aggregate 150,480 options and RSUs comprising:
•
•
•
37,600 tenure-based options and RSUs (23,800 RSUs and 13,800 options) with 25% of those options and RSUs vesting annually
commencing on December 14, 2022. Service condition was not met as such, RSUs were forfeited, and options expired in accordance with
the RSU and Option Agreement.
37,640 performance-based options and RSUs (23,840 RSUs and 13,800 options):
•
•
Performance condition for 11,920 RSUs and 6,900 options was met during fiscal year 2022. RSUs for vested shares were appropriately
released. Vested and unexercised options expired 3 months subsequent to termination of employment.
Performance condition for 11,920 RSUs and 6,900 options were not met. These awards were unvested as of the date of termination of
the Former CEO’s employment.
75,240 stretch-performance based options and RSUs (47,640 RSUs and 27,600 options). These awards were unvested as of the date of
termination of the Former CEO’s employment.
In accordance with the terms of the RSU Agreement and Option Agreements with the Former CEO, unvested performance-based and market
condition RSUs were forfeited on the date of termination and unvested performance-based and market conditions options expired on the date of
termination. Per the terms of the RSU and Option Agreements, RSUs and options that were granted and are tenure-based only will continue to vest as long
as the Former CEO continues to provide services to the Company as a Board Member. The Former CEO’s term as a Board Member ended on December
12, 2022, and unvested RSUs were forfeited.
Awards to the Board of Directors under the 2021 AGM Awards
The Board of Director awards consist of an aggregate 68,600 options and RSUs as follows:
•
•
41,400 tenure-based options and RSUs (15,300 options and 26,100 RSUs) vesting 12 months from the grant date.
•
6,900 tenure-based options and RSUs (4,350 RSUs and 2,550 options) granted to each of the six non-executive board members based
on the vesting terms detailed above.
27,200 tenure-based options and RSUs (9,850 options and 17,350 RSUs) vesting on the first, second and third anniversary of the grant date
in equal amounts (i.e. 1/3 of the RSUs and options will vest on each anniversary of the grant date, being on December 22 of each relevant
year).
•
13,600 tenure-based options and RSUs (8,675 RSUs and 4,925 options) granted to Jan Stern Reed and James Corbett as an initial grant
in connection with their appointment to the Board of Directors.
2022 AGM Awards
Awards to the CEO under the 2022 AGM Awards
•
On December 12, 2022, the CEO was issued an aggregate 226,296 options with 25% of those options vesting annually commencing on
September 28, 2023.
Awards to the Board of Directors under the 2022 AGM Awards
•
•
The Board of Director awards consist of an aggregate 71,936 options and RSUs (21,580 options and 50,356 RSUs) vesting 12-months from
the grant date.
17,984 tenure-based options and RSUs (12,589 RSUs and 5,359 options) granted to each of the four non-executive board members based on
the vesting terms detailed above.
F-30
Table of Contents
Option Pricing Model
The Company estimates the fair value of tenure-based share options using the Black-Scholes option pricing model on the date of grant. The
Company estimates the fair value of options with a performance condition and market conditions using the Monte-Carlo simulation model.
The valuation of the options is affected by the Company's share price as well as assumptions regarding a number of highly complex and
subjective variables. These variables include, but are not limited to, expected share price volatility over the term of the awards and actual and projected
employee share option exercise behaviors. The risk-free rate is based on the U.S. Treasury rate for the expected life at the time of grant, volatility is based
on the average historical and implied volatility. For tenure-based options, the expected life is based on the estimated average of the life of options using the
simplified method as prescribed by SAB 107. The Company utilizes the simplified method for plain vanilla options to determine the expected life of the
options due to insufficient exercise activity during recent years. For performance or market awards using the Monte Carlo simulation, the Company
estimates the expected term based on a future exercise assumption of 2x the exercise price for rank-and-file employees and 3x the exercise price for
executives. The contractual term of 10 years has been set as the expected term for performance and market awards. The expected dividend assumption is
based on the Company’s history and expectation of dividend payouts.
Included in the following table is a summary of the related assumptions used in the Black-Scholes Option pricing model and Monte-Carlo
simulation for the year-ended December 31, 2022, the transition period ended December 31, 2021, and the year-ended June 30, 2021.
Expected volatility
Weighted-average volatility
Expected dividends
Expected term (in years)
Risk-free interest rate
16. Income Taxes
Year-Ended
December 31, 2022
Transition Period
Ended
December 31, 2021
Year-Ended
June 30, 2021
72% - 113%
68% - 75%
65% - 80%
103%
0%
69%
0%
73%
0%
5 - 9.8
1.42% - 3.94%
5 - 10
0.88% - 1.46%
5 - 10
0.77% - 1.64%
Geographic sources of loss before income taxes are as follows:
(amounts in thousands)
United States
Foreign
Loss before income taxes
Year- Ended
December 31, 2022
Transition Period Ended
December 31, 2021
Year- Ended
June 30, 2021
$
$
(26,764) $
135
(26,629) $
(14,490) $
88
(14,402) $
(26,478)
(67)
(26,545)
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Table of Contents
The income tax expense as shown in the accompanying Consolidated Statements of Operations includes the following:
(amounts in thousands)
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
Total income tax expense
Year-Ended
December 31, 2022
Transition Period Ended
December 31, 2021
Year-Ended
June 30, 2021
$
$
- $
36
-
36
-
-
-
-
36 $
- $
25
-
25
-
-
-
-
25 $
-
38
-
38
-
-
-
-
38
The provision for income taxes differs from the tax computed using the statutory United States federal income tax rate of 21% for the year-ended
December 31, 2022, transition period ended December 31, 2021, and year-ended June 30, 2021 as a result of the following items:
(amounts in thousands)
Tax expense (benefit) at U.S. statutory rate
State income taxes
Foreign rate differential
Share-based compensation
Permanent differences
Net change in valuation allowance
Income tax expense (benefit)
$
$
Year-Ended
December 31, 2022
Transition Period Ended
December 31, 2021
Year-Ended
June 30, 2021
(5,592) $
35
5
719
(30)
4,899
36 $
(3,024) $
25
5
997
29
1,993
25 $
(5,574)
36
(5)
(27)
233
5,375
38
A summary of deferred income tax assets is as follows (in thousands):
Year-Ended
December 31, 2022
Transition Period Ended
December 31, 2021
Year-Ended
June 30, 2021
Deferred tax liabilities
ROU Asset
Intangible assets
Property, plant and equipment
Total deferred tax liabilities
Deferred tax assets
Property, plant and equipment
Accrued expenses
Intangible assets
Stock based compensation
Lease liability
Research and development
Net operating loss carryforward
Other
Total deferred tax assets
Less valuation allowance
Net deferred tax assets
Net deferred tax assets / (liabilities)
$
$
$
$
$
$
(229) $
(11)
-
(240) $
3 $
1,833
—
3,405
247
2,215
48,413
630
56,746 $
(56,506)
240 $
— $
F-32
(404) $
(25)
(5)
(434)
$
— $
1,151
—
2,739
428
—
46,918
483
51,719 $
(51,285)
434 $
— $
(389)
—
(5)
(394)
—
686
262
3,215
415
—
44,282
609
49,469
(49,075)
394
—
Table of Contents
At December 31, 2022, the Company and its subsidiaries had net operating loss carryforwards for federal, state, United Kingdom, and Australia
income tax purposes of $129.5 million, $83.5 million, $28.4 million and $36.0 million respectively. The net operating loss carryforwards may be subject to
limitation regarding their utilization against taxable income in future periods due to “change of ownership” provisions of the Internal Revenue Code and
similar state and foreign provisions. Of these carryforwards, $21.7 million will expire, if not utilized, between 2026 through 2038. The remaining
carryforwards have no expiration.
In assessing the recoverability of its deferred tax assets, the Company considers whether it is more likely than not that its deferred assets will be
realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary
differences become deductible and/or net operating losses can be utilized. The Company considers all positive and negative evidence when determining the
amount of the net deferred tax assets that are more likely than not to be realized. This evidence includes, but is not limited to, historical earnings, scheduled
reversal of taxable temporary differences, tax planning strategies and projected future taxable income. Based upon the weight of available evidence
including the uncertainty regarding the Company’s ability to utilize certain net operating losses and tax credits in the future, the Company has established a
valuation allowance against its net deferred tax assets of $56.5 million and $51.3 million as of December 31, 2022, December 31, 2021, respectively. The
Company has established a valuation allowance against its net deferred tax asset of $49.1 million as of June 30, 2021. The deferred tax assets are primarily
net operating loss carryforwards for which management has determined it is more likely than not that the deferred tax assets will not be realized.
The Company recognizes the tax benefit from an uncertain tax positions only if it is more likely than not that the tax position will be sustained on
examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements
related to a particular tax position are measured based on the largest benefit that has a greater than a 50% likelihood of being realized upon settlement. The
amount of unrecognized tax benefits is adjusted as appropriate for changes in facts and circumstances, such as significant amendments to existing tax law,
new regulations or interpretations by the taxing authorities, new information obtained during a tax examination, or resolution of an examination.
The Company has not identified any uncertain tax positions as of December 31, 2022, December 31, 2021, and June 30, 2021.
The Company files income tax returns in the U.S. federal, California and certain other state and foreign jurisdictions. The Company remains subject
to income tax examinations for its U.S. federal and state income taxes generally for fiscal years ended June 30, 2006 and forward. The Company also
remains subject to income tax examinations for international income taxes for fiscal years ended June 30, 2018 through December 31, 2021, and for certain
other U.S. state and local income taxes generally for the fiscal years ended June 30, 2018 through December 31, 2021.
17. Loss per Share
The following is a reconciliation of the basic and diluted loss per share computations:
Year-Ended
December 31, 2022
Transition Period Ended
December 31, 2021
Year-Ended
June 30, 2021
(in thousands, except per share amounts)
Net Loss
Weighted-average common shares—outstanding, basic
Weighted-average common shares—outstanding, diluted
Net loss per common share, basic
Net loss per common share, diluted
$
$
$
26,665 $
25,000
25,000
1.07 $
1.07 $
14,427 $
24,915
24,915
0.58 $
0.58 $
26,583
22,674
22,674
1.17
1.17
The Company’s basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock
outstanding for the relevant period. In accordance with ASC 710-10, 17,927 shares of common stock held by the rabbi trust are excluded from the
denominator in the basic and diluted EPS calculations. For details on shares of common stock held by the rabbi trust refer to Note 18. For the purposes of
the calculation of diluted net loss per share, options to purchase common stock, restricted stock units and unvested shares of common stock issued upon the
early exercise of stock options have been excluded from the calculation of diluted net loss per share as their effect is anti-dilutive. As the Company has
reported a net loss for all periods presented diluted net loss per common share is the same as the basic net loss per share.
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Table of Contents
18. Retirement Plans
The Company offers a 401(k)-retirement savings plan (the “401(k) Plan”) for its employees, including its executive officers, who satisfy certain
eligibility requirements. The Internal Revenue Code of 1986, as amended, allows eligible employees to defer a portion of their compensation, within
prescribed limits, on a pre-tax basis through contributions to the 401(k) Plan. The Company matches contributions to the 401(k) Plan based on the amount
of salary deferral contributions the participant makes to the 401(k) Plan. The Company will match up to 6% of an employee’s compensation that the
employee contributes to his or her 401(k) Plan account. Total Company matching contributions to the 401(k) Plan were $1,027,000, $966,000, and
$733,000 in the year-ended December 31, 2022, the transition period ended December 31, 2021 and the year-ended June 30, 2021.
Non-qualified deferred compensation plan
The Company’s non-qualified deferred compensation plan (the "NQDC plan"), which became effective on October 2021 allows for eligible
management and highly compensated key employees to elect to defer a portion of their salary, bonus, commissions and RSU awards to later years. Cash
deferrals are immediately vested and are subject to investment risk and a risk of forfeiture under certain circumstances. RSU deferrals are subject to the
vesting conditions of the award. Once RSUs vest, subject to a six-month and one day holding period, employees are allowed to diversify the common stock
into other investment options offered by the plan. For cash deferrals, the Company matches 4% to 6% (depending on level) of employee contributions.
These matching employer contributions are vested over a two-year period with 25% vesting on year one and 75% vesting on year two for employees under
55 years of age. Employer contributions for employees over 55 years of age are immediately vested. Employer contributions to the NQDC plan for the
year-ended December 31, 2022 and the transition period ended December 31, 2021 were $258,000 and $16,000, respectively. The Company’s deferred
compensation plan liability was $1,348,000 and $262,000 as of the year-ended December 31, 2022 and 2021. As of December 31, 2022, the Company has
$1.27 million in non-qualified deferred compensation plan liability and $78,000 in other current liabilities in the Consolidated Balance Sheets. As of
December 31, 2021 amounts are recorded in non-qualified deferred compensation plan liability in the Consolidated Balance Sheets. The Company did not
have a NQDC plan for the year-ended June 30, 2021.
The Company established a COLI to fund the NQDC plan. Amounts in the COLI are invested in a number of funds. The securities are carried at the
cash surrender value on the Consolidated Balance Sheets. We record investment gains and losses of the COLI as other income.
The fair values of the Company’s deferred compensation plan assets and liability are included in the table below. Note that the Company did not
have NQDC plan for the year-ended June 30, 2021. For additional information on the fair value hierarchy and the inputs used to measure fair value, see
Note 5, Fair Value Measurements.
(in thousands)
Corporate-owned life insurance policies (1)
Non-qualified deferred compensation plan liability
Fair Value as of December 31, 2022
Fair Value as of December 31, 2021
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
-
-
1,238
1,348
-
-
1,238
1,348
-
-
304
262
-
-
304
262
(1) The corporate-owned life insurance contracts are recorded at cash surrender value, which is provided by a third party and reflects the net asset value of
the underlying publicly traded mutual funds and are categorized as Level 2.
(2) Non-qualified deferred compensation plan liability is measured at fair value based on quoted prices of identical instruments to the investment vehicles
selected by the participants.
Rabbi Trust
During April 2022, we established a rabbi trust to hold the assets of the NQDC plan. The rabbi trust holds the COLI asset and the common stock
from deferred RSU awards that have vested. The NQDC permits diversification of fully vested shares into other equity securities subject to a six month
and one day holding period. In accordance with ASR 268, Redeemable Preferred Stock, and ASC 718, Compensation — Stock Compensation, prior to
vesting, the deferred share awards are classified as an equity instrument and changes in fair value of the amount owed to the participant are not
recognized. The redemption amounts of the deferred awards are based on the vested percentage and are recorded outside of permanent equity as Non-
qualified deferred compensation share awards on the Consolidated Balance Sheets. As of December 31, 2022, a total of 253,048, shares awards have been
deferred, and during the quarter-ended September 30, 2022, a total of 17,927 awards vested. Vested shares are converted to common stock and are
reclassified to permanent equity. Common stock held in the rabbi trust is classified in a manner similar to treasury stock and presented separately on the
Consolidated Balance Sheets as Common stock held by the NQDC plan. A total of 17,927 shares were vested at the redemption value of $127,000.
F-34
Table of Contents
The following table summarizes the eligible share award activity as of December 31, 2022. There was no activity as of December 31, 2021 and
June 30, 2021.
(in thousands)
Non-qualified deferred compensation share awards:
Balance at inception/beginning of period
Change in classification of deferred compensation share awards
Share-based compensation expense
Change in redemption value
Vesting of share awards held by NDQC
Ending Balance
19. Deed of Cross Guarantee
As of
December 31, 2022
-
192
471
21
(127)
557
The Company (as the parent entity of the AVITA Group) is party to a deed of cross guarantee dated June 29, 2020 (“Deed”) with each of its
Australian wholly-owned subsidiaries, namely:
•
•
•
•
AVITA Medical Pty Ltd (ACN 058 466 523);
C3 Operations Pty Ltd (ACN 090 161 505);
Visiomed Group Pty Ltd (ACN 003 010 580); and
Infamed Pty Limited (ACN 084 800 653),
(together, the “Australian Subsidiaries”).
The Company and the Australian Subsidiaries were the only parties to the Deed at December 31, 2022 and comprise the “closed group” for the
purposes of the Deed (and also the “extended closed group”). No parties were added to or removed from the Deed, or subject to a notice of disposal, during
or since the financial year-ended December 31, 2022. Since December 31, 2022, there has been no change in ownership of any of the Australian
Subsidiaries.
By entering into the Deed, the Company and the Australian Subsidiaries have guaranteed the debts of each other.
Relief under ASIC Corporations (Wholly-owned Companies) Instrument 2016/785
By entering into the Deed, the Australian Subsidiaries have been relieved from the requirement to prepare a financial report and directors’ report for
the financial year-ended December 31, 2022 under ASIC Corporations (Wholly-owned Companies) Instrument 2016/785.
F-35
Table of Contents
Consolidated financial information of parties to the Deed
The financial statements below are additional disclosure items specifically required by the Australian Securities and Investments Commission and
represent the consolidated financial statements of the entities that are party to the Deed only (being the ‘closed group’ and also the ‘extended closed group’
under the Deed).
(in thousands)
Revenues
Cost of sales
Gross profit
Operating Expenses:
Sales and marketing expenses
General and administrative expenses
Product development expense
Total operating expenses
Other Income
Net loss
(in thousands)
ASSETS
Cash
Accounts receivable, net
Prepaids and other current assets
Inventory
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities
Accrued wages and fringe benefits
Other current liabilities
Total liabilities
Contributed equity
Reserves
Accumulated deficit
Total stockholders' equity (deficit)
Total liabilities and stockholders' equity (deficit)
Year-ended
December 31, 2022
As of
December 31, 2022
568
(243)
325
(231)
(14)
(9)
(254)
1
72
337
2
1,440
46
1,825
7
75
1,728
1,810
232,747
31,476
(264,208)
15
1,825
$
$
$
$
20. Subsequent Events
The Company has considered all events occurring subsequent to December 31, 2022, and has concluded that all significant events have been
disclosed in the financial statements and accompanying notes.
F-36
Exhibit 4.1
DESCRIPTION OF COMMON STOCK OF AVITA MEDICAL, INC.
REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934
The following information is a summary of information concerning the common stock, par value $0.0001 per share (the “Common Stock”), of
AVITA Medical, Inc. and does not purport to be complete. This summary is subject to the General Corporation Law of the State of Delaware (the “DGCL”)
and the Company’s certificate of incorporation, as amended (the “Certificate”) and Amended and Restated Bylaws (the “Bylaws”), each of which are
incorporated by reference as an exhibit to this Annual Report on Form 10-K of which this Exhibit 4.1 is a part.
General
The Certificate authorizes the issuance of up to 200,000,000 shares of common stock, $0.0001 par value per share. Our authorized but unissued
shares of Common Stock are available for issuance without further action by our stockholders, unless such action is required by applicable law or the rules
of any stock exchange or automated quotation system on which our securities may be listed or traded.
Voting Rights
Each holder of common stock is entitled to one vote for each share on all matters submitted to a vote of the stockholders, including the election of
directors. The Company’s stockholders do not have cumulative voting rights in the election of directors. Accordingly, in an uncontested election, holders of
a majority of the voting shares are able to elect all of the directors.
Dividends
Holders of the Company’s common stock are entitled to receive dividends, if any, as may be declared from time to time by the Company’s board of
directors out of legally available funds. Dividends may be paid in cash, in property or in shares of common stock. Declaration and payment of any dividend
will be subject to the discretion of the board of directors. The time and amount of dividends will be dependent upon the Company’s financial condition,
operations, cash requirements and availability, debt repayment obligations, capital expenditure needs, restrictions in the Company’s debt instruments,
industry trends, the provisions of Delaware law affecting the payment of distributions to stockholders and any other factors the Board may consider
relevant.
Liquidation
In the event of the Company’s liquidation, dissolution or winding up, holders of the Company’s common stock are entitled to share rateably in the
net assets legally available for distribution to stockholders after the payment of all of the Company’s debts and other liabilities and the satisfaction of any
liquidation preference granted to the holders of any then outstanding shares of preferred stock.
Rights and Preferences
Holders of the Company’s common stock have no pre-emptive, conversion, subscription or other rights, and there are no redemption or sinking
fund provisions applicable to the Company’s common stock. The rights, preferences and privileges of the holders of the Company’s common stock are
subject to and may be adversely affected by the rights of the holders of shares of any series of preferred stock that the Company may designate in the
future.
Fully Paid and Nonassessable
All outstanding shares of the Company’s common stock are fully paid and non-assessable.
Annual Stockholder Meetings
The Certificate and Bylaws provide that annual stockholder meetings will be held at a date, place (if any) and time, as exclusively selected by the
board of directors. To the extent permitted under applicable law, the Company may but is not obligated to conduct meetings by remote communications,
including by webcast.
Anti-Takeover Effects of Provisions of the Certificate and Bylaws and DGCL
Some provisions of the DGCL, the Certificate and Bylaws could make the following transactions difficult: (i) acquisition of the Company by
means of a tender offer; (ii) acquisition of the Company by means of a proxy contest or otherwise; or (iii) removal of incumbent officers and directors of
the Company. It is possible that these provisions could make it more difficult to accomplish or could deter transactions that stockholders may otherwise
consider to be in their best interest or in the best interests of the Company, including transactions that might result in a premium over the market price for
the Company’s common stock.
These provisions, summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are
also designed to encourage persons seeking to acquire control of the Company to first negotiate with the Board.
Delaware Anti-Takeover Statute
The Company is subject to Section 203 of the DGCL, which prohibits persons deemed “interested stockholders” from engaging in a “business
combination” with a publicly-held Delaware corporation for three years following the date these persons become interested stockholders unless the
business combination is, or the transaction in which the person became an interested stockholder was, approved in a prescribed manner or another
prescribed exception applies. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns, or within three years
prior to the determination of interested stockholder status did own, 15% or more of a corporation’s voting stock, and a “business combination” includes a
merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. The existence of this provision may have an
anti-takeover effect with respect to transactions not approved in advance by the board of directors, such as discouraging takeover attempts that might result
in a premium over the market price of the Company’s common stock.
Special Stockholder Meetings
The Bylaws provide that a special meeting of stockholders (1) may be called at any time by the order of a majority of the entire board of directors,
the Chairman of the Board, the Chief Executive Officer or the President (in the absence of a chief executive officer), and (2) shall be called by the Secretary
upon the written request of the holders of record of at least twenty-five percent (25%) of the outstanding shares of common stock of the Company.
Requirements for Advance Notification of Stockholder Nominations and Proposals
The Bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors.
Composition of the Board of Directors; Election and Removal of Directors; Filling Vacancies
The Company’s board of directors consists of one or more directors. In any uncontested elections of directors, a director nominee for the board of
directors of the Company will be elected by the plurality of the votes cast with respect to such director at a meeting at which a quorum is present.
In a contested election, a plurality voting standard will apply to director elections. The directors of the Company are elected until the expiration of
the term for which they are elected and until their respective successors are duly elected and qualified.
The directors of the Company may be removed by the affirmative vote of at least a majority of the holders of the Company’s then- outstanding
common stock. Furthermore, any vacancy on the Company’s board of directors, however occurring, including a vacancy resulting from an increase in the
size of the board, may be filled only by a majority vote of the board of directors then in office, even if less than a quorum, or by the sole remaining director.
Amendment of the Certificate and Bylaws
The Certificate may be amended in any manner permitted under the DGCL and the Bylaws may be amended by the holders of at a majority of the
voting power of the then outstanding voting stock or by the board of directors.
Limitations of Liability and Indemnification Matters
Each of the Certificate and Bylaws provide that the Company is required to indemnify its directors and officers to the fullest extent permitted by
Delaware law. The Bylaws also obligates the Company to advance expenses incurred by a director or officer in advance of the final disposition of any
action or proceeding upon delivery to the Company of an undertaking, by or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision, from which there is no further right to appeal, that such indemnitee is not entitled to be indemnified for
such expenses.
The Company may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent or another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise against any expense, liability or loss, whether or not the Company would have the
power to indemnify such person against such expense, liability or loss under the DGCL.
Listing on the Nasdaq Capital Market
Shares of Common Stock are listed on the Nasdaq Capital Market under the symbol “RCEL.”
Transfer Agent and Registrar
The transfer agent and registrar for Company’s common stock is Computershare Trust Company, N.A. The transfer agent and registrar’s address is
250 Royall St., Canton, Massachusetts 02021.
AVITA MEDICAL, INC.
STOCK OPTION GRANT AGREEMENT
Notice of Stock Option Grant
Exhibit 10.19
AVITA Medical, Inc. (the “Company”) has awarded to you (“Grantee”) an option to purchase up to the number of shares of
Common Stock set forth below (this “Option” or “Grant”).
Grantee Name:
Date of Grant:
Exercise Price per Share:
Number of Shares:
Type of Option:
Country at Grant:
Expiration Date:
Vesting Schedule:
Capitalized terms used but not defined in this Notice of Stock Option Grant (this “Notice”) have the meanings specified in the
attached Option Terms and Conditions (including any appendices and exhibits). The Notice and the Option Terms and Conditions
are collectively referred to as the “Grant Agreement” applicable to this Option.
By accepting this Option (whether electronically or otherwise), Grantee acknowledges and agrees to the following:
1.
This Option is governed by the terms and conditions of this Grant Agreement.
2. Grantee has received a copy of this Grant Agreement, the prospectus (if required under Applicable Law), and the
Trading Policy, and represents that he or she has read these documents and is familiar with their terms. Grantee further
agrees to accept as binding, conclusive, and final all decisions and interpretations of the Committee regarding any
questions relating to this Option.
3. Vesting of this Option is subject to Grantee’s Continuous Service Status as a Director, which is for an unspecified
duration and may be terminated at any time, with or without Cause, and nothing in this Grant Agreement changes the
nature of that relationship.
4.
The Company is not providing any tax, legal, financial or financial product advice, nor is the Company making any
recommendations or statements of opinion that are intended to influence Grantee in making a decision regarding
Grantee’s acceptance of this Grant Agreement. Grantee should consult with his or her own personal independent tax,
legal, and financial advisors regarding this Grant Agreement who are appropriately licensed
1
to give advice as to whether participation in the Grant is appropriate in light of his or her circumstances and to
clarify his or her taxation position in relation to participation in this Grant before taking any action related to this
Grant Agreement.
5.
This Grant, if received in Australia, is made without disclosure to investors in reliance on an applicable exemption
under the Corporations Act 2001 (Cth).
6. Grantee consents to electronic delivery and participation as set forth in this Grant Agreement.
7.
If Grantee does not accept or decline this Option within 30 days of the Date of Grant or by such other date that
may be communicated Grantee by the Company, the Company will accept this Option on Grantee’s behalf and
Grantee will be deemed to have accepted the terms and conditions of this Option and this Grant Agreement. If
Grantee wishes
should promptly notify Donna Shiroma at
dshiroma@avitamedical.com. If Grantee declines this Option, this Option will be cancelled and no benefits from
this Option nor any compensation or benefits in lieu of this Option will be provided to Grantee.
this Option, Grantee
to decline
AVITA Medical, Inc.
By:
Title:
Grantee
Signature:
Date:
2
AVITA MEDICAL, INC.
STOCK OPTION GRANT AGREEMENT
Option Terms and Conditions
1. Grant of Option. Capitalized terms used in the Grant Agreement but not otherwise defined therein will have the
meanings specified in Section 24. Grantee has been granted an Option to purchase up to the number of Shares set forth
in the Notice at the Exercise Price set forth in the Notice. The Exercise Price will be such price as is determined by the
Committee and set forth in the Notice; provided that the Exercise Price will be no less than one hundred percent
(100%) of the Fair Market Value on the date of the Grant. Dividend Equivalent Rights shall not be granted in
connection with this Option.
2. Exercise of Option. This Option is exercisable during its term in accordance with the Vesting Schedule contained in
the Notice and the applicable provisions of the Grant Agreement. Grantee may exercise the vested portion of this
Option only by following the option exercise procedures established by the Administrator and payment of the aggregate
Exercise Price for the Shares to be purchased, together with any applicable Tax-Related Items. This Option will be
deemed exercised only when the Company receives: (a) notice of exercise (in such form as the Administrator may
specify from time to time, including via electronic execution through an authorized third-party administrator) from the
person entitled to exercise the Option; (b) full payment of the applicable Exercise Price in accordance with this Grant
Agreement, and (c) payment of applicable Tax-Related Items, as determined by the Administrator. The Company will
issue (or cause to be issued) such Shares promptly after the Option is exercised subject to the requirements of Section
3. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are
issued, except in connection with a Capitalization Adjustment. Shares acquired pursuant to this Option may be issued
as CDIs and, unless the context otherwise requires, any references in this Grant Agreement to Shares include Shares
that may be issued as CDIs.
This Option may be exercised only with respect to whole Shares. The Administrator may also specify a reasonable
minimum number of Shares that may be purchased on any exercise of the Option, provided that such minimum number
will not prevent Grantee from exercising the Option for the full number of Shares for which it is then exercisable. The
Committee may, or may authorize the Administrator to, prohibit the exercise of the Option during a period of up to
thirty (30) days prior to the consummation of any pending Capitalization Adjustment or Change in Control, or any
other change affecting the Shares or their Fair Market Value, for reasons of administrative convenience.
3
3. Exercise subject to Applicable Law. The exercise of this Option and the issuance of Shares the subject of the Option
shall be subject to compliance by the Company and the Grantee with the Applicable Laws including the Corporations
Act (to the extent applicable). In addition, for so long as the CDIs are listed on the ASX, within 15 business days after
the later of (i) the Option being exercised in compliance with Section 2, and (ii) when excluded information in respect
to the Company (as defined in section 708A(7) of the Corporations Act) (if any) ceases to be excluded information, but
in any case no later than 20 business days after the date on which the Option is exercised in compliance with Section 2,
the Company must:
a.
b.
issue the number of Shares set forth in the notice of exercise; and
unless otherwise agreed by the Company and the Grantee, give ASX a notice in respect of the relevant Shares
to be issued under Section 3 that complies with section 708A(5)(e) of the Corporations Act, or, if the
Company is unable to issue such a notice, lodge with ASIC a prospectus prepared in accordance with the
Corporations Act and do all such things necessary to satisfy section 708A(11) of the Corporations Act to
ensure that an offer for sale of those Shares to be issued under Section 3 does not require disclosure to
investors.
4. Method of Payment. Grantee may always pay the Exercise Price by personal check (or readily available funds), wire
transfer, cashier’s check or by consideration received by the Company pursuant to a broker-assisted or other form of
cashless exercise program implemented by the Administrator in connection with this Grant. The Administrator may
also allow any other method of payment permitted by this Grant Agreement in its discretion at the time of exercise, and
any restrictions deemed necessary or appropriate to facilitate compliance with Applicable Law or administration of this
Grant Agreement (including to avoid the recognition of additional compensation expenses for financial reporting
purposes).
5. Option Term.
a. Maximum Term. This Option will in all events expire at the close of business at Company headquarters on
the Expiration Date specified in the Notice, unless it terminates earlier in connection with the termination of
Grantee’s Continuous Service Status (as provided below) or a Change in Control (as provided below).
b.
Post-Termination Exercise Period. If Grantee’s Continuous Service Status terminates prior to the
Expiration Date of this Option other than for Cause, the unvested portion of this Option will automatically
expire on Grantee’s date of termination, and the vested portion of this Option will remain outstanding and
exercisable for the following periods, unless otherwise determined by the Committee:
i. three (3) months following a termination for any reason other than Cause, Disability, or death;
4
ii. six (6) months following a termination due to Disability; and
iii.twelve (12) months following the date of Grantee’s death, if Grantee dies while in Continuous
Service Status, or during the period provided in clauses (i) or (ii) above.
c. Termination for Cause. If Grantee’s Continuous Service Status is terminated for Cause, this Option will
terminate and be forfeited immediately upon such Grantee’s termination of Continuous Service Status, and
Grantee will be prohibited from exercising any portion (including any vested portion) of this Option on or
after the date of such termination of Continuous Service Status. If Grantee’s Continuous Service Status is
suspended pending an investigation of whether Grantee’s Continuous Service Status will be terminated for
Cause, all of Grantee’s rights under this Option, including the right to exercise such Grants, shall be
suspended during the investigation period.
d. Determination of Termination Date. For the purposes of this Option, Grantee’s Continuous Service Status
will be considered terminated as of the date Grantee is no longer actively providing services to the Company
or one of its Parents, Subsidiaries, or Affiliates (regardless of the reason for such termination and whether or
not later found to be invalid or in breach of employment laws in the jurisdiction where Grantee is employed
or the terms of Grantee’s employment agreement, if any). The Committee shall have the exclusive discretion
to determine when Grantee is no longer actively providing services for the purposes of this Option (including
whether Grantee may still be considered to be providing services while on a leave of absence, provided that
the Grantee’s Continuous Service Status will not be considered terminated in the case of leave taken in
accordance with Applicable Law).
e. No Notice of Option Expiration. Grantee is responsible for keeping track of the Expiration Date and the
post-termination exercise periods following Grantee’s termination of Continuous Service Status for any
reason. The Company is not obligated to provide further notice of such periods. In no event will this Option
be exercised later than the Expiration Date set forth in the Notice.
6. Non-Transferability of Option. This Option may not be transferred in any manner other than by will or by the laws of
descent or distribution or court order and may be exercised during the lifetime of Grantee only by Grantee and after the
Grantee’s death, by the legal representative of the grantee’s heirs or legatees. The terms this Grant Agreement will be
binding upon the executors, administrators, heirs, successors, and assigns of Grantee.
7. New Issues of Shares. While the Company is subject to the ASX Listing Rules, Grantee shall not have the right to
participate in new issues of Shares to existing holders of Shares (e.g. a “rights offering”) with respect to Shares subject
to his or her Option, unless Grantee has exercised the Option and is registered as the holder of the underlying Shares
prior to the record date for the determination of entitlements to participate in the new issue.
5
8. Amendment or Cancellation of Option. While the Company is subject to the ASX Listing Rules:
a. Under no circumstances may the terms of this Option be amended or modified so as to have any of the
following effects unless the amendment or modification is made to comply with the ASX Listing Rules or
unless otherwise permitted by the ASX Listing Rules or by a waiver granted by the ASX: (1) reducing the
Exercise Price of this Option, (2) increasing the period for exercise of this Option, or (3) increasing the
number of Shares received on exercise of this Option. Further, any other amendment or modification to the
terms of this Option (i.e. any amendment or modification that is not prohibited pursuant to the first sentence
of this Section 8a) can only be made with stockholder approval or on the provision of a waiver granted by
ASX from the ASX Listing Rules.
b. Under no circumstances may any amendment or modification be made to the terms of this Option which has
the effect of cancelling the Option unless (1) stockholder approval has been obtained for the cancellation of
the Option, (2) no consideration is provided to Grantee in connection with the cancellation of the Option, or
(3) the amendment or modification is made to comply with the ASX Listing Rules.
The Exercise Price for the Shares to be issued pursuant to the exercise of this Option and / or the number of
Shares over which this Option can be exercised may be changed in accordance with rule 6.22.2, 6.22.2A and
6.22.3 of the ASX Listing Rules.
9. Taxes.
a. Responsibility for Taxes. By accepting this Option, Grantee acknowledges that, regardless of any action
taken by the Company or, if different, any Parent, Subsidiary, or Affiliate that employs Grantee (the
“Employer”), the ultimate liability for all Tax-Related Items is and remains Grantee’s responsibility and may
exceed the amount actually withheld by the Company or the Employer. Grantee further acknowledges that the
Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any
Tax-Related Items in connection with any aspect of this Option, including, but not limited to, the grant,
vesting, or exercise of this Option, the subsequent sale of Shares acquired pursuant to such exercise and the
receipt of any dividends; and (ii) do not commit to and are under no obligation to structure the terms of the
grant or any aspect of this Option to reduce or eliminate Grantee’s liability for Tax-Related Items or achieve
any particular tax result. Further, if Grantee is subject to Tax-Related Items in more than one jurisdiction, as
applicable, Grantee acknowledges that the Company and/or the Employer may be required to withhold or
account for Tax-Related Items in more than one jurisdiction. Grantee agrees to pay to the Company or the
Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold
or account for as a result of Grantee’s acceptance of this Option that cannot be satisfied by the means
described in this Section. The Company may refuse to issue or deliver the Shares or the proceeds of the sale
of
6
Shares, if Grantee fails to comply with Grantee’s obligations in connection with the Tax-Related Items.
b. Withholding. Prior to the relevant taxable or tax withholding event, as applicable, Grantee agrees to make
adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In
this regard, Grantee authorizes the Company or the Employer, or their respective agents, at their discretion, to
satisfy the obligations with regard to all Tax-Related Items by one or a combination of the following:
i. withholding from Grantee’s wages or other cash compensation paid to Grantee by the Company
and/or the Employer or any Parent, Subsidiary, or Affiliate;
ii. withholding from proceeds of the sale of Shares acquired at exercise of this Option either through a
voluntary sale or through a mandatory sale arranged by the Company (on Grantee’s behalf pursuant
to this authorization and without further consent);
iii.withholding Shares to be issued upon exercise of this Option, provided the Company only
withholds a number of Shares necessary to satisfy no more than the withholding amounts
determined based on the maximum permitted statutory rate applicable in Grantee’s jurisdiction;
iv.Grantee’s payment of a cash amount (including by check representing readily available funds or a
wire transfer); or
v. any other arrangement approved by the Committee and permitted under Applicable Law.
Withholding for Tax-Related Items will be made in accordance with this Grant Agreement and such rules and
procedures as may be established by the Administrator, and in compliance with the Trading Policy, if applicable. In the
event the Company or the Employer withholds more than the Tax-Related Items using one of the methods described
above, Grantee may receive a refund of any over-withheld amount in cash but will have no entitlement to the Shares
sold or withheld.
10. Nature of Grant. In accepting this Grant, Grantee acknowledges, understands and agrees that: (a) this Grant
Agreement is established voluntarily by the Company, is discretionary in nature, and may be amended, suspended or
terminated by the Company at any time, to the extent permitted by this Grant Agreement; (b) the grant of this Grant is
voluntary and occasional and does not create any contractual or other right to receive future grants, or benefits in lieu of
grants, even if grants have been made in the past; (c) all decisions with respect to future grants, if any, will be at the
sole discretion of the Company; (d) Grantee is voluntarily accepting this Grant Agreement; (e) this Grant and the
Shares allocated to this Grant are not intended to replace any pension rights or compensation and are outside the scope
of Grantee’s employment contract, if any; (f) this Grant and the Shares allocated to this Grant, and the income and
value of same, are not part of normal or expected
7
compensation for any purpose, including, without limitation, calculating any severance, resignation, termination,
redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare
benefits or similar payments; (g) unless otherwise provided in this Grant Agreement or by the Company in its
discretion, this Grant and the benefits evidenced by this Grant Agreement do not create any entitlement to have this
Grant or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or
substituted for, in connection with any corporate transaction affecting the Shares; and (h) neither the Company nor any
of its Affiliates shall be liable for any foreign exchange rate fluctuation between Grantee’s local currency and the
United States Dollar or the selection by the Company or any one of its Affiliates in its sole discretion of an applicable
foreign exchange rate that may affect the value of this Grant (or the calculation of income or Tax-Related Items
thereunder) or of any amounts due to Grantee pursuant to the settlement of this Grant or the subsequent sale of the
Shares allocated to this Grant.
11. Code Section 409A. It is intended that the terms of this Option will not result in the imposition of any tax liability
pursuant to Section 409A of the Code, and this Grant Agreement shall be construed and interpreted consistent with that
intent. In no event will the Grantee have a right to payment or reimbursement or otherwise from the Company or its
Affiliates, or their successors or assigns, for any taxes imposed or other costs incurred as a result of Section 409A of the
Code.
12. Data Privacy. Grantee hereby explicitly and unambiguously consents to the collection, use and transfer, in
electronic or other form, of Grantee’s personal data as described in this Grant Agreement and any other grant
materials by and among the Company and its Affiliates for the purpose of implementing, administering and
managing Grantee’s Grant. Grantee understands that the Company and its Affiliates may hold certain personal
information about Grantee, including, but not limited to, Grantee’s name, home address and telephone number, date
of birth, social insurance number or other identification number, salary, nationality, job title, any Shares or
directorships held in the Company, details of all grants, or any other entitlement to Shares awarded, canceled,
exercised, vested, unvested or outstanding in Grantee’s favor (“Data”), for the purpose of implementing,
administering and managing this Grant Agreement. Grantee understands that Data will be transferred to such stock
plan service provider as may be selected by the Company, presently or in the future, which may be assisting the
Company with the implementation, administration and management of this Grant Agreement. Grantee understands
that the recipients of the Data may be located in the United States or elsewhere, and that the recipient’s country
(e.g., the United States) may have different data privacy laws and protections than Grantee’s country. Grantee
authorizes the Company, the stock plan service provider as may be selected by the Company, and any other possible
recipients which may assist the Company, presently or in the future, with implementing, administering and
managing this Grant Agreement to receive, possess, use, retain and transfer the Data, in electronic or other form,
for the purposes of implementing, administering and managing Grantee’s Grant. Further, Grantee understands that
he or she is providing the consents herein on a purely voluntary basis. If Grantee does not consent, or if Grantee
later seeks to revoke his or her consent, or instructs the Company to cease the processing of the Data, his or her
Continuous Service
8
Status will not be adversely affected; the only adverse consequence of refusing or withdrawing Grantee’s consent or
instructing the Company to cease processing, is that the Company would not be able to grant Grantee Grant, Awards
or any other equity awards or administer or maintain such awards. Therefore, Grantee understands that refusing or
withdrawing his or her consent may affect Grantee’s ability to receive or retain this Grant. For more information on
the consequences of Grantee’s refusal to consent or withdrawal of consent, Grantee understands that he or she may
contact his or her local human resources representative. Further, Grantee consents to disclosure of Data to the
Australian Tax Office, where required in accordance with the Company’s or relevant Affiliate’s reporting
obligations under Australian tax legislation. Grantee acknowledges that he or she can access further information
regarding data privacy in the Company’s Privacy Policy (which is available on the Company’s website), including
about how Grantee can access and seek correction of his or her personal information and make a complaint if he or
she has any concerns regarding the treatment of Data.
13. Governing Law and Venue. This Grant Agreement shall be governed by and construed and interpreted in accordance
with the laws of the State of Delaware, without giving effect to principles of conflicts of law. For the purposes of
litigating any dispute that arises directly or indirectly from the relationship of the parties evidenced by this Grant or this
Grant Agreement, the parties hereby submit to the exclusive jurisdiction of the State of Delaware and agree that such
litigation shall be conducted only in the state or the federal courts located in such State, and no other courts, where this
Grant is made and/or to be performed.
14. Entire Agreement; Enforcement of Rights; Amendment. This Grant Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter herein and supersedes all prior or contemporaneous
discussions, agreements, commitments, negotiations and arrangements between them. Except as contemplated by this
Grant Agreement, no modification of or amendment to this Grant Agreement, nor any waiver of any rights under this
Grant Agreement, shall be effective unless in writing signed by the parties to this Grant Agreement to the extent it
would materially impair the rights of Grantee. The failure by either party to enforce any rights under this Grant
Agreement shall not be construed as a waiver of any rights of such party. Notwithstanding anything to the contrary in
this Grant Agreement but subject to Applicable Law, the Company reserves the right to revise this Grant Agreement as
it deems necessary or advisable, in its sole discretion and without the consent of Grantee, to comply with Section 409A
of the Code or to otherwise avoid imposition of any additional tax or income recognition or costs under Section 409A
of the Code in connection with this Grant.
15. Severability. If one or more provisions of this Grant Agreement are held to be unenforceable under Applicable Laws,
the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (a) such provision shall be excluded from this Grant
Agreement, (b) the balance of this Grant Agreement shall be interpreted as if such provision were so excluded, and (c)
the balance of this Grant Agreement shall be enforceable in accordance with its terms.
9
16. Language. If Grantee has received this Grant Agreement or any other document related to this Grant translated into a
language other than English and if the meaning of the translated version is different than the English version, the
English version will control.
17. Imposition of Other Requirements. The Company reserves the right to impose other requirements on this Option and
on any Shares purchased upon exercise of this Option, to the extent the Company determines it is necessary or
advisable for legal or administrative reasons, and to require Grantee to accept any additional agreements or
undertakings that may be necessary to accomplish the foregoing. This Grant will be subject to clawback or recoupment
under any clawback or recoupment policy adopted by the Board or the Committee in compliance with Applicable Law
or required by Applicable Law during the term of Grantee’s employment or other service with the Company that is
applicable to Officers, Employees, Directors or other service providers of the Company. No recovery of compensation
under such a clawback or recoupment policy will be an event giving rise to a right to voluntarily terminate employment
upon a “resignation for good reason,” or for a “constructive termination” or any similar term under any plan or
agreement with the Company.
18. Notices. Any notice, demand or request required or permitted to be given under this Grant Agreement shall be in
writing and shall be deemed sufficient when delivered personally or by overnight courier or sent by email or fax, or
forty-eight (48) hours after being deposited in the U.S. mail or a comparable foreign mail service, as certified or
registered mail with postage or shipping charges prepaid, addressed to the party to be notified at such party’s address as
set forth on the signature page, as subsequently modified by written notice, or if no address is specified on the signature
page, at the most recent address, email or fax number set forth in the Company’s books and records.
19. Counterparts. This Grant Agreement may be executed in two or more counterparts, each of which shall be deemed an
original and all of which together shall constitute one instrument. Facsimile, email or other electronic execution and
delivery of this Grant Agreement (including but not limited to execution by electronic signature or click-through
electronic acceptance) shall constitute valid and binding execution and delivery for all purposes and shall be deemed to
be, and have the effect of, an original signature.
20. Successors and Assigns. The rights and benefits of this Grant Agreement shall inure to the benefit of, and be
enforceable by, the Company’s successors and assigns.
21. Consent to Electronic Delivery and Participation. By accepting this Option, Grantee agrees to participate through an
on-line or electronic system established and maintained by the Company or a third party designated by the Company,
and consents to the electronic delivery of the Grant Agreement, account statements, prospectuses (if any), and all other
documents, communications, or information related to this Option. Electronic delivery may include the delivery of a
link to the Company intranet or the internet site of a third party involved in administering the Grant, the delivery of the
document via e-mail or such other delivery determined at the Company’s discretion. Grantee acknowledges that
Grantee may receive from the Company a paper copy of any documents delivered electronically at no cost if Grantee
contacts the Company by telephone, through a postal service, or electronic mail to Stock Administration.
10
22. Adjustment of Shares. If the number of outstanding Shares is changed or the value of the Shares is otherwise affected
by a stock dividend, extraordinary dividend or distribution (whether in cash, shares or other property, other than a
regular cash dividend), recapitalization, stock split, reverse stock split, subdivision, combination, consolidation,
reclassification, spin-off or similar change in the capital structure of the Company or any similar equity restructuring
transaction, as that term is used in Statement of Financial Accounting Standards Board Accounting Standards
Codification Topic 718 (or any successor thereto), without consideration (a “Capitalization Adjustment”), then the
maximum number and class of Shares or type of security reserved for issuance and the Exercise Price and number and
class of Shares or type of security subject to this Grant, will, subject to any required action by the Board or the
stockholders of the Company and subject to compliance with, and to the extent permitted by, all Applicable Laws be
proportionately adjusted or adjusted in such other manner as the Committee determines to be equitably required;
provided that fractions of a Share will not be issued. In this respect, where the ASX Listing Rules apply, the Committee
shall make such adjustments as are necessary and in accordance with the ASX Listing Rules to the number, class or
type of Shares or securities that are subject to the Grant or the Exercise Price of the Grant and such other adjustments as
are appropriate in the discretion of the Committee and in accordance with the ASX Listing Rules. Such adjustments
may provide for the elimination of fractional Shares that may otherwise be subject to Grants without any payment
therefor.
23. Change in Control. In the event that the Company is subject to a Change in Control, any unvested portion of the
Option outstanding as of immediately prior to the Change in Control shall vest in full as of the Change in Control.
24. Definitions. As used in this Grant Agreement, the following definitions will apply to the capitalized terms indicated
below:
“Administrator” means one or more Officers or Employees designated by the Committee to administer this Grant
Agreement and the Company’s other equity incentive programs.
“Affiliate” means a Parent, a Subsidiary or any corporation or other Entity that, directly or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control with, the Company.
“Applicable Law” means any applicable securities, federal, state, foreign, material local or municipal or other law,
statute, constitution, principle of common law, resolution, ordinance, code, edict, decree, rule, listing rule, regulation,
judicial decision, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect
by or under the authority of any governmental or regulatory body or self-regulatory organization (including the New
York Stock Exchange, the ASX, Nasdaq Stock Market and the Financial Industry Regulatory Authority). For clarity, at
all times while the Company’s securities are admitted to the official list of the ASX, this definition includes the ASX
Listing Rules.
“ASIC” means the Australian Securities and Investments Commission.
11
“ASX” means the ASX Limited (ABN 98 008 624 691), or the securities market which it operates, as the context
requires.
“ASX Listing Rules” means the official listing rules of the ASX.
“Board” means the Board of Directors of the Company.
“Cause” will have the meaning ascribed to such term in any written agreement between the Grantee and the Company
defining such term and, in the absence of such agreement, such term means, with respect to a Grantee, the occurrence
of any of the following events: (a) Grantee’s unauthorized misuse of the Company’s trade secrets or proprietary
information; (b) Grantee’s conviction of or plea of nolo contendere to a felony or a crime involving moral turpitude; (c)
Grantee’s committing an act of fraud against the Company; or (d) Grantee’s gross negligence or willful misconduct in
the performance of his or her duties that has had or is likely to have a material adverse effect on the Company. For the
purposes of this definition, the term “Company” will be interpreted to include any Subsidiary, Parent or Affiliate of the
Company, as appropriate.
“CDI” means a CHESS Depositary Interest, being a unit of beneficial ownership in 1/5 of a share of Common Stock in
the Company or such other ratio as may be adopted by the Company from time to time.
“Change in Control” means:
a.
b.
c.
d.
the consummation of any consolidation or merger of the Company with any other entity, other than a
transaction which would result in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted into voting securities of the
surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting
securities of the Company or such surviving entity or its parent outstanding immediately after such
consolidation or merger;
any Exchange Act Person becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act),
directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the total
voting power represented by the Company’s then-outstanding voting securities; provided, however, that for
the purposes of this subclause (b) the acquisition of additional securities by any one Person who is considered
to own more than fifty percent (50%) of the total voting power of the securities of the Company will not be
considered a Change in Control;
the consummation of the sale or disposition by the Company of all or substantially all of the Company’s
assets, except where such sale, lease, transfer or other disposition is made to the Company or one or more
wholly owned Subsidiaries of the Company; or
a change in the effective control of the Company that occurs on the date that a majority of members of the
Board is replaced during any twelve (12) month period by members of the Board whose appointment or
election is not endorsed by a
12
majority of the members of the Board prior to the date of the appointment or election. For purpose of this
subclause (d), if any Person is considered to be in effective control of the Company, the acquisition of
additional control of the Company by the same Person will not be considered a Change in Control.
For purposes of this definition, Persons will be considered to be acting as a group if they are owners of an Entity that
enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company.
“Code” means the U.S. Internal Revenue Code of 1986, as amended, including any applicable regulations and guidance
thereunder.
“Committee” means the Compensation Committee of the Board or the Board acting as the Compensation Committee.
“Common Stock” means the common stock of the Company, and the common stock of any successor entity.
“Company” means AVITA Medical, Inc., a Delaware corporation, or any successor corporation.
“Consultant” means any natural person, including an advisor or independent contractor, that is engaged to render
services to the Company or an Affiliate.
“Continuous Service Status” means continued service as a Director. The Committee or the Administrator, in that
party’s sole discretion, shall determine whether a Grantee’s Continuous Service Status has ceased and the effective date
of such termination.
“Corporations Act” means the Australian Corporations Act 2001 (Cth).
“Director” means a member of the Board.
“Disability” means that the Grantee is unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment. The determination of whether an individual has a Disability shall be
determined under procedures established by the Committee. The Committee may rely on any determination that a
Grantee is disabled for purposes of benefits under any long-term disability plan maintained by the Company or any
Affiliate in which a Grantee participates.
“Dividend Equivalent Right” means the right of a Grantee, granted at the discretion of the Committee or as otherwise
provided by the Grant Agreement, to receive a credit for the account of such Grantee in an amount equal to the cash,
stock or other property dividends in amounts equivalent to cash, stock or other property dividends for each Share
represented by a Grant held by such Grantee.
“Effective Date” means the date the Grant Agreement is approved by the stockholders of the Company.
13
“Employee” means any person employed by the Company, or any Affiliate, with the status of employment determined
pursuant to such factors as are deemed appropriate by the Administrator in its sole discretion, subject to any
requirements of Applicable Law, including the Code. Service as a Director or payment by the Company or an Affiliate
of a director’s fee shall not be sufficient to constitute “employment” of such Director by the Company or any Affiliate.
“Entity” means a corporation, partnership, limited liability company or other entity.
“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“Exchange Act Person” means any natural person, Entity or “group” (within the meaning of Section 13(d) or 14(d) of
the Exchange Act), except that “Exchange Act Person” will not include (i) the Company or any Subsidiary of the
Company, (ii) any employee benefit plan of the Company or any Subsidiary of the Company or any trustee or other
fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary of the Company, (iii) an
underwriter temporarily holding securities pursuant to a registered public offering of such securities, (iv) an Entity
owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company; or (v) any natural person, Entity or “group” (within the meaning of Section 13(d)
or 14(d) of the Exchange Act) that, as of the Effective Date, is the owner, directly or indirectly, of securities of the
Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding
securities.
“Exercise Price” means, with respect to an Option, the price per Share at which a holder may purchase the Shares
issuable upon exercise of an Option.
“Fair Market Value” means, as of any date, the per Share value of the Common Stock determined as follows:
a.
b.
If such Common Stock is publicly traded and is then listed on a national securities exchange in the United
States, its closing price on the date of determination on the principal national securities exchange on which
the Common Stock is listed or admitted to trading as reported in The Wall Street Journal or such other source
as the Administrator deems reliable, unless another method is approved by the Committee and subject to
compliance with Applicable Law (including Section 409A of the Code).
If such Common Stock is publicly traded and is only listed on the official list of the ASX in the form of CDIs,
the closing price of a CDI as reported on the ASX on such date, adjusted as necessary to reflect the CDI / per
Share of Common Stock ratio, or if CDIs are not traded on the ASX on such date, then on the next preceding
day that CDIs are traded on the ASX, as reported on the ASX on such date unless another method is approved
by the Committee and subject to compliance with Applicable Law (including Section 409A of the Code).
14
c.
If such Common Stock is publicly traded but neither listed nor admitted to trading on a national securities
exchange in the United States or the ASX, the average of the closing bid and asked prices on the date of
determination as reported in The Wall Street Journal or such other source as the Administrator deems reliable.
d.
If none of the foregoing is applicable, by the Board or the Committee in good faith (and in accordance with
Section 409A of the Code, as applicable).
“Nonstatutory Stock Option” means any Option that does not qualify as an Incentive Stock Option.
“Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act.
“Option” means a contract right to purchase Shares at a fixed Exercise Price per Share, subject to certain conditions, if
applicable, granted pursuant to this Grant Agreement.
“Parent” means any corporation (other than the Company) in an unbroken chain of corporations ending with the
Company if each of such corporations other than the Company owns stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other corporations in such chain.
“Shares” means shares of Common Stock.
“Subsidiary” means any corporation (other than the Company) in an unbroken chain of Entities beginning with the
Company if each of the corporation other than the last corporation in the unbroken chain owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporation in such
chain.
“Tax-Related Items” means all income tax, social insurance, payroll tax, fringe benefits tax, payment on account,
employment tax, stamp tax or other tax-related items related to the Options and legally applicable to the Grantee,
including any employer liability for which the Grantee is liable.
“Trading Policy” means the Company’s policy permitting certain individuals to sell Company shares only during
certain “window” periods and/or otherwise restricts the ability of certain individuals to transfer or encumber shares of
the Company’s capital stock, as in effect from time to time.
15
AVITA MEDICAL, INC.
RESTRICTED STOCK UNIT GRANT AGREEMENT
Notice of Restricted Stock Unit Grant
Exhibit 10.20
AVITA Medical, Inc. (the “Company”) has awarded to you (“Grantee”) restricted stock units (“Restricted Stock Units”)
covering the number of shares of Common Stock set forth below (the “Restricted Stock Unit Grant” or “Grant”).
Grantee Name:
Date of Grant:
Number of Restricted Stock Units:
Country at Grant:
Vesting Schedule:
Capitalized terms used but not defined in this Notice of Restricted Stock Unit Grant (this “Notice”) have the meanings specified
in the attached Restricted Stock Unit Terms and Conditions (including any appendices and exhibits attached thereto). The Notice
and the Restricted Stock Unit Terms and Conditions are collectively referred to as the “Grant Agreement” applicable to the
Restricted Stock Units.
By accepting (whether electronically or otherwise) the Restricted Stock Unit Grant, Grantee acknowledges and agrees to the
following:
1.
The Restricted Stock Unit Grant is governed by the terms and conditions of this Grant Agreement.
2. Grantee has received a copy of this Grant Agreement, the prospectus (if required under Applicable Law), and the
Trading Policy, and represents that he or she has read these documents and is familiar with their terms. Grantee further
agrees to accept as binding, conclusive, and final all decisions and interpretations of the Committee regarding any
questions relating to the Restricted Stock Unit Grant.
3. Vesting of the Restricted Stock Units is subject to Grantee’s Continuous Service Status as a Director, which is for an
unspecified duration and may be terminated at any time, with or without Cause, and nothing in this Grant Agreement
changes the nature of that relationship.
4.
The Company is not providing any tax, legal, financial or financial product advice, nor is the Company making any
recommendations or statements of opinion that are intended to influence Grantee in making a decision regarding
Grantee’s acceptance of this Grant Agreement. Grantee should consult with his or her own personal independent tax,
legal,
1
and financial advisors regarding this Grant Agreement who are appropriately licensed to give advice as to whether
participation in the Grant is appropriate in light of his or her circumstances and to clarify his or her taxation
position in relation to participation in this Restricted Stock Unit Grant before taking any action related to this Grant
Agreement.
5.
This Restricted Stock Unit Grant, if received in Australia, is made without disclosure to investors in reliance on an
applicable exemption under the Corporations Act 2001 (Cth).
6. Grantee consents to electronic delivery and participation as set forth in this Grant Agreement.
7.
If Grantee does not accept or decline this Restricted Stock Unit Grant within 30 days of the Date of Grant or by
such other date that may be communicated to Grantee by the Company, the Company will accept this Restricted
Stock Unit Grant on Grantee’s behalf and Grantee will be deemed to have accepted the terms and conditions of
the Restricted Stock Units set forth in this Grant Agreement. If Grantee wishes to decline this Restricted Stock
Unit Grant, Grantee should promptly notify Donna Shiroma at dshiroma@avitamedical.com. If Grantee
declines this Restricted Stock Unit Grant, the Restricted Stock Units will be cancelled and no benefits from the
Restricted Stock Units nor any compensation or benefits in lieu of the Restricted Stock Units will be provided to
Grantee.
AVITA Medical, Inc.
By:
Title:
Grantee
Signature:
Date:
2
AVITA MEDICAL, INC.
RESTRICTED STOCK UNIT GRANT AGREEMENT
Restricted Stock Unit Terms and Conditions
1. Grant of Restricted Stock Units. Capitalized terms used in the Grant Agreement but not otherwise defined therein
will have the meanings specified in Section 22. A Restricted Stock Unit is a non-voting unit of measurement which is
deemed solely for bookkeeping purposes to be equivalent to one outstanding share of Common Stock (a “Share”). The
Restricted Stock Units are used solely as a device to determine the number of Shares to eventually be issued to Grantee
if such Restricted Stock Units vest. The Restricted Stock Units shall not be treated as property or as a trust fund of any
kind.
2.
Settlement. Subject to Section 3, on or as soon as administratively practical (and within 20 business days) following
the applicable date of vesting under the Vesting Schedule set forth in the Notice (a “Vesting Date”), the Company will
deliver to Grantee a number of Shares (either by delivering one or more certificates for such Shares or by entering such
Shares in book entry form, as determined by the Company in its discretion) equal to the number of Restricted Stock
Units subject to the Restricted Stock Unit Grant that vest on the applicable Vesting Date, subject to the satisfaction of
any applicable withholding obligations for Tax-Related Items. No fractional Restricted Stock Units or rights for
fractional Shares shall be created pursuant to this Grant Agreement. Shares acquired pursuant to this Grant may be
issued as CDIs and, unless the context otherwise requires, any references in this Grant Agreement to Shares include
Shares that may be issued as CDIs.
3. Delivery of Shares subject to Applicable Law. The delivery of Shares to the Grantee in accordance with Section 2
shall be subject to compliance by the Company and the Grantee with the Applicable Laws including the Corporations
Act (to the extent applicable). In addition, for so long as the CDIs are listed on the ASX, within 15 business days after
the later of (i) the Vesting Date, and (ii) when excluded information in respect of the Company (as defined in section
708A(7) of the Corporations Act) (if any) ceases to be excluded information, but in any case no later than 20 business
days after the Vesting Date, the Company must:
a.
b.
deliver the applicable Shares in accordance with Section 2; and
unless otherwise agreed by the Company and the Grantee, give ASX a notice in respect of the relevant Shares
to be delivered under Section 2 that complies with section 708A(5)(e) of the Corporations Act, or, if the
Company is unable to issue such a notice, lodge with ASIC a prospectus prepared in accordance with the
Corporations Act and do all things necessary to satisfy section 708A(11) of the Corporations Act to ensure
that an offer for sale of those Shares delivered in accordance with Section 2 does not require disclosure to
investors.
3
4. Dividend and Voting Rights. Unless and until such time as Shares are issued in settlement of vested Restricted Stock
Units, Grantee will have no ownership of the Shares allocated to the Restricted Stock Units, and will have no rights to
vote such Shares and no rights to dividends.
5. Non-Transferability of Restricted Stock Units. The Restricted Stock Units and any interest therein must not be sold,
assigned, transferred, pledged, hypothecated, or otherwise disposed of in any manner other than by will or by the laws
of descent or distribution or court order. The terms of this Grant Agreement will be binding upon the executors,
administrators, heirs, successors, and assigns of Grantee.
6. Termination. If Grantee’s Continuous Service Status terminates for any reason, all unvested Restricted Stock Units
will be forfeited to the Company, and all rights of Grantee to such Restricted Stock Units will immediately terminate
without payment of any consideration to Grantee. The Committee shall have the exclusive discretion to determine
when Grantee is no longer actively providing services for the purposes of this Restricted Stock Unit Grant (including
whether Grantee may still be considered to be providing services while on a leave of absence, provided that the
Grantee’s Continuous Service Status will not be considered terminated in the case of leave taken in accordance with
Applicable Law).
7. Taxes.
a. Responsibility for Taxes. By accepting this Restricted Stock Unit Grant, Grantee acknowledges that,
regardless of any action taken by the Company or, if different, any Parent, Subsidiary, or Affiliate that
employs Grantee (the “Employer”), the ultimate liability for all Tax-Related Items is and remains Grantee’s
responsibility and may exceed the amount actually withheld by the Company or the Employer. Grantee
further acknowledges that the Company and/or the Employer (i) make no representations or undertakings
regarding the treatment of any Tax-Related Items in connection with any aspect of the Restricted Stock Unit
Grant, including, but not limited to, the grant, vesting, or settlement of the Restricted Stock Unit Grant, the
subsequent sale of Shares acquired pursuant to such settlement, and the receipt of any dividends; and (ii) do
not commit to and are under no obligation to structure the terms of the grant or any aspect of the Restricted
Stock Unit Grant to reduce or eliminate Grantee’s liability for Tax-Related Items or achieve any particular tax
result. Further, if Grantee is subject to Tax-Related Items in more than one jurisdiction, as applicable, Grantee
acknowledges that the Company and/or the Employer may be required to withhold or account for Tax-
Related Items in more than one jurisdiction. Grantee agrees to pay to the Company or the Employer any
amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for
as a result of Grantee’s acceptance of this Grant that cannot be satisfied by the means described in this
Section. The Company may refuse to issue or deliver the Shares, or the proceeds of the sale of Shares, if
Grantee fails to comply with Grantee’s obligations in connection with the Tax-Related Items.
4
b. Withholding. Prior to the relevant taxable or tax withholding event, as applicable, Grantee agrees to make
adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In
this regard, Grantee authorizes the Company or the Employer, or their respective agents, at their discretion, to
satisfy the obligations with regard to all Tax-Related Items by one or a combination of the following:
i. withholding from Grantee’s wages or other cash compensation paid to Grantee by the Company
and/or the Employer or any Parent, Subsidiary, or Affiliate;
ii. withholding from proceeds of the sale of Shares acquired on settlement of the Restricted Stock
Units either through a voluntary sale or through a mandatory sale arranged by the Company (on
Grantee’s behalf pursuant to this authorization and without further consent);
iii.withholding Shares to be issued upon settlement of the Restricted Stock Units, provided the
Company only withholds a number of Shares necessary to satisfy no more than the withholding
amounts determined based on the maximum permitted statutory rate applicable in Grantee’s
jurisdiction;
iv.Grantee’s payment of a cash amount (including by check representing readily available funds or a
wire transfer); or
v. any other arrangement approved by the Committee and permitted under Applicable Law.
Withholding for Tax-Related Items will be made in accordance with this Grant Agreement and such rules and
procedures as may be established by the Administrator, and in compliance with the Trading Policy, if applicable. In the
event the Company or the Employer withholds more than the Tax-Related Items using one of the methods described
above, Grantee may receive a refund of any over-withheld amount in cash but will have no entitlement to the Shares
sold or withheld.
8. Nature of Grant. In accepting this Grant, Grantee acknowledges, understands and agrees that: (a) this Grant
Agreement is established voluntarily by the Company, is discretionary in nature, and may be amended, suspended or
terminated by the Company at any time, to the extent permitted by this Grant Agreement; (b) the grant of this Grant is
voluntary and occasional and does not create any contractual or other right to receive future grants, or benefits in lieu of
grants, even if grants have been made in the past; (c) all decisions with respect to future grants, if any, will be at the
sole discretion of the Company; (d) Grantee is voluntarily accepting this Grant Agreement; (e) this Grant and the
Shares allocated to this Grant are not intended to replace any pension rights or compensation and are outside the scope
of Grantee’s employment contract, if any; (f) this Grant and the Shares allocated to this Grant, and the income and
value of same, are not part of normal or expected compensation for any purpose, including, without limitation,
calculating any severance,
5
resignation, termination, redundancy, dismissal, end-of- service payments, bonuses, long-service awards, pension or
retirement or welfare benefits or similar payments; (g) unless otherwise provided in this Grant Agreement or by the
Company in its discretion, this Grant and the benefits evidenced by this Grant Agreement do not create any entitlement
to have this Grant or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out
or substituted for, in connection with any corporate transaction affecting the Shares; and (h) neither the Company nor
any of its Affiliates shall be liable for any foreign exchange rate fluctuation between Grantee’s local currency and the
United States Dollar or the selection by the Company or any one of its Affiliates in its sole discretion of an applicable
foreign exchange rate that may affect the value of this Grant (or the calculation of income or Tax-Related Items
thereunder) or of any amounts due to Grantee pursuant to the settlement of this Grant or the subsequent sale of the
Shares allocated to this Grant.
9. Code Section 409A. It is intended that the terms of the Restricted Stock Unit Grant will not result in the imposition of
any tax liability pursuant to Section 409A of the Code, and this Grant Agreement shall be construed and interpreted
consistent with that intent. To the extent that any amount constituting deferred compensation under Section 409A of the
Code would become payable under this Grant Agreement by reason of a Change in Control, such amount shall become
payable only if the event constituting a Change in Control would also qualify as a change in ownership or effective
control of the Company or a change in the ownership of a substantial portion of the assets of the Company within the
meaning of Code Section 409A. If the Restricted Stock Unit Grant constitutes deferred compensation under Section
409A of the Code and the Grantee is a specified employee within the meaning of Section 409A of the Code, no
distribution or payment of any amount that is payable because of a separation from service (as defined in Section 409A
of the Code without regard to alternative definitions thereunder) will be issued or paid before the date that is six months
following the date of such Grantee’s separation from service or, if earlier, the date of the Grantee’s death, unless such
distribution or payment can be made in a manner that complies with Section 409A of the Code, and any amounts so
deferred will be paid in a lump sum on the day after such six month period elapses, with the balance paid thereafter on
the original schedule. Each payment payable under this Grant Agreement is intended to constitute a separate payment
for purposes of Treasury Regulation Section 1.409A-2(b)(2). In no event will the Grantee have a right to payment or
reimbursement or otherwise from the Company or its Affiliates, or their successors or assigns, for any taxes imposed or
other costs incurred as a result of Section 409A of the Code.
10. Data Privacy. Grantee hereby explicitly and unambiguously consents to the collection, use and transfer, in
electronic or other form, of Grantee’s personal data as described in this Grant Agreement and any other grant
materials by and among the Company and its Affiliates for the purpose of implementing, administering and
managing Grantee’s Grant. Grantee understands that the Company and its Affiliates may hold certain personal
information about Grantee, including, but not limited to, Grantee’s name, home address and telephone number, date
of birth, social insurance number or other identification number, salary, nationality, job title, any Shares or
directorships held in the Company, details of all grants, or any other entitlement to Shares awarded, canceled,
6
exercised, vested, unvested or outstanding in Grantee’s favor (“Data”), for the purpose of implementing,
administering and managing this Grant Agreement. Grantee understands that Data will be transferred to such stock
plan service provider as may be selected by the Company, presently or in the future, which may be assisting the
Company with the implementation, administration and management of this Grant Agreement. Grantee understands
that the recipients of the Data may be located in the United States or elsewhere, and that the recipient’s country
(e.g., the United States) may have different data privacy laws and protections than Grantee’s country. Grantee
authorizes the Company, the stock plan service provider as may be selected by the Company, and any other possible
recipients which may assist the Company, presently or in the future, with implementing, administering and
managing this Grant Agreement to receive, possess, use, retain and transfer the Data, in electronic or other form,
for the purposes of implementing, administering and managing Grantee’s Grant. Further, Grantee understands that
he or she is providing the consents herein on a purely voluntary basis. If Grantee does not consent, or if Grantee
later seeks to revoke his or her consent, or instructs the Company to cease the processing of the Data, his or her
Continuous Service Status will not be adversely affected; the only adverse consequence of refusing or withdrawing
Grantee’s consent or instructing the Company to cease processing, is that the Company would not be able to grant
Grantee Grant, Awards or any other equity awards or administer or maintain such awards. Therefore, Grantee
understands that refusing or withdrawing his or her consent may affect Grantee’s ability to receive or retain this
Grant. For more information on the consequences of Grantee’s refusal to consent or withdrawal of consent,
Grantee understands that he or she may contact his or her local human resources representative. Further, Grantee
consents to disclosure of Data to the Australian Tax Office, where required in accordance with the Company’s or
relevant Affiliate’s reporting obligations under Australian tax legislation. Grantee acknowledges that he or she can
access further information regarding data privacy in the Company’s Privacy Policy (which is available on the
Company’s website), including about how Grantee can access and seek correction of his or her personal
information and make a complaint if he or she has any concerns regarding the treatment of Data.
11. Governing Law and Venue. This Grant Agreement shall be governed by and construed and interpreted in accordance
with the laws of the State of Delaware, without giving effect to principles of conflicts of law. For the purposes of
litigating any dispute that arises directly or indirectly from the relationship of the parties evidenced by this Grant or this
Grant Agreement, the parties hereby submit to the exclusive jurisdiction of the State of Delaware and agree that such
litigation shall be conducted only in the state or federal courts located in such State, and no other courts, where this
Grant is made and/or to be performed.
12. Entire Agreement; Enforcement of Rights; Amendment. This Grant Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter herein and supersedes all prior or contemporaneous
discussions, agreements, commitments, negotiations and arrangements between them. Except as contemplated by this
Grant Agreement, no modification of or amendment to this Grant Agreement, nor any waiver of any rights under this
Grant Agreement, shall be effective unless in writing signed by the parties to this Grant Agreement to the extent it
would materially impair the rights of Grantee. The failure by either party to enforce any rights under this Grant
Agreement shall
7
not be construed as a waiver of any rights of such party. Notwithstanding anything to the contrary in this Grant
Agreement but subject to Applicable Law, the Company reserves the right to revise this Grant Agreement as it deems
necessary or advisable, in its sole discretion and without the consent of Grantee, to comply with Section 409A of the
Code or to otherwise avoid imposition of any additional tax or income recognition or costs under Section 409A of the
Code in connection with this Grant.
13. Severability. If one or more provisions of this Grant Agreement are held to be unenforceable under Applicable Laws,
the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (a) such provision shall be excluded from this Grant
Agreement, (b) the balance of this Grant Agreement shall be interpreted as if such provision were so excluded, and (c)
the balance of this Grant Agreement shall be enforceable in accordance with its terms.
14. Language. If Grantee has received this Grant Agreement or any other document related to this Grant translated into a
language other than English and if the meaning of the translated version is different than the English version, the
English version will control.
15. Imposition of Other Requirements. The Company reserves the right to impose other requirements on the Restricted
Stock Unit Grant and on any Shares acquired under this Grant Agreement, to the extent the Company determines it is
necessary or advisable for legal or administrative reasons, and to require Grantee to accept any additional agreements
or undertakings that may be necessary to accomplish the foregoing. This Grant will be subject to clawback or
recoupment under any clawback or recoupment policy adopted by the Board or the Committee in compliance with
Applicable Law or required by Applicable Law during the term of Grantee’s employment or other service with the
Company that is applicable to Officers, Employees, Directors or other service providers of the Company. No recovery
of compensation under such a clawback or recoupment policy will be an event giving rise to a right to voluntarily
terminate employment upon a “resignation for good reason,” or for a “constructive termination” or any similar term
under any plan or agreement with the Company.
16. Notices. Any notice, demand or request required or permitted to be given under this Grant Agreement shall be in
writing and shall be deemed sufficient when delivered personally or by overnight courier or sent by email or fax, or
forty-eight (48) hours after being deposited in the U.S. mail or a comparable foreign mail service, as certified or
registered mail with postage or shipping charges prepaid, addressed to the party to be notified at such party’s address as
set forth on the signature page, as subsequently modified by written notice, or if no address is specified on the signature
page, at the most recent address, email or fax number set forth in the Company’s books and records.
17. Counterparts. This Grant Agreement may be executed in two or more counterparts, each of which shall be deemed an
original and all of which together shall constitute one instrument. Facsimile, email or other electronic execution and
delivery of this Grant Agreement (including but not limited to execution by electronic signature or click-through
8
electronic acceptance) shall constitute valid and binding execution and delivery for all purposes and shall be deemed to
be, and have the effect of, an original signature.
18. Successors and Assigns. The rights and benefits of this Grant Agreement shall inure to the benefit of, and be
enforceable by, the Company’s successors and assigns.
19. Consent to Electronic Delivery and Participation. By accepting the Restricted Stock Units, Grantee agrees to
participate through an on-line or electronic system established and maintained by the Company or a third party
designated by the Company, and consents to the electronic delivery of the Grant Agreement, account statements,
prospectuses (if any), and all other documents, communications, or information related to the Restricted Stock Units.
Electronic delivery may include the delivery of a link to the Company intranet or the internet site of a third party
involved in administering the Grant, the delivery of the document via e-mail or such other delivery determined at the
Company’s discretion. Grantee acknowledges that Grantee may receive from the Company a paper copy of any
documents delivered electronically at no cost if Grantee contacts the Company by telephone, through a postal service or
electronic mail to Stock Administration.
20. Adjustment of Shares. If the number of the Company’s outstanding Shares is changed or the value of the Shares is
otherwise affected by a stock dividend, extraordinary dividend or distribution (whether in cash, shares or other
property, other than a regular cash dividend), recapitalization, stock split, reverse stock split, subdivision, combination,
consolidation, reclassification, spin-off or similar change in the capital structure of the Company or any similar equity
restructuring transaction, as that term is used in Statement of Financial Accounting Standards Board Accounting
Standards Codification Topic 718 (or any successor thereto), without consideration (a “Capitalization Adjustment”),
the number and class of Shares or type of security subject to this Grant, will, subject to any required action by the
Board or the stockholders of the Company and subject to compliance with, and to the extent permitted by, all
Applicable Laws be proportionately adjusted or adjusted in such other manner as the Committee determines to be
equitably required; provided that fractions of a Share will not be issued. In this respect, where the ASX Listing Rules
apply, the Committee shall make such adjustments as are necessary and in accordance with the ASX Listing Rules to
the number, class or type of Shares or securities that are subject to the Grant and such other adjustments as are
appropriate in the discretion of the Committee and in accordance with the ASX Listing Rules. Such adjustments may
provide for the elimination of fractional Shares that may otherwise be subject to Grants without any payment therefor.
21. Change in Control. In the event that the Company is subject to a Change in Control, any unvested portion of the
Restricted Stock Units outstanding as of immediately prior to the Change in Control shall vest in full as of the Change
in Control.
22. Definitions. As used in this Grant Agreement, the following definitions will apply to the capitalized terms indicated
below:
“Administrator” means one or more Officers or Employees designated by the Committee to administer this Grant
Agreement and the Company’s other equity incentive programs.
9
“Affiliate” means a Parent, a Subsidiary or any corporation or other Entity that, directly or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control with, the Company.
“Applicable Law” means any applicable securities, federal, state, foreign, material local or municipal or other law,
statute, constitution, principle of common law, resolution, ordinance, code, edict, decree, rule, listing rule, regulation,
judicial decision, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect
by or under the authority of any governmental or regulatory body or self-regulatory organization (including the New
York Stock Exchange, the ASX, Nasdaq Stock Market and the Financial Industry Regulatory Authority). For clarity, at
all times while the Company’s securities are admitted to the official list of the ASX, this definition includes the ASX
Listing Rules.
“ASIC” means the Australian Securities and Investments Commission.
“ASX” means the ASX Limited (ABN 98 008 624 691), or the securities market which it operates, as the context
requires.
“ASX Listing Rules” means the official listing rules of the ASX.
“Board” means the Board of Directors of the Company.
“Cause” will have the meaning ascribed to such term in any written agreement between the Grantee and the Company
defining such term and, in the absence of such agreement, such term means, with respect to a Grantee, the occurrence
of any of the following events: (a) Grantee’s unauthorized misuse of the Company’s trade secrets or proprietary
information; (b) Grantee’s conviction of or plea of nolo contendere to a felony or a crime involving moral turpitude; (c)
Grantee’s committing an act of fraud against the Company; or (d) Grantee’s gross negligence or willful misconduct in
the performance of his or her duties that has had or is likely to have a material adverse effect on the Company. For the
purposes of this definition, the term “Company” will be interpreted to include any Subsidiary, Parent or Affiliate of the
Company, as appropriate.
“CDI” means a CHESS Depositary Interest, being a unit of beneficial ownership in 1/5 of a share of Common Stock in
the Company or such other ratio as may be adopted by the Company from time to time.
“Change in Control” means:
a.
the consummation of any consolidation or merger of the Company with any other entity, other than a
transaction which would result in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted into voting securities of the
surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting
securities of the Company or such surviving entity or its parent outstanding immediately after such
consolidation or merger;
10
b.
c.
d.
any Exchange Act Person becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act),
directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the total
voting power represented by the Company’s then-outstanding voting securities; provided, however, that for
the purposes of this subclause (b) the acquisition of additional securities by any one Person who is considered
to own more than fifty percent (50%) of the total voting power of the securities of the Company will not be
considered a Change in Control;
the consummation of the sale or disposition by the Company of all or substantially all of the Company’s
assets, except where such sale, lease, transfer or other disposition is made to the Company or one or more
wholly owned Subsidiaries of the Company; or
a change in the effective control of the Company that occurs on the date that a majority of members of the
Board is replaced during any twelve (12) month period by members of the Board whose appointment or
election is not endorsed by a majority of the members of the Board prior to the date of the appointment or
election. For purpose of this subclause (d), if any Person is considered to be in effective control of the
Company, the acquisition of additional control of the Company by the same Person will not be considered a
Change in Control.
For purposes of this definition, Persons will be considered to be acting as a group if they are owners of an Entity that
enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company.
“Code” means the U.S. Internal Revenue Code of 1986, as amended, including any applicable regulations and guidance
thereunder.
“Committee” means the Compensation Committee of the Board or the Board acting as the Compensation Committee.
“Common Stock” means the common stock of the Company, and the common stock of any successor entity.
“Company” means AVITA Medical, Inc., a Delaware corporation, or any successor corporation.
“Consultant” means any natural person, including an advisor or independent contractor, that is engaged to render
services to the Company or an Affiliate.
“Continuous Service Status” means continued service as a Director. The Committee or the Administrator, in that
party’s sole discretion, shall determine whether a Grantee’s Continuous Service Status has ceased and the effective date
of such termination.
“Corporations Act” means the Australian Corporations Act 2001 (Cth).
“Director” means a member of the Board.
11
“Effective Date” means the date the Grant Agreement is approved by the stockholders of the Company.
“Employee” means any person employed by the Company, or any Affiliate, with the status of employment determined
pursuant to such factors as are deemed appropriate by the Administrator in its sole discretion, subject to any
requirements of Applicable Law, including the Code. Service as a Director or payment by the Company or an Affiliate
of a director’s fee shall not be sufficient to constitute “employment” of such Director by the Company or any Affiliate.
“Entity” means a corporation, partnership, limited liability company or other entity.
“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“Exchange Act Person” or “Person” means any natural person, Entity or “group” (within the meaning of Section 13(d)
or 14(d) of the Exchange Act), except that “Exchange Act Person” will not include (i) the Company or any Subsidiary
of the Company, (ii) any employee benefit plan of the Company or any Subsidiary of the Company or any trustee or
other fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary of the Company,
(iii) an underwriter temporarily holding securities pursuant to a registered public offering of such securities, (iv) an
Entity owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company; or (v) any natural person, Entity or “group” (within the meaning of Section 13(d)
or 14(d) of the Exchange Act) that, as of the Effective Date, is the owner, directly or indirectly, of securities of the
Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding
securities.
“Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act.
“Parent” means any corporation (other than the Company) in an unbroken chain of corporations ending with the
Company if each of such corporations other than the Company owns stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other corporations in such chain.
“Subsidiary” means any corporation (other than the Company) in an unbroken chain of Entities beginning with the
Company if each of the corporation other than the last corporation in the unbroken chain owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporation in such
chain.
“Tax-Related Items” means all income tax, social insurance, payroll tax, fringe benefits tax, payment on account,
employment tax, stamp tax or other tax-related items related to the Restricted Stock Units and legally applicable to the
Grantee, including any employer liability for which the Grantee is liable.
12
“Trading Policy” means the Company’s policy permitting certain individuals to sell Company shares only during
certain “window” periods and/or otherwise restricts the ability of certain individuals to transfer or encumber shares of
the Company’s capital stock, as in effect from time to time.
13
AVITA MEDICAL, INC.
STOCK OPTION GRANT AGREEMENT
Notice of Stock Option Grant
Exhibit 10.23
AVITA Medical, Inc. (formerly, AVITA Therapeutics, Inc.) (the “Company”) has awarded to you (“Grantee”) an option to
purchase up to the number of shares of Common Stock set forth below (this “Option” or “Grant”). This Grant must be approved
by the Company’s stockholders at the next annual meeting of the Company. If such approval is not obtained, this Grant and any
shares acquired hereunder shall be immediately forfeited.
Grantee Name:
Employee ID:
Grant ID:
Date of Grant:
James Corbett
N/A
N/A
September 28, 2022
Exercise Price per Share:
$5.64
Number of Shares:
226,296
Type of Option:
Nonstatutory Stock Option
Country at Grant:
U.S.
Expiration Date:
Tenth Anniversary of Date of Grant
Vesting Commencement Date:
September 28, 2022
Vesting Schedule:
One-fourth (1/4) of the Option shall vest on each of the first four (4) anniversaries
of the Vesting Commencement Date.
Capitalized terms used but not defined in this Notice of Stock Option Grant (this “Notice”) have the meanings specified in the
attached Option Terms and Conditions (including any appendices and exhibits). The Notice and the Option Terms and Conditions
are collectively referred to as the “Grant Agreement” applicable to this Option.
By accepting this Option (whether electronically or otherwise), Grantee acknowledges and agrees to the following:
1.
This Option is governed by the terms and conditions of this Grant Agreement.
2. Grantee has received a copy of this Grant Agreement, the prospectus (if required under Applicable Law), and the
Trading Policy, and represents that he or she has read these documents and is familiar with their terms. Grantee further
agrees to accept as binding, conclusive, and final all decisions and interpretations of the Committee and the
Administrator regarding any questions relating to this Option.
3. Vesting of this Option is subject to Grantee’s Continuous Service Status as Chief Executive Officer of the Company,
which is for an unspecified duration and may be terminated at any
1
time with or without Cause, and nothing in this Grant Agreement changes the nature of that relationship.
4.
The Company is not providing any tax, legal, financial or financial product advice, nor is the Company making any
recommendations or statements of opinion that are intended to influence Grantee in making a decision regarding
Grantee’s acceptance of this Grant Agreement. Grantee should consult with his or her own personal independent tax,
legal, and financial advisors regarding this Grant Agreement who are appropriately licensed to give advice as to
whether participation in the Grant is appropriate in light of his circumstances and to clarify his taxation position in
relation to participation in this Grant before taking any action related to this Grant Agreement.
5.
This Grant, if received in Australia, is made without disclosure to investors in reliance on an applicable exemption
under the Corporations Act.
6. Grantee consents to electronic delivery and participation as set forth in this Grant Agreement.
7.
If Grantee does not accept or decline this Option within 60 days of the Date of Grant or by such other date that
may be communicated to Grantee by the Company, the Company will accept this Option on Grantee’s behalf
and Grantee will be deemed to have accepted the terms and conditions of this Option and this Grant Agreement.
this Option, Grantee should promptly notify Donna Shiroma at
If Grantee wishes
dshiroma@avitamedical.com. If Grantee declines this Option, this Option will be cancelled and no benefits from
this Option nor any compensation or benefits in lieu of this Option will be provided to Grantee.
to decline
AVITA Medical, Inc.
By:
Title:
Grantee
Signature:
Date:
2
AVITA MEDICAL, INC.
STOCK OPTION GRANT AGREEMENT
Option Terms and Conditions
1. Grant of Option. Capitalized terms used in this Grant Agreement but not otherwise defined will have the meanings
specified in Section 24 below. Grantee has been granted an Option to purchase up to the number of Shares set forth in
the Notice at the Exercise Price set forth in the Notice. The Exercise Price will be such price as is determined by the
Committee and set forth in the Notice; provided that the Exercise Price will be no less than one hundred percent
(100%) of the Fair Market Value on the date of the Grant. Dividend Equivalent Rights shall not be granted in
connection with this Option.
2. Determination of Achievement. This Section 2 applies if the Option is subject to performance-based vesting
conditions. The Committee shall determine the extent to which a performance-based vesting condition has been met in
its sole discretion, including the manner of calculating the performance criteria and the measure of whether and to what
degree such performance goals have been attained. The Committee may, subject to compliance with and only to the
extent permitted by Applicable Law, reduce or waive any criteria with respect to a performance goal, or adjust a
performance goal (or method of calculating the attainment of a performance goal) to take into account unanticipated
events, including changes in law and accounting or tax rules, as the Committee deems necessary or appropriate, or to
reflect the impact of extraordinary or unusual items, events or circumstances to avoid windfalls or hardships. The
Committee may also adjust or eliminate the compensation or economic benefit due upon attainment of performance
goals in its sole discretion, subject to any limitations contained in the Grant Agreement and under Applicable Law.
3. Exercise of Option. This Option is exercisable during its term in accordance with the Vesting Schedule contained in
the Notice and the applicable provisions of the Grant Agreement and subject to compliance with all Applicable Laws.
Grantee may exercise the vested portion of this Option only by following the option exercise procedures established by
the Administrator and payment of the aggregate Exercise Price for the Shares to be purchased, together with any
applicable Tax-Related Items. This Option will be deemed exercised only when the Company receives: (a) notice of
exercise (in such form as the Administrator may specify from time to time, including via electronic execution through
an authorized third-party administrator) from the person entitled to exercise the Option; (b) full payment of the
applicable Exercise Price in accordance with this Grant Agreement, and (c) payment of applicable Tax-Related Items,
as determined by the Administrator. The Company will issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the
date the Shares are issued, except in connection with a Capitalization Adjustment. Shares acquired pursuant to this
Option may be issued as CDIs (except where a cashless exercise program is implemented in respect of the Option, in
which case only Common Stock may be issued).
3
This Option may be exercised only with respect to whole Shares. The Administrator may also specify a reasonable
minimum number of Shares that may be purchased on any exercise of the Option, provided that such minimum number
will not prevent Grantee from exercising the Option for the full number of Shares for which it is then exercisable. The
Committee may, or may authorize the Administrator to, prohibit the exercise of the Option during a period of up to
thirty (30) days prior to the consummation of any pending Capitalization Adjustment or Change in Control, or any
other change affecting the Shares or the Fair Market Value, for reasons of administrative convenience.
4. Method of Payment. Grantee may always pay the Exercise Price by personal check (or readily available funds), wire
transfer, cashier’s check or, where the Grantee is issued Shares (and not CDIs), by consideration received by the
Company pursuant to a broker-assisted cashless exercise program implemented by the Administrator in connection
with this Grant whereby the amount of Shares equal to the sum of the applicable taxes and the aggregate Exercise Price
in connection with the Option exercise is sold to pay those costs and the Grantee retains the net Shares. The
Administrator may also allow any other method of payment permitted by this Grant Agreement in its discretion at the
time of exercise, and any restrictions deemed necessary or appropriate to facilitate compliance with Applicable Law or
administration of this Grant Agreement (including to avoid the recognition of additional compensation expenses for
financial reporting purposes).
5. Option Term.
a. Maximum Term. This Option will in all events expire at the close of business at Company headquarters on
the Expiration Date specified in the Notice, unless it terminates earlier in connection with the termination of
Grantee’s Continuous Service Status (as provided below) or a Change in Control (as provided below).
b.
Post-Termination Exercise Period. If Grantee’s Continuous Service Status terminates prior to the
Expiration Date of this Option other than for Cause, the unvested portion of this Option will automatically
expire on Grantee’s date of termination, and the vested portion of this Option will remain outstanding and
exercisable for the following periods, unless otherwise determined by the Committee:
i. three (3) months following a termination for any reason other than Cause, Disability, or death;
ii. six (6) months following a termination due to Disability; and
iii.twelve (12) months following the date of Grantee’s death, if Grantee dies while in Continuous
Service Status, or during the period provided in clauses (i) or (ii) above.
c. Termination for Cause. If Grantee’s Continuous Service Status is terminated for Cause, this Option will
terminate and be forfeited immediately upon such Grantee’s termination of Continuous Service Status, and
Grantee will be prohibited from
4
exercising any portion (including any vested portion) of this Option on or after the date of such termination of
Continuous Service Status. If Grantee’s Continuous Service Status is suspended pending an investigation of
whether Grantee’s Continuous Service Status will be terminated for Cause, all of Grantee’s rights under this
Option, including the right to exercise such Grants, shall be suspended during the investigation period.
d. Determination of Termination Date. For the purposes of this Option, Grantee’s Continuous Service Status
will be considered terminated as of the date Grantee is no longer actively providing services to the Company
or one of its Parents, Subsidiaries, or Affiliates (regardless of the reason for such termination and whether or
not later found to be invalid or in breach of employment laws in the jurisdiction where Grantee is employed
or the terms of Grantee’s employment agreement, if any). The Committee shall have the exclusive discretion
to determine when Grantee is no longer actively providing services for the purposes of this Option (including
whether Grantee may still be considered to be providing services while on a leave of absence).
e. No Notice of Option Expiration. Grantee is responsible for keeping track of the Expiration Date and the
post-termination exercise periods following Grantee’s termination of Continuous Service Status for any
reason. The Company is not obligated to provide further notice of such periods. In no event will this Option
be exercised later than the Expiration Date set forth in the Notice.
6. Non-Transferability of Option. This Option may not be transferred in any manner other than by will or by the laws of
descent or distribution or court order and may be exercised during the lifetime of Grantee only by Grantee. The terms
this Grant Agreement will be binding upon the executors, administrators, heirs, successors, and assigns of Grantee.
7. New Issues of Shares. While the Company is subject to the ASX Listing Rules, Grantee shall not have the right to
participate in new issues of Shares to existing holders of Shares (e.g. a “rights offering”) with respect to Shares subject
to this Option, unless Grantee has exercised the Option and is registered as the holder of the underlying Shares prior to
the record date for the determination of entitlements to participate in the new issue.
8. Amendment or Cancellation of Option. While the Company is subject to the ASX Listing Rules:
a. Under no circumstances may the terms of this Option be amended or modified so as to have any of the
following effects unless the amendment or modification is made to comply with the ASX Listing Rules or
unless otherwise permitted by the ASX Listing Rules or by a waiver granted by the ASX: (1) reducing the
Exercise Price of this Option, (2) increasing the period for exercise of this Option, or (3) increasing the
number of Shares received on exercise of this Option. Further, any other amendment or modification to the
terms of this Option (i.e. any amendment or modification that is not prohibited pursuant to the first sentence
of this Section 8a) can only be made with stockholder approval or on the provision of a waiver granted by
ASX from the ASX Listing Rules.
5
b. Under no circumstances may any amendment or modification be made to the terms of this Option which has
the effect of cancelling the Option unless (1) stockholder approval has been obtained for the cancellation of
the Option, (2) no consideration is provided to Grantee in connection with the cancellation of the Option, or
(3) the amendment or modification is made to comply with the ASX Listing Rules.
c.
The Exercise Price for the Shares to be issued pursuant to the exercise of this Option and / or the number of
Shares over which this Option can be exercised may be changed in accordance with rule 6.22.2, 6.22.2A and
6.22.3 of the ASX Listing Rules.
9. Taxes.
a. Responsibility for Taxes. By accepting this Option, Grantee acknowledges that, regardless of any action
taken by the Company or, if different, any Parent, Subsidiary, or Affiliate that employs Grantee (the
“Employer”), the ultimate liability for all Tax-Related Items is and remains Grantee’s responsibility and may
exceed the amount actually withheld by the Company or the Employer. Grantee further acknowledges that the
Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any
Tax-Related Items in connection with any aspect of this Option, including, but not limited to, the grant,
vesting, or exercise of this Option, the subsequent sale of Shares acquired pursuant to such exercise and the
receipt of any dividends; and (ii) do not commit to and are under no obligation to structure the terms of the
grant or any aspect of this Option to reduce or eliminate Grantee’s liability for Tax-Related Items or achieve
any particular tax result. Further, if Grantee is subject to Tax-Related Items in more than one jurisdiction, as
applicable, Grantee acknowledges that the Company and/or the Employer may be required to withhold or
account for Tax-Related Items in more than one jurisdiction. Grantee agrees to pay to the Company or the
Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold
or account for as a result of Grantee’s acceptance of this Option that cannot be satisfied by the means
described in this Section. The Company may refuse to issue or deliver the Shares or the proceeds of the sale
of Shares, if Grantee fails to comply with Grantee’s obligations in connection with the Tax-Related Items.
b. Withholding. Prior to the relevant taxable or tax withholding event, as applicable, Grantee agrees to make
adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In
this regard, Grantee authorizes the Company or the Employer, or their respective agents, at their discretion, to
satisfy the obligations with regard to all Tax-Related Items by one or a combination of the following:
i. withholding from Grantee’s wages or other cash compensation paid to Grantee by the Company
and/or the Employer or any Parent, Subsidiary, or Affiliate;
6
ii. withholding from proceeds of the sale of Shares acquired at exercise of this Option either through a
voluntary sale or through a mandatory sale arranged by the Company (on Grantee’s behalf pursuant
to this authorization and without further consent);
iii.withholding Shares to be issued upon exercise of this Option, provided the Company only
withholds a number of Shares necessary to satisfy no more than the withholding amounts
determined based on the maximum permitted statutory rate applicable in Grantee’s jurisdiction;
iv.Grantee’s payment of a cash amount (including by check representing readily available funds or a
wire transfer); or
v. any other arrangement approved by the Committee and permitted under Applicable Law.
Withholding for Tax-Related Items will be made in accordance with this Grant Agreement and such rules and
procedures as may be established by the Administrator, and in compliance with the Trading Policy, if applicable. In
the event the Company or the Employer withholds more than the Tax-Related Items using one of the methods
described above, Grantee may receive a refund of any over-withheld amount in cash but will have no entitlement to
the Shares sold or withheld.
10. Nature of Grant. In accepting this Grant, Grantee acknowledges, understands and agrees that: (a) this Grant
Agreement is established voluntarily by the Company, is discretionary in nature, and may be amended, suspended or
terminated by the Company at any time, to the extent permitted by this Grant Agreement; (b) the grant of this Grant is
voluntary and occasional and does not create any contractual or other right to receive future grants, or benefits in lieu of
grants, even if grants have been made in the past; (c) all decisions with respect to future grants, if any, will be at the
sole discretion of the Company; (d) Grantee is voluntarily accepting this Grant Agreement; (e) this Grant and the
Shares allocated to this Grant are not intended to replace any pension rights or compensation and are outside the scope
of Grantee’s employment contract, if any; (f) this Grant and the Shares allocated to this Grant, and the income and
value of same, are not part of normal or expected compensation for any purpose, including, without limitation,
calculating any severance, resignation, termination, redundancy, dismissal, end-of- service payments, bonuses, long-
service awards, pension or retirement or welfare benefits or similar payments; (g) unless otherwise provided in this
Grant Agreement or by the Company in its discretion, this Grant and the benefits evidenced by this Grant Agreement
do not create any entitlement to have this Grant or any such benefits transferred to, or assumed by, another company
nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Shares;
and (h) neither the Company nor any of its Affiliates shall be liable for any foreign exchange rate fluctuation between
Grantee’s local currency and the United States Dollar or the selection by the Company or any one of its Affiliates in its
sole discretion of an applicable foreign exchange rate that may affect the value of this Grant (or the calculation of
income or Tax-Related Items thereunder) or of any amounts due to Grantee pursuant to the settlement of this Grant or
the subsequent sale of the Shares allocated to this Grant.
7
11. Code Section 409A. It is intended that the terms of this Option will not result in the imposition of any tax liability
pursuant to Section 409A of the Code, and this Grant Agreement shall be construed and interpreted consistent with that
intent. In no event will the Grantee have a right to payment or reimbursement or otherwise from the Company or its
Affiliates, or their successors or assigns, for any taxes imposed or other costs incurred as a result of Section 409A of the
Code.
12. Data Privacy. Grantee hereby explicitly and unambiguously consents to the collection, use and transfer, in
electronic or other form, of Grantee’s personal data as described in this Grant Agreement and any other grant
materials by and among the Company and its Affiliates for the purpose of implementing, administering and
managing Grantee’s Grant. Grantee understands that the Company and its Affiliates may hold certain personal
information about Grantee, including, but not limited to, Grantee’s name, home address and telephone number, date
of birth, social insurance number or other identification number, salary, nationality, job title, any Shares or
directorships held in the Company, details of all grants, or any other entitlement to Shares awarded, canceled,
exercised, vested, unvested or outstanding in Grantee’s favor (“Data”), for the purpose of implementing,
administering and managing this Grant Agreement. Grantee understands that Data will be transferred to such stock
plan service provider as may be selected by the Company, presently or in the future, which may be assisting the
Company with the implementation, administration and management of this Grant Agreement. Grantee understands
that the recipients of the Data may be located in the United States or elsewhere, and that the recipient’s country
(e.g., the United States) may have different data privacy laws and protections than Grantee’s country. Grantee
authorizes the Company, the stock plan service provider as may be selected by the Company, and any other possible
recipients which may assist the Company, presently or in the future, with implementing, administering and
managing this Grant Agreement to receive, possess, use, retain and transfer the Data, in electronic or other form,
for the purposes of implementing, administering and managing Grantee’s Grant. Further, Grantee understands that
he or she is providing the consents herein on a purely voluntary basis. If Grantee does not consent, or if Grantee
later seeks to revoke his or her consent, or instructs the Company to cease the processing of the Data, his or her
Continuous Service Status will not be adversely affected; the only adverse consequence of refusing or withdrawing
Grantee’s consent or instructing the Company to cease processing, is that the Company would not be able to grant
Grantee this Grant or any other equity awards or administer or maintain such awards. Therefore, Grantee
understands that refusing or withdrawing his or her consent may affect Grantee’s ability to receive or retain this
Grant. For more information on the consequences of Grantee’s refusal to consent or withdrawal of consent,
Grantee understands that he or she may contact his or her local human resources representative. Further, Grantee
consents to disclosure of Data to the Australian Tax Office, where required in accordance with the Company's or
relevant Affiliate's reporting obligations under Australian tax legislation. Grantee acknowledges that he can access
further information regarding data privacy in the Company's Privacy Policy (which is available on the Company's
website), including about how the Grantee can access and seek correction of his personal information and make a
complaint if he has any concerns regarding the treatment of Data.
8
13. Governing Law and Venue. This Grant Agreement shall be governed by and construed and interpreted in accordance
with the laws of the State of Delaware, without giving effect to principles of conflicts of law. For the purposes of
litigating any dispute that arises directly or indirectly from the relationship of the parties evidenced by this Grant or this
Grant Agreement, the parties hereby submit to the exclusive jurisdiction of the State of Delaware and agree that such
litigation shall be conducted only in the state or the federal courts located in such State, and no other courts, where this
Grant is made and/or to be performed.
14. Entire Agreement; Enforcement of Rights; Amendment. This Grant Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter herein and supersedes all prior or contemporaneous
discussions, agreements, commitments, negotiations and arrangements between them. Except as contemplated by this
Grant Agreement, no modification of or amendment to this Grant Agreement, nor any waiver of any rights under this
Grant Agreement, shall be effective unless in writing signed by the parties to this Grant Agreement to the extent it
would materially impair the rights of Grantee. The failure by either party to enforce any rights under this Grant
Agreement shall not be construed as a waiver of any rights of such party. Notwithstanding anything to the contrary in
this Grant Agreement but subject to Applicable Law, the Company reserves the right to revise this Grant Agreement as
it deems necessary or advisable, in its sole discretion and without the consent of Grantee, to comply with Section 409A
of the Code or to otherwise avoid imposition of any additional tax or income recognition or costs under Section 409A
of the Code in connection with this Grant.
15. Severability. If one or more provisions of this Grant Agreement are held to be unenforceable under Applicable Laws,
the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (a) such provision shall be excluded from this Grant
Agreement, (b) the balance of this Grant Agreement shall be interpreted as if such provision were so excluded, and (c)
the balance of this Grant Agreement shall be enforceable in accordance with its terms.
16. Language. If Grantee has received this Grant Agreement or any other document related to this Grant translated into a
language other than English and if the meaning of the translated version is different than the English version, the
English version will control.
17. Imposition of Other Requirements. The Company reserves the right to impose other requirements on this Option and
on any Shares purchased upon exercise of this Option, to the extent the Company determines it is necessary or
advisable for legal or administrative reasons, and to require Grantee to accept any additional agreements or
undertakings that may be necessary to accomplish the foregoing. This Grant will be subject to clawback or recoupment
under any clawback or recoupment policy adopted by the Board or the Committee in compliance with Applicable Law
or required by Applicable Law during the term of Grantee’s employment or other service with the Company that is
applicable to Officers, Employees, Directors or other service providers of the Company. No recovery of compensation
under such a clawback or recoupment policy will be an event giving rise to a right to voluntarily terminate employment
upon a “resignation for good reason,” or for a “constructive termination” or any similar term under any plan or
agreement with the Company.
9
18. Notices. Any notice, demand or request required or permitted to be given under this Grant Agreement shall be in
writing and shall be deemed sufficient when delivered personally or by overnight courier or sent by email or fax, or
forty-eight (48) hours after being deposited in the U.S. mail or a comparable foreign mail service, as certified or
registered mail with postage or shipping charges prepaid, addressed to the party to be notified at such party’s address as
set forth on the signature page, as subsequently modified by written notice, or if no address is specified on the signature
page, at the most recent address, email or fax number set forth in the Company’s books and records.
19. Counterparts. This Grant Agreement may be executed in two or more counterparts, each of which shall be deemed an
original and all of which together shall constitute one instrument. Facsimile, email or other electronic execution and
delivery of this Grant Agreement (including but not limited to execution by electronic signature or click-through
electronic acceptance) shall constitute valid and binding execution and delivery for all purposes and shall be deemed to
be, and have the effect of, an original signature.
20. Successors and Assigns. The rights and benefits of this Grant Agreement shall inure to the benefit of, and be
enforceable by the Company’s successors and assigns.
21. Consent to Electronic Delivery and Participation. By accepting this Option, Grantee agrees to participate through an
on-line or electronic system established and maintained by the Company or a third party designated by the Company,
and consents to the electronic delivery of the Grant Agreement, account statements, prospectuses (if any), and all other
documents, communications, or information related to this Option. Electronic delivery may include the delivery of a
link to the Company intranet or the internet site of a third party involved in administering the Grant, the delivery of the
document via e-mail or such other delivery determined at the Company’s discretion. Grantee acknowledges that
Grantee may receive from the Company a paper copy of any documents delivered electronically at no cost if Grantee
contacts the Company by telephone, through a postal service, or electronic mail to Stock Administration.
22. Adjustment of Shares. If the number of outstanding Shares is changed or the value of the Shares is otherwise affected
by a stock dividend, extraordinary dividend or distribution (whether in cash, shares or other property, other than a
regular cash dividend), recapitalization, stock split, reverse stock split, subdivision, combination, consolidation,
reclassification, spin-off or similar change in the capital structure of the Company or any similar equity restructuring
transaction, as that term is used in Statement of Financial Accounting Standards Board Accounting Standards
Codification Topic 718 (or any successor thereto), without consideration (a “Capitalization Adjustment”), then the
maximum number and class of Shares or type of security reserved for issuance and the Exercise Price and number and
class of Shares or type of security subject to this Grant, will, subject to any required action by the Board or the
stockholders of the Company and subject to compliance with, and to the extent permitted by, all Applicable Laws be
proportionately adjusted or adjusted in such other manner as the Committee determines to be equitably required;
provided that fractions of a Share will not be issued. In this respect, where the ASX Listing Rules apply, the Committee
shall make such adjustments as are
10
necessary and in accordance with the ASX Listing Rules to the number, class or type of Shares or securities that are
subject to the Grant or the Exercise Price of the Grant and such other adjustments as are appropriate in the discretion of
the Committee and in accordance with the ASX Listing Rules. Such adjustments may provide for the elimination of
fractional Shares that may otherwise be subject to Grants without any payment therefor.
23. Change in Control. In the event that the Company is subject to a Change in Control, any unvested portion of the
Option outstanding as of immediately prior to the Change in Control shall vest in full as of the Change in Control.
24. Definitions. As used in this Grant Agreement, the following definitions will apply to the capitalized terms indicated
below:
“Administrator” means one or more Officers or Employees designated by the Committee to administer this Grant
Agreement and the Company’s other equity incentive programs.
“Affiliate” means a Parent, a Subsidiary or any corporation or other Entity that, directly or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control with, the Company.
“Applicable Law” means any applicable securities, federal, state, foreign, material local or municipal or other law,
statute, constitution, principle of common law, resolution, ordinance, code, edict, decree, rule, listing rule, regulation,
judicial decision, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect
by or under the authority of any governmental or regulatory body or self-regulatory organization (including the New
York Stock Exchange, the ASX, Nasdaq Stock Market and the Financial Industry Regulatory Authority). For clarity, at
all times while the Company’s securities are admitted to the official list of the ASX, this definition includes the ASX
Listing Rules.
“ASX” means the ASX Limited (ABN 98 008 624 691), or the securities market which it operates, as the context
requires.
“ASX Listing Rules” means the official listing rules of the ASX.
“Board” means the Board of Directors of the Company.
“Cause” will have the meaning ascribed to such term in any written agreement between the Grantee and the Company
defining such term and, in the absence of such agreement, such term means, with respect to a Grantee, the occurrence
of any of the following events: (a) Grantee’s unauthorized misuse of the Company’s trade secrets or proprietary
information; (b) Grantee’s conviction of or plea of nolo contendere to a felony or a crime involving moral turpitude; (c)
Grantee’s committing an act of fraud against the Company; or (d) Grantee’s gross negligence or willful misconduct in
the performance of his or her duties that has had or is likely to have a material adverse effect on the Company. For the
purposes of this definition, the term “Company” will be interpreted to include any Subsidiary, Parent or Affiliate of the
Company, as appropriate.
11
“CDI” means a CHESS Depositary Interest, being a unit of beneficial ownership in 1/5 of a share of Common Stock in
the Company or such other ratio as may be adopted by the Company from time to time.
“Change in Control” means:
a.
b.
c.
d.
the consummation of any consolidation or merger of the Company with any other entity, other than a
transaction which would result in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted into voting securities of the
surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting
securities of the Company or such surviving entity or its parent outstanding immediately after such
consolidation or merger;
any Exchange Act Person becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act),
directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the total
voting power represented by the Company’s then-outstanding voting securities; provided, however, that for
the purposes of this subclause (b) the acquisition of additional securities by any one Person who is considered
to own more than fifty percent (50%) of the total voting power of the securities of the Company will not be
considered a Change in Control;
the consummation of the sale or disposition by the Company of all or substantially all of the Company’s
assets, except where such sale, lease, transfer or other disposition is made to the Company or one or more
wholly owned Subsidiaries of the Company; or
a change in the effective control of the Company that occurs on the date that a majority of members of the
Board is replaced during any twelve (12) month period by members of the Board whose appointment or
election is not endorsed by a majority of the members of the Board prior to the date of the appointment or
election. For purpose of this subclause (d), if any Person is considered to be in effective control of the
Company, the acquisition of additional control of the Company by the same Person will not be considered a
Change in Control.
For purposes of this definition, Persons will be considered to be acting as a group if they are owners of an Entity that
enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company.
“Code” means the U.S. Internal Revenue Code of 1986, as amended, including any applicable regulations and guidance
thereunder.
“Committee” means the Compensation Committee of the Board or the Board acting as the Compensation Committee or
those persons to whom administration of the Grant Agreement, or part of the Grant Agreement, has been delegated as
permitted by Applicable Law.
12
“Common Stock” means the common stock of the Company, and the common stock of any successor entity.
“Company” means AVITA Medical, Inc., a Delaware corporation, or any successor corporation.
“Continuous Service Status” means continued service as an Employee. Continuous Service Status shall not be
considered interrupted or terminated in the case of a transfer between locations of the Company or between the
Company, its Affiliates, or their respective successors. The Committee or the Administrator, in that party’s sole
discretion, shall determine whether a Grantee’s Continuous Service Status has ceased and the effective date of such
termination.
“Corporations Act” means the Australian Corporations Act 2001 (Cth).
“Director” means a member of the Board.
“Disability” means that the Grantee is unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment. The determination of whether an individual has a Disability shall be
determined under procedures established by the Committee. The Committee may rely on any determination that a
Grantee is disabled for purposes of benefits under any long-term disability plan maintained by the Company or any
Affiliate in which a Grantee participates.
“Dividend Equivalent Right” means the right of a Grantee, granted at the discretion of the Committee, to receive a
credit for the account of such Grantee in an amount equal to the cash, stock or other property dividends in amounts
equivalent to cash, stock or other property dividends for each Share represented by a Grant held by such Grantee.
“Effective Date” means the date the Grant is approved by the stockholders of the Company.
“Employee” means any person employed by the Company, or any Affiliate, with the status of employment determined
pursuant to such factors as are deemed appropriate by the Administrator in its sole discretion, subject to any
requirements of Applicable Law, including the Code. Service as a Director or payment by the Company or an Affiliate
of a director’s fee shall not be sufficient to constitute “employment” of such Director by the Company or any Affiliate.
“Entity” means a corporation, partnership, limited liability company or other entity.
“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“Exchange Act Person” or “Person” means any natural person, Entity or “group” (within the meaning of Section
13(d) or 14(d) of the Exchange Act), except that “Exchange Act Person” will not include (i) the Company or any
Subsidiary of the Company, (ii) any employee benefit plan of the Company or any Subsidiary of the Company or any
trustee or other fiduciary holding securities under an employee benefit plan of the Company or any
13
Subsidiary of the Company, (iii) an underwriter temporarily holding securities pursuant to a registered public offering
of such securities, (iv) an Entity owned, directly or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company; or (v) any natural person, Entity or “group” (within the
meaning of Section 13(d) or 14(d) of the Exchange Act) that, as of the Effective Date, is the owner, directly or
indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of
the Company’s then outstanding securities.
“Exercise Price” means, with respect to an Option, the price per Share at which a holder may purchase the Shares
issuable upon exercise of an Option.
“Fair Market Value” means, as of any date, the per Share value of the Common Stock determined as follows:
a.
b.
If such Common Stock is publicly traded and is then listed on a national securities exchange in the United
States, its closing price on the date of determination on the principal national securities exchange on which
the Common Stock is listed or admitted to trading as reported in The Wall Street Journal or such other source
as the Administrator deems reliable, unless another method is approved by the Committee and subject to
compliance with Applicable Law (including Section 409A of the Code).
If such Common Stock is publicly traded and is only listed on the official list of the ASX in the form of CDIs,
the closing price of a CDI as reported on the ASX on such date, adjusted as necessary to reflect the CDI / per
Share of Common Stock ratio, or if CDIs are not traded on the ASX on such date, then on the next preceding
day that CDIs are traded on the ASX, as reported on the ASX on such date unless another method is approved
by the Committee and subject to compliance with Applicable Law (including Section 409A of the Code).
c.
If such Common Stock is publicly traded but neither listed nor admitted to trading on a national securities
exchange in the United States or the ASX, the average of the closing bid and asked prices on the date of
determination as reported in The Wall Street Journal or such other source as the Administrator deems reliable.
d.
If none of the foregoing is applicable, by the Board or the Committee in good faith (and in accordance with
Section 409A of the Code, as applicable).
“Nonstatutory Stock Option” means any Option that does not qualify as an “incentive stock option” within the
meaning of Section 422 of the Code.
“Officer” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act.
“Option” means a contract right to purchase Shares at a fixed Exercise Price per Share, subject to certain conditions, if
applicable, granted pursuant to this Grant Agreement.
14
“Parent” means any corporation (other than the Company) in an unbroken chain of corporations ending with the
Company if each of such corporations other than the Company owns stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other corporations in such chain.
“Shares” means shares of Common Stock.
“Subsidiary” means any corporation (other than the Company) in an unbroken chain of Entities beginning with the
Company if each of the corporations other than the last corporation in the unbroken chain owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in
such chain.
“Tax-Related Items” means all income tax, social insurance, payroll tax, fringe benefits tax, payment on account,
employment tax, stamp tax or other tax-related items related to the Options and legally applicable to the Grantee,
including any employer liability for which the Grantee is liable.
“Trading Policy” means the Company’s policy permitting certain individuals to sell Company shares only during
certain “window” periods and/or otherwise restricts the ability of certain individuals to transfer or encumber shares of
the Company’s capital stock, as in effect from time to time.
15
Exhibit 10.24
FIFTH AMENDMENT TO LEASE
28159 Avenue Stanford Properties, LLC
10919 Vanowen Street
North Hollywood, CA 91605 Date:
January 26, 2023
Avita Medical Americas, LLC
Attn: Mr. James Corbett, CEO
28159 Avenue Stanford, Suites 200/220
Valencia, CA 91355
Re: Amendment of Standard Multi-Tenant Office Lease - Gross dated October 3, 2016 ("Office Lease"), between RIF III - Avenue
Stanford, LLC, a California limited liability company, predecessor-in-interest to 28159 Avenue Stanford Properties, LLC, a California
limited liability company ("Landlord") and Avita Medical Americas, LLC, a Delaware limited liability company ("Tenant"),
concerning Suite 220 ("Original Premises") in the building located at 28159 Avenue Stanford, Valencia, CA 91355 ("Building"); as
amended by that certain First Amendment to Lease dated December 14, 2016, between Landlord and Tenant ("First Amendment"); as
further amended by that certain Second Amendment to Lease dated December 4, 2017 ("Second Amendment") between Landlord and
Tenant concerning the Original Premises and Suite 220 ("Expansion Premises") (the Original Premises and Expansion Premises shall
be collectively known as the "Premises"); as further amended by that certain Third Amendment to Lease dated November 17, 2020
("Third Amendment") between Landlord and Tenant concerning the Premises; and as further amended by that certain Fourth
Amendment to Lease dated August 25, 2021 ("Fourth Amendment") between Landlord and Tenant concerning the Premises. The
Original Lease, First Amendment to Lease, Second Amendment to Lease, Third Amendment to Lease, and Fourth Amendment to
Lease shall be collectively known as the "Lease".
Mr. James Corbett:
As additional consideration for Tenant having entered into the Lease with Landlord and for other good and valuable consideration, the
receipt of which is hereby acknowledged, Landlord agrees to and does amend the Lease in the following respects.
1.
Extension of Term. Notwithstanding anything to the contrary contained in the Lease, the Term shall be extended for thirty-nine
(39) months and expire on October 31, 2026.
1
2.
Base Rent. Notwithstanding anything to the contrary contained in the Lease, the monthly Base Rent during the extended Term shall be:
Monthly Base Rent
August l, 2023 -
August 1, 2024 -
August 1, 2025 -
August 1, 2026 -
July 31, 2024
July 31, 2025
July 31, 2026
October 31, 2026
$35,204.38
$36,260.51
$37,348.33
$38,468.78
3.
4.
5.
Rent Credit and/or Tenant Improvement Allowance. Tenant shall have a credit in the amount of Sixty-Nine Thousand Eight Hundred
Sixty Dollars ($69,860.00) which may be used for a credit against rent owed during the Term and/or tenant improvements inside the
Premises.
Acceptance of Premises In Current Condition. Tenant has been occupying the Premises pursuant to the Lease and as such accepts the
Premises its "as-is and where-is" condition. Neither Landlord nor Tenant shall be obligated to construct any improvements in the
Premises.
Brokers. Tenant represents and warrants that it has dealt with no broker, agent or other person in connection with this transaction and that
no broker, agent or other person brought about this transaction, other than CBRE, Inc., and Tenant agrees to indemnify and hold
Landlord harmless from and against any claims by any other broker, agent or other person claiming a commission or other form of
compensation by virtue of having dealt with Tenant with regard to this leasing transaction.
Except as explicitly set forth in thiss Fifth Amendment to Lease, all defined terms herein shall have the respective meanings as set forth in the Lease
and the terms and provisions of the Lease shall be and remain in full force and effect.
[Signatures on Next Page]
2
Very truly yours,
"Landlord":
28159 Avenue Stanford Properties, LLC,
a California limited liability company
By:
FREDMORE, LLC,
a California limited liability company
By: The Rosenthal Revocable Trust
dated 6/3/03, its sole member
The Foregoing Is Accepted And Agreed To:
"Tenant":
Avita Medical Americas, LLC,
a Delaware limited liability company
Date: 2/1/2023
3
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our report dated February 23, 2023, with respect to the consolidated financial statements included in the Annual Report of AVITA
Medical, Inc. on Form 10-K for the year ended December 31, 2022. We consent to the incorporation by reference of the said report in the Registration
Statements of AVITA Medical, Inc. on Form S-3 (File No. 333-249419) and on Forms S-8 (File No. 333-248446 and File No. 333-250924).
Exhibit 23.1
/s/ GRANT THORNTON LLP
Los Angeles, California
February 23, 2023
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James Corbett, certify that:
Exhibit 31.1
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K for the fiscal year ended December 31, 2022 of AVITA Medical, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent
functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: February 23, 2023
/s/ James Corbett
Name:
Title:
James Corbett
President and Chief Executive Officer
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Sean Ekins, certify that:
Exhibit 31.2
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K for the fiscal year ended December 31, 2022 of AVITA Medical, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent
functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: February 23, 2023
/s/ Sean Ekins
Name:
Title:
Sean Ekins
Interim Chief Financial Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of
the undersigned officers of AVITA Medical, Inc. (the “Company”), does hereby certify, to such officer’s knowledge, that:
The Annual Report on Form 10-K for the annual period ended December 31, 2022 of the Company fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-K fairly presents, in all material respects, the financial condition
and results of operations of the Company.
Dated: February 23, 2023
Dated: February 23, 2023
/s/ James Corbett
Name:
Title:
James Corbett
President and Chief Executive Officer
/s/ Sean Ekins
Name:
Title:
Sean Ekins
Interim Chief Financial Officer
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of
Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Form 10-K or as a separate disclosure document.