Avita’s (ASX:AVH) fourth-quarter 2025 sales of USD 18 million were 3% higher than the third quarter, driven by reimbursement support stabilizing. Newly released 2026 guidance implies 15% sales growth at the midpoint. Avita has also secured a new USD 60 million debt facility. Shares rose 9%.

Why it matters: Revenue rose 11% in 2025 to USD 72 million, in line with our forecast. But we now expect a more prolonged recovery. We materially cut our 2026 revenue forecast by 24% to USD 84 million, at the top end of company guidance.

  • Although insurers have finalized rates, we think prior reimbursement delays have made customers wary. But we expect this headwind to be temporary as timely reimbursements restore confidence, and our longer-term estimates are unchanged.
  • We expect cash burn to improve due to reduced staffing costs and increasing product demand. Avita had USD 23 million in net cash as of Sept. 30, 2025, versus a third-quarter cash burn of USD 6 million. We expect the extra USD 60 million in debt to cover operations until Avita becomes profitable.

The bottom line: We cut our fair value for no-moat Avita by 6% to $3.20. Roughly half of our downgrade is due to the weaker US dollar and the rest due to lower near-term earnings. Shares are cheap, as we expect Avita to be cash-flow positive by late 2026, in line with the company’s expectations.

  • The market appears to have lost faith in the path to profitability. We forecast sales to grow at a five-year 20% CAGR. We see recent product launches such as Cohealyx that allow broader usage, recent international expansion, and recovering demand from reimbursement clarity as key drivers.
  • The long-term opportunity of RECELL is attractive. Analysis of the national burn registry over five years reveals that it accelerates recovery, reducing hospital stays by 36%. Based on this data, Avita is winning contracts by offering a rebate if patients stay longer than expected.

Avita’s road to profitability is in sight

We expect Avita’s RECELL to pose a significant challenge to the standard of care for larger burns, currently a skin graft sourced from elsewhere on the patient’s body. We believe Avita will be successful based on the product’s clinical performance, ease of use and relative price point. RECELL creates Spray-on Skin within 30 minutes from a skin sample, typically less than 5% of the size required in a graft. It has been clinically demonstrated to heal the burn site as effectively as a skin graft without creating a large donor site wound.

Despite the technology in Avita’s RECELL system being in use since the Bali bombings in 2002, the product has had limited commercial success as it entered the market as an investigational device. This limited the reimbursement and take-up of the product. RECELL relaunched in the US following randomized clinical trials and Food and Drug Administration approval in late 2018. Currently, it’s approved for treating second- and third-degree burns in paediatric and adult patients.

The treatment of severe burns in the US is concentrated across the 136 burn centers, making commercial rollout of RECELL straightforward. Of the approximately 14,000 adults with second- or third-degree burns treated at these burn centers each year, we estimate Avita could ramp up to 34% share or 4,800 patients per year by fiscal 2026. The cost of RECELL compares favorably with a skin graft in this setting, as RECELL has a list price of USD 7,500 per single-use unit versus the USD 17,000 to USD 20,000 cost of a skin graft. It also has the benefits of shorter length of stay and fewer additional procedures.

Outside of burn centers, the opportunity set is far more fragmented and because the burns are less severe, the cost of skin grafts average USD 2,000. As such, we expect limited take-up outside of burn centers, reaching 3% by fiscal 2031. Avita has received regulatory approval for an updated RECELL device that makes handling easier in a regular hospital environment. We expect the company will seek to justify reimbursement on a holistic cost of treatment and roll out the updated version in second-half fiscal 2022.

Bulls say

  • We view Avita’s RECELL system as a sound alternative treatment for large second- and third-degree burns treated in burn centers. It compares favorably on price and ease of use with new products and the existing standard of care being skin grafts.
  • The company requires little invested capital and is expected to generate very high returns once it ramps up its commercial rollout.
  • RECELL has achieved an estimated 20% market share in fiscal 2021 in its key addressable market since launching in 2019 and set to expand its use for other indications.

Bears say

  • Avita is still burning cash and the road to profitability depends on clinical readouts for further indications over the next few years, with the use of RECELL currently limited to adult and paediatric patients at burn centers.
  • The RECELL system is an assembly of tools with the only significant item being the vial of enzymes, so the effective price for the vial at a list price of USD 7,500 could be challenged by reimbursers.
  • The existing patents do not provide extended cover as expiries range between 2024 and 2034, and the very high gross margin of over 80% could come under pressure.

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