Avita Medical Facing First Strike

..Two largest shareholders to vote against remuneration report

20 November 2013: Leading Australian life sciences investment group BioScience Managers today confirmed it will vote against the remuneration report of spray-on skin company Avita Medical Limited (ASX:AVH) at the company’s AGM on Friday 22 November. With the company’s largest shareholder Australian Ethical also set to vote against the remuneration report, the company is now on the brink of its first strike.

“Shareholders are increasingly frustrated that a great technology is being poorly served by the management of the company,” said BioScience Managers Investment Director, Bronwyn Dilley. “We’ve raised our concerns with the Company regarding its performance and strategic direction, yet feel there is a complete lack of urgency to improve the company’s situation.”

“We invested in the company based on a sound technology with a product approved for sale in international markets. However, progress made by the company has been very slow and the core leadership of the Chairman and CEO needs change as the first step to reinvigorate the company.”

Avita’s 10 year share price history shows a company struggling to build shareholder value over the long term, despite being one of the few companies in life sciences in Australia that has a product approved for sale in major overseas markets. According to Bloomberg, under the leadership of Chairman Dalton Gooding the company’s share price has fallen from a high of over $5 to its current levels of 10-12 cents.

“Shareholders are also tired of seeing high short term incentives, paid in cash, to a CEO who is presiding over mediocre performance. Leadership starts at the top and we want to see genuine leadership putting the interests of shareholders first.”

Over the past 12 months the company has been focusing its efforts on the burns trial for FDA approval in the US. However, with recruitment slowing and the trial’s co-funder AFIRM expressing concern regarding FDA approval in its annual report, it may be that this is not the best use of shareholder funds.

“The increasing cash burn in the US, where the core product ReCell is not yet approved, and the poor conversion of sales and marketing expenses into increased revenues indicates that a change of plan is immediately needed.”

Based on current annual spend it is likely that Avita will need to raise additional capital in the next twelve months. With the company’s market cap at just $37.4m, cash reserves of around $8.5M and having burnt through contributed equity of $111.5m, it is clear the company requires a compelling new strategy to generate shareholder returns.

BioScience Managers Investment Director Dr Graeme Wald will be attending the AGM on Friday and welcomes discussion with other AVH shareholders. He can be contacted viainfo@biosciencemanagers.com. The AGM will be held on Friday November 22 from 2pm (WST) at QV1, 250 St Georges Terrace, Perth.