AVITA Medical used to be one of the easiest companies to model after plugging into the proper commercial metrics. There are so many procedures performed in the United States each year, while ReCell was quickly becoming the preferred product for treating specific segments of the burn market. If analysts correctly identified the trend in increased market access, then there was a clear correlation to revenue growth. Easy peasy.

But sometime in the second half of 2024 that all went out the window. Virtually every independent commercial metric began to lose its predictive value. Couple that with outward signs of underperformance, such as a string of missed guidance and woeful execution in international markets, and it's all pretty obvious now. There was clearly something amiss internally that wasn't visible to investors and analysts.

The wound care specialist announced it has relieved Jim Corbett from the CEO and board, naming board member Cary Vance as its third CEO in several years. For now, he'll don the title of interim CEO as the business explores more permanent candidates, although that could include Mr. Vance.

AVITA Medical also offered preliminary third-quarter 2025 revenue guidance of $17 million. Although there are likely some lingering effects from previously-disclosed bottlenecks in federal payment systems, that alone doesn't explain why the business is stalling out and failing to execute. It has growth products and relatively recent approvals. At best, it should be growing more slowly, not hitting a ceiling at $70 million in annual revenue. That doesn't make any sense.

I exited my position in AVITA Medical on May 9 and have since priced the company for bankruptcy. What are some scenarios for how this plays out in the near term? Is it possible this is now an opportunistic investment?

Can a Serial Fixer-Upper Fix AVITA Medical?

AVITA Medical desperately needed a pivot in management. I don't know the guy, but Cary Vance doesn't appear to be a terrible option.

• Cary Vance joined the board of directors in April 2023.
• He's currently an advisor to two commercial surgical companies (Bloom Surgical and Snipe Medical), serves on an advisory council for innovative technologies at the Cleveland Clinic, and serves on the board of humanoid robotics company Kinova.
• He's been an advisor, board member, or CEO of 12 medical technology companies since 2014, primarily focused on invasive procedures and robotic surgery.

Among those career stops, Mr. Vance has had stints ranging from just seven months to four years. Investors must view that statistic through the proper lens – he's a professional fixer-upper. You don't join companies in that capacity because things are going well. Sometimes things are beyond repair, especially for smaller startups run by incompetent management teams.

Mr. Vance has mixed results when given the reins of a business. Again, not all his fault or to his credit.

• First role as CEO (2 years, 4 months ending in August 2016): At intravascular robotics company Hansen Medical, he led a transformation that led to an acquisition by Auris Health. Shareholders actually rung the cash register twice, once when acquired by Auris and again when Auris was acquired by Johnson & Johnson for $5.8 billion.
• Second role as CEO (1 year, 2 months ending in May 2018): At drug-free pain treatment startup Myoscience, he put systems in place that led to increased utilization rates and commercial adoption. Myoscience was acquired by Pacira Biosciences for $220 million and is now the Pacira CryoTech business segment.
• Third role as CEO (2 year, 6 months ending in October 2020): At ICU surgical tech company Optiscan Biomedical, he attempted to increase the company's commercial footprint by retooling its strategy. The company has since folded.
• Fourth role as CEO (7 months ending in April 2021): At robotic catheter startup XCath, Mr. Vance only made it seven months. The company is still chugging along, but such a short stint is usually a sign that the company has more problems than can be properly fixed.
• Fifth role as CEO (1 year, 9 months ending in January 2025): At diagnostic device company PhotoniCare, he "strategically transformed the market with novel innovation." In other words, pretty much nothing.

Zooming out to the company level, AVITA Medical still has strengths.

It's the largest company by revenue that Mr. Vance has ever led. The ReCell system objectively works and drives objectively great outcomes versus traditional skin grafts. There are reams of real-world data demonstrating a clear advantage in patient outcomes, hospital stays, and healthcare system costs. The business might only grow sales 10% this year, but it grew revenue by 26% in 2024 and 46% in 2023.

The most glaring issue remains: AVITA Medical desperately needs cash. Recent mismanagement has left the business with few good options for securing a meaningful cash runway. It'll need to continuously issue shares to pay creditors and fund operations, which isn't a great time to be a shareholder.

The company does still have an approval in stable vitiligo (including FDA Breakthrough Device designation). I was surprised when former CEO Jim Corbett suddenly and quietly shelved the indication. My interpretation is that the business made that decision to quell fears about cash burn, not necessarily due to any market factors. I wouldn't be surprised to see that outlicensed for a quick cash injection.

Not for nothing, but Incyte has been delivering relatively strong performance from the first major vitiligo drug Opzelura. It's the company's second-best performing product by a mile after Jakafi, on pace to generate roughly $600 million in full-year 2025 revenue, an increase of 20% from last year.

The crucial detail is that Opzelura helps patients with vitiligo achieve stability, defined as a reduction in total lesion size and little to no new lesions. If Incyte found a way to follow up Opzelura with ReCell for a more permanent treatment option, then that would make commercial sense to me. The drug developer went through its own CEO transition recently, appointing serial get-my-company-acquired executive Bill Meury to the helm.

It might be a bit unusual for Incyte to buy rights to ReCell for stable vitiligo, but there are other major dermatology and wound care companies that could be interested – perhaps in gobbling up the entire business.

• Solventum was spun off from 3M. The $12 billion company could acquire AVITA Medical without any heartburn if it wanted to inject more growth potential. Importantly, any suitor would need to buy AVITA Medical's debt, so the larger the company the better.
• Vericel is the closest comparison to AVITA Medical, including when it comes to tickers (VCEL vs. RCEL). The business couldn't comfortably acquire AVITA Medical with cash on hand, but it's profitable enough to justify a transaction. Importantly, it wields complementary burn care products and could immediately benefit from ReCell.
• Many other traditional medical device companies or businesses are suffering from a lack of growth or investor enthusiasm, which presents both opportunities and challenges.

News Flow & Modeling Insights

(Priced for bankruptcy, updated model.)

The business is now valued at $0 per share on a fully-diluted basis. The suggested allocation is now 0%.

The current model for 2025 operations now expects:

• Full-year 2025 revenue of $68.494 million, down from a prior model of $77.932 million. This represents year-over-year growth of 9%.
• Full-year 2025 operating loss of at least $50 million, a downgrade from a prior model of $44.395 million.
• Full-year 2025 operating cash outflow of over $44 million, a downgrade from a prior model of over $41 million. Importantly, this is sharply higher than the available cash balance at the start of the year.

The current model uses an outstanding share count of 41.329 million. This is the value investors should use when determining what a future market cap level would represent as a share price.

• 619 million shares outstanding on August 4, 2025
• 400 million shares issued to OrbiMed on August 7, 2025
• 44 million shares issued to Australian investors on August 12, 2025
• 57 million shares of additional dilution expected from future capital raises
• 3 million shares issuable as stock options

Margin of Safety & Conviction

AVITA Medical is considered a Future Compounder position with the following Conviction rating.

• 1 = High
• 2 = Above Average
• 3 = Average
• 4 = Below Average

The estimated fair valuation based on my current model is below:

• Market close $3.91 per share: $3.91 per share
• Modeled Fair Valuation: $0
• Allocation Range: Up to 0%

AVITA Medical reported 27.019 million shares outstanding as of August 7, 2025. The modeled fair valuation above assumes 41.329 million shares outstanding, which is equivalent to full dilution.

Further Reading

• October 2025 press release announcing CEO transition
• August 2025 press release announcing a public offering of common stock of 3.44 million shares to raise gross proceeds of $15 million
• August 2025 regulatory filing (10-Q) detailing Q2 2025 operating results
• August 2025 research note analyzing Q2 2025 operating results