Avita Medical: Distribution Agreement for Third-Party Wound Care Product

No-moat Avita Medical has made a distribution agreement with Regenity Biosciences to exclusively sell its collagen-based dermal matrix product. We expect the product to receive regulatory approval in the fourth quarter of 2024, and factor Avita spending USD 5 million in milestone payments and sharing 50% of revenue for the first two years of sales, and 60% after that. Our gross profit forecasts increase by 1% on average but we maintain our AUD 5.40 fair value estimate. While there is an opportunity for Avita to cross-sell products, as it currently does with Stedical Scientific’s PermeaDerm wound product, the additional marketing expense makes profit upside marginal. We think these products complement Avita’s RECELL product for treating wounds but are relatively minor in their earnings contribution.