AVITA Medical, Inc. (RCEL)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of AVITA Medical, Inc.’s (“we”, “our”, or “us”) financial condition and results of operations should be read in conjunction with our unaudited Consolidated Financial Statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q as well as the “Note Regarding Forward-Looking Statements” on page 3.

Overview

We are a leading therapeutic acute wound care company delivering transformative solutions. Our solutions improve the healing outcomes for patients with traumatic injuries and surgical repairs, addressing critical healing needs that arise from unpredictable and life-changing events. At the forefront of our portfolio is RECELL® (“RECELL”), approved by the U.S. Food & Drug Administration (the “FDA”) for the treatment of thermal burn wounds and full-thickness skin defects. RECELL harnesses the healing properties of a patient’s own skin to create an autologous skin cell suspension, Spray-On Skin™, offering an innovative solution for improved clinical outcomes at the point of care. We entered into an exclusive multi-year development and distribution agreement with Collagen Matrix, Inc. dba Regenity Biosciences (“Regenity”). Regenity manufactures and supplies Cohealyx™, an AVITA Medical-branded, FDA-cleared, collagen-based dermal matrix. Under the agreement with Regenity, we hold the exclusive rights to market, sell, and distribute Cohealyx in the U.S., with the potential to expand such commercialization into the European Union, Australia, and Japan. In addition, in the United States, we hold the rights to manufacture and exclusively market, sell, and distribute PermeaDerm®, a biosynthetic wound matrix, under the terms of exclusive multi-year distribution and contract manufacturing agreements with Stedical Scientific, Inc.

The single-use RECELL Autologous Cell Harvesting Device (“RECELL Ease-of-Use” or “RECELL EOU”) is approved by the FDA for the treatment of thermal burn wounds and full-thickness skin defects. Our next-generation device, RECELL GO® Autologous Cell Harvesting Device (“RECELL GO”), is FDA-approved to treat thermal burn wounds and full-thickness skin defects. RECELL GO introduces enhanced features that improve consistency and standardization across clinical settings. It consists of two components: the RECELL GO Processing Device (the “RPD”) and the RECELL GO Preparation Kit (the “RPK”). The RPD is a multi-use, AC-powered device that controls the RPK. The RPK contains a single-use cartridge and the RECELL Enzyme™. The RPD regulates the pressure applied to disaggregate the cells and precisely controls the incubation time of the RECELL Enzyme to optimize cell yield and promote cell viability. RECELL GO mini® Autologous Cell Harvesting Device (“RECELL GO mini”), which was approved by the FDA in December 2024, is a line extension of RECELL GO, designed specifically to treat smaller wounds up to 480 cm2. It utilizes the same RPD but features a RECELL GO mini Preparation Kit, which includes a single-use RECELL GO mini cartridge optimized for smaller skin samples. These modifications are intended to align with the needs of clinicians treating smaller wounds, and to support broader adoption of the RECELL GO platform in trauma centers.

We are executing a focused commercial strategy centered on approximately 200 U.S. burn and trauma centers that represent the highest value and procedural volume within the acute wound care market. These institutions are core to our commercialization efforts due to their high concentration of complex inpatient cases and consistent procedural throughput. By prioritizing burn and trauma centers, we are targeting the most critical segments of acute wound care to maximize clinical impact and drive adoption across our portfolio.

To further our mission of improving clinical outcomes and establishing new standards of acute wound care, we have outlined the following strategic objectives:

•
Increasing market penetration in U.S. burn centers, positioning RECELL as the standard of care in burn management;

•
Expanding adoption of RECELL for the treatment of traumatic and surgical wounds throughout the U.S.;

•
Expanding adoption of Cohealyx as a dermal matrix that supports wound bed preparation and meaningfully reduces mean time to skin grafting;

•
Repositioning PermeaDerm as an alternative to allograft (cadaver skin), leveraging its clinical, economic, and operational advantages to establish a higher-value role in burn care.

•
Driving adoption of RECELL GO mini in burn and trauma centers treating smaller wounds;

•
Complete analysis of the results of the clinical studies for Cohealyx and PermeaDerm and prepare for submission of the data for publication;

•
Expanding RECELL internationally through distributor-led commercialization upon receipt of regulatory approvals;

•
Driving commercial revenue growth, improving operating leverage, generating positive cash flow, and achieving long-term operating profitability; and

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•
Pursuing additional business development opportunities complementary to our target wound care markets.

Business Environment and Current Trends

Changes in reimbursement rates and coverage policy by third party payors may place additional financial pressure on hospitals and the broader healthcare system. These changes could reduce demand for our products, particularly if healthcare providers face lower margins or additional administrative burdens. For example, in 2025 the Centers for Medicare & Medicaid Services (“CMS”) designated pricing responsibility for the Current Procedural Terminology (“CPT”) code used with RECELL to the seven regional Medicare Administrative Contractors (“MACs”). Delay by the MACs in establishing and publishing reimbursement rates temporarily slowed clinician use of RECELL. As of March 2026, all seven MACs had published rates, restoring reimbursement clarity and supporting a return toward normalized utilization.

In July 2026, CMS released the 2027 Medicare Physician Fee Schedule (“PFS”), Hospital Outpatient Prospective Payment System, and Ambulatory Surgical Center (“ASC”) proposed rules addressing Medicare payment for Skin Cell Suspension Autograft, the procedure performed using RECELL The proposed rules reflect the new Category I CPT code family effective January 1, 2027 and include proposed national physician relative value units based on American Medical Association recommended valuation, as well as proposed increases to hospital outpatient and ASC facility payment rates. If finalized, RECELL physician reimbursement would transition from the current regional MACs contractor-priced methodology to a more transparent, nationally published PFS. CMS is expected to issue final rules later this year, with implementation effective January 1, 2027.

The macroeconomic environment may have unexpected adverse effects on businesses and healthcare institutions globally that may, in turn, negatively impact our consolidated operating results. There remains significant uncertainty in the current macroeconomic environment due to factors including supply chain shortages, increased cost of healthcare, changes to inflation rates, a competitive labor market, tariffs, and other related global economic and geopolitical conditions. If these conditions continue or worsen, they could adversely impact our future operating results.

Geopolitical conditions may also impact our operations. Although we do not have operations in Russia, Ukraine, the Middle East, or Asia (outside of Japan), the continuation or threat of military conflicts in these regions or any escalation of conflicts beyond their current scope may further weaken the global economy resulting in additional inflationary pressures or supply chain constraints.

Recent Developments

On January 13, 2026, we entered into a five-year credit facility with Perceptive Advisors LLC providing up to $60 million in available capital. At closing, we drew $50 million and used a portion of the proceeds to repay our existing debt, resulting in net proceeds of approximately $6.0 million after repayment of our prior debt and certain related transaction fees. This credit facility includes an option to access an additional $10.0 million through the first quarter of 2027, subject to the achievement of a certain revenue milestone. This facility also establishes trailing twelve-month revenue covenants aligned with our current operating trajectory, including $68.5 million for the quarter ended March 31, 2026, $69.0 million for the quarter ended June 30, 2026, and $73.0 million for the year ending December 31, 2026. As of June 30, 2026, we were in compliance with these covenants. For additional information, see Liquidity and Capital Resources below.

On April 6, 2026, we entered into a ten-year agreement with the Biomedical Advanced Research and Development Authority (“BARDA”), part of the U.S. Department of Health and Human Services, with a total potential value of up to $25.5 million. Under the agreement, we will maintain a supply of RECELL for deployment in burn mass casualty incidents and provide associated readiness and support services. The agreement provides approximately $4.0 million in access and maintenance fees over the ten-year term, with additional potential revenue tied to procurement options exercised by BARDA. Costs to fulfill the BARDA emergency preparedness performance obligation, which consist of billed costs to BARDA incurred in connection with emergency deployment services, are incremental and expected to be recovered.

In April 2026, we announced positive interim results from our Cohealyx I post-market clinical study, demonstrating a statistically significant reduction in mean time to autografting readiness of approximately 20 days compared to a literature-derived benchmark (13.6 days versus 33.2 days; p0.001). These findings support the potential of Cohealyx to improve clinical outcomes and enhance efficiency in the treatment of full-thickness wounds.

We participated in the American Burn Association 2026 Annual Meeting in April, where independent investigators and clinical partners presented data and case studies reflecting real-world use of RECELL, Cohealyx, and PermeaDerm across a range of wound care applications. These presentations highlighted evolving clinical experience with our products and their use across different stages of wound management.

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In April 2026, RECELL GO received Therapeutic Goods Administration certification in Australia and was listed on New Zealand's Web Assisted Notification of Devices database by Medsafe, enabling commercialization in both markets. These regulatory authorizations expand the international availability of RECELL GO and support our distributor-led commercialization strategy in Australia and New Zealand.

In June 2026, clinical data highlighting the first documented use of RECELL GO in the United Kingdom was presented at the 2026 British Burn Association Annual Meeting. The case series, involving 17 patients treated at Stoke Mandeville Hospital, demonstrated successful use of RECELL GO across burn and reconstructive procedures, with investigators reporting favorable clinical outcomes, uncomplicated donor-site healing, and workflow benefits through standardized cell preparation.

Results of Operations for the three-months ended June 30, 2026 compared to the three-months ended June 30, 2025.

The table below summarizes the results of our operations for each of the periods presented (in thousands).

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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 years-ended December 31, 2025 and 2024, should be read in conjunction with our consolidated financial statements and related notes included in this Annual Report.

Overview

AVITA Medical, Inc. (“we”, “our”, “us”) is a leading therapeutic acute wound care company delivering transformative solutions. Our solutions improve the healing outcomes for patients with traumatic injuries and surgical repairs, addressing critical healing needs that arise from unpredictable and life-changing events. At the forefront of our portfolio is RECELL® (“RECELL”), approved by the U.S. Food & Drug Administration (the “FDA”) for the treatment of thermal burn wounds and full-thickness skin defects. RECELL harnesses the healing properties of a patient’s own skin to create an autologous skin cell suspension, Spray-On Skin™ Cells, offering an innovative solution for improved clinical outcomes at the point of care. In addition, in the United States, we hold the rights to manufacture and exclusively market, sell, and distribute PermeaDerm®, a biosynthetic wound matrix, under the terms of exclusive multi-year distribution and contract manufacturing agreements with Stedical Scientific, Inc. (“Stedical”). We also entered into an exclusive multi-year development and distribution agreement with Collagen Matrix, Inc. dba Regenity Biosciences (“Regenity”). Regenity manufactures and supplies Cohealyx™, an AVITA Medical-branded, FDA-cleared, collagen-based dermal matrix. Under the agreement with Regenity, we hold the exclusive rights to market, sell, and distribute Cohealyx in the U.S., with the potential to expand such commercialization into the European Union, Australia, and Japan.

The single-use RECELL Autologous Cell Harvesting Device (“RECELL Ease-of-Use” or “RECELL EOU”) is approved by the FDA for the treatment of thermal burn wounds and full-thickness skin defects. Our next-generation device, RECELL GO® Autologous Cell Harvesting Device (“RECELL GO”), is FDA-approved to treat thermal burn wounds and full-thickness skin defects. RECELL GO introduces enhanced features that improve consistency and standardization across clinical settings. It consists of two components: the RECELL GO Processing Device (the “RPD”) and the RECELL GO Preparation Kit (the “RPK”). The RPD is a multi-use, AC-powered device that controls the RPK. The RPK contains a single-use cartridge and the RECELL Enzyme™. The RPD regulates the pressure applied to disaggregate the cells and precisely controls the incubation time of the RECELL Enzyme to optimize cell yield and promote cell viability. RECELL GO mini™ Autologous Cell Harvesting Device (“RECELL GO mini”), which was approved by the FDA in December 2024, is a line extension of RECELL GO, designed specifically to treat smaller wounds up to 480 cm2. It utilizes the same RPD but features a RECELL GO mini Preparation Kit, which includes a single-use RECELL GO mini cartridge optimized for smaller skin samples. These modifications are intended to align with the needs of clinicians treating smaller wounds, and to support broader adoption of the RECELL GO platform in trauma centers.

We are executing a focused commercial strategy centered on approximately 200 U.S. burn and trauma centers that represent the highest value and procedural volume within the acute wound care market. These institutions are core to our commercialization efforts due to their high concentration of complex inpatient cases and consistent procedural throughput. By prioritizing burn and trauma centers, we are targeting the most critical segments of acute wound care to maximize clinical impact and drive adoption across our portfolio.

To further our mission of improving clinical outcomes and establishing new standards of acute wound care, we have outlined the following strategic objectives:

•
Increasing market penetration in U.S. burn centers, positioning RECELL as the standard of care in burn management;

•
Expanding adoption of RECELL for the treatment of traumatic and surgical wounds throughout the U.S.;

•
Commercializing and expanding adoption of Cohealyx as a dermal matrix that supports wound bed preparation and accelerates readiness for grafting;

•
Driving adoption of RECELL GO mini in burn and trauma centers treating smaller wounds;

•
Advancing post-market clinical studies for Cohealyx and PermeaDerm to generate additional clinical and health economic evidence supporting adoption;

•
Expanding internationally through distributor-led commercialization upon receipt of regulatory approvals;

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•
Driving commercial revenue growth, improving operating leverage, generating positive cash flow, and achieving long-term operating profitability; and

•
Pursuing additional business development opportunities complementary to our target acute wound care markets.

Business Environment and Current Trends

Changes in reimbursement rates and coverage policy by third party payors may place additional financial pressure on

hospitals and the broader healthcare system. These changes could reduce demand for our products, particularly if healthcare providers face lower margins or additional administrative burdens. For example, in 2025 the Centers for Medicare & Medicaid Services (“CMS”) designated pricing responsibility for the Current Procedural Terminology (“CPT”) code used with RECELL to the seven regional Medicare Administrative Contractors (“MACs”). MAC delay in establishing and publishing reimbursement rates temporarily slowed clinician use of RECELL. As of January 2026, all seven MACs have established pricing, six of which have been published, restoring reimbursement clarity and supporting a return toward normalized utilization.

The macroeconomic environment may have unexpected adverse effects on businesses and healthcare institutions globally that may negatively impact our consolidated operating results. There remains significant uncertainty in the current macroeconomic environment due to factors including supply chain shortages, increased cost of healthcare, changes to inflation rates, a competitive labor market, tariffs, and other related global economic conditions and geopolitical conditions. If these conditions continue or worsen, they could adversely impact our future operating results.

Geopolitical conditions may also impact our operations. Although we do not have operations in Russia, Ukraine, the Middle East, or Asia, the continuation or threat of military conflicts in these regions or any escalation of conflicts beyond their current scope may further weaken the global economy resulting in additional inflationary pressures or supply chain constraints.

Recent Developments

On January 13, 2026, we closed a five-year credit facility providing up to $60 million in capital with a new lender and refinanced our existing debt, receiving total net proceeds of $6.0 million after repayment of our existing debt and certain fees. As part of the new credit facility, we established trailing twelve-month (“TTM”) revenue covenants aligned with our current operating trajectory. The initial TTM revenue covenant is $68.5 million for the first quarter ending March 31, 2026, and $73 million for the full year 2026. For additional information, see Liquidity and Capital Resources below.

On January 5, 2026, the Board of Directors recognized the contributions of long-time Director (and former Chair of the Board) Lou Panaccio, whose last day of service was December 31, 2025. Following Mr. Panaccio’s retirement, the Board was pleased to announce Joe Woody’s appointment as a new Director pursuant to an offer letter to join the Board as of January 1, 2026.

On October 16, 2025, Mr. Vance, the Chair of the Board of Directors, assumed the position of Interim Chief Executive Officer (the “Interim CEO”) upon the departure of Mr. Corbett from the Company and the Board.

On October 1, 2025, the CMS approved a New Technology Add-On Payment (“NTAP”) for the RECELL® System, applicable to acute non-thermal full-thickness skin defects—such as traumatic injuries and surgical wounds—that require inpatient care and are treated with RECELL in combination with a meshed autograft. This NTAP designation allows Medicare Part A inpatient claims to receive up to $4,875 in additional reimbursement per case, beyond the standard MS-DRG base rate, provided CMS thresholds and coding criteria are met. The NTAP is effective from October 1, 2025, through September 30, 2026, and was granted under CMS’s alternative pathway recognizing RECELL’s FDA Breakthrough Device status, reinforcing its clinical value and supporting broader hospital adoption.

On September 14, 2025, we obtained the CE Mark for RECELL GO under the European Union Medical Device Regulation (“EU MDR”). This allows us to commercialize RECELL GO in Europe and other markets that recognize the CE Mark.

During 2025, we continued to expand the clinical and real-world evidence supporting RECELL and its acute wound care portfolio, with an emphasis on hospital utilization, wound closure outcomes and staged care pathways. Data presented at major burn and wound care conferences highlighted reproducible outcomes in clinical practice and increasing surgeon adoption across diverse patient populations.

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Key studies presented during 2025 included the following:

•
Real-world hospital length of stay (“LOS”) analysis: A registry-based analysis of 741 matched adult patients with deep partial-thickness burns from the American Burn Association’s Burn Care Quality Platform compared RECELL with split-thickness skin grafting. The study demonstrated a statistically significant reduction in hospital length of stay of approximately 5.6 days, or 36%, for RECELL-treated patients, with consistent reductions across burn size subgroups up to 30% TBSA. RECELL-treated patients were more likely to be discharged directly home, supporting conclusions of improved recovery trajectories and hospital throughput.

•
Global systematic review of RECELL clinical evidence: A systematic review of 99 peer-reviewed studies, including 27 comparative analyses and more than 8,000 patients, found that RECELL consistently reduced donor site burden, achieved healing times comparable to or faster than conventional grafting, and demonstrated favorable pain, aesthetic and health economic outcomes across wound types. The authors concluded that the consistency and breadth of evidence support RECELL as an emerging standard of care in wound closure across diverse populations and care settings.

•
Accelerated wound bed preparation with Cohealyx: A June 2025 clinical publication evaluating Cohealyx reported rapid wound bed vascularization and readiness for autografting within approximately 5 to 10 days in a case series of complex full-thickness wounds, compared with the 2-to-4-week timelines typically reported for conventional dermal matrices. This data confirms previously published pre-clinical work. Investigators concluded that earlier readiness for definitive closure may reduce patient burden and complication risk.

•
Temporary wound coverage using PermeaDerm: In a retrospective case series, PermeaDerm was used to temporize mixed-depth and full-thickness burn wounds in patients unable to undergo immediate autografting. Surgeons cited ease of application, reduced operative complexity relative to cadaveric allograft, and the advantage of maintaining direct visualization of the wound bed. The study concluded that PermeaDerm provided safe and effective temporary coverage pri

[Excerpt truncated for page length; the complete text is on the linked full-MD&A page.]