Avita expects $600,000pa in savings

Perth-based Avita Medical expects to save up to $600,000 a year following a comprehensive review of its operations.

The company has completed a six-month long review which identified opportunities for optimisation within the company's manufacturing processes.

As part of the review, the company has relocated its manufacturing for spacer products to a facility in Malaysia, which is expected to reduce costs by around 35 per cent compared to current production levels.

Meantime, the company expects to save over $500,000 over the next 12 months from the production of its ReCell product, a spray that is used on a patient's skin to accelerate healing and minimise the risk of scarring.

Following a number of tests, Avita says it has increased the shelf life of ReCell from 12 months to 24 months.

"With an improved cash flow profile, and sales of our products improving, we enter the second half of the financial year in a significantly strengthened financial position," chief executive William Dolphin said.

Avita Medical's interim results are due for release in late February 2009.

The announcement is below:

Avita Medical Ltd (ASX: AVH) is pleased to announce a number of major improvements to its operations and manufacturing processes resulting in total cost savings of up to $600,000 per annum.

Implementation of revised Operations Systems.

During the past 6 months the company has conducted a comprehensive review of its Operations Processes. Application of a 'Continuous Improvement' model (viz., a structured management procedure whereby processes are constantly evaluated and improved with regard to efficiency, effectiveness and flexibility) has identified opportunities for optimisation of the company's manufacturing processes. Implementation of these initiatives is yielding a streamlined manufacturing process, increased product reliability, reduction of waste, decreased production costs with concomitant increased margins, and improved Quality System (Avita Medical receives ISO certification 14 Jan 2009).

Improved manufacture and reduced costs for spacer products.

In November 2008 Avita Medical commenced a major revision of its spacer manufacturing process including the relocation of manufacturing to a new GMP facility in Malaysia. The new manufacturing process will allow high volume, low cost production at a cost reduction of approximately 35% compared to the current manufactured product.

Tool qualification and validation processes are underway in preparation for initial production runs anticipated in March.

One-off costs associated with the manufacturing transfer are reflected in the 31 December 2008 4C financials and include costs related to the shipment and qualification of tools, an initial outlay for increased inventory as a 'safety net', and the advance purchase of raw materials.

Avita Medical VP Operations William Marshall said the company was pleased with the progress of the new facility.

"We are confident that production at the new facility will commence by late March as targeted, and ahead of the southern hemisphere autumn and winter asthma season," said Mr Marshall.

"The new manufacturing process will significantly decrease production costs for our spacer products and allow us to meet the high volume, low cost manufacturing required."

Revised production process for ReCell yields improved efficiencies.

Critical revisions to the ReCell manufacturing process have been recently implemented. It is anticipated that these revisions will yield a cumulative savings in excess of $500,000 over the next 12 months at the current production levels.

Key changes include improved sampling efficiency during the manufacturing process to meet statistical Quality Metrics and the extension of shelf life for critical enzymatic formulations.

The ReCell product incorporates numerous biologically active components. Due to stability issues of these components in the current manufacturing process, ReCell previously had a shelf life of just 12 months, resulting in the costly and wasteful requirement to regularly replace product in the field and dispose of significant quantities of expired stock.

Using data acquired in stability trials and quantitative risk analysis, Avita has now extended the shelf life of ReCell kits to 24 months. These modifications are yielding significant cost reduction of the manufactured product, improved quality control and a major decrease in wastage while better meeting the needs of Avita Medical's customers.

Avita Medical Chief Executive Officer Dr William Dolphin said the formal application of the 'Continuous Improvement' model is yielding optimisation of Avita's operations and manufacturing processes and will enable the company to significantly tighten its management of working capital.

"This will have a very positive impact on our cash position," he said.

"By implementing these changes to our operational processes we're able to reduce our costs by $600,000 per annum.

"With an improved cash flow profile, and sales of our products improving, we enter the second half of the financial year in a significantly strengthened financial position."

Avita Medical's half year results for the period ending 30 December 2008 are due for release in late February 2009.