VERICEL Q4 2021 RESULTS FEBRUARY 24, 2022 Safe Harbor | --- | --- | --- ...

Summary of Vericel Conference Call Company Overview - Vericel is a leading provider of advanced therapies for the sports medicine and severe burn care market [3] - The company has a portfolio of advanced cell therapies and specialty biologics designed to restore or repair damaged tissue [4] Key Products - **MACI**: An advanced cell therapy for repairing damaged cartilage, launched in 2017, now the leading restorative biologic cartilage repair product [4] - Received FDA approval for label expansion for arthroscopic delivery of MACI for defects up to four square centimeters [4] - **NexoBrid**: An orphan biologic product for the removal of burn tissue in patients [5] - **Epicel**: The only FDA-approved permanent skin replacement for patients with large, full-thickness burns [5] Competitive Advantages - Unique FDA-approved products with strong competitive barriers to entry [6] - MACI and Epicel are regulated as combination device biologic products, limiting competition [6] - NexoBrid has seven years of orphan market exclusivity and twelve years of biologic data exclusivity [7] Financial Performance - 20% compound annual revenue growth since MACI's launch in 2017 [8] - Ended last year with a 73% gross margin, up almost 400 basis points from 2023 [8] - Consistent positive adjusted EBITDA and operating cash flow for the last five years [8] - Strong balance sheet with approximately $160 million in cash [9] Growth Drivers for MACI - Expansion of the surgeon base and increasing the number of biopsies per surgeon [15] - High reimbursement rates, with over 90% approval for treatment by insurance companies [13] - Continued growth expected from MACI Arthro, targeting smaller defects in the knee [19][22] MACI Arthro Launch - MACI Arthro is seen as both a deeper and broader strategy for growth [19] - Surgeons trained for MACI Arthro increased from 150 to 400 within a few months [25] - Biopsy growth rate for trained surgeons was up 30%, indicating strong early adoption [26] - The product is designed for smaller defects, expanding the addressable market significantly [22] Guidance and Market Outlook - Increased financial guidance due to strong performance and market conditions [39] - Epicel's growth was 16% last year, with expectations for normalization in future quarters [41] - Anticipated significant cash generation post-capital expenditures [44] Capital Allocation - Focus on business development opportunities while maintaining a disciplined approach [47] - Expectation of increased free cash flow as capital expenditures decrease [44] Conclusion - Vericel is positioned for continued growth with a strong product portfolio, competitive advantages, and a solid financial foundation, particularly with the launch of MACI Arthro and ongoing market expansion efforts [49]

Group 1 - The article discusses the focus on covered call opportunities within the biotech sector, particularly in the context of a small-cap company, Vericel Corporation (NASDAQ: VCEL) [1] - Vericel Corporation was previously rated as a 'Sell' due to its extreme valuation despite growth prospects [1] - The Biotech Forum offers a model portfolio featuring 12-20 high upside biotech stocks, along with live discussions and weekly updates [1]

Core Insights - Vericel Corporation will participate in a fireside chat at the Truist Securities MedTech Conference on June 17, 2025, at 9:20 a.m. ET [1] Company Overview - Vericel Corporation is a leader in advanced therapies for sports medicine and severe burn care markets, combining biological innovations with medical technologies [2] - The company markets three products in the United States: - MACI, an autologous cellularized scaffold for repairing full-thickness cartilage defects in the knee [2] - Epicel, a permanent skin replacement for treating deep dermal or full-thickness burns covering 30% or more of total body surface area [2] - NexoBrid, a biological orphan product for eschar removal in burn patients, for which Vericel holds exclusive North American rights [2]

Summary of Vericel (VCEL) 2025 Conference Call Company Overview - **Company**: Vericel Corporation - **Industry**: Advanced therapies for sports medicine and severe burn care markets - **Key Products**: MACI (cell therapy for cartilage repair), NexoBrid (eschar removal), Epicel (permanent skin replacement) [1][2][4] Core Points and Arguments Product Leadership - Vericel is a leader in advanced therapies with a unique portfolio of specialty biologics and advanced cell therapies [2][3] - MACI is the leading restorative cartilage repair product and the only FDA-approved product in its class [3][5] - Recent FDA approval for AC Arthro is expected to enhance market penetration [3] Financial Performance - The company has shown significant revenue growth, with a compounded annual growth rate of approximately 20% since the launch of MACI in 2017 [9][11] - Burn care franchise grew by 22% last year, indicating strong performance in both segments [8] - Strong financial position with over $160 million in cash and no debt [7] Market Opportunity - Total Addressable Market (TAM) for the core portfolio is approximately $4 billion, potentially increasing to over $5 billion with the addition of MACI ankle indications [9] - There are about 750,000 knee cartilage repair procedures annually, with a significant commercial opportunity for MACI [13] Growth Initiatives - Plans to initiate a MACI ankle study and expand manufacturing capabilities to support international launches [8][10] - The MACI Arthro launch is expected to simplify procedures and increase market penetration [16][19] Burn Care Innovations - NexoBrid is positioned to change the standard of care for burn treatment by providing a less traumatic eschar removal method [22][23] - Epicel is the only FDA-approved permanent skin replacement, showing significant survival benefits for patients [26] Adoption and Training - Over 400 surgeons trained for MACI Arthro, with a biopsy growth rate exceeding 30% among trained surgeons [20][19] - Focus on expanding the commercial footprint and increasing utilization of both NexoBrid and Epicel [26][27] Additional Important Content - The company emphasizes the lack of near-term competitors and significant barriers to entry in the market [5][6] - The innovative nature of MACI and its broad label contribute to its market leadership [15] - Continuous exploration for new products in sports medicine and burn care markets to leverage existing capabilities [28]

Core Viewpoint - The company has reported a strong start to the year with record first quarter MACI and total revenue, indicating positive growth and performance in the market [5]. Group 1: Company Performance - The company achieved record first quarter MACI revenue, reflecting strong demand and operational efficiency [5]. - Total company revenue also reached a record high in the first quarter, showcasing overall business growth [5]. Group 2: Leadership and Communication - The earnings call featured key executives including the CEO, Nick Colangelo, and CFO, Joe Mara, highlighting the leadership team's involvement in discussing the company's performance [2][4]. - The call was structured to provide insights into the company's financial results and future outlook, with a reminder about forward-looking statements and associated risks [3].

Core Viewpoint - Vericel Corporation reported a quarterly loss of $0.23 per share, which was worse than the Zacks Consensus Estimate of a loss of $0.09, marking an earnings surprise of -155.56% [1] Financial Performance - The company posted revenues of $52.6 million for the quarter ended March 2025, missing the Zacks Consensus Estimate by 2.73%, compared to revenues of $51.28 million a year ago [2] - Over the last four quarters, Vericel has surpassed consensus EPS estimates two times and topped consensus revenue estimates just once [2] Stock Performance - Vericel shares have declined approximately 26.3% since the beginning of the year, contrasting with the S&P 500's decline of -4.3% [3] - The current Zacks Rank for Vericel is 3 (Hold), indicating that the shares are expected to perform in line with the market in the near future [6] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is -$0.03 on revenues of $65.24 million, and for the current fiscal year, it is $0.32 on revenues of $286.96 million [7] - The estimate revisions trend for Vericel is mixed, and changes in estimates for the coming quarters and current fiscal year are anticipated following the recent earnings report [6][7] Industry Context - The Medical - Biomedical and Genetics industry, to which Vericel belongs, is currently in the top 33% of over 250 Zacks industries, suggesting a favorable outlook compared to the bottom 50% [8]

Financial Data and Key Metrics Changes - The company achieved record total net revenue of $52.6 million for the first quarter, with MACI revenue of $46.3 million, Epicel revenue of $5 million, and NexoBrid revenue of $1.3 million [13] - MACI revenue grew by 15% year-over-year, which adjusts to approximately 17% growth when accounting for one fewer selling day in the quarter [14] - NexoBrid revenue increased by 207% year-over-year and 31% sequentially [14] - The net loss for the quarter was $11.2 million, or $0.23 per share, with non-GAAP adjusted EBITDA of $3.2 million, representing 6% of net revenue [16] Business Line Data and Key Metrics Changes - MACI had a strong quarter with record revenue exceeding $46 million, driven by strong underlying fundamentals and a growing surgeon customer base [6][5] - NexoBrid's revenue growth was significant, with over 200% increase compared to the previous year, indicating strong market penetration [10] - Epicel revenue was lower than anticipated due to a high percentage of canceled cases, but there was a strong start to the second quarter with graft volumes exceeding the first quarter [11][12] Market Data and Key Metrics Changes - The company expects total revenue growth of 22% to 25% for the second quarter, with MACI revenue projected to be approximately $54 million [18] - The addressable market for MACI is estimated at 60,000 patients annually, with significant opportunities in femoral condyle and trochlear defects [26][20] Company Strategy and Development Direction - The company is advancing the MACI Ankle Development Program and plans to initiate a Phase III clinical study in the second half of the year, which represents a substantial long-term growth driver [20] - The company plans to expand its MACI sales force in the second half of the year to support growth driven by MACI Arthro [10][20] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about strong second quarter performance based on positive trends observed in the first quarter, reaffirming full-year revenue guidance of 20% to 23% growth [5][17] - The company anticipates minimal impact from tariffs due to its domestic manufacturing and significant safety stock of materials [17] Other Important Information - The company generated $6.6 million in operating cash flow and ended the quarter with approximately $162 million in cash and no debt [16] - Management raised profitability guidance for the year, expecting gross margins to reach 75% and adjusted EBITDA margins to reach 26% [18] Q&A Session Summary Question: Can you discuss the market opportunity for femoral condyle and trochlear specifically? - Management indicated that the MACI Arthro instruments are designed for femoral condyle defects, which represent a significant portion of the addressable market, and there is potential for treating trochlear defects as well [26][27] Question: How do you see seasonality and pacing for MACI in the second half of the year? - Management noted that while MACI typically follows a prescriptive pattern, strong leading indicators suggest potential for stronger growth in the second half of the year [32][33] Question: What is the contribution of MACI Arthro to first quarter numbers? - Management acknowledged that while there was some incremental impact from MACI Arthro, the full effect is expected to be seen in the second half of the year [38][40] Question: How have recent trade war headlines impacted international views on MACI? - Management stated that they are evaluating potential for MACI outside the U.S. but will consider tariffs and trade impacts before making decisions [92] Question: Can you provide insights on conversion rates for MACI Arthro procedures? - Management indicated that it is early to assess conversion rates, but they expect higher rates over time due to the less invasive nature of the procedure [57][66] Question: What are the dynamics of cross-selling opportunities between Epicel and NexoBrid? - Management confirmed that they are seeing biopsies from previously dormant accounts and expect this trend to continue as they cross-sell products [61] Question: Can you elaborate on the sales force expansion plans? - Management indicated that while the expansion is not full-scale this year, they are preparing to add resources to support expected growth [80][81]

Financial Data and Key Metrics Changes - The company achieved record total net revenue of $52.6 million for Q1 2025, with MACI revenue of $46.3 million, Epicel revenue of $5 million, and NexoBrid revenue of $1.3 million [12] - MACI revenue grew by 15% year-over-year, which adjusts to approximately 17% growth when accounting for one fewer selling day in the quarter [12] - NexoBrid revenue increased by 207% year-over-year and 31% sequentially [12] - The net loss for the quarter was $11.2 million, or $0.23 per share, with non-GAAP adjusted EBITDA of $3.2 million, representing 6% of net revenue [15] Business Line Data and Key Metrics Changes - MACI had a strong quarter with record revenue exceeding $46 million, driven by strong underlying fundamentals and a growing surgeon customer base [6] - NexoBrid revenue showed significant growth, indicating progress in its launch and deeper penetration in ordering centers [10] - Epicel revenue was lower than anticipated due to a high percentage of canceled cases related to patient health issues, despite the highest number of biopsies since 2023 [10][13] Market Data and Key Metrics Changes - The company expects total revenue growth of 22% to 25% for Q2 2025, with MACI revenue projected to be approximately $54 million [17] - The addressable market for MACI is estimated at 60,000 patients annually, with significant opportunities in treating femoral condyle and trochlear defects [24][25] Company Strategy and Development Direction - The company plans to expand its MACI sales force in the second half of 2025, driven by strong early indicators from the MACI Arthro launch [9][19] - The MACI Ankle Development Program is on track to initiate Phase III clinical studies, representing a substantial long-term growth driver with an estimated market of $1 billion [19] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about strong underlying MACI business fundamentals and early indicators from the MACI Arthro launch, suggesting potential for incremental growth [20] - The company reaffirmed its full-year revenue guidance of 20% to 23% growth and raised profitability guidance, expecting gross margins to reach 75% and adjusted EBITDA margins to 26% for the year [17] Other Important Information - The company ended the quarter with approximately $162 million in cash, restricted cash, and investments, with no debt [15] - Management noted that tariffs are expected to have a negligible impact on the business due to domestic manufacturing and significant safety stock [16] Q&A Session Summary Question: Can you discuss the market opportunity for femoral condyle and trochlear specifically? - Management indicated that the MACI Arthro instruments are designed for femoral condyle defects, representing a significant portion of the addressable market, and surgeons are also using them for trochlear defects, expanding the potential market [24][25] Question: How do you see seasonality and pacing for MACI in the second half of the year? - Management acknowledged that while MACI typically follows a seasonal pattern, strong leading indicators suggest potential for enhanced growth in the second half of the year [30][31] Question: What is the contribution of MACI Arthro to the first quarter numbers? - Management noted that while it is difficult to quantify the exact contribution from MACI Arthro in Q1, they expect a more significant impact in the second half of the year [36][37] Question: How are you prioritizing MACI Arthro training among surgeon groups? - Management explained that training occurs through industry events and individual sessions, focusing first on existing MACI users before targeting new surgeons [92][93] Question: How has the recent trade war impacted your view on MACI internationally? - Management stated that they are evaluating the potential for MACI outside the U.S. and will consider trade impacts before making decisions [90][91]

Revenue Performance - Total revenue for Q1 2025 was $52.6 million, a 2.6% increase from $51.3 million in Q1 2024, driven primarily by MACI volume and price growth [102]. - MACI revenue increased by 15.2% to $46.3 million in Q1 2025, compared to $40.2 million in Q1 2024 [103]. - NexoBrid revenue surged by 206.7% to $1.3 million in Q1 2025, up from $436,000 in Q1 2024 [103]. - Epicel revenue decreased by 53.5% to $4.96 million in Q1 2025, down from $10.7 million in Q1 2024 [103]. Profit and Loss - Gross profit for Q1 2025 was $36.3 million, reflecting a 2.6% increase from $35.4 million in Q1 2024 [102]. - The net loss for Q1 2025 was $11.2 million, a 191.2% increase from a net loss of $3.9 million in Q1 2024 [102]. - Gross profit for Q1 2025 increased due to MACI revenue growth and fixed manufacturing costs [105]. Expenses - Research and development expenses rose by 13.1% to $7.3 million in Q1 2025, compared to $6.4 million in Q1 2024 [102]. - Selling, general and administrative expenses increased by 21.5% to $41.8 million in Q1 2025, up from $34.4 million in Q1 2024 [102]. - Total research and development expenses rose to $7.261 million in Q1 2025, a 13.1% increase from $6.418 million in Q1 2024 [106]. - Selling, general and administrative expenses increased to $41.8 million in Q1 2025, up from $34.4 million in Q1 2024 [107]. Cash Flow and Financial Position - Net cash provided by operating activities was $6.6 million in Q1 2025, down from $7.2 million in Q1 2024 [110]. - Net cash used in investing activities was $15.142 million in Q1 2025, compared to $25.452 million in Q1 2024 [110]. - Net cash provided by financing activities increased to $3.198 million in Q1 2025 from $2.126 million in Q1 2024 [110]. - As of March 31, 2025, cash, cash equivalents, and restricted cash totaled $79.7 million [111]. - The company has a $150 million revolving credit agreement with no immediate plans to borrow [120]. - The company expects current cash resources to support operations for at least 12 months from the report date [118]. Product Development and Market Expansion - The MACI Arthro product became commercially available in Q3 2024, expanding the target surgeon base from 5,000 to 7,000 [96]. - The company plans to initiate a MACI Ankle clinical trial in 2025 to explore the potential for treating cartilage damage in the ankle [96]. - MACI sales volumes historically show seasonality, with Q4 averaging 34% of total annual volumes [104].