Vericel (VCEL) - 2022 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents unaudited financial statements, management's analysis of financial condition, market risk disclosures, and internal controls Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive loss, shareholders' equity, and cash flows, along with detailed notes explaining accounting policies and specific financial line items for the periods ended September 30, 2022 and 2021 Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity - Total assets increased to $248.0 million as of September 30, 2022, from $243.7 million as of December 31, 2021[9] - Total liabilities decreased to $70.2 million as of September 30, 2022, from $73.2 million as of December 31, 2021[9] - Total shareholders' equity increased to $177.8 million as of September 30, 2022, from $170.5 million as of December 31, 2021[9] Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------- | :----------- | :----------- | | Total Assets | $248,017 | $243,705 | | Total Liabilities | $70,180 | $73,243 | | Total Shareholders' Equity | $177,837 | $170,462 | Condensed Consolidated Statements of Operations This section details the company's financial performance over specific periods, including revenue, expenses, and net loss - Net loss increased significantly for both the three and nine months ended September 30, 2022, compared to the same periods in 2021[11] Condensed Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Revenue | $38,551 | $34,506 | $111,671 | $108,593 | | Gross Profit | $25,233 | $22,098 | $71,539 | $71,993 | | Loss from Operations | $(6,788) | $(4,961) | $(23,143) | $(11,995) | | Net Loss | $(6,577) | $(4,931) | $(22,631) | $(12,006) | | Basic Net Loss Per Common Share | $(0.14) | $(0.11) | $(0.48) | $(0.26) | Condensed Consolidated Statements of Comprehensive Loss This section outlines the total comprehensive loss, including net loss and other comprehensive income or loss items - Comprehensive loss for the nine months ended September 30, 2022, was $(23,623) thousand, significantly higher than $(12,043) thousand for the same period in 2021, primarily due to increased unrealized losses on investments[13] Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Loss | $(6,577) | $(4,931) | $(22,631) | $(12,006) | | Unrealized loss on investments | $(291) | — | $(992) | $(37) | | Comprehensive Loss | $(6,868) | $(4,931) | $(23,623) | $(12,043) | Condensed Consolidated Statements of Shareholders' Equity This section details the changes in shareholders' equity, reflecting net losses, stock-based compensation, and other equity transactions - Total shareholders' equity increased from $170,462 thousand at December 31, 2021, to $177,837 thousand at September 30, 2022[15] - Key changes contributing to shareholders' equity include net losses, stock-based compensation expense, stock option exercises, and unrealized losses on investments[15][17] - Stock-based compensation expense for the nine months ended September 30, 2022, was $29,443 thousand, contributing positively to equity[15][63] Condensed Consolidated Statements of Cash Flows This section outlines the company's cash inflows and outflows from operating, investing, and financing activities - Net cash provided by operating activities decreased to $10.7 million for the nine months ended September 30, 2022, from $18.5 million in the prior year[20][117] - Net cash used in investing activities increased to $14.5 million for the nine months ended September 30, 2022, from $5.4 million in the prior year, driven by investment purchases and property/equipment expenditures[20][117] - Net cash provided by financing activities significantly decreased to $0.4 million for the nine months ended September 30, 2022, from $7.8 million in the prior year, mainly due to lower proceeds from common stock issuance and debt issuance costs[20][117] Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $10,712 | $18,489 | | Net cash used in investing activities | $(14,477) | $(5,386) | | Net cash provided by financing activities | $440 | $7,830 | | Net (decrease) increase in cash, cash equivalents, and restricted cash | $(3,325) | $20,933 | | Cash, cash equivalents, and restricted cash at end of period | $65,216 | $54,764 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of the accounting policies, significant estimates, and specific line items within the financial statements Note 1. Organization This note describes Vericel Corporation's business, product focus, and the impact of external events like COVID-19 and geopolitical instability - Vericel Corporation is a commercial-stage biopharmaceutical company specializing in advanced therapies for sports medicine (MACI) and severe burn care (Epicel)[24] - The company holds North American rights to NexoBrid, a registration-stage biological orphan product for severe thermal burns[24] - The COVID-19 pandemic has caused volatility in operations due to surgical procedure delays and staffing shortages, but the company has sustained operations and maintained raw material safety stock[25][26][27][28] - The ongoing war in Ukraine creates global economic uncertainty, but Vericel has no direct operations or exposure in Russia or Ukraine[29][30] - As of September 30, 2022, the company had an accumulated deficit of $405.9 million and a net loss of $22.6 million for the nine months, but expects existing cash and borrowing capacity to support operations for at least 12 months[31] Note 2. Basis of Presentation This note outlines the accounting principles and assumptions used in preparing the unaudited financial statements - Financial statements are unaudited and prepared in accordance with SEC rules and U.S. GAAP, requiring management estimates and judgments[32] - The full impact of the COVID-19 pandemic on future business, operations, and financial condition remains uncertain, with estimates subject to change[33] - No new accounting standards were adopted during the nine months ended September 30, 2022, and existing ASUs are expected to have minimal impact[35] Note 3. Revenue This note describes the company's revenue recognition policies and provides a breakdown of revenue by product - Revenue recognition follows ASC 606, with MACI biopsy kits recognized upon delivery and MACI implants upon delivery after prior authorization. Epicel revenue is recognized upon delivery to hospitals. NexoBrid revenue is based on a percentage of gross profits for sales to BARDA[36][37][39][43][44] - Total revenue for the nine months ended September 30, 2022, was $111,671 thousand, up from $108,593 thousand in 2021[45] - MACI implants and kits revenue increased by 15.4% to $85,617 thousand for the nine months ended September 30, 2022, while Epicel revenue decreased by 20.2% to $25,387 thousand[45][105] Revenue by Product (in thousands) | Revenue by product | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | MACI implants and kits | $31,009 | $23,881 | $85,617 | $74,203 | | Epicel | $7,317 | $9,837 | $25,387 | $31,822 | | NexoBrid revenue | $225 | $788 | $667 | $2,568 | | Total revenue | $38,551 | $34,506 | $111,671 | $108,593 | - No customer had a total revenue concentration greater than 10% for the three and nine months ended September 30, 2022[50] Note 4. Selected Balance Sheet Components This note provides a detailed breakdown of key balance sheet components, including inventory, property and equipment, and accrued expenses - Total inventory increased to $16,729 thousand as of September 30, 2022, from $13,381 thousand at December 31, 2021, primarily due to higher raw materials[51] - Property and equipment, net, increased to $15,918 thousand as of September 30, 2022, from $13,308 thousand at December 31, 2021, with significant increases in leasehold improvements and construction in process[52] - Accrued expenses remained stable at $13,948 thousand as of September 30, 2022, compared to $14,045 thousand at December 31, 2021, with a decrease in bonus-related compensation offset by an increase in insurance reimbursement-related liabilities[53] Inventory (in thousands) | (In thousands) | September 30, 2022 | December 31, 2021 | | :--------------- | :----------------- | :----------------- | | Raw materials | $15,797 | $12,676 | | Work-in-process | $883 | $644 | | Finished goods | $49 | $61 | | Total inventory | $16,729 | $13,381 | Property and Equipment, net (in thousands) | (In thousands) | September 30, 2022 | December 31, 2021 | | :--------------------------------------- | :----------------- | :----------------- | | Total property and equipment, gross | $33,182 | $27,630 | | Less accumulated depreciation | $(17,264) | $(14,322) | | Total property and equipment, net | $15,918 | $13,308 | Accrued Expenses (in thousands) | (In thousands) | September 30, 2022 | December 31, 2021 | | :------------------------------ | :----------------- | :----------------- | | Bonus related compensation | $5,472 | $6,305 | | Employee related accruals | $2,897 | $3,616 | | Insurance reimbursement-related liabilities | $5,417 | $3,973 | | Other accrued expenses | $162 | $151 | | Total accrued expenses | $13,948 | $14,045 | Note 5. Leases This note outlines the company's lease agreements, including a new corporate headquarters and manufacturing facility lease - The Company entered into a new lease agreement in January 2022 for approximately 126,000 square feet of manufacturing, laboratory, and office space in Burlington, Massachusetts, to serve as its new corporate headquarters and primary manufacturing facility, with the term expected to begin in 2023[55][56] - Annual base rent for the Burlington Lease is initially $57 per square foot, subject to annual increases, and includes a tenant improvement allowance of approximately $25.1 million[57] - Operating lease expense for the nine months ended September 30, 2022, was $5.2 million, slightly down from $5.5 million in the same period of 2021[60] Leased Assets (in thousands) | (In thousands) | Classification | September 30, 2022 | December 31, 2021 | | :--------------- | :------------- | :----------------- | :----------------- | | Operating | Right-of-use assets | $42,628 | $45,720 | | Finance | Property and equipment, net | $46 | $73 | | Total leased assets | | $42,674 | $45,793 | Note 6. Stock-Based Compensation This note explains the company's stock-based compensation plans and the associated expenses recognized - The 2022 Omnibus Incentive Plan was approved, replacing prior plans and providing incentives through stock options, appreciation rights, and restricted stock[62] - Total non-cash stock-based compensation expense for the nine months ended September 30, 2022, increased to $29,443 thousand from $26,481 thousand in the prior year, primarily due to fluctuations in stock prices impacting fair value[63][116] Stock-Based Compensation Expense (in thousands) | (in thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Cost of product sales | $840 | $1,114 | $2,992 | $3,313 | | Research and development | $1,273 | $1,126 | $4,143 | $3,222 | | Selling, general and administrative | $6,991 | $6,356 | $22,308 | $19,946 | | Total non-cash stock-based compensation expense | $9,104 | $8,596 | $29,443 | $26,481 | Note 7. Investments This note describes the company's marketable debt securities, their fair value, and unrealized gains or losses - Marketable debt securities are classified as available-for-sale and carried at fair value[66] - As of September 30, 2022, the estimated fair value of marketable securities was $67,463 thousand, with total unrealized losses of $(1,146) thousand[67] - All marketable securities had remaining contractual maturities of three years or less, and no impairments were recorded[67] Marketable Securities (in thousands) | (In thousands) | Amortized Cost (Sep 30, 2022) | Estimated Fair Value (Sep 30, 2022) | Gross Unrealized Losses (Sep 30, 2022) | | :--------------------------------- | :---------------------------- | :---------------------------------- | :------------------------------------- | | Commercial paper | $14,736 | $14,641 | $(95) | | Corporate notes | $50,893 | $49,845 | $(1,048) | | U.S. government agency bonds | $2,979 | $2,977 | $(3) | | Total | $68,608 | $67,463 | $(1,146) | Note 8. Fair Value Measurements This note details the fair value hierarchy used for financial instruments, categorizing them into Level 1, 2, or 3 - Financial instruments measured at fair value are classified into Level 1 (quoted prices in active markets), Level 2 (observable inputs), or Level 3 (unobservable inputs)[68][69] - As of September 30, 2022, the Company's money market funds were Level 1 ($21,676 thousand), while commercial paper, corporate notes, and U.S. government agency bonds were Level 2 ($73,753 thousand)[70] - No transfers into or out of Level 3 occurred between December 31, 2021, and September 30, 2022[68] Note 9. Revolving Credit Agreement This note describes the company's $150.0 million senior secured revolving credit agreement, including terms and covenants - On July 29, 2022, the Company entered into a $150.0 million five-year senior secured revolving credit agreement, including a $15.0 million sub-facility for letters of credit[72] - Borrowings bear interest based on SOFR plus a spread (1.25% to 2.50%) or an alternative base rate plus a spread (0.25% to 1.50%), determined by the Total Net Leverage Ratio[73] - As of September 30, 2022, there were no outstanding borrowings under the agreement, but approximately $6.2 million was utilized for letters of credit[72][74] - The agreement contains financial covenants, including a maximum Total Net Leverage Ratio of 3.50 to 1.00, which can be increased to 4.00 to 1.00 for a period of four consecutive quarters in connection with a Permitted Acquisition[75] Note 10. Net Loss Per Common Share This note presents the calculation of basic and diluted net loss per common share and identifies anti-dilutive shares - Basic and diluted net loss per common share for the nine months ended September 30, 2022, was $(0.48), compared to $(0.26) for the same period in 2021[79] - Anti-dilutive shares, including stock options (6,536 thousand) and restricted stock units (633 thousand), were excluded from diluted net loss per common share calculation for the nine months ended September 30, 2022[79] Net Loss Per Common Share (in thousands, except per share amounts) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net loss | $(6,577) | $(4,931) | $(22,631) | $(12,006) | | Basic weighted-average common shares outstanding | 47,182 | 46,669 | 47,096 | 46,355 | | Basic loss per common share | $(0.14) | $(0.11) | $(0.48) | $(0.26) | | Diluted loss per common share | $(0.14) | $(0.11) | $(0.48) | $(0.26) | Note 11. NexoBrid License and Supply Agreements This note outlines the exclusive North American license and supply agreements for NexoBrid and its regulatory status - Vericel holds exclusive North American rights to NexoBrid through license and supply agreements with MediWound[80] - A BLA resubmission for NexoBrid was accepted by the FDA on July 1, 2022, with a Prescription Drug User Fee Act (PDUFA) date of January 1, 2023, after a previous Complete Response Letter (CRL) in June 2021[80] - Contingent payments include $7.5 million upon U.S. regulatory approval and up to $125.0 million for sales milestones, with the first $7.5 million triggered at annual net sales exceeding $75.0 million[82] - BARDA's quarterly procurement of NexoBrid completed in Q3 2022, but BARDA holds an option for future procurements[84] Note 12. Commitments and Contingencies This note addresses the company's legal proceedings, regulatory matters, and other material commitments - The Company is not currently a party to any material ongoing litigation, regulatory, or other proceedings that could have a material adverse effect on its business[87] - No material liabilities were recorded for probable losses as of September 30, 2022[86] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, condition, and future outlook, analyzing revenue drivers, expense trends, and liquidity. It also details the product portfolio, manufacturing capabilities, and the impact of external factors like COVID-19 and geopolitical events Overview This section provides a high-level summary of Vericel's business, product focus, and the current operating environment - Vericel is a commercial-stage biopharmaceutical company focused on sports medicine (MACI) and severe burn care (Epicel), with an exclusive license for NexoBrid in North America[89] - The FDA accepted the BLA resubmission for NexoBrid on July 1, 2022, setting a PDUFA date of January 1, 2023[89] - COVID-19 continues to cause volatility in MACI surgical procedures, staffing, and customer access, though the company has maintained operations[90][91][92][93] - The war in Ukraine creates global economic uncertainty, but Vericel has no direct operations or exposure in the affected regions[94] Manufacturing This section details the company's manufacturing capabilities and facilities for its key products - The company operates a cell manufacturing facility in Cambridge, Massachusetts, for U.S. manufacturing and distribution of MACI and Epicel[95] Product Portfolio This section details Vericel's key products, MACI and Epicel, including their indications, target markets, and commercial strategies. It also provides an update on NexoBrid's regulatory status and commercialization plans MACI This section describes MACI, its indication, target market, and payer coverage - MACI is a third-generation autologous chondrocyte implantation product for full-thickness cartilage defects of the knee in adults[97] - The target audience includes approximately 5,000 orthopedic surgeons, supported by 75 MACI sales representatives[98] - Most private payers cover MACI, with case-by-case approvals for those without formal policies[98] Epicel This section details Epicel, its FDA approval, and its market positioning for severe burn care - Epicel is an FDA-approved permanent skin replacement for deep-dermal or full-thickness burns covering ≥30% TBSA, regulated as a Humanitarian Use Device (HUD)[99] - Following a label revision in 2016 to include pediatric patients, Epicel is no longer subject to HDE profit restrictions and has an Annual Distribution Number (ADN) of 360,400[100] - The company has a fifteen-person burn field force for Epicel[100] NexoBrid This section provides an update on NexoBrid's regulatory status, including its BLA resubmission and orphan biologic designation - NexoBrid is a registration-stage, topically-administered biological product for enzymatic debridement of severe thermal burns, licensed exclusively for North America[101] - A BLA resubmission was accepted by the FDA on July 1, 2022, with a PDUFA date of January 1, 2023, following a prior Complete Response Letter[102] - NexoBrid is approved in the European Union and other international markets and designated as an orphan biologic[103] Results of Operations This section analyzes the financial performance for the three and nine months ended September 30, 2022, compared to the prior year, highlighting changes in revenue, gross profit, operating expenses, and net loss, and identifying key drivers for these changes Total Revenue This section analyzes total revenue performance, highlighting product-specific contributions and growth drivers - Total revenue increased by 11.7% to $38,551 thousand for the three months ended September 30, 2022, and by 2.8% to $111,671 thousand for the nine months, driven by MACI volume and price growth[105] - MACI revenue increased by 29.8% (3 months) and 15.4% (9 months), while Epicel revenue decreased by 25.6% (3 months) and 20.2% (9 months). NexoBrid revenue also decreased significantly[105] - MACI business seasonality, typically stronger in Q4, has been disrupted by COVID-19 but showed a return to more normal patterns in 2022[106][107] Revenue by Product (in thousands) | Revenue by product | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change ($) | Change (%) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change ($) | Change (%) | | :-------------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | MACI | $31,009 | $23,881 | $7,128 | 29.8% | $85,617 | $74,203 | $11,414 | 15.4% | | Epicel | $7,317 | $9,837 | $(2,520) | (25.6)% | $25,387 | $31,822 | $(6,435) | (20.2)% | | NexoBrid | $225 | $788 | $(563) | (71.4)% | $667 | $2,568 | $(1,901) | (74.0)% | | Total Revenue | $38,551 | $34,506 | $4,045 | 11.7% | $111,671 | $108,593 | $3,078 | 2.8% | Gross Profit This section examines gross profit trends and the factors influencing changes in profitability - Gross profit increased by 14.2% to $25,233 thousand for the three months ended September 30, 2022, driven by higher MACI volume and price growth[108] - For the nine months, gross profit was similar at $71,539 thousand (vs. $71,993 thousand in 2021), as MACI gains were offset by lower Epicel labor utilization, raw material price increases, and higher external storage and manufacturing facility costs[109] Gross Profit (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change ($) | Change (%) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Gross profit | $25,233 | $22,098 | $3,135 | 14.2% | $71,539 | $71,993 | $(454) | (0.6)% | Research and Development Expenses This section analyzes research and development expenses, detailing the drivers behind changes in spending - R&D expenses increased by 17.8% to $5,046 thousand for the three months and by 18.9% to $14,698 thousand for the nine months ended September 30, 2022[110] - The increase was primarily due to increased headcount, stock-based compensation expense, and additional spending on MACI arthroscopic delivery instrument design[110][111] Research and Development Expenses (in thousands) | R&D Expenses | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change ($) | Change (%) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change ($) | Change (%) | | :-------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | MACI | $3,000 | $2,572 | $428 | 16.6% | $8,961 | $6,993 | $1,968 | 28.1% | | Epicel | $1,166 | $992 | $174 | 17.5% | $3,624 | $3,157 | $467 | 14.8% | | NexoBrid | $880 | $720 | $160 | 22.2% | $2,113 | $2,213 | $(100) | (4.5)% | | Total R&D expenses | $5,046 | $4,284 | $762 | 17.8% | $14,698 | $12,363 | $2,335 | 18.9% | Selling, General and Administrative Expenses This section analyzes selling, general, and administrative expenses, identifying key factors contributing to changes - SG&A expenses increased by 18.4% to $26,975 thousand for the three months and by 11.7% to $79,984 thousand for the nine months ended September 30, 2022[112][113] - The increase was mainly due to higher stock-based compensation, increased headcount, more travel and in-person events, physician engagement programs, and higher depreciation from new office space[112][113] Selling, General and Administrative Expenses (in thousands) | SG&A Expenses | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change ($) | Change (%) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change ($) | Change (%) | | :--------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Selling, general and administrative | $26,975 | $22,775 | $4,200 | 18.4% | $79,984 | $71,625 | $8,359 | 11.7% | Total Other Income (Expense) This section reviews total other income and expense, highlighting the impact of investment returns and interest - Total other income increased significantly to $232 thousand for the three months and $533 thousand for the nine months ended September 30, 2022, compared to the same periods in 2021[114] - This change was primarily due to fluctuations in rates of return on marketable debt securities and interest expense related to the Revolving Credit Agreement[114] Total Other Income (Expense) (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change ($) | Change (%) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Total other income | $232 | $30 | $202 | 673.3% | $533 | $204 | $329 | 161.3% | Income Tax Expense This section details the company's income tax expense for the reporting periods - Income tax expense was less than $0.02 million for the three and nine months ended September 30, 2022, a decrease from $0.2 million for the nine months ended September 30, 2021[115] Income Tax Expense (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change ($) | Change (%) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Income tax expense | $21 | — | $21 | 100.0% | $21 | $215 | $(194) | (90.2)% | Stock-Based Compensation Expense This section analyzes non-cash stock-based compensation expense and its drivers - Total non-cash stock-based compensation expense increased by 5.9% to $9,104 thousand for the three months and by 11.2% to $29,443 thousand for the nine months ended September 30, 2022[116] - The increase was primarily due to fluctuations in stock prices impacting the fair value of awarded options and restricted stock units[116] Stock-Based Compensation Expense (in thousands) | (In thousands) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change ($) | Change (%) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change ($) | Change (%) | | :-------------------------------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Total non-cash stock-based compensation expense | $9,104 | $8,596 | $508 | 5.9% | $29,443 | $26,481 | $2,962 | 11.2% | Liquidity and Capital Resources This section discusses the company's cash flow generation, current liquidity position, and capital-raising activities, including the new revolving credit agreement. it also addresses the sufficiency of capital for future operations and potential impacts from external factors Cash Flows This section analyzes the company's cash flows from operating, investing, and financing activities - Net cash provided by operating activities decreased to $10.7 million for the nine months ended September 30, 2022, from $18.5 million in the prior year, primarily due to higher net loss and increased inventory[118] - Net cash used in investing activities increased to $14.5 million for the nine months ended September 30, 2022, from $5.4 million in the prior year, driven by investment purchases and property/equipment expenditures[121] - Net cash provided by financing activities significantly decreased to $0.4 million for the nine months ended September 30, 2022, from $7.8 million in the prior year, mainly due to lower proceeds from common stock issuance and debt issuance costs[123] Cash Flow Summary (in thousands) | Cash Flow Activity | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $10,712 | $18,489 | | Net cash used in investing activities | $(14,477) | $(5,386) | | Net cash provided by financing activities | $440 | $7,830 | | Net (decrease) increase in cash, cash equivalents, and restricted cash | $(3,325) | $20,933 | Liquidity This section assesses the company's ability to meet its short-term and long-term financial obligations - The Company believes current cash, cash equivalents, investments, and available borrowing capacity are sufficient to support operations for at least 12 months from the issuance of the financial statements[126] - Future cash requirements depend on R&D efforts, clinical trials, patent costs, manufacturing capacity, market developments, and potential acquisitions[126] - No off-balance sheet arrangements were in place as of September 30, 2022[127] Sources of Capital This section identifies the company's available capital sources, including equity and credit facilities - The Company has an "at-the-market" (ATM) Sales Agreement to sell up to $200.0 million of common stock, but no shares were sold as of September 30, 2022[128] - A $150.0 million five-year senior secured revolving credit agreement was entered into on July 29, 2022, with no outstanding borrowings as of September 30, 2022[129][130] Contractual Obligations and Commitments This section addresses any material changes to the company's contractual obligations and commitments - No material changes to contractual obligations and commitments since December 31, 2021, except for those discussed in Note 5 (Leases) and Note 9 (Revolving Credit Agreement)[131] Critical Accounting Policies This section confirms the absence of material changes to critical accounting policies and estimates - No material changes to critical accounting policies and estimates in the nine months ended September 30, 2022[133] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, specifically interest rate risk, and notes that there have been no material changes since the last annual report, except for the impact of the new revolving credit agreement Interest Rate Risk This section details the company's exposure to interest rate fluctuations, particularly concerning its variable rate credit agreement - The Company is subject to interest rate risks due to its variable rate Revolving Credit Agreement[136] - As of September 30, 2022, there were no outstanding borrowings under the Revolving Credit Agreement, limiting immediate exposure[136] Item 4. Controls and Procedures This section reports on the effectiveness of the company's disclosure controls and procedures and confirms no material changes in internal control over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures This section reports on management's assessment of the effectiveness of the company's disclosure controls and procedures - Management, with CEO and CFO participation, concluded that the Company's disclosure controls and procedures were effective as of September 30, 2022[137] Changes in Internal Control over Financial Reporting This section confirms whether any material changes occurred in internal control over financial reporting during the quarter - No material changes were made in internal control over financial reporting during the three months ended September 30, 2022[139] PART II — OTHER INFORMATION This section includes information on legal proceedings, risk factors, equity sales, defaults, and exhibits Item 1. Legal Proceedings This section states that the company is not currently involved in any material legal proceedings or investigations that could significantly impact its business - The Company is not currently a party to any material legal proceedings or investigations by government or regulatory authorities[140] Item 1A. Risk Factors This section updates and reiterates key risk factors that could materially affect the company's financial condition and results of operations, including those related to its new revolving credit agreement, potential for substantial indebtedness, global economic uncertainty, and the regulatory approval process for NexoBrid Revolving Credit Agreement Covenants This section highlights the restrictive covenants within the revolving credit agreement and potential consequences of non-compliance - The Revolving Credit Agreement contains covenants that may limit the Company's ability to incur additional debt, create liens, dispose of assets, pay dividends, make investments, or engage in certain affiliate transactions[142] - Failure to comply with these covenants could result in a default and acceleration of debt repayment[144] Substantial Indebtedness This section outlines the risks associated with incurring substantial additional debt under the revolving credit agreement - The Company may incur substantial additional debt under its $150.0 million Revolving Credit Agreement, which could intensify risks for investors[145] - Potential consequences include difficulty satisfying obligations, limited access to additional financing, dedication of cash flows to debt service, increased vulnerability to adverse economic conditions, and exposure to floating interest rate risks[148] Economic Uncertainty and Geopolitical Instability This section addresses the risks posed by global economic uncertainty, geopolitical tensions, and inflation - The ongoing war in Ukraine, geopolitical tensions, and record inflation contribute to global economic uncertainty and capital markets disruption[146] - While not materially impacted to date, the extent and duration of these disruptions are unpredictable and could adversely affect the Company's business, financial condition, and results of operations[147] NexoBrid's approval in the U.S. for the treatment of severe burns may be further delayed, or it may not be approved by the FDA for use in the U.S. at all. This section details the regulatory risks for NexoBrid, including potential delays or non-approval by the FDA - The FDA issued a Complete Response Letter (CRL) for NexoBrid's BLA in June 2021, citing issues with chemistry, manufacturing, and controls (CMC), required facility inspections, and questions regarding GCP inspections[148][149] - A BLA resubmission was accepted on July 1, 2022, with a PDUFA date of January 1, 2023, but approval is not guaranteed and delays could materially impact business prospects[150] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable for the reporting period - Not applicable[151] Item 3. Defaults Upon Senior Securities This item is not applicable for the reporting period - Not applicable[152] Item 4. Mine Safety Disclosures This item is not applicable for the reporting period - Not applicable[153] Item 5. Other Information This item is not applicable for the reporting period - Not applicable[154] Item 6. Exhibits This section lists the exhibits filed as part of this Quarterly Report on Form 10-Q - The report includes various exhibits, such as Restated Articles of Incorporation, Bylaws, the Revolving Credit Agreement, and certifications from the CEO and CFO[156][158] Exhibit Index This section provides a detailed index of all exhibits accompanying the Form 10-Q, including their descriptions and filing status - The Exhibit Index details documents like corporate governance filings, the Revolving Credit Agreement, and Sarbanes-Oxley Act certifications[158] Signatures This section contains the official signatures of the registrant's President and Chief Executive Officer and Chief Financial Officer, certifying the report - The report is signed by Dominick C. Colangelo (President and CEO) and Joseph A. Mara (CFO) on November 9, 2022[161][162]