Vericel (VCEL) - 2023 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements (Unaudited) The unaudited financial statements for the period ended June 30, 2023, show increased total assets, significant revenue growth, and a reduced net loss, alongside positive operating cash flow Condensed Consolidated Balance Sheets As of June 30, 2023, total assets increased to $310.7 million, driven by right-of-use assets, with a modest rise in shareholders' equity Balance Sheet Summary (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $182,871 | $186,866 | | Total Assets | $310,711 | $273,003 | | Total Current Liabilities | $35,611 | $37,463 | | Total Liabilities | $111,783 | $80,731 | | Total Shareholders' Equity | $198,928 | $192,272 | - Cash, cash equivalents, and short-term investments decreased from $119.5 million at year-end 2022 to $97.8 million as of June 30, 2023, while restricted cash increased to $27.8 million[9] Condensed Consolidated Statements of Operations Q2 2023 total revenue increased 24% to $45.9 million, driving a 31% increase in gross profit and narrowing the net loss to $5.0 million Q2 2023 vs Q2 2022 Performance (in thousands, except per share amounts) | Metric | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Total Revenue | $45,922 | $37,046 | | Gross Profit | $29,941 | $22,854 | | Loss from Operations | ($5,961) | ($9,082) | | Net Loss | ($5,020) | ($8,963) | | Net Loss per Share | ($0.11) | ($0.19) | Six Months 2023 vs 2022 Performance (in thousands, except per share amounts) | Metric | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | | Total Revenue | $86,939 | $73,120 | | Gross Profit | $56,461 | $46,306 | | Loss from Operations | ($14,138) | ($16,355) | | Net Loss | ($12,515) | ($16,054) | | Net Loss per Share | ($0.26) | ($0.34) | Condensed Consolidated Statements of Comprehensive Loss Comprehensive loss for Q2 2023 improved to $5.0 million, driven by a smaller net loss and a shift from unrealized losses to gains on investments Comprehensive Loss Summary (in thousands) | Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Loss | $(5,020) | $(8,963) | $(12,515) | $(16,054) | | Unrealized Gain (Loss) on Investments | $15 | $(242) | $357 | $(701) | | Comprehensive Loss | $(5,005) | $(9,205) | $(12,158) | $(16,755) | Condensed Consolidated Statements of Shareholders' Equity Shareholders' equity increased to $198.9 million by June 30, 2023, primarily from stock-based compensation and option exercises - Shareholders' equity increased by $6.7 million during the first six months of 2023, from $192.3 million to $198.9 million[15] Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2023, the company generated $18.1 million in cash from operations, leading to a $19.8 million increase in cash and equivalents Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $18,056 | $6,611 | | Net cash provided by (used in) investing activities | $392 | $(13,666) | | Net cash provided by financing activities | $1,302 | $752 | | Net increase (decrease) in cash | $19,750 | $(6,303) | Notes to Condensed Consolidated Financial Statements Notes detail business operations, revenue recognition, a new manufacturing lease, and an undrawn $150 million credit facility - The company markets three products: MACI for knee cartilage repair, Epicel for severe burns, and the newly FDA-approved NexoBrid for eschar removal in thermal burns[21] - In January 2022, the company entered into a lease for a new 126,000 sq ft headquarters and manufacturing facility in Burlington, MA, recording a $35.5 million right-of-use asset and lease liability on June 1, 2023[55][59] - Following FDA approval of NexoBrid, the company made a $7.5 million regulatory milestone payment to MediWound in February 2023, recorded as an intangible asset[81] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2023 revenue growth, NexoBrid launch delay, MACI pipeline advancements, and strong liquidity Overview and Product Portfolio Vericel, a biopharmaceutical company, offers MACI, Epicel, and NexoBrid, with the latter's commercial launch delayed to Q1 2024 - The commercial launch of NexoBrid is expected in the first quarter of 2024, delayed due to a deviation associated with a third-party testing lab used in MediWound's manufacturing process[88][103] - The company is developing an arthroscopic delivery method for MACI and evaluating MACI for ankle cartilage damage, planning to propose a clinical development plan to the FDA[96][97] Results of Operations Q2 2023 total revenue increased 24% to $45.9 million, driven by MACI sales, improving gross margin and narrowing net loss Revenue by Product (in thousands) | Product | Q2 2023 | Q2 2022 | Change % | Six Months 2023 | Six Months 2022 | Change % | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | MACI | $36,336 | $28,613 | 27.0% | $70,526 | $54,607 | 29.2% | | Epicel | $9,586 | $8,213 | 16.7% | $16,413 | $18,071 | (9.2)% | | NexoBrid | $0 | $220 | (100.0)% | $0 | $442 | (100.0)% | | Total | $45,922 | $37,046 | 24.0% | $86,939 | $73,120 | 18.9% | - The increase in Selling, General and Administrative (SG&A) expenses was primarily due to higher marketing expenses, external costs, and lease expense associated with the new Burlington facility[109] - Research and development expenses increased, primarily due to costs for the MACI arthroscopic program and lower reimbursement from MediWound related to the NexoBrid BLA resubmission in 2022[108] Liquidity and Capital Resources As of June 30, 2023, the company maintained strong liquidity with $70.8 million in cash and equivalents, $75.8 million in investments, and an undrawn $150 million credit facility - The company has a $150 million five-year senior secured revolving credit agreement, which was undrawn as of June 30, 2023[124] - A $200 million at-the-market (ATM) share offering program is in place, but no shares have been sold under this agreement as of June 30, 2023[123] - The company has transferred approximately $28.3 million (50% of its required amount) into an escrow account for tenant improvement construction costs for the new Burlington facility[126] Quantitative and Qualitative Disclosures About Market Risk The company's market risk exposures have not materially changed since December 31, 2022 - There have been no material changes to the company's market risk exposures since the end of the fiscal year 2022[131] Controls and Procedures Disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[132] - No material changes were made to the company's internal control over financial reporting during the second quarter of 2023[134] PART II — OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, other information, and exhibits for the reporting period Legal Proceedings The company is not currently involved in any material legal proceedings - As of the filing date, Vericel is not involved in any material legal proceedings[135] Risk Factors No material changes to risk factors except for a new one concerning adverse developments in financial institutions - A new risk factor highlights potential adverse effects of instability in the financial services industry on the company's operations and liquidity, including access to cash deposits held in excess of FDIC insurance limits[137][138] Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable for the reporting period - Not applicable[140] Other Information No directors or executive officers adopted or terminated Rule 10b5-1 trading plans during the second quarter of 2023 - No directors or executive officers adopted or terminated Rule 10b5-1 trading plans during the second quarter of 2023[143] Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including certifications