Vericel Corp (VCEL) 2023 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Vericel's First Quarter 2023 Conference Call. (Operator Instructions) I would also like to remind you that this call is being recorded for replay.

I would now like to turn the conference call over to Eric Burns, Vericel's Vice President of Finance and Investor Relations.

Thank you, operator, and good morning, everyone. Welcome to Vericel's First Quarter 2023 Conference Call to discuss our financial results and business highlights.

Before we begin, let me remind you on today's call, we will be making forward-looking statements covered under the Private Securities Litigation Reform Act of 1995. These statements may involve risks and uncertainties that could cause actual results to differ materially from expectations and are described more fully in our filings with the SEC, which are available on our website. In addition, all forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date.

Please note that a copy of our first quarter financial results press release is available in the Investor Relations section of our website. We also have a short presentation with highlights from today's call that can be viewed directly on the webcast or accessed on our website.

I am joined on this call by Vericel's President and Chief Executive Officer, Nick Colangelo; and our Chief Financial Officer, Joe Mara.

I will now turn the call over to Nick.

Thank you, Eric, and good morning, everyone. I will begin today's call by discussing our financial and business highlights for the first quarter, as well as our expectations for the remainder of the year. Joe will then provide a more detailed review of our first quarter financial performance and our updated guidance for 2023 before opening the call to Q&A.

We entered 2023 with a great deal of momentum, as we generated strong MACI growth in the second half of last year and achieve significant regulatory milestones, including an accelerated regulatory pathway for the arthroscopic MACI program and the FDA approval of NexoBrid. That momentum continued through the first quarter, as we had a very strong start to the year from both a financial and overall business perspective, delivering record MACI and total revenue for the first quarter, and making significant progress on our MACI lifecycle management programs and NexoBrid commercial launch activities.

From a financial perspective, we generated total revenue of $41 million for the quarter, with both MACI and Epicel ahead of our first quarter guidance. We also continued to generate strong profitability as we delivered our 11th straight quarter of positive adjusted EBITDA and operating cash flow, ending the quarter with nearly $140 million in cash and investments and no debt. Based on our positive first quarter results and underlying business fundamentals, we are increasing our 2023 full-year revenue guidance to $184 million to $192 million.

Our financial results for the quarter were driven by record first quarter MACI revenue of $34.2 million, representing growth of 32% compared to the prior year. This strong revenue growth was driven by continued significant increases in surgeon engagement and utilization of MACI. In addition to generating record first quarter revenue in implants, we had the highest number of surgeons taking biopsies in any quarter since we have launched MACI and a record number of first quarter biopsies.

The last 2 quarters were our highest biopsy quarters ever, with first quarter biopsies nearly matching the record number of MACI biopsies taken in the fourth quarter of last year. This is a noteworthy performance, and that we typically see a seasonal step down in biopsy surgeons and biopsies in the first quarter. It's also a reflection of the fact that our sales and marketing teams continue to execute at a high level and that the operating environment continues to improve. MACI clearly has resumed its high-growth profile, as we've had year-over-year growth of 30%, 24% and 32% over the last 3 quarters, representing a trailing 9-month growth rate of 28%.

Based on the continued momentum that we have seen to start this quarter, we also expect strong MACI growth in the second quarter, and we're increasing our full-year MACI revenue guidance to $156 million to $160 million. This updated guidance implies 20% full-year MACI growth at the midpoint, and reflects strong sales rep productivity that surpasses our historical high of $2 million per rep achieved prior to our last sales force expansion.

With respect to our MACI Lifecycle Management initiatives, the MACI arthroscopic delivery program remains on track as we continue to progress with our plans to conduct the human factors validation study this year with an anticipated potential launch in 2024. We believe that the arthroscopic delivery of MACI will be a very attractive potential option for many patients and surgeons.

And importantly, the MACI arthroscopic instrument kit is designed to treat the most common defects in the MACI addressable market, which are 2 to 4 square centimeter defects on the femoral condyles, a segment which represents approximately 1/3 of the overall MACI addressable market, or 20,000 patients per year. If approved, MACI would be the only arthroscopic restorative cartilage repair product on the market to treat these defects.

We believe that this would allow MACI to take a greater share of these procedures and provide a significant upside growth opportunity for MACI and the company in the years ahead. We also continue to advance the MACI clinical development program for the treatment of cartilage defects in the ankle, and recently conducted an initial pre-IND meeting with the FDA. We believe that a potential ankle indication with an estimated $1 billion addressable market could be a significant growth driver for MACI over the long-term.

Turning to our burn care franchise. We reported first quarter Epicel revenue of approximately $7 million, which was an increase over the prior quarter and ahead of our guidance for the first quarter. Importantly, as compared to the fourth quarter, we saw a higher proportion of biopsy patients moving on to treatment with Epicel, as well as an increase towards previous levels in the average number of grafts per patient.

With respect to NexoBrid, our commercial launch activities remain on track and interest from burn surgeons and health care providers remains very high. From an access perspective, P&T committee packages have been submitted at about 1/3 of the 90 centers we are targeting this year, and we're tracking ahead of our initial goals for the P&T Committee submissions and approvals. Strong surgeon interest is also reflected by the fact that NexoBrid was selected for inclusion in the pre-conference healthcare professional education sessions at the upcoming American Burn Association Annual Meeting next week with hands-on lab demonstrations by leading burn surgeons.

In terms of NexoBrid product availability, our initial expectation was that we would receive commercial product from MediWound and generate some initial stocking revenue towards the end of the second quarter based on the projected timelines to complete the additional manufacturing updates required by the FDA in connection with the NexoBrid BLA approval. We now believe that assuming timely successful completion of these manufacturing updates, commercial product availability is more likely to occur early in the third quarter, which does not impact our full-year burn care revenue guidance of $28 million to $32 million for the year.

I will now turn the call over to Joe to discuss our first quarter financial results.

Thank you, Nick, and good morning, everyone. Starting with the income statement, total net revenue for the quarter was $41 million, driven by strong MACI revenue of 34.2 and $6.8 million of Epicel revenue. Gross profit for the quarter was $26.5 million, or 65% of net revenue, consistent with the prior year. Total operating expenses for the quarter were $34.7 million, compared to $30.7 million for the same period in 2022. The increase in operating expenses was primarily due to higher employee-related expenses, variable expenses due to higher MACI sales volumes, an increase in-person and conference-related activity compared to last year.

Net loss for the quarter was $7.5 million, or $0.16 per share, compared to $7.1 million, or $0.15 per share for the first quarter of 2022. Non-GAAP adjusted EBITDA for the quarter was $1.7 million, and importantly, this is now the 11th consecutive quarter that we have generated positive adjusted EBITDA.

Finally, we generated approximately $8 million of operating cash flow in the quarter and we ended Q1 with approximately $139 million in cash and investments and no debt. Note that during the quarter, we paid MediWound the $7.5 million NexoBrid approval milestones after the approval of NexoBrid. And net of this payment, our cash and investments increased by approximately $6.5 million during the quarter.

Turning to our financial guidance. We are increasing our full-year revenue guidance for 2023. We now expect total revenue of $184 million to $192 million, compared to our prior revenue guidance of $180 million to $188 million. We are maintaining our profitability guidance and expect gross margin to be in the high-60% range and adjusted EBITDA in the mid-teens percentage range. For MACI, we now expect full-year revenue of $156 million to $160 million, an increase versus our prior guidance of $152 million to $156 million, with growth expected to be approximately 20% for the full year.

As Nick highlighted earlier, our MACI momentum has continued into the second quarter, and we expect MACI growth in the quarter to remain strong in the low-20% range with revenue of approximately $34.5 million in Q2. For our burn care franchise, we are maintaining our full-year revenue guidance of $28 million to $32 million. For the second quarter, based on a continuation of the improved trends we saw for Epicel in Q1, we expect another quarter of approximately $7 million of Epicel revenue in Q2. And for NexoBrid, our guidance assumes product availability and the first commercial sales of NexoBrid in the third quarter.

Overall, for the company, we are very pleased that MACI's strong first quarter performance and outlook for the year, coupled with our burn care revenue growing off of our Q4 quarterly run rate, has brought the company back to our high-growth profile in 2023. And importantly, as we move into 2024, we would also anticipate continued acceleration of our total company revenue growth with a full year of NexoBrid in the market and the anticipated launch of arthroscopic MACI.

This now concludes our prepared remarks. We will open the call to your questions.

(Operator Instructions) And our first question will come from the line of Ryan Zimmerman with BTIG.

Congrats on the quarter. Just wanted to touch on some of the guidance commentary you gave today. So it sounds like -- I appreciate the commentary on second quarter, Joe, for MACI. But with the biopsies hitting these record levels the past 2 quarters, how should we think about MACI growth, particularly in the second half of the year relative to maybe historical seasonality? And just -- we know fourth quarter is going to be strong, but it now seems like third quarter could be prime to also have maybe an atypical seasonal dynamic?

Yes. So Ryan, thanks for the question. So, before I touch on that, just briefly on 3 pieces, kind of hit on Q1, as you talked about -- talk about some of the key Q2 dynamics, particularly from a comparison perspective and then close out with the full year. So I think to your point, and as we talked about in the prepared remarks, Q1 was a really strong quarter for us. So obviously, great execution by the team and really just kind of strengthened across the board in our underlying metrics.

So as we talked about, we had the highest number of surgeons we've had in any quarter, doing biopsies, kind of record biopsies in Q1, nearly matched Q4 and really continues the trend of the last couple of quarters in the back half of last year with a high growth. I would also say, importantly, in the first quarter that our conversion rate, which stabilized in H2 of last year, improved in the first quarter. So that's certainly an encouraging sign.

And I think on a related note, a lot of the headwinds and the market dynamics, we think are behind us based on the metrics, kind of everything we're seeing and hearing from the field and also our kind of the external data. As we look to Q2 to kind of your question, I would say, we certainly expect kind of a continuation with having strong biopsies that, that will continue to drive a very strong Q2. So, I think as you think about the second quarter, a couple of things to point out there as well, which is we guided to kind of that low-20% range. But if you look at last year in Q2, we actually had a benefit from a pricing, kind of payer dynamic that impacted Q2 of last year.

So when you look at kind of that low 20% growth, it actually ends up being kind of more like the high-20s when you make that adjustment on a year-over-year comparison. And I actually think that's important to your question as well as you think about the cadence of this year. So when you look at Q1 to Q2 and kind of ends your question into Q3, you probably see kind of in that single-digit growth range across the quarters, and that's actually similar to what you saw last year, particularly when you adjust for kind of that payer dynamic in Q2.

And then, I think to your question in terms of kind of the full year, we are assuming -- we have increased the guidance and we are higher than we started the year in the last couple of years, and we are at 20% for the full year. But as we kind of think about kind of the growth in the back half, we think we have the foundation certainly set up for a really strong kind of back half of the year in Q3 and Q4. But I'll also say from kind of a guidance framework, at this point, we're not going to assume that our conversion rate that was strong in Q1 continues throughout the back half of the year and kind of our framework hasn't changed in terms of assuming that those surgeons and those biopsies continue to drive kind of strong results. So, I think we want to wait a little bit longer on that and not get ahead of ourselves. But if you kind of look at the quarters and really the back half, it's driven by the strong biopsies and surgeons.

Okay. Very helpful, Joe. And then just on the margins, and I might have missed this in your prepared remarks, Joe. But given where gross margins came in relative to last year and where the op -- and the adjusted EBITDA margins are coming in, kind of what do you expect from an investment perspective as you prepare for NexoBrid launch and also the arthroscopic MACI?

Yes. So, I'd say from a kind of margin perspective, gross margins came in line with last year and the adjusted EBITDA -- margins looked a little bit different but from a quarterly perspective, it's probably hard to look at. I think when you look on a full-year basis, we still think we can be in that high-60% range on a full-year basis on gross margin. I still think we can be in that mid-teens range and likely improve on a year-over-year basis when we think about the adjusted EBITDA on a full-year basis. So, I think certainly, as we kind of think about the year, there are investments that are kind of part of our P&L, whether that's life cycle management and arthroscopic MACI, et cetera, or for the NexoBrid launch. But we think -- we still think we're kind of in that margin range that we initially laid out.

And one moment for our next question, that will come from the line of Sam Brodovsky with Truist Securities.

Congrats on a good start to the year. I want to ask 2 on NexoBrid. One, just to start off with the supply. Can you give us any color on what needs to get accomplished there to get that available in 3Q and how confident you are in that being available with the updated timeframe?

Yes. Sam, this is Nick. So, I think as we mentioned, post approval in earlier calls, there were just inspections of MediWound and the CBC facility in Taiwan occurred sort of late last year. There were some updates that were ongoing and needed to be made and that sort of drove the timeline for the initial product availability. As we mentioned, we always expected that maybe we'd have a little stocking revenue if product was made available towards the end of the second quarter. I think that it's just the dynamic of straddling at quarter end, and we're just more comfortable saying that we think it's more likely Q3. So all the work that's been going on continues, and that's kind of what's driving our updated guidance. It's just more prudent to assume it starts in Q3. If it happens in Q2, great.

Okay. And then as it relates to the broader burn guidance, should we think about any different complexion of how much of that is Epicel versus NexoBrid this year, given the strong quarter and the supply dynamic?

Sorry, I didn't hear the last part, Sam. Could you repeat the last part of your question?

Sorry. Just how much -- excuse me, in the burn guidance should we think about any different complexion there between Epicel and NexoBrid, given the supply issue and the stronger 1Q for Epicel?

Yes. I mean, I think as we think about kind of the burn care number, it kind of starts in the first quarter, obviously, we were able to improve off Q4 and kind of grow off that number as we talked about, higher than that run rate of $6 million a quarter by double digits in the first quarter. And I think to your point, the guidance for the second quarter is around that $7 million number. So again, ahead of kind of our initial expectations. So, I think as you kind of put the first 2 quarters together, the results from Q1 and our guidance for Q2, you're at roughly $14 million for the first half. So that's certainly, I think, a strong first half on Epicel as we kind of think about the guidance of 28% to 32%.

In terms of the components, it's probably similar to kind of what we talked about last quarter, which is there's still a number of scenarios to kind of get to that-full year guidance of Epicel, depending on kind of what Epicel does. And again, our kind of goal coming in the year was $6 million, but if you're kind of at that run rate, then the balances of NexoBrid can kind of get you that guidance or obviously, Epicel is kind of trending on its own at a higher rate right now.

So broadly speaking, I would say kind of no change in terms of kind of the mix of kind of how to get there. And just on kind of the stocking dynamic, I mean, that's really just a timing element. It doesn't change kind of our uptake forecast and patient forecast. That's just -- right now, we're just, from a guidance perspective, assuming that takes place in Q3 versus Q2. So really no change other than probably the start of the year in Epicel is probably a bit stronger than anticipated.

One moment for our next question, and that will come from the line of Jeffrey Cohen with Ladenburg Thalmann.

Congrats on a strong quarter. A few for Mara. And I guess, firstly, could you talk about the commercial organization relative to NexoBrid? I know that, previously, you were talking about breaking out a separate sales force to go after non-burn focused centers. Any update there from your end?

Yes. Jeff, it's Nick. So, our plan for the commercial sales force expansion remains the same with respect to the NexoBrid launch. So, obviously, we have a field force out there now of sales reps and clinical support specialists to support Epicel. And as we had mentioned, with the launch of NexoBrid, we were adding 6 additional NexoBrid-only reps to start, and that has sort of remained the same. And so the majority of those reps have already been hired and are out in the field. So, we're kind of excited obviously to have a bigger footprint and reach more centers as we move forward throughout the rest of the year.

Okay. Great. And then could you talk about MACI a little bit as far as geographies or centers, utility number of docs, surgeons that have been trained out there? Any kind of big picture snapshots worth calling out?

Yes. I think building on sort of our metrics from last year where we said we had about 2,000 biopsying surgeons out of our 5,000 targets. Obviously, we had a lot of strength in the first quarter where we had the highest ever biopsying surgeons. And again, that's pretty meaningful in the first quarter where, historically, you'd seen a bit of a step down from the fourth quarter into the first quarter. So, we're really, quite frankly, encouraged and quite excited about sort of the continued increase in surgeon engagement in terms of surgeons.

And in terms of geographies, our sales force, we expanded to 76 reps back in 2020. We feel at this point that those are obviously much more manageable territories for the reps. As we look forward, we don't think we need to sort of realign territories to add additional resources yet. But we're certainly open to doing different things like piloting support reps in some of the higher volume territories and so on to make sure that we have adequate coverage of cases and so on.

Okay. Got it. And then, lastly for us, any commentary about the FDA and what perhaps in a trial relative to the ankle may look like as far as number of patients and any endpoints. How are you thinking about running the trial? Or how might the agency would be thinking about running the trial?

Yes. Well, as I mentioned, we did have an initial pre-IND meeting with the FDA on our planned program. And there's a little preclinical work element to it, and then there's a clinical study. And I think it's safe to say we're kind of generally aligned at this point on that. And we've always said that unlike MACI arthroscopic where we're very pleased to sort of have gained alignment with the FDA on simply a human factor study as opposed to a clinical study. For MACI in the ankle, it would be more like the SUMMIT study for MACI in the knee, where it was, in that case, about 150 patients, probably maybe closer to 200 for the ankle program and that would be our operating assumption at this point. And we'll continue to update investors on it as we continue to refine timelines and program details.

Super. Congrats on the quarter.

Thanks, Jeff.

One moment for our next question, and that will come from the line of George Sellers with Stephens.

Congrats on a great quarter. Maybe to dig in a little bit more on that first quarter biopsy number. What are some of the dynamics that are driving that? Is it primarily market staying strong here in the first quarter? Or are you seeing physicians getting more comfortable with the procedure? Or is there some positive reimbursement change? What's kind of driving that elevated biopsy number here in the first quarter?

Well, I would say that, as Joe alluded to that, we definitely have seen sort of improvements in the market. And obviously, that -- you think of it as sort of eliminating the headwinds and just higher patient flow, things like that. So that's obviously -- as there's more traffic in the surgeons' offices, that obviously is a contributor as well. I'd say there's also just a continued expansion in surgeon engagement around the brand as their practices normalize and sort of more surgeons become aware of MACI. We just have stronger engagement, and that's what resulted in the highest number of biopsy surgeons in any quarter in the first quarter. So, we're very encouraged that as those headwinds abate and our reps are out in force that we're just kind of continuing to make good, strong progress on surgeon engagement. No reimbursement sort of changes of note, continued strong approval rates as we've talked about in the past. And obviously, that's helpful as well.

Okay. That's helpful. And then maybe to revisit the comments around sales reps. It sounds like they're continuing to drive productivity there. And you mentioned you don't plan to need to add any realigned territories yet, but just curious, the timing on that. As you think about continued productivity improvements and then the arthroscopic option coming in 2024, what's sort of the timeline for potentially adding additional reps?

Yes. Well, when we added reps back in 2020, we said we felt like we were sizing the sales force properly for the next 2 years to 3 years or more, and that we would revisit it a couple of years out. Obviously, we had all the disruption of COVID, so that kind of influenced. We did take another look and felt like we're comfortable at this point. I think, as we look ahead to arthroscopic MACI, as I mentioned earlier, when we increased our targets from 3,000 to 5,000 surgeons, we made a corresponding increase in the sales force size.

We'll go through that exercise again as we get closer to next year and a potential launch. And depending on the number of targets we would add from the predominant or arthroscopic-only surgeon pool, that will dictate sort of whether we need to add reps or not. I don't think it would be anywhere near the same size or percentage expansion that we did in the past, but that's something we'll determine as we move throughout the year.

Okay. Very helpful. And congrats again on the great quarter.

Thanks, George.

One moment for our next question, and that will come from the line of Sean Lee with H.C. Wainwright.

Congrats on a great quarter. My first question was, I was wondering if you could provide a bit more color into the surgeon metrics from MACI in terms of what are your net surgeon growth, the number of biopsy growth and as well as the conversion rates?

Yes. This is Joe. So, thanks for the question. I think -- I guess the way I would kind of frame it is probably more similar to what we talked about on the call on some of the questions, which is earlier in the year, it's probably hard to look at kind of absolute percentage growth and whatnot, particularly on the surgeons. But I think that kind of point that we had the highest number of surgeons biopsying in any quarter is kind of sort of speaks for itself. So clearly, that is a significant number.

And then in terms of the biopsy growth, again, we're a quarter into the year. But I think what's important and what's really been driving, particularly the first quarter results on the revenue side, which were quite strong is, I would say, kind of an acceleration of that biopsy growth that started towards the end of last year and certainly has continued into Q1. So, I think we're encouraged by the engagement in a number of surgeons being kind of at its highest point in a quarter, but also, I would say, the accelerating growth on the biopsies, which we think certainly drives the first quarter but also positions us well for the remainder of the year.

Great. Thanks for that. My last question is on the manufacturing side. I was wondering whether the new manufacturing facility is still on track for 2025, I believe is what your last guidance called for?

Yes. So the new facility in Burlington is on track with our prior timelines and we would expect that the office space will be done earlier, and obviously, manufacturing space needs to go through the FDA approval process. So it could very well be a staged move where the office portion of the company kind of moves up there may be late next year. And then commercial manufacturing, we would expect to begin in Q1 2026. So everything moving forward as planned.

I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Nick Colangelo for any closing remarks.

Okay. Well, thank you, operator, and thanks to everyone for your questions and your continued interest in Vericel. Obviously, the company executed well in the first quarter and had a great start to the year. We expect to deliver another year of strong financial and operating results in 2023. And we look forward to providing further updates on our next call.

So thanks again, and have a great day.

Thank you all for participating. This concludes today's program. You may now disconnect.