Vericel Corp (VCEL) 2024 Q3 法說會逐字稿

Ladies and Gentlemen, Thank you for standing by. Welcome to Vericel third quarter, 2024 conference call at this time, all participants are in a listen-only mode. I would also like to remind you that this call is being recorded for replay. I will now turn the conference call over to Eric Burns, Vericel, Vice President of Finance and Investor Relations.

Thank you, operator and Good Morning everyone. Joining me on today's call are Vericel of President and Chief Executive Officer Dominick Colangelo and our Chief Finance Officer Joe Mara.

Before we begin, let me remind you that on today's call, we will make forward-looking statements covering the private Security Litigation Reform Act of 1995.

These statements may involve risks and uncertainties that could cause actual results to affirm the chilly some expectations and the sky more fully in our finds with the SEC.

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 copyright third quarter financial results press release in a short presentation with highlights from today's call are available in the investor relations section of our website.

I was not on the call with a Nick.

Thanks, Eric and good morning everyone.

The company had another outstanding quarter as we generated total revenue growth of 27% and record third quarter revenue of approximately $58 million which exceeded our guidance for the quarter. This strong performance was highlighted by record third quarter racy revenue and the highest episode revenue in any quarter to date.

We also delivered another quarter of significant margin expansion and operating cash flow as the company's profit growth continues to outpace our high revenue growth.

Finally, the company achieved two very important regulatory milestones with the FDA approval of MACI Arthro and the NRI pediatric indication, which positioned the company for sustained high revenue and profit growth in the years ahead, Macy had another solid quarter and was well positioned for a strong close to the year as the momentum in underlying growth drivers continued through the third quarter.

We achieved record third quarter highs for Macy biopsies and the number of surgeons taking biopsies driven by robust growth in both biopsy surgeons as well as biopsies per surgeon, which has become a meaningful growth driver for Macy. This year, the strength of these key growth drivers together with another quarter of significant increases in peer to peer programs, which more than doubled in the third quarter compared to last year and attendance at those programs, which is at the highest level at any time. Since launch demonstrates that surge in interest in the core B procedure remains extremely high.

In addition, with the recent approval of MACI Arthro, MACI's now the only restorative biologic cartilage repair product approved for Arthroscopic Administration.

The first MACI Arthro case was successfully performed a few days after we announced the approval and there's been considerable engagement and interest in MACI Arthro from both current MACI users and non users at training programs as well as our launch meeting at the orthopedic summit in September. An important early indicator of the potential for AC Rro to meaningfully expand utilization and sustain MACI's high revenue growth over the long term.

Turning to burn care.

Episode third quarter revenue was its highest quarterly revenue to date and we continue to generate significant revenue from next bird selling activity at previously dormant burn centers.

Next adoption continued to progress with more than 70 burn centers completing P&T committee submissions and approximately 50 burn centers obtaining P&T committee approval and placing initial orders since launch with the Nexobrid pediatric indication. Now in place, more than a third of the pediatric burn centers have completed P&T submissions with several pediatric centers. Placing initial orders finally. Net Aberg recently received the category three CPT code which is scheduled to be posted on the A MA website on January 1st and go into effect on July 1st. Next year overall, the company had an excellent third quarter. And importantly, we remain on track to meet all of the key objectives for 2024 that we established at the beginning of the year including sustaining high revenue growth for MACI and the company establishing a second high growth franchise in burn care, securing FDA approval and launching MACI Arthur in the third quarter and continuing to drive substantial margin expansion and profit growth.

I now turn the call over to Joe to provide a more detailed review of our third quarter financial results and guidance for the remainder of 2024.

Thanks Nick and Good Morning everyone. As Nick referenced Vericel had an excellent quarter across all financial metrics with record third quarter revenue and profit margins coming in ahead of our guidance for the quarter total net revenue for the third quarter was $57.9 million an increase of 27% versus the prior year.

MACI revenue grew 19% in the third quarter to $44.7 million and remains on track for a strong fourth quarter and approximately 20% growth for the full year total burn care revenue in the third quarter grew 66% to $13.2 million. Well ahead of our guidance, the performance was driven by record quarterly FSL revenue of $12.2 million with the increased graph volume, primarily due to considerably higher graphs per order.

Importantly, based on a higher share of voice in the burn care market, both new and dormant episode accounts have contributed a meaningful portion of episodes. Nearly 30% growth on a year-to-date basis.

Next revenue grew sequentially to $1.1 million for the quarter as we continue to add new ordering centers and the number of centers regularly using Nexobrid increases the company's substantial revenue growth translated into significant margin expansion with gross profit of $41.7 million or 72% of net revenue, an increase of 480 basis points compared to 2023 which also represents a record quarterly gross margin outside of our seasonally high highest fourth quarter through the third quarter. The company has generated gross margin of 70% an increase of 450 basis points versus the prior year total operating expenses for the quarter were $44.1 million compared to $35.7 million for the same period in 2023.

The increase in operating expenses was primarily due to development and commercial launch activities for AC (inaudible) increased head count and related employee expenses as well as additional marketing initiatives that helped drive a significant increase in physician engagement across both franchises.

Net loss for the quarter narrowed to $0.9 million or 2¢ per share compared to $3.7 million or 8¢ per share in the prior year.

In addition, the company has generated positive net positive GAAP net income on a rolling 12 month basis. And importantly, we remain on track for positive GAAP net income for the full year.

Just to even it out of the quarter increased 84% to $10 million or 17% of revenue. An increase of over 500 basis points versus the prior year as we continue to drive very strong bottom line growth on a year-to-date basis adjusted EBITDA has more than doubled to nearly $24 million.

Finally, the company generated over $10 million of operating cash flow and ended the third quarter with $151 million in cash restricted cash and investments and no debt.

Notably, our cash and investments balance has remained consistently in the $150 million range throughout the year. As the company's strong financial and cash generation profile has allowed us to completely self fund the investment in our new manufacturing facility to support the company's future growth.

Turning to our financial guidance for the full year, we are maintaining our total company revenue guidance of $238 million to $242 million or 20 to 23% total revenue growth which implies fourth quarter revenue of $76 million to $80 million.

In terms of our profitability guidance based on the company's financial performance year-to-date and expectations for a strong fourth quarter. We are increasing gross margin guidance to 72% and adjusted even on margin guidance to 22% for the full year compared to the prior guidance of 71% and 21% respectively.

Overall, 2024 is set up to be another very positive year for the company with another year of high top line growth, as well as significant margin expansion and profit growth ahead of our initial expectations.

As we look ahead to next year, we believe that the durable growth in our core portfolio together with our recent product launches, positions the company to sustain strong top line and bottom line growth and deliver a meaningful inflection in our past generation, given significantly lower CapEx as we complete the construction of our new facility early next year. I will now turn the call back over to Nick.

Thanks Joe. The company performed extremely well to date in 2024. And as we move into 2025 and beyond, we expect the momentum across our business to continue. While we're still very early in the MACI Arthro launch. We're seeing substantial interest and engagement with both previous MACI targets as well as the incremental 2000 high volume arthroscopy surgeons that are now part of our 7,000 target surgeon base. As I mentioned earlier, the first MACI Arthro case was performed within days of approval and surgeons have already performed or scheduled dozens of MACI Arthro cases to date. Importantly, surgeon feedback has been very positive with respect to the potential patient benefits noted by surgeons in our market research as the MACI Arthro procedure offers a less invasive treatment option requiring smaller incisions which may result in less postoperative pain and overall faster post operative recovery for patients.

We're very pleased with the launch to date and given that the MACI Arthro Instruments target the largest segment of the MACI addressable market representing approximately 20,000 patients per year. We believe that MACI Arthro will have a meaningful impact on overall MACI utilization and potentially bolster its current high growth trajectory, providing a significant potential upside growth opportunity for the company in the years ahead.

We also continue to advance the MACI Ankle development program remain on track to submit an IND in the first half of 2025 and expect to initiate the phase three clinical study in the second half of the year.

A potential MACI ankle indication represents a substantial longer term growth driver for Macy with an estimated addressable market of $1 billion that would enable the company to expand into other orthopedic markets.

Lastly, we'll be moving into our new facility early next year and plan to begin commercial manufacturing with Macy at that site in 2026 the new facility is designed to meet both us and global manufacturing requirements which provides strategic flexibility for the company to potentially commercialize Macy outside the United States.

We're initiating an evaluation of the market opportunities and regulatory requirements in several (inaudible) US geographies as we continue to expand the long term growth and value creation opportunities for the company. Overall we believe the company well positioned, not only for a strong, close to 2024 but also to deliver a unique combination of sustained high revenue and profitability growth in 2025 and beyond. Based on the strength of our core portfolio, the recent launch of AC Arthro and continued progress on other long term growth initiatives.

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

Thank you. (Operator Instructions) Our first question will come from Ryan Zimmerman from BTIG. Your line is open.

Good Morning and thanks for taking the questions. Congrats on a really nice quarter.

I guess I want to start with Nexobrid because you know, it's getting off the ground this year, there's some decent expectations, you know, on Nexobrid in the next year as it normalizes and you know, becomes more routine of a product versus having to go through the P&T process. And so, you know, Joe, I, I know you're not going to give guidance for 25 but, but conceptually, I guess, can you talk a little bit about kind of the drivers for growth next year? Kind of where you see Nexobrid, potentially settling into a rhythm or when you see it settling into a rhythm and, and whether or not Macy, our throw is really an accelerant or a sustainable kind of driver of current MACI expectations.

Yes. So. Right. I'll, I'll kind of start there. You know, maybe, maybe kind of just talk a little bit about the framework from a guidance perspective and, you know, for 24 and then kind of how we're thinking about 25 you know, so, you know, for 24 you know, I think we've been consistent kind of all year in our framework. And I think as we think about Macy, you know, we think that's still very much on track, you know, for, for 20% around 20% growth on a full year basis this year. So, you know, that hasn't changed. You know, as we move into 2025 you know, I would say, kind of the way we're thinking about from a company perspective, you know, kind of thinking about the framework for next year. You know, we haven't given specific, you know, guidance, you know, at the company level or at the product level as of yet, but we have, you know, pointed out that we do expect, you know, another year of strong growth, we talked about kind of being in the 20% plus range. So I would say just kind of more of a framework as we move toward next year, you know, I think the right starting point, you know, as we think about 25 is really to think about the total company growing at a similar range is kind of where we, where we started this year and kind of the range where we're in from a growth perspective. So, you know, what does that mean kind of across the franchises? You know, for Macy, obviously, you know, the leading indicators have been extremely strong this year. Kind of throughout the year, you know, biopsies have been strong driven by surgeons and biopsies per surgeon. The initial feedback on MACI Arthro, you know, as Nick talked about it has been very strong. But I think as we think about next year, probably the way the way we're thinking about Macy to start is, you know, just based on those strong leading indicators and their core growth drivers. And I would kind of say a modest contribution from MACI Arthro. We think Macy can kind of be in that in a similar growth rate next year, just thinking about it that way and maybe just to kind of round out 25 you know, I think on on burn care, you know, I think from a nex perspective, you know, I think our expectation at this point, you know, we're, we're three quarters into the year, kind of getting through our 1st year launches. You know, I think as we move into next year, I, I think at this point, we'd expect, you know, continued progression kind of each quarter on next arid. And then from an FSL perspective, probably more typical growth this year has been a little bit kind of outsized from a growth perspective. So I still think burn care will have, you know, very strong growth next year, but probably more in line with the company growth. And then lastly, I would say, kind of on both AC artho and Nexobrid, you know, we, we don't want to get ahead of ourselves, but there's certainly potential to outperform kind of the starting point here. If MACI Arthro, you know, kind of the, the impact is, is greater than, than we initially assumed, it may come faster. And then similarly from a Nexar perspective, it really comes down to, we've had a lot penetration in terms of total centers, but in terms of the centers really using it more regularly and kind of moving our our centers kind of up the segment chain if you will, that could potentially lead to, you know, faster, faster growth in the next bridge side. But, you know, we're not going to assume that out of the gate on, on our throat or NRI as we think about 25.

Okay. That's, that's very helpful and, and Nick maybe turn to MACI Arthro for a minute. We, we heard it was and I could be wrong on this. We heard it was standing room only at the Oset conference in Vegas about a week or two after MACI Arthro got approved. And so, you know, certainly a positive data point in terms of investors, excuse me, certain and interest.

Can you talk about, you know, when you talk about record biopsies, you talk about, you know, biopsies per surgeon, you mean, what are you seeing from those 2000 or so doctors that are incremental right now as we get going? And the second part of that is, are you seeing an uplift in your existing Macy customer base as a result of our throat or do you expect that to be more the driver than say new physician adoption as it gets going?

Yeah. Hey Ryan, thanks. That's a great question. And you know, when we kind of talk about MACI Arthro and have in the past and we really think about, obviously we had you know, kind of our current or prior Macy 5,000 targets and then adding the the new 2000 surgeons. And as we think about segments within those kind of broader groupings, you know, you have current MACI users from the 5,000 targets. One bucket of them principally kind of looks at MACI is a patella or patella, femoral joint option for patients. Others do that plus femoral condyles. And so we kind of look at, you know, the surgeon segments in that way. And then you have kind of an opportunity for non MACI users out of those prior targets. And then the new 2000 surgeons and I would just say of the first few dozen cases that I referenced earlier, we actually have surgeon surgeons who have either performed or have scheduled MACI Arthro procedures out of all four of those buckets. So we think that's a great leading indicator. You know, as I've said on prior calls, certainly the low hanging fruit is our, you know, previous targets who had biopsies that haven't yet converted, that are amenable to the arthroscopic approach. And of course, when, you know, we had doctor Bhe and who's, you know, on our website, he did the first case the week we announced the approval. You know, obviously that was a previously scheduled case, previous biopsy that, you know, he was able to perform the arthroscopic mey procedure with. So, you know, that's, those are the ones that are going to be easiest. And as we've talked about, you know, we have that pool of unconverted biopsies for, for the year that each rep can go out and talk to their, the surgeons about.

But as I mentioned, you know, we've also had non basic users from our original targets and then, you know, the new 2000 targets where surgeons have actually taken biopsies and scheduled cases. So again, we think that's, you know, a great sort of early leading indicator for the potential that MACI Arthro can have as we move forward.

Thank you.

Thanks Ryan.

Thank you. Our next question comes from Richard Newitter from Truist Securities. Your line is open.

Hey guys, thanks for taking the questions and congrats on the quarter. Maybe just the first question you're following up on Ryan just I might, I might have missed it. You might have said it when you were answering him. But with respect to the, you know, the portion of the market where you, you see MACI Arthro giving you better accessibility or you know, to the, to the lesion sizes, the (inaudible).

What I'm sorry, down the, the, the, the federal Condy rather. What are you seeing those dozens of initial cases getting used in, in that seemingly expansionary segment of the market? Is that kind of what, what you would have expected to see or maybe just elaborate on that a little bit. And I'm sorry if you had said that when you were answering the last question, I might have missed it.

Yeah. Hey, thanks for a tweet. Yeah. No, I hadn't addressed that part, but as I mentioned, you know, on prior calls. So the entire MACI Arthro instrument approach is designed for 2 to 4 square centimeter defects on the femoral condyles. Those are the most common defects represent about 20,000 of the 60,000 patient TAM or about a billion dollars a year. And, you know, typically with the open procedure, either patella defects, or larger femoral condyle defects were kind of the go to defects for Macy. And it doesn't mean we didn't, you know, have surgeons doing Macy procedures for those smaller defects, but we had a much smaller penetration compared to say patella or large defects. And so that is the opportunity for us to get a deeper penetration into the largest part of the tan. And then, yeah, that's of course where, you know, the initial cases are going because the instruments, again, they come in pairs of, you know, 23 or four square centimeter cutters, Cannulas and the implant device. And so that's exactly the size and the initial location. But we've also seen surgeons and again, we're just kind of in the early days doing not only femoral condyle cases but other areas of the knee as well. And of course that, you know, could open up even, you know, broader utilization.

Very helpful and, and maybe just I know you're not giving official 25 guidance but, but similar to kind of the way you parsed out some of the considerations and ways to think of starting points for revenue. Can you can you do the same down the PNL? This looks, you know, it's a great, great profit inflection that we're seeing in the business continuing in 24 you know, it look, it looks like that, that, that your continuing into 25 but it, but anything you want to call out as we refine our models for next year, cadence and, and maybe if you feel comfortable where consensus forecasts are. Thank you.

Yeah. No, I appreciate the question Rich. So, you know, I would say it's probably too early to get into the specifics on next year. But I would say, you know, a couple of things. So one, you know, obviously the performance kind of this year, whether you look at individual quarters kind of year-to-date where, where the full year is trending from a margin perspective, whether you're looking at gross margin or adjusted EBITDA, you know, has been very strong and I generally say probably a bit ahead of our expectations and ahead of our schedule for kind of getting up the curve there.

So, you know, as I think, as we think about 2025 I would say, we just want to be a little bit mindful of that. I mean, said differently, you know, II I would not assume we're going to see the same kind of, you know, year over year expansion as a starting point, you know, and either gross margin or or the adjusted even, you know, margin next year, you know, we will start to see some of the depreciation and whatnot in the building start to play its way through the P&L and that's, you know, more to get into for next year. But, you know, those are some of the considerations, you know, from an overall P&L perspective, you know, that said, I would say when you look at gross margin, you know, we're kind of at or ahead of our, well, with essential a mid to long term expectation of 70%. So that is certainly great to see.

And I think, you know, that's something we think we can certainly continue to improve upon and from an adjusted even perspective, you know, I think we're, we're tracking nicely there as well. I think we're well set up to kind of, you know, make progress and kind of hit our lot, you know, call mid, mid range targets of 30% plus, you know, what it means for next year is, you know, we'll probably start out, you know, with, I would say the kind of right expectations for that to continue to increase. But, you know, at, at a lower rate, you know, at a lower rate on a year over year basis to start the year. I would also say, you know, and I guess on those two, I would say, you know, at the appropriate time, we'll probably think about, you know, updating some of those long term targets. You know, obviously we're kind of at the 70% for example, on gross margin, 70% plus. So that's, you know, we'll update that at the right time. You know, I just broaden it a bit as well and just say, as we move to next year, you know, the last couple of years for us, you know, we talked about and I think we've experienced that inflection from a profitability perspective on the P&L but as we move the next year, I think there's a couple of other, you know, important dynamics, which is one, you know, this year, we're expecting to be GAAP net income positive, we obviously expect to build on that next year.

So that would be something that I think, I think it will be very important as we move into next year and beyond. And then we referenced it in the prepared remarks, but from kind of a financial profile and cash generation perspective, you know, we did want to point out, you know, we, we self funded our entire facility, you know, primarily this year, but over the last, you know, few quarters and you know, essentially once we get into early next year, that will be behind us. So in addition to kind of the P&L metrics, that we're obviously very focused on as well as the top line. I think, you know, the cash generation, you know, should sign, you know, will significantly improve in 25 and beyond. So that's something I'd say we're focused on as well.

Okay, thanks a lot.

Thank you.

Thank you. Our next question comes from Mike Kratky from Leerink Partners. Your line is open.

Hi, everyone. Thanks for taking our questions.

Maybe another one on MACI Arthro. How is the early wave of MACI Arthro procedures that are being done or scheduled? Guided your outlook? Both for four Q and 2025 just in terms of, you know, one the portion of implants that are going to be done arthroscopically and then, you know, two again, just kind of the degree to which you could see any uplift from MACI procedures overall.

Yeah, I'll start and then Joe can jump in as well. So, you know, as we mentioned, the surgeon interest for obvious reasons is very strong. And you know, we have had as we expected sort of the the low hanging fruit, as I mentioned is surgeons who had these biopsies that are amenable to arthroscopic procedures and then converting those cases essentially doing them arthroscopically instead of open. So, you know, most of those are cases that I think you could say likely would have gone forward in the fourth quarter, probably some incremental as we've seen surgeons again, kind of get pretty enthusiastic about it. So we had said that we knew we would end up doing some cases this year. But given the dynamics of the launch in September and, you know, the obviously each surgeon who's in that bucket of 2000 new surgeons and then those who hadn't, you know, taken biopsies for Macy in the past, that's all prospective business. And as we've talked about the median time for biopsies to convert is about four months. And that's why we have said consistently that we see kind of the bigger impact from MACI Arthro in 2025 and beyond. So lots of momentum, as Joe mentioned in the core business, we expect to have some incremental obviously, as we get into 25 MACI Arthro and, and exactly how quickly that in flex, I think remains to be seen, but we certainly based on the initial enthusiasm and, and it's, it's just obvious, right, it's a less invasive surgery as we talked about surgeons and patients, you know, expect, you know, that there's less post operative pain, faster post operative recovery or overall recovery. And so, you know, that's what's driving a lot of the enthusiasm.

Yeah, and just just to (inaudible) in briefly on, on the, on four Q and kind of the guide as well. So, you know, I think as we talked about on MACI, you know, I think another strong quarter in Q3, I think we're set up, well, you know, kind of still at the 20% kind of growth for the year. You know, that, that from a Q4 perspective, I'd say, you know, the kind of right place to start on Macy is, is $68 million in Q4, you know, approximately $68 million. That kind of that gets you to that 20% on a full year basis. And just on that kind of on the question, you know, that's not, that's really based on the strong leading indicators and really what would be typical seasonality. So, you know, that's, that's based on just kind of the trends we've seen throughout kind of Macy's history there, you know, with the step up in Q4, it is not based on a significant kind of uptick in MACI Arthro.

So that's not really the driver of Q4 guidance and then just quickly on the on the bird care side, just to round up Q4, you know, obviously a great third quarter, particularly on L, you know, which is great to see and perform well really throughout the year, you know, I would say from a guidance framework perspective, you know, I think we've been pretty consistent on this, you know, we don't typically raise our guidance based on one quarter or a prior quarter of FSL performance just because it can vary so much quarter to quarter. And just as a reminder, you know, for example, even in the second, sorry, in the first quarter, you know, we have $11 million of revenue in the following quarter. You know, we did not change our guidance and, you know, in the following quarter was $7.8 million. So, you know, I think that's a good example of kind of holding our framework is certainly appropriate. And, and we continue to believe that's the best approach just because it's a difficult product to predict on the burn care side. So, you know, in terms of Q4, on the burn care side, I would say still early in the quarter and, you know, clearly remains very difficult to predict.

But, you know, I think at this point, it's, it's probably trending closer to Q2, which was in that, you know, called 7.5 to $8 million range. I think it was about $7.8 million. So that would the burn care trending, you know, to around $9 million in Q4. So, you know, as we think about Q4 and closing the year, we think we're set up for a very strong close but, you know, kind of our, our framework is $68 million on the Macy's side and $9 million on the burn care side. Of course, there could be some variability, but we think that's the right place to start.

Understood. Yes, super helpful color there. So I appreciate that maybe one quick follow up, you know, L has definitely been a really positive surprise.

Do you expect that the Nexobrid launch has kind of helped you drive additional engagement there? And do you expect that that is a trend that could be more durable in 2025 and beyond?

Yeah, that's a great question. And you know, we said even since last year. You know, when we were first getting ramped up with Nex, that we've definitely seen pull through and now meaningful contribution to growth from the Nexa Bridge selling activities in either new or dormant burn centers. And, and yes, it's been a meaningful contributor, you know, probably as much as Nir itself for the year. And so we expect that will continue as we move into 2025. And I think we mentioned on our last earnings call that, you know, we had realigned probably on the earlier side to both expand the number of bird care reps and ensure that all of them are selling both products. Now, if you recall when we first launched NRI, just because the training requirements on all are pretty pretty steep that we kind of had a group kind of an overweight configuration where the Nabard reps were calling just on the, the new Nabard accounts with the long term vision that we would at some point have all of our reps selling both products and we implemented that in the third quarter. And so long story short, yeah, we expect that the cross selling opportunities will continue to, to help out to sell as we move forward. And it's really been great. I mean, obviously, even based on the guidance Joe just mentioned, you know, it'll, it'll be up close to 30% for the year. So good, strong performance for (inaudible).

Awesome. Thank you guys.

Thank you.

Our next question will come from Josh Jennings from TD Cowen. Your line is open.

Hi, good morning. Thanks Nick and Joe. Congratulations on another strong quarter. I wanted to just ask about the Macy Biopsy Bank and you referenced the, you know, one of the first procedures, you know, been a biopsy that was taken prior to approval is my assumption. But I mean, did, were you seeing some, some of that pent up demand flow through with kind of femoral condyle biopsies as you headed into the MACI Arthro approval. And any any any sense of how that could, you know, kind of what that pent up demand looks like in the biopsy bank?

Yeah. So, you know, we did have a number of surgeons and I believe we talked about this on our last call, you know, roughly 100 ish surgeons that either were involved in sort of the design of the instruments and development in the Human Factor study and the voice of the customer labs following the submission to the FDA. So, you know, there were clearly call it 100 ish surgeons who had participated in this. And and so, you know, as you'd expect some of the early procedures are coming from those who who were familiar with it. We obviously also, you know, have biopsy transmittal forms with the size and location of the biopsy. So, you know, for biopsies essentially taken in 2024 which had not yet converted and were amenable to arthroscopic administration. Again, based on the size and location, we were able to arm our reps with, you know, the surgeons and patients that they could have a discussion about. Would it be appropriate for MACI Arthro? So, you know, I would say though that it's not, we, we obviously couldn't promote the arthro approach until it was approved. So there wasn't a whole lot of discussions kind of ahead of the approval or, or moving towards it as you referred to. It was really once we got approval, then they're armed to go out and you know, have those discussions with, with the surgeons about the approach.

Excellent. And then thanks for that and just wanted to get an update on Macy pricing and how to think about price increases in 2025. And kind of within that just remind us, you know, the incremental revenues from, from MACI Arthro through instrumentation in in those cases, sorry for the multi part question here. But also just wanted to ask about, just to review the commercial thrust to attack these 2000 high volume arthroscopic orthopedic surgeons and and just to make sure that there's you know, you guys feel well equipped and positioned to maintain that kind of farming of your current accounts and and hunting those those those new arthroscopic that new arthroscopic camp that you're locked. Thanks.

Yeah. So I'll just start with kind of the general MACI pricing. You know, we typically take a mid to high single digit price increase each year. And, you know, we'll expect to do that in 2025 as well in terms of the Macy arthro instruments, we do, those are disposable instruments. So unlike an open procedure where we have an implant kit that we basically provide to the surgeons and then we have to actually kind of process that sterilize it, etc etc . These are disposable instruments that we we sell to the surgeons in the, in the MACI Arthro cases.

And so yeah, you'll see kind of what was in our 10-Q previously as the biopsy kits as a line item for Macy. We'll also now include the instrument revenue that, that we generate there as well. Again, compared to sort of the reimbursement for the J code for Macy, it it kind of pales in comparison, but you know, we are charging for, for the instruments in in the MACI Arthro increases. So.

I think the last piece Nick was just already equipped in terms of.

Oh yeah. So the other so the last piece of that is we are definitely planning early next year to kind of do a refresher on sort of sales force sizing as you might recall, kind of pre COVID, you know, each year we basically increased the size of the Macy's sales force post launch in 2017. So we did it in 1,718 and 19. And then for 2020 we actually engaged Zs Associates and did a pretty comprehensive assessment. And that's when we went from, you know, roughly 48 to 75 territories. So it was a pretty big expansion and, you know, that has served us well to date in this intervening period.

You know, we have, as I've mentioned before, added territory development representatives in some of the larger volume territories. And we did that again this year to kind of help with the volume in those territories. But we'll be kind of refreshing that for the very reason you mentioned, which is to make sure we have kind of the appropriate reach and frequency based on the interest we're seeing in MACI Arthro and, and, you know, again, if we end up expanding, kind of run the same playbook that was very productive for us, we often mentioned that each year that we expanded the sales force rep productivity actually went up in terms of revenue per rep. And so there's a playbook we follow when we do that. So we'll, we'll do the evaluation early next year and then, you know, to the extent we want to increase the sales force, we'll do that sort of in the back half of next year and rolling into 2026.

Excellent Thanks so much.

Thank you.

And our next question will come from Caitlin Cronin from Canaccord. Your line is open.

Hi, thanks for taking the questions and congrats on a great quarter. You know, so with our throw, you're again increasing your search base, as you noted. After reaching about 50% penetration from the previous base, I guess, just with this larger base, do you think that there's a limit to the penetration you can reach with Macy longer term or if you have you know, kind of a number that, that you're targeting there?

Well, you know, we, we kind of said, you know, we've got two data points, I guess one is, you know, prior to the, the larger expansion that I just mentioned in 2019, you know, we had about 3,000 surgeons at that time, you know, the last year in 2019 that we had reported data, you know, we increased biopsy surgeons by 25% to about 1,400 that particular year cumulatively, it was greater than that on the original 3,000 targets. So we're around 50% and then we expanded to 5,000 surgeons and, you know, over the course of, you know, kind of last year and this year, we were approaching that 50% penetration rate again. And now we're expanding, you know, with 2000 more. And as we've said, we expect that dynamic will continue where we'll you know, relatively rapidly, I think, get to kind of the the 50% penetration and we would never kind of run the experiment to get to a terminal sort of penetration rate. But, you know, as I said, cumulatively, it's typically more than you see in any particular year. So, you know, so we expect the same kind of dynamic. And as we've mentioned, you know, growth in biopsy surgeons will continue to be an important growth driver for the company over the next several years.

Great. And then just turning to, you know, with the dormant accounts, re engaging with how many have reactivated and you know, how many burn centers are now actively using the product.

Well, you know, that's kind of, it's typically in a, you know, the year is not done, obviously. And, you know, we have said in the past that, you know, of the 140 burn centers is kind of a subset that routinely treat, you know, kind of patients. And often, you know, even if you're an accredited burn center, those patients will be transferred to some of the larger centers because, you know, the smaller ones don't necessarily routinely see or treat these kind of catastrophic burn patients. So I think in the past, we've said in any given year, we can get biopsies from 70 to 80 of those burn centers because not all the patients end up being treated because of health issues or, or patient expiry, you know, routinely, you'd have, you know, roughly 40 to 40 to 50 centers that would, would end up, ultimately treating the patients. So I don't think that's markedly changed yet. But, you know, there's obviously the opportunity to do that as we move forward.

Great, thanks so much.

Okay, thank you. Thanks.

Thank you. Our next question comes from Jeffrey Cohen from Ladenburg Thalmann & Co. Your line is open.

Hi, Nick and Joe Congrats on the strong quarter. Just one question from our end, if you could talk upon about the instrumentation for MACI Arthro and the training of doctors out there. What are you finding as far as learning curve or lesson learned? And then perhaps some talk about how that may play out in the future for ankle as well. Thank you.

Yeah. Well, thanks Jeff. You know, as was the case with MACI Open Procedures. You know, the training is often done online and for the MACI Arthro submission, we, you know, submitted online training materials. So for those who are really experienced both, you know, with MACI and arthroscopic procedures, which are a lot of the surgeons, you know, they don't really have to do any additional training if they don't want to. So it's not sort of like a bottleneck that you have to work through. Now, of course, you know, we do like we did at the orthopedic summit. And I appreciated the comments of standing remote only because it really was in the demonstration kind of in the middle of the the center. But we also had training labs there. So surgeons could come in do cadaver labs and practice doing MACI Arthro. And so, you know, often surgeons will do that. We have examples of, you know, a case that was scheduled for Tuesday, you know, the Friday before the rep goes down to train on a cadaver knee and then they go into the surgery. We also have models that we can provide surgeons a model need where they can practice, not on a cadaver knee but on the model. And we had an example of, of that the Marty model being used to train the surgeon before they went in to do their first procedure. So, you know, online cadaver training or using the Marty model are the ways that the surgeons can train before they do their first procedure.

Got it. And would you expect us to follow a similar pathway for ankle?

In terms of the administration?

You know, right now, obviously, we're kind of working with the FDA on and getting prepared to submit an I&D and, and start the study in the second half of next year. We don't currently have Macy arthroscopic instruments developed for that study. So it'll be kind of traditional administration as they're, you know, treating anger cartilage defects. Now, certainly that is something over the course of the clinical study that, you know, we could, you know, follow the same playbook. If that ends up being sort of a preferred route of administration, you know, for a basic ankle procedure.

Got it. Okay, perfect. Thanks for taking our questions. Nice quarter.

Thanks, Jeff. Thanks.

Thank you.

Our next question will come from Swayampakula Ramakanth from HCW. Your line is open.

Thank you. And this is our from hit, right? Most of my questions have been answered. Just a quick question at a high level. So, as we get our, our throw going in the market, just trying to understand how we should start thinking about synergies on the operating margin, especially as autogas adoption and, you know, can can that happen early or is this, is this going to be a little bit of a long, long term gain from here?

Yes. So, good morning our kids, Joe and I start on that one.

You know, I think as we kind of think about the outlook, you know, into 25 and beyond. You know, I think the the real advantage here with our row is, you know, we essentially have, you know, a significant kind of built in synergy already, right? So, you know, this is no change to the kind of field force you know, same number of territories to start. As Nick said, we'll take a look and make sure we're kind of, you know, we have kind of the right reach and frequency et cetera, but from kind of a margin P&L perspective, you know, it's, there's really nothing, there's nothing really, you know, significantly different from an ar perspective versus an open case. So as we talked about, there's, there's actually some degree of revenue. So there's a bit of a top line contribution when physicians are, when they purchase the instruments, you know, there are some additional costs. They're pretty minor in the cost of goods sold side. But, you know, I, I wouldn't think of this, you know, kind of impacting, you know, where we're going from a female perspective. You know, I think again, having the top line revenue to, to support and to kind of add to the total is helpful. I don't think that'll be hugely material. It's a small number relative to the cost of the implant. But, you know, I think we're kind of well set up, you know, with our grow and that shouldn't impact our kind of long term outlook.

Thank you. Thanks for taking the question.

Thank you. And our last question will come from Ryan Zimmerman from BTIG. Your line is open.

Hey, sorry, just a quick follow up. I don't think I heard anything just on the fourth quarter. Implied guidance. Is there any contribution or impact from either the hurricanes or the ivy shortages that are impacting particularly Macy procedures if there is, you know, continuous irrigation used for those cases.

Yeah. Hey, thanks Ryan. So, you know, to date, obviously, it's something the industry and we are monitoring to date, you know, kind of from an implant perspective, we haven't seen any impact. You know, a Macy open procedure is a pretty low IV fluid procedure. So, you know, especially compared to, you know, things like rotator cuff surgeries or, or ACLS, etc etc . So I haven't really seen that, you know, could there be a case if there's hospitals that, you know, are in short supply and they're trying to manage it? You know, in our case, we use a little more fluid than an open case. And could one of the arthro cases be, you know, converted over to an open case? Sure. But today, you know, we're not really seeing any impact at all on that on the kind of influence side.

Appreciate it.

All right. Thanks Ryan.

Thank you. And I am showing no further questions from our phone lines. I don't like to turn the conference back over to Nick Colangelo for any closing remarks.

Okay. Well, I just wanted to say thanks again for your questions and your continued interest in the company. You know, we had a great third quarter. We're excited to deliver a strong finish to the year and, and continue with our high growth momentum into 2025. So we look forward to providing further updates on our next call. Thanks again and have a great day.

Thank you for participating in today's conference. This does conclude the program and you may all disconnect everyone. Have a wonderful day.