Vericel Corp (VCEL) 2015 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Vericel first-quarter 2015 conference call. (Operator Instructions). I would also like to remind you that this call is being recorded for replay. I will now turn the conference call over to Vericel's Chief Financial Officer, Gerard Michel. You may begin.

Thank you, operator, and good afternoon, everyone. Welcome to Vericel's first-quarter 2015 conference call to discuss our first-quarter 2015 financial results as well as the progress of our commercial business and development programs.

Before we began let me remind you that on today's call we will be making forward-looking statements covered under the Private Securities Litigation Reform Act of 1995. And all of our projections and forward-looking statements represent our judgment as of today.

These statements may involve risks and uncertainties that are described more fully in our filings with the SEC which are also available on our website. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our reviews as of any subsequent date.

With us on today's call are Nick Colangelo, Vericel's President and Chief Executive Officer; Dan Orlando, Vericel's Chief Operating Officer; Dr. Dave Recker, our Chief Medical Officer; and Dr. Ross Tubo, Vericel's Chief Scientific Officer. I will now turn the call over to Nick.

Thank you, Gerard, and good afternoon, everyone. Vericel had a very productive first quarter of the year with measurable progress across all aspects of our business.

As part of our continuing transformation of the Company we began the quarter with an expansion of our Board of Directors with the appointments of Dr. Steve Gilman, former Chief Scientific Officer of Cubist; Kevin McLaughlin, Chief Financial Officer at Acceleron Pharma; and Dr. Paul Wotton, Chief Executive Officer of the Ocata Therapeutics. We are very pleased to have the benefit of their expertise and experience as we continue to implement our strategic plan and build the Company.

In January we also announced the completion of patient enrollment in our Phase 2b ixCELL-DCM clinical trial that is evaluating the efficacy and safety of ixmyelocel-T in patients with advanced heart failure due to ischemic dilated cardiomyopathy. By completing enrollment on schedule we remain on track to report top-line results from this study in early 2016.

In March we reported three-year follow-up results from the SUMMIT extension study at MACI at the 2015 annual meeting of the American Association of Orthopedic Surgeons.

These results demonstrated that patients treated with MACI versus microfracture continue to show a statistically significant improvement from baseline in the co-primary endpoint of KOOS pain. And function scores at year three, with higher responder rates in the MACI group than in the microfracture group, supporting the positive risk-benefit profile of MACI that was first demonstrated in the pivotal Phase 3 SUMMIT study.

From a commercial perspective, as we described on our last quarterly call, both Epicel and Carticel are lower volume specialty Biologics product that exhibit a fair amount of volatility, even when comparing the same period across years.

The first quarter is traditionally a light quarter for Carticel with sales that are generally less than two-thirds of fourth-quarter sales. Within that context the first-quarter combined net revenues for Carticel and Epicel were $10.7 million which represents a 4% increase over the first quarter 2014.

We're encouraged by the revenue trends we've seen in established territories and the growth we are currently seeing for both Carticel and Epicel as we increase promotional efforts and implement new peer-to-peer marketing programs and our new representatives gain traction in their territories.

Despite the inherent volatility with these products we expect to consistently achieve quarterly total revenue growth for Carticel and Epicel versus the same prior year period and unit growth for both products on an annual basis. Continued revenue growth is a core component of our strategy to drive the business to operating profitability.

As we have discussed previously, another important factor to achieving operating profit stability is to continue to improve gross margins. In light of the impact of lower volumes in our lighter sales quarters, we are pleased to have achieved gross margins of 49% of total revenues for the first quarter. While gross margins will fluctuate with seasonal volume variations, we expect to continue to show an upward trend in gross margins on a rolling annual basis.

Our first-quarter operating loss of $4.6 million was slightly lower compared to the first quarter of 2014. We expect quarterly losses for the balance of the year to decline due to increased sales volumes and decreased R&D costs as a result of the completion of enrollment in the ixCELL-DCM clinical trial.

We are confident that with our talented new sales professionals and the implementation of new marketing programs and cost savings initiatives we can continue to increase utilization of our products and grow revenues and gross margins as we drive our Company to operating profitability. Dan will provide more details about our first-quarter commercial performance in a moment.

As we've also discussed previously, our key regulatory priorities are to bring MACI to market in the US as rapidly as possible and to obtain a pediatric label change for Epicel. Our clinical and regulatory teams are meeting with the FDA this quarter on both of these topics.

MACI is our Phase 3 product candidate for the treatment of knee cartilage defects which has been approved in Europe and used in approximately 10,000 patients globally. We are in discussions with the FDA regarding the existing preclinical and clinical package and US registration requirements for MACI. We believe that these discussions will enable us to determine the next steps required to submit a BLA for MACI in the United States.

With respect to Epicel, we are in discussions with the FDA regarding the submission of an HDE supplement to revise the labeled indications for Epicel to specify use in adult and pediatric patients and pediatric labeling and request an exemption from certain pricing restrictions for Epicel.

Our request is based on the fact that Epicel is routinely used to treat both adult and pediatric patients and the original humanitarian device exemption application included a significant amount of clinical data from pediatric patients. We look forward to obtaining feedback from the FDA on our proposed regulatory approach to filing an HDE supplement for Epicel and continuing to expand utilization of this life-saving product.

As you know, discussions with the FDA follow a formal process beginning with meeting requests and briefing packages and culminating in final meeting minutes. We're currently proceeding through this process for both MACI and Epicel. While we are eager to provide a detailed update on these discussions, we believe it is prudent to wait until final meeting minutes are in hand before sharing any additional information.

We expect to be able to provide further updates on our regulatory pathway for filing a BLA for MACI around the end of this quarter and possibly sooner and provide guidance on our regulatory approach to filing an HDE supplement for Epicel during our next quarterly call. Now I'd like to turn the call over to Dan for an update on our commercial activities.

Thanks, Nick. As we discussed on our last call, the first quarter generally is a softer quarter for product sales driven by the seasonality of Carticel.

However, despite this seasonality, the inherent variability with our specialty Biologics business, the challenges of severe winter weather here in the Northeast, and the fact that we have a number of new Carticel sales representatives in the field, total revenues for Carticel and Epicel increased 4% compared to the first quarter of 2014.

Total Carticel revenues were $7.1 million for the first quarter and we maintained our expectation for revenue growth for the year. I'm pleased to report that for the first time since acquiring this business every Carticel territory is filled including a new expansion territory bringing the territory total to 21 sales representatives for Carticel.

We expect to see the impact of our efforts in building a high performance sales team in the second half of this year and we will continue to evaluate expansion opportunities for new territories that have the potential to be profitable.

One of our top 2015 commercial priorities is to expand the Carticel prescriber base by initiating, for the first time in several years, a robust peer-to-peer education program.

In April we conducted our first web-based peer-to-peer national meeting with approximately 500 orthopedic surgeons and clinical support staff. The program received very high marks for impact and relevance and we are excited about the renewed interest that Carticel generated from this program and the opportunity to reengage top sports medicine KOLs across the country.

Our goal this year is to reach a total of more than 1,000 healthcare providers through a variety of high impact peer-to-peer programs. We've also conducted several training programs already this year with residents and fellows as we seek to establish the next generation of Carticel surgeons.

In addition to our commitment to growing top-line revenues for Carticel this year, we are implementing several process improvements designed to enhance manufacturing efficiencies and capacity and continue to improve our gross margins.

Turning to Epicel, net sales for the first quarter were approximately $3.6 million, an increase of nearly 10% over the fourth quarter. While seasonality is a factor for Epicel, the fourth and first quarters are typically relatively equivalent. The strong growth trend since we acquired this product is encouraging and reflects the increase in our promotional efforts to reengage institutions that previously used Epicel.

Based on this early success we added a fourth Epicel representative in April. As with Carticel, peer-to-peer programs are a key strategic priority for Epicel this year. And in early Q3 we will be initiating programs to educate surgeons and new institutions regarding the lifesaving potential of Epicel and best practices in administering this product.

Every lifesaving Epicel story reinforces our commitment to these patients and the burn centers that treat them. We are pleased with the early response to our efforts to reengage leading burn centers and our expanded commercial initiatives and we are confident in continued top-line revenue growth for Epicel.

So in summary, we're making good progress in strengthening our Carticel and Epicel franchises and ensuring that the business is positioned for operating profitability and growth over the long-term. I will turn it back to Nick now.

Thank you, Dan. We are encouraged by the current revenue trends for Carticel and Epicel and believe our commercial progress reflects the success of our sales and marketing efforts and our commitment to meeting the needs of our customers with innovative products and outstanding sales support. I will now turn the call over to Gerard to review our first-quarter financial results.

Thank you, Nick. Vericel reported a net loss for the quarter ended March 31, 2015 of $4.9 million or $0.27 per share compared to a net loss of $6 million or $1.26 per share for the same period in 2014.

Please note that [per GAAP] our EPS calculation must take into account the undeclared quarterly stock dividends accrued by the Series B Preferred Stock. In the first quarter a value of $1.6 million was assigned to the Series B1 stock dividends and deducted from net income prior to calculating EPS.

Net product revenues for the quarter were approximately $10.8 million and included $7.1 million of net sales of Carticel implants and surgical kits, $3.6 million of net sales of Epicel and approximately $100,000 in sales from our Marrow Donation business.

As both Nick and Dan have mentioned, Carticel revenue is subject to seasonal fluctuations with the stronger sales occurring in the second and fourth quarters. As disclosed in our last call, during 2014 the percentage of annual sales by quarter was as follows: 21.6% in the first quarter; 23.7% in the second quarter; 21.8% in the third quarter; and 33% in the fourth quarter. This information will again be included in our 10-Q which we file shortly after this call.

Epicel revenue is also subject to seasonal fluctuations with stronger sales in the winter months. Although the trend in any single year can be absent due to the extreme variability inherent with Epicel's low patient volume. Over the last four years the percentage of annual sales by quarter has been as follows: first quarter 28%; second quarter 24%; third quarter 20%; and fourth quarter 28%.

Gross profit for Carticel, Epicel and Marrow Donation in the quarter ended March 31, 2015 was $5.3 million or 49% of total net revenues. R&D expenses for the quarter were $4.4 million versus $3.3 million for the same period a year ago. The increase in R&D expenses is due to a greater number of patients treated and followed in the Phase 2 ixCELL-DCM clinical trial versus the same period in 2014 and the addition of personnel and other expenses associated with Epicel, Carticel and MACI.

Selling, general and administrative expenses for the quarter were $5.5 million compared to $1.4 million for the same period a year ago. The increase in SG&A expenses in the first quarter is primarily due to sales and marketing expenses associated with the acquired commercial business, and increased information technology, legal consulting and personnel costs related to integrating and managing the acquired business in the US.

Loss from operations for the quarter was $4.6 million compared to $4.6 million for the same period year ago. Material non-cash items impacting the operating loss for the quarter included $900,000 of stock-based compensation expense and $300,000 in depreciation expense.

Other expense for the quarter was approximately $300,000 compared to an expense of $1.4 million in the same period a year ago. Other expense for both periods is related to the non-cash change in the fair value of warrants. As of March 30, 2015, the Company had $25.9 million in cash compared to $30.3 million in cash at December 31, 2014.

Based on our progress to date, and barring any strategic transactions or other events that may require additional capital, we believe that our cash position is sufficient to fund our business operation until we reach profitability. That completes my financial review. Now I will turn the call over to Nick.

Thanks, Gerard. We are continuing to make great progress towards our goal of commercial and scientific leadership in the field of cell therapy. In the months ahead we look forward to continuing to increase the utilization of our marketed products, grow revenues and gross margins as we drive the Company to operating profitability and initiate the required steps to submit a BLA for MACI in the United States and obtain a pediatric label change for Epicel. That concludes our prepared remarks (audio ends abruptly).