Vericel Corporation 2020 Form 10-K Summary
Business context and reporting period
Vericel is a commercial-stage biopharmaceutical company focused on advanced cell therapies and specialty biologics for sports medicine and severe burn care. Its marketed products are MACI, an autologous cartilage-repair product, and Epicel, a cultured skin replacement for extensive burns. Vericel also holds North American rights to NexoBrid, a registration-stage burn-debridement biologic licensed from MediWound.
This Form 10-K covers the fiscal year ended December 31, 2020. The filing also provides unaudited quarterly data, including fourth-quarter 2020 results. Vericel operated primarily in the United States through one reportable segment.
Key financial metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | $124.2 million | $117.9 million | Up 5.4% |
| Gross profit | $84.2 million | $80.3 million | Up 4.9% |
| Gross margin | 67.8% | 68.1% | Down 0.3 percentage points |
| Operating income (loss) | $2.4 million | $(11.3) million | Improved by $13.6 million |
| Net income (loss) | $2.9 million | $(9.7) million | Improved by $12.5 million |
| Diluted EPS | $0.06 | $(0.22) | Turned profitable |
| Operating cash flow | $17.6 million | $(7.2) million | Improved by $24.8 million |
Revenue consisted of MACI revenue of $94.4 million, Epicel revenue of $27.5 million and $2.2 million of NexoBrid revenue related to deliveries to BARDA. MACI revenue increased from $91.6 million in 2019, while Epicel revenue increased from $26.2 million.
Fourth-quarter 2020 revenue was $45.2 million, compared with $39.4 million in the fourth quarter of 2019. Fourth-quarter operating income was $12.3 million and net income was $12.2 million, compared with operating income of $9.2 million and net income of $9.5 million in the prior-year quarter.
Year-end cash and liquidity included $33.6 million of cash and cash equivalents, $42.2 million of short-term investments and $24.1 million of long-term investments, or approximately $100.0 million in total cash, cash equivalents and investments. Working capital was $101.1 million. The company reported no outstanding debt; prior borrowings were fully repaid in December 2018.
Total assets were $205.6 million and total liabilities were $71.3 million at December 31, 2020. Operating lease liabilities represented $53.2 million of present-value obligations, and total future lease payments were $72.3 million. The company had an accumulated deficit of $375.8 million.
Material changes versus the prior comparable period
- Vericel reported its first full-year net income in company history, compared with a $9.7 million net loss in 2019.
- Revenue increased despite COVID-19 disruptions, primarily because MACI and Epicel sales grew and Vericel recognized $2.2 million of NexoBrid-related revenue.
- Gross margin declined modestly because elective-surgery restrictions reduced MACI production and sales during the second quarter while fixed labor and facility costs continued.
- Research and development expense fell to $13.0 million from $30.4 million, mainly because 2019 included the $17.5 million upfront NexoBrid license payment.
- Selling, general and administrative expense increased to $68.8 million from $61.1 million, driven primarily by higher MACI sales-force costs, patient reimbursement support, stock-based compensation and Epicel sales-force expense.
- Operating cash flow turned positive, reflecting profitability and noncash charges, including $13.8 million of stock-based compensation, partly offset by increases in accounts receivable and inventory.
- Investing cash flow was negative $17.2 million, primarily due to purchases of marketable securities and $2.6 million of capital expenditures for manufacturing upgrades and leasehold improvements.
- In October 2020, Vericel extended its Cambridge facility lease through February 2032 and received a tenant-improvement allowance of approximately $4.3 million.
Guidance, outlook, commentary and risks
Management did not provide a specific quantitative 2021 revenue or earnings forecast in the filing. Management stated that current cash, cash equivalents and investments were expected to support current operations for at least 12 months after issuance of the financial statements, while noting that a sustained revenue decline or worsening pandemic conditions could require additional financing.
COVID-19 materially affected MACI because elective surgeries were postponed or canceled during the first half of 2020. MACI orders and procedures recovered during the third and fourth quarters, although scheduling slowed and cancellations increased late in December as infections rose. Epicel was less affected because it is generally used in emergency burn-care settings. Management could not reliably estimate the pandemic’s continuing impact on 2021 utilization or revenue.
NexoBrid was a key strategic development. The FDA accepted MediWound’s BLA for review in September 2020 and assigned a PDUFA target date of June 29, 2021. If approved, MediWound is expected to transfer the BLA to Vericel, which would commercialize NexoBrid in the United States. The filing states that Vericel owes MediWound a $7.5 million payment contingent on U.S. regulatory approval, up to $125 million of potential sales milestones, and tiered royalties on net sales.
Principal risks include renewed restrictions on elective procedures, reimbursement and collection risk for MACI, dependence on a single Cambridge manufacturing facility, reliance on single or limited-source suppliers including Matricel for the MACI membrane, regulatory approval and market-acceptance risk for NexoBrid, manufacturing and quality compliance, competition, product liability, cybersecurity, intellectual-property limitations and the possibility that additional capital may be required.
MACI revenue is subject to significant payer-estimation risk. The allowance for uncollectible consideration was $5.3 million at year-end 2020, and a 0.5% change in the estimated uncollectible percentage could change 2020 revenue by approximately $0.3 million. Price and demand also exhibit seasonal and quarterly volatility, with historically higher MACI volume in the fourth quarter.
Most important facts for an investor to verify
- Whether MACI procedure volumes and revenue continued to recover after the late-2020 COVID-19 slowdown and whether reimbursement collections matched estimates.
- The FDA’s action on the NexoBrid BLA, including any inspection issues, approval conditions, post-approval commitments and the timing of commercialization.
- The sustainability of full-year profitability after excluding the favorable comparison created by the $17.5 million NexoBrid upfront payment recorded in 2019.
- Gross-margin trends as manufacturing volume scales and as product mix changes, particularly following the launch of NexoBrid if approved.
- Cash usage, capital requirements and access to financing if COVID-19 or other factors reduce MACI demand.
- Operational resilience of the single Cambridge manufacturing facility and continuity of supply from Matricel and other sole-source suppliers.
- The collectability of MACI receivables and the adequacy of contractual allowances, given the $5.3 million year-end allowance and related audit judgment.
- Potential dilution from equity compensation and future financing; approximately 5.5 million shares were issuable under outstanding options, with additional shares available under equity plans.