Vericel Corporation: Q3 2021 Form 10-Q Summary
Business Context and Reporting Period
Vericel is a commercial-stage biopharmaceutical company focused on cell therapies for sports medicine and severe burn care. Its marketed products are MACI for knee cartilage repair and Epicel for extensive burns. Vericel also holds North American rights to NexoBrid, which remained pre-commercial and subject to FDA review.
This unaudited Form 10-Q covers the three and nine months ended September 30, 2021, with comparisons to the corresponding 2020 periods. Vericel operates primarily in the United States in one reportable segment.
Financial Performance and Position
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Total revenue | $34.5 million | $32.3 million | $108.6 million | $79.0 million |
| Gross profit | $22.1 million | $22.5 million | $72.0 million | $50.6 million |
| Gross margin | 64% | 70% | 66% | 64% |
| Operating income (loss) | $(5.0) million | $3.5 million | $(12.0) million | $(9.9) million |
| Net income (loss) | $(4.9) million | $3.6 million | $(12.0) million | $(9.4) million |
| Net income (loss) per share | $(0.11) | $0.08 | $(0.26) | $(0.21) |
| Operating cash flow | Not separately provided | Not separately provided | $18.5 million | $6.2 million |
Q3 revenue comprised $23.9 million from MACI, $9.8 million from Epicel and $0.8 million from NexoBrid-related BARDA deliveries. Nine-month revenue comprised $74.2 million from MACI, $31.8 million from Epicel and $2.6 million from NexoBrid.
At September 30, 2021, Vericel had $54.6 million of cash and cash equivalents, $43.7 million of short-term investments and $20.2 million of long-term investments, or approximately $118.5 million of cash and investments. Total assets were $224.1 million and shareholders’ equity was $156.8 million. The filing reports no conventional debt; liabilities primarily consisted of operating lease liabilities totaling $50.8 million, including current and long-term portions.
Nine-month capital expenditures were $6.9 million, primarily for manufacturing upgrades. Net cash increased by $20.9 million during the nine months, ending at $54.8 million including restricted cash. Management stated that existing cash, cash equivalents, investments and product-sale receipts are expected to fund current operations for at least 12 months from issuance of the financial statements.
Material Changes Versus the Prior Comparable Period
- Q3 revenue increased 7% year over year, driven primarily by Epicel volume growth, while nine-month revenue increased 38% due to growth in both MACI and Epicel and higher NexoBrid-related BARDA deliveries.
- MACI Q3 revenue declined to $23.9 million from $24.4 million, reflecting slower procedures and implant scheduling disruptions associated with the COVID-19 Delta variant, healthcare-system disruption and staffing shortages.
- Epicel Q3 revenue increased to $9.8 million from $6.7 million; nine-month revenue increased to $31.8 million from $18.0 million.
- Q3 gross profit declined modestly and gross margin fell to 64% from 70%, primarily due to higher stock-based compensation, increased manufacturing headcount and lower MACI sales.
- Operating expenses increased substantially. Research and development rose to $4.3 million from $2.9 million in Q3, while selling, general and administrative expense rose to $22.8 million from $16.0 million.
- Non-cash stock-based compensation increased to $8.6 million in Q3 and $26.5 million for the nine months, compared with $2.7 million and $10.8 million, respectively, in 2020.
- The accumulated deficit increased to $387.8 million from $375.8 million at December 31, 2020. Shares outstanding increased to 46.8 million from 45.8 million.
Outlook, Commentary, Risks and Unusual Items
- Management provided no specific numerical revenue, earnings or margin guidance in the filing. It stated that the extent of future COVID-19 effects on utilization and revenue cannot be reliably estimated.
- COVID-19 and the Delta variant slowed elective MACI procedures during Q3. Renewed restrictions, hospital staffing shortages, patient postponements or reduced access to elective surgeries could further affect MACI revenue. Epicel has been less affected because it is primarily used in emergency burn treatment.
- NexoBrid received an FDA complete response letter on June 29, 2021. The FDA cited additional Chemistry, Manufacturing and Controls information, required inspections of manufacturing facilities in Israel and Taiwan, questions related to GCP inspection observations and a requested safety update. The timing and outcome of any resubmission and approval remain uncertain.
- Vericel entered into an at-the-market agreement on August 27, 2021, allowing potential sales of up to $200 million of common stock. No shares had been sold under the agreement as of September 30, 2021.
- Revenue recognition for MACI includes estimates of third-party reimbursement and collectability. The allowance for uncollectible consideration was $7.2 million at September 30, 2021; management estimated that a 0.5% change in the uncollectible percentage could change nine-month revenue by approximately $0.3 million.
- Contractual obligations included $8.8 million of purchase commitments and $4.9 million under a warehouse operating agreement. The company also had significant long-term facility lease commitments.
- Management stated that it maintained safety stock of key raw materials and did not expect current supply-chain interruptions to affect ongoing manufacturing, but short product shelf lives and reliance on air and courier transportation create delivery risks.
Important Facts for Investors to Verify
- Whether MACI procedure volumes and revenue recovered following the Q3 2021 Delta-related slowdown and healthcare staffing constraints.
- The status, timing and substantive response to the FDA complete response letter for NexoBrid, including required manufacturing inspections and any BLA resubmission.
- Whether operating expenses and stock-based compensation continue to grow faster than revenue, pressuring margins and delaying profitability.
- The remaining capacity and potential dilution under the $200 million ATM equity facility.
- The adequacy of approximately $118.5 million in cash and investments under scenarios involving renewed elective-surgery restrictions, lower reimbursement or increased operating requirements.
- Changes in MACI reimbursement estimates, accounts receivable collectability and the $7.2 million allowance for uncollectible consideration.