Vericel Corporation: 2023 Q3 Form 10-Q Summary
Business context and reporting period
Vericel is a commercial-stage biopharmaceutical company focused on advanced therapies for sports medicine and severe burn care. Its U.S. products are MACI, Epicel and NexoBrid. The filing covers the unaudited quarter and nine months ended September 30, 2023, compared with the same periods in 2022.
NexoBrid became commercially available in the United States on September 20, 2023, following FDA approval in December 2022. MACI and Epicel continue to be manufactured in Cambridge, Massachusetts; NexoBrid is manufactured and supplied by MediWound, primarily from Israel.
Financial performance and key metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Total revenue | $45.6 million | $38.6 million | $132.5 million | $111.7 million |
| Revenue growth | 18.2% | 18.7% | ||
| Gross profit | $30.6 million | $25.2 million | $87.1 million | $71.5 million |
| Gross margin | 67.1% | 65.5% | 65.7% | 64.1% |
| Loss from operations | $(5.1) million | $(6.8) million | $(19.2) million | $(23.1) million |
| Operating margin | (11.1%) | (17.6%) | (14.5%) | (20.7%) |
| Net loss | $(3.7) million | $(6.6) million | $(16.2) million | $(22.6) million |
| Net loss per share | $(0.08) | $(0.14) | $(0.34) | $(0.48) |
MACI revenue was $37.6 million in Q3 and $108.1 million for the nine months, increasing 21.2% and 26.3%, respectively. Epicel revenue was $7.4 million in Q3, essentially flat year over year, and $23.8 million for the nine months, down 6.2%. NexoBrid revenue was $0.6 million in Q3 and the nine-month period; the 2023 revenue reflects initial commercial sales, while 2022 revenue primarily reflected BARDA-related activity.
Operating expenses were $35.7 million in Q3 and $106.3 million for the nine months. Selling, general and administrative expense increased to $30.0 million in Q3 and $90.1 million for the nine months, driven by higher headcount, commercial activity, travel, events and Burlington facility lease expense. Research and development expense increased 12.5% in Q3 and 9.8% for the nine months, including increased MACI arthroscopic development costs.
Interest and other income totaled $1.1 million in Q3 and $2.7 million for the nine months, primarily due to higher returns on investments. Non-cash stock-based compensation was $7.9 million in Q3 and $25.4 million for the nine months.
Cash flow, liquidity and capital structure
- Cash, cash equivalents and restricted cash totaled $83.6 million at September 30, 2023, including $60.5 million of cash and cash equivalents and $23.1 million of restricted cash.
- Marketable investments totaled $65.1 million, consisting of $44.9 million of short-term investments and $20.2 million of long-term investments.
- Operating activities generated $25.2 million of cash in the first nine months, compared with $10.7 million in the prior-year period.
- Investing activities provided $5.0 million, reflecting investment maturities and sales exceeding purchases, partly offset by $12.2 million of property and equipment spending and the $7.5 million NexoBrid regulatory milestone payment.
- Financing activities provided $2.3 million, primarily from stock option exercises and employee stock purchases, net of employee tax withholding payments.
- The company had no outstanding borrowings under its $150.0 million secured revolving credit facility at September 30, 2023 and stated that it was in compliance with applicable covenants. Approximately $6.2 million of the facility’s letter-of-credit subfacility was utilized.
- Operating lease liabilities totaled $85.0 million. The Burlington lease resulted in a $35.5 million right-of-use asset and lease liability being recorded in June 2023.
Material changes versus the prior comparable period
- Revenue increased $7.0 million, or 18.2%, in Q3 and $20.8 million, or 18.7%, for the nine months, driven primarily by MACI volume and pricing and the initial NexoBrid commercial launch.
- Gross profit increased faster than revenue, improving gross margin by approximately 160 basis points in Q3 and 160 basis points for the nine months.
- Operating and net losses narrowed materially year over year despite higher operating expenses, supported by revenue growth, improved gross profit and increased interest income.
- NexoBrid transitioned from primarily BARDA-related revenue in 2022 to commercial U.S. sales in September 2023.
- The company funded approximately $28.3 million, representing 50% of its required share of Burlington tenant-improvement costs, and expects to fund the remaining 50% in early 2024.
- Property and equipment, net increased to $30.2 million from $15.8 million at December 31, 2022, primarily due to construction in process and facility investments.
- Shares outstanding increased to 47.7 million at September 30, 2023, from 47.3 million at December 31, 2022.
Guidance, outlook, risks and unusual items
The filing does not provide a clear numerical revenue, earnings or margin forecast. Management expects existing cash, investments, product sales and available borrowing capacity to support current operations for at least 12 months from issuance of the financial statements, but notes that additional financing could be required if revenue declines for a sustained period.
Management expects to seek FDA review of a prior approval supplement for arthroscopic delivery instructions for MACI and anticipates a commercial launch of the MACI arthroscopic delivery program in the first half of 2024. The company is also evaluating an ankle indication for MACI, which would require additional clinical development.
Key risks include adoption and reimbursement of MACI and NexoBrid, the ability to scale manufacturing and complete the Burlington facility, supply dependence on MediWound and its Israeli manufacturing operations, geopolitical and supply-chain disruption, inflation, financial institution liquidity risk, potential COVID-19 resurgence, regulatory approvals, competition and the company’s continuing accumulated deficit. NexoBrid carries potential sales milestone payments of up to $125.0 million and tiered royalties; no sales milestone liability was recorded because the milestones were not yet probable.
The company reported no material ongoing litigation, no material changes to previously disclosed risk factors other than financial institution and geopolitical risks, and no off-balance-sheet arrangements. Disclosure controls and procedures were assessed as effective.
Investor verification points
- Verify the pace and durability of MACI volume and pricing growth, including the impact of reimbursement and changes in estimated collections.
- Track NexoBrid commercial adoption, revenue growth, gross margin, physician and burn-center uptake, and any future BARDA orders.
- Assess completion timing, total cost and remaining funding requirements for the Burlington headquarters and manufacturing facility.
- Monitor MediWound’s ability to supply NexoBrid amid Israel-related geopolitical and operational risks.
- Evaluate the path to operating profitability while commercial, research and development, facility and lease expenses remain elevated.
- Review liquidity after the remaining Burlington tenant-improvement contribution and planned specialized equipment purchases.
- Consider potential dilution and insider selling under the Rule 10b5-1 arrangements disclosed for several officers and directors.