Vericel Corporation — Form 10-Q Summary
Business Context and Reporting Period
Vericel is a commercial-stage biopharmaceutical company focused on advanced cell therapies for sports medicine and severe burn care. It markets MACI for knee cartilage repair and Epicel for severe burns in the United States, and holds North American rights to NexoBrid, a registration-stage burn treatment. This unaudited report covers the quarter and six months ended June 30, 2021, compared with the same periods in 2020.
Financial Performance and Position
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Total revenue | $39.5 million, versus $20.0 million | $74.1 million, versus $46.7 million |
| Gross profit | $26.9 million, versus $11.4 million | $49.9 million, versus $28.1 million |
| Gross margin | 68%, versus 57% | 67%, versus 60% |
| Operating loss | $3.7 million, versus $8.4 million | $7.0 million, versus $13.4 million |
| Net loss | $3.8 million, or $0.08 per share | $7.1 million, or $0.15 per share |
| Operating cash flow | Not separately provided | $14.9 million, versus $1.7 million |
- Second-quarter revenue consisted of MACI revenue of $26.5 million, Epicel revenue of $12.2 million and NexoBrid revenue of $0.8 million.
- Six-month revenue consisted of MACI revenue of $50.3 million, Epicel revenue of $22.0 million and NexoBrid revenue of $1.8 million.
- Cash and cash equivalents were $51.8 million at June 30, 2021. Short-term and long-term investments totaled $64.0 million, for total cash, cash equivalents and investments of approximately $115.8 million.
- Total assets were $221.9 million and shareholders’ equity was $151.1 million. The company reported an accumulated deficit of $382.9 million.
- The filing reports no debt financing; liabilities primarily consisted of operating lease liabilities totaling approximately $51.5 million, including current and long-term portions.
- Capital expenditures were $4.5 million during the first six months, primarily for manufacturing upgrades. Inventory increased to $13.0 million from $9.4 million at year-end 2020.
Material Changes Versus the Prior Comparable Period
- Revenue increased approximately 97% in the second quarter and 59% in the first six months, driven by higher MACI and Epicel volumes and initial NexoBrid revenue.
- MACI revenue increased approximately 76% in the second quarter and 42% year to date. Epicel revenue increased approximately 148% in the second quarter and 95% year to date.
- Gross margin expanded to 68% in the second quarter and 67% year to date, compared with 57% and 60%, respectively, in the prior-year periods.
- Operating losses and net losses narrowed despite higher operating expenses. Selling, general and administrative expense increased to $26.2 million in the quarter and $48.9 million year to date, partly due to expanded commercial activity, higher patient support costs and substantially higher stock-based compensation.
- Stock-based compensation increased to $10.9 million in the second quarter and $17.9 million year to date, compared with $4.4 million and $8.1 million, respectively, in 2020.
- Operating cash flow improved materially, aided by cash collections and non-cash stock compensation, partially offset by increased inventory and lease-related payments.
- The company issued equity through stock-option exercises, generating $7.6 million of financing cash flow in the first six months.
Guidance, Outlook, Risks and Unusual Items
- Management stated that existing cash, cash equivalents, investments and product-sale cash flows are expected to support current operations for at least 12 months from issuance of the financial statements. A specific revenue or earnings guidance range was not provided.
- The FDA issued a complete response letter on June 29, 2021 for the NexoBrid biologics license application. The FDA cited additional Chemistry, Manufacturing and Controls information, required manufacturing-facility inspections in Israel and Taiwan, questions regarding GCP inspection observations and a requested safety update. Approval timing and ultimate approval remain uncertain.
- NexoBrid revenue recognized during the period related to deliveries to BARDA under an emergency-use arrangement. Vericel did not hold a direct BARDA contract or distribution agreement as of June 30, 2021.
- COVID-19 effects on MACI had largely dissipated by the first quarter of 2021, but renewed infections, variants or restrictions on elective surgeries could reduce MACI procedures and revenue. Supply-chain, transportation, clinical-trial and workforce disruptions remain possible.
- The company maintains safety stock of key raw materials and did not expect current supply-chain interruptions to affect ongoing manufacturing. However, MACI and Epicel have short product and shipping lives, making delivery disruptions a material risk.
- Contractual obligations included $19.4 million of purchase commitments and $5.0 million under a warehouse operating agreement, totaling $24.3 million.
- Revenue is subject to estimates of payer and patient collectability. The allowance for uncollectible consideration was $7.1 million at June 30, 2021; a 0.5% change in the estimated uncollectible percentage could affect revenue by approximately $0.3 million.
- The company reported no material legal proceedings, no off-balance-sheet arrangements and effective disclosure controls as of June 30, 2021.
Important Facts for Investors to Verify
- Whether MACI procedure volumes and revenue growth remain durable as comparisons normalize from the COVID-19-affected 2020 period.
- The timing and content of MediWound’s response to the NexoBrid complete response letter, required facility inspections and any FDA resubmission or approval decision.
- Whether higher selling, general and administrative expense and stock-based compensation moderate as revenue scales, and the resulting path to sustained operating profitability.
- Cash burn or generation after adjusting for substantial non-cash stock compensation, inventory investment and capital expenditures.
- Future payer collections, reimbursement assumptions and changes in the $7.1 million allowance for uncollectible consideration.
- Exposure to renewed COVID-19 restrictions, supply-chain interruptions, short product shelf lives and transportation disruptions.
- Future capital requirements and potential shareholder dilution if revenue declines or additional financing becomes necessary.