Vericel Corporation — Q1 2021 Form 10-Q 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 for knee cartilage repair and Epicel for severe burns. Vericel also holds North American rights to NexoBrid, which was under FDA review during the quarter. The filing covers the unaudited three months ended March 31, 2021, compared with the three months ended March 31, 2020.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $34.6 million | $26.7 million | +29.6% |
| MACI revenue | $23.8 million | $20.3 million | +17.3% |
| Epicel revenue | $9.8 million | $6.4 million | +53.8% |
| NexoBrid revenue | $0.9 million | — | New revenue |
| Gross profit | $23.0 million | $16.8 million | +37.2% |
| Gross margin | 66% | 63% | +3 percentage points |
| Operating loss | $3.3 million | $5.1 million | Improved by $1.8 million |
| Net loss | $3.3 million | $4.7 million | Improved by $1.4 million |
| Basic and diluted loss per share | $0.07 | $0.10 | Improved |
| Operating cash flow | $10.1 million | $4.7 million | +115.2% |
Operating expenses were $26.3 million, including $3.6 million of research and development and $22.7 million of selling, general and administrative expense. SG&A increased primarily because of a $2.5 million increase in stock-based compensation and a $1.1 million increase in MACI sales-force expense. Non-cash stock-based compensation totaled $7.0 million, compared with $3.8 million in the prior-year quarter.
At March 31, 2021, cash and cash equivalents were $58.2 million, short-term investments were $25.4 million, and long-term investments were $26.0 million, for total cash and investments of approximately $109.6 million. Cash, cash equivalents and restricted cash increased by $24.5 million during the quarter. The company reported no debt; liabilities consisted principally of operating lease obligations totaling approximately $52.4 million, including current and long-term portions.
Material changes versus the prior comparable period
- Revenue growth reflected higher MACI and Epicel volumes and $0.9 million of NexoBrid revenue associated with BARDA deliveries.
- MACI revenue increased to $23.8 million from $20.3 million, while Epicel revenue increased to $9.8 million from $6.4 million.
- Gross margin expanded to 66% from 63%, primarily due to higher product volumes and NexoBrid-related revenue.
- Operating and net losses narrowed despite higher commercial spending and substantially higher stock-based compensation.
- Operating cash flow more than doubled, aided by collections from accounts receivable, higher accounts payable, and non-cash expenses.
- Capital expenditures increased to $2.3 million from $0.7 million, primarily for manufacturing upgrades.
- Shares outstanding increased to 46.2 million at March 31, 2021 from 45.8 million at December 31, 2020, reflecting equity awards and stock option exercises.
Guidance, outlook, commentary, risks and unusual items
The filing does not provide formal revenue or earnings guidance. Management stated that existing cash, cash equivalents, investments and product-sale proceeds are expected to support current operations for at least 12 months from issuance of the financial statements.
Management said the effects of COVID-19 on MACI had largely dissipated by the first quarter of 2021. However, renewed infection waves, new variants, restrictions on elective surgeries, hospital capacity constraints, reimbursement disruptions, shipping interruptions or supply-chain problems could again reduce utilization and revenue. Epicel has been less affected because it is primarily used in emergency burn care, although burn admissions and procedure volumes remain variable.
NexoBrid's BLA had an FDA PDUFA target date of June 29, 2021. The FDA required inspections of manufacturing facilities in Israel and Taiwan and requested additional chemistry, manufacturing and controls information. COVID-19 travel restrictions could delay inspections and approval, and approval was not assured. Vericel could owe MediWound a $7.5 million regulatory milestone upon approval, plus up to $125 million in sales milestones and tiered royalties; these milestone obligations were not yet probable and were not recorded as liabilities.
Revenue includes estimates for payer reimbursement and collectability. The allowance for uncollectible consideration was $6.1 million at March 31, 2021, and management estimated that a 0.5% change in the uncollectible percentage could change quarterly revenue by approximately $0.2 million. The company also had $13.8 million of contractual purchase and warehouse commitments, primarily due during the remainder of 2021.
Management reported effective disclosure controls and procedures, no material changes in internal control over financial reporting, no material legal proceedings, and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether MACI growth and elective-surgery activity remain durable as COVID-19 conditions and hospital restrictions evolve.
- The FDA's regulatory decision and inspection status for NexoBrid, including the effect of CMC information requests and manufacturing-site inspections.
- Collection trends and changes in estimated payer reimbursement, including the $6.1 million uncollectible-consideration allowance.
- Whether operating cash flow remains positive while the company continues to report net losses.
- The effect of expanded sales-force spending, manufacturing investments and stock-based compensation on future margins and dilution.
- Customer concentration and Epicel volume variability, including one customer representing 14% of Epicel revenue in Q1 2021.
- The company's ability to fund operations if revenue declines and additional capital becomes necessary.