Vericel Corporation — Q2 2022 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 burns. Its marketed U.S. products are MACI for knee cartilage repair and Epicel for severe burns. The company also holds North American rights to NexoBrid, a registration-stage burn-treatment product. The filing covers the quarter and six months ended June 30, 2022; results are unaudited.
Key financial metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $37.0 million | $39.5 million | $73.1 million | $74.1 million |
| Gross profit | $22.9 million | $26.9 million | $46.3 million | $49.9 million |
| Gross margin | 61.7% | 68.1% | 63.3% | 67.3% |
| Operating loss | $(9.1) million | $(3.7) million | $(16.4) million | $(7.0) million |
| Net loss | $(9.0) million | $(3.8) million | $(16.1) million | $(7.1) million |
| Net loss per diluted share | $(0.19) | $(0.08) | $(0.34) | $(0.15) |
| Operating cash flow | Not provided quarterly | Not provided quarterly | $6.6 million | $14.9 million |
Q2 revenue consisted of MACI revenue of $28.6 million, Epicel revenue of $8.2 million and NexoBrid revenue of $0.2 million. Six-month revenue consisted of MACI revenue of $54.6 million, Epicel revenue of $18.1 million and NexoBrid revenue of $0.4 million.
At June 30, 2022, cash and cash equivalents were $56.1 million, restricted cash was $6.2 million, and investments totaled $68.4 million. Total cash, cash equivalents and restricted cash were $62.2 million. Current assets were $155.1 million versus current liabilities of $25.0 million. Operating lease liabilities totaled $48.1 million. The company had no outstanding borrowings at the filing date and reported no material debt other than lease obligations.
Cash, cash equivalents and restricted cash declined by $6.3 million during the first six months. Investing activities used $13.7 million, including $5.1 million for property and equipment and net investment purchases. Financing activities provided $0.8 million. Stock-based compensation was $20.3 million for the six-month period, a significant non-cash expense.
Material changes versus the prior comparable period
- Q2 revenue declined 6.3%, while six-month revenue declined 1.3%.
- MACI revenue increased 7.9% in Q2 and 8.5% for the six-month period.
- Epicel revenue declined 32.4% in Q2 and 17.8% for the six-month period, reflecting the variable nature of severe-burn cases.
- NexoBrid revenue declined 73.8% in Q2 and 75.2% for the six-month period because of lower revenue associated with deliveries to BARDA.
- Gross profit declined 15.1% in Q2 and 7.2% for the six-month period. Management cited lower revenue, higher external storage and manufacturing facility costs, lower Epicel labor utilization and raw-material price increases.
- Research and development expense increased 7.7% in Q2 and 19.5% for the six-month period, primarily due to additional instrument-design spending for arthroscopic MACI delivery and higher stock-based compensation.
- Selling, general and administrative expense increased 3.6% in Q2 and 8.5% for the six-month period, driven by increased travel, in-person physician programs, stock-based compensation and depreciation related to new Cambridge office space.
- Operating cash flow fell to $6.6 million from $14.9 million in the prior-year six-month period, while the net loss more than doubled.
Guidance, outlook, risks and unusual items
The filing does not provide specific quantitative revenue or earnings guidance. Management expects existing cash, investments, product-sale proceeds and borrowing capacity to support current operations for at least 12 months from issuance of the financial statements, but notes that actual requirements may vary.
COVID-19 continued to slow MACI procedures during the first and second quarters of 2022 through elective-surgery restrictions, healthcare staffing constraints, physician prioritization and patient delays. Epicel has been less affected because it is primarily used in emergency burn care. Renewed COVID-19 surges, transportation disruptions or supply-chain interruptions could adversely affect procedures, manufacturing or delivery.
On July 1, 2022, Vericel and MediWound resubmitted the NexoBrid biologics license application after a prior FDA complete response letter. The FDA accepted the resubmission and set a PDUFA date of January 1, 2023. Approval remains uncertain, with outstanding risks related to chemistry, manufacturing and controls, facility inspections and clinical-study questions. Potential payments to MediWound include $7.5 million upon regulatory approval and up to $125.0 million tied to sales milestones; these were not recorded because they were not yet probable.
On July 29, 2022, the company entered into a $150 million, five-year senior secured revolving credit facility, including a $15 million letter-of-credit sub-facility. There were no borrowings under the facility as of the filing date. The company also entered into a Burlington, Massachusetts lease for an expected new headquarters and primary manufacturing facility. Expected monthly contractual payments are approximately $0.6 million to $0.8 million, and the lease includes an approximately $25.1 million tenant-improvement allowance. A cash-collateralized letter of credit of approximately $6.0 million was issued in connection with the lease.
Other risks include inflation, supply-chain disruption and market volatility related to the Russia-Ukraine conflict. The company reported no material ongoing litigation, no material regulatory proceedings targeting the company, and no material changes to previously disclosed risk factors other than the geopolitical, inflation and NexoBrid matters described above.
Most important facts for investors to verify
- Whether MACI procedure volumes and revenue continue recovering despite COVID-19-related healthcare disruption.
- Whether Epicel revenue normalizes after the substantial year-over-year decline and the effect of case variability on quarterly results.
- The FDA’s action on the resubmitted NexoBrid application by the January 1, 2023 PDUFA date, including any impact from facility inspections or additional requirements.
- Cash burn, operating cash flow and the sufficiency of the $124.5 million of cash, restricted cash and investments at June 30, 2022.
- The cost, timing and financing requirements associated with the Burlington facility and related lease commitments.
- Gross-margin pressure from manufacturing costs, raw-material inflation, storage costs and Epicel utilization.
- Potential dilution from equity compensation and any future use of the $200 million at-the-market offering capacity.