Vericel Corporation

Ladies and gentlemen, thank you for standing by. Welcome to Verisail's third quarter 2021 conference call. At this time, all participants are in a listen-only mode. I would like to remind you that this call is being recorded for replay. I will now turn the conference call over to Eric Burns, Verisail's head of financial planning and analysis and investor relations. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to Verasol's third quarter 2021 conference call to discuss our financial results and business highlights. Before we begin, let me remind you that on today's call, we will be making forward-looking statements covered under the Private Securities Litigation Reform Act of 1995. These statements may involve risks and uncertainties that could cause actual results to differ materially from expectations and are described more fully in our filings with the SEC, which are available on our website. In addition, all four looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. Please note that a copy of our third quarter financial results press release is available in the investor relations section of our website. We also have a short presentation with highlights from today's call that can be viewed directly on the webcast or accessed on our website. I am joined on this call by Barris Hall's President and Chief Executive Officer, Nick Colangelo, and our Chief Client Officer, Joe Marr. I'll now turn the call over to Nick.

Thank you, Eric, and good morning, everyone. Despite additional COVID-19 headwinds in the third quarter, the company delivered solid commercial and operational results and continued to generate top-line revenue growth, positive adjusted EBITDA, and operating cash flow for the quarter. The spread of the Delta variant and the resulting disruptions to healthcare networks and patient behavior dynamics clearly impacted Macy revenue in the quarter. However, the key underlying growth drivers for Macy remained very strong, and EpiCell had another outstanding quarter, with revenue growth of nearly 50 percent compared to the third quarter of 2020. Importantly, from a profitability perspective, The company generated positive adjusted EBITDA and operating cash flow for the fifth consecutive quarter as we continue to drive top line growth while delivering sustained profitability and cash flow. With respect to Macy revenue, based on historical seasonality patterns, for the second half of 2021, we expected the typical sequential decline in the third quarter revenue and strong sequential step up in the fourth quarter. During the third quarter, we saw a significantly greater decline in July than in recent years due to patients deferring procedures as the economy reopened and travel and vacations resumed. While we assumed that we'd start to recapture some of those deferred cases later in the quarter, the expected improvement in the second half of the quarter did not materialize due to the Delta variant resurgence in various regions of the country. The impact on Macy activity was most pronounced in the areas of the country that had the highest COVID-19 case rates, and some of our best performing territories are in those regions. Importantly, Macy biopsy growth, as was the case in prior periods of COVID-19 disruption, continued to outperform implant growth. We estimate that as a result of the reopening dynamics and the Delta variant surge, We exited the quarter with a backlog of approximately 150 cases that would have converted to implants under normal conversion patterns, which equates to about $7 million in revenue. We had similar levels of backlog during the initial COVID-19 lockdown in the spring of 2020 and again last winter. And in each instance, we recaptured more than 80% of the backlog cases within one to two quarters. We expect to recapture a similar percentage of the current backlog, although due to continued uncertainty regarding COVID-19 disruptions for the remainder of the year, we believe that this recapture likely will be more gradual and that the majority of these cases will move into 2022. Even so, as Joe will discuss in more detail, we've seen an acceleration of Macy orders in the fourth quarter, and we expect the highest sequential growth in Macy revenue from Q3 to Q4 since launch, and record quarterly revenue to close the year. From an operational standpoint, we're very pleased with the results that we've generated to date with respect to the key underlying growth drivers for Macy, which we believe support its long-term high growth profile. We remain on track to grow the number of surgeons taking biopsies by more than 20% this year to approximately 1,800 surgeons, which is a key growth target for the year. Biopsies per surgeon, another key growth driver, are projected to grow approximately 10% compared to 2020, and overall biopsy growth is expected to exceed 30% for the full year. Looking forward to 2022, we expect continued double-digit growth in biopsy surgeons, an increase in biopsies per surgeon based on continued Macy uptake and the return of more normal patient flow, and normalization of biopsy conversion rates and the timing thereof. With all of our key growth drivers expected to continue to progress in 2022 and with potential for backlog carryover, we expect an acceleration of Macy growth in 2022, assuming that COVID-19 trends do not change materially. We've also achieved important reimbursement enhancements for Macy this year that have further bolstered an already strong reimbursement profile. As a result of the expansion of UnitedHealthcare's medical policy to include patients with patella defects, the number of UnitedHealthcare patella cases more than doubled through the third quarter of this year compared to 2020. In addition, in its ASC payment system final rule issued last week, CMS determined that MACI is one of a small number of procedures that were added to the ASC covered procedure list last year that will remain on the list for 2022. This determination was based on meeting the reinstated general standards and exclusion criteria for the list, as well as the fact that the retained procedures are largely performed in an outpatient setting and that advancements in clinical practice and less invasive techniques have contributed to allowing these procedures to be safely performed in an ASC setting. While we have limited Medicare business, this determination is important in that certain commercial plans refer to these CMS rules in determining allowable sites of care so that having MACI on the ASC covered procedure list provides greater flexibility for our customers in selecting the preferred site of care for MACI procedures. Finally, we're also making significant progress on a key lifecycle management program for MACI, the development of a custom arthroscopic delivery system which we believe is another important step in our strategy of continuing to make Macy even simpler and less invasive for surgeons and patients. We believe that arthroscopic Macy could be a significant midterm growth driver to further penetrating the $2 billion Macy addressable market by increasing our physician targets beyond those that perform only open procedures and by increasing the number of procedures performed by current Macy surgeons. We're in the process of finalizing the design of these instruments, and we've received very positive feedback from key opinion leaders in the field. We look forward to providing additional details on this important program in the near future. Turning to our burn care franchise, we had another outstanding quarter for EpiCell, achieving 48 percent growth in revenue compared to the third quarter of 2020, and the fourth straight quarter with over $9 million in revenue, which has led to 77% revenue growth year-to-date for EpiCell. We continue to see strength across the key growth drivers for EpiCell, with significant increases in the number of burn centers taking biopsies, the number of patients treated with EpiCell, and the number of grafts per patient. Given the strong commercial performance, we believe that we're well positioned to deliver sustained penetration into our expanded addressable market as we continue to build this second high-growth franchise into a more meaningful part of our overall business. Turning to the Nexibrid BLA, we recently participated in a productive Type A meeting with the FDA, and there's agreement on the path forward to address the questions, issues, and information requests from the FDA. The Verisol team is leading this next phase of work in partnership with MedWound, and we currently are targeting a BLA resubmission in mid-2022. We remain very enthusiastic about adding Nexabrid to our burn care franchise and look forward to potentially bringing this innovative product to the market as expeditiously as possible. I'll now turn the call over to Joe to discuss our third quarter financial results and updated financial guidance.

Thanks, Nick. Starting with the income statement, total net revenue for the third quarter increased 7% to $34.5 million compared to $32.3 million in the third quarter of 2020. and included $23.9 million of MESI revenue and $9.8 million of EPICEL revenue, compared to $24.4 million and $6.7 million of MESI and EPICEL revenue, respectively, in the third quarter of 2020. Total revenue for the quarter also included approximately $0.8 million of revenue related to the procurement of Nexibrid by BARDA for emergency response preparedness. Through the third quarter of 2021, total net revenue increased 38 percent to 108.6 million compared to the same period in 2020, with Macy revenue increasing 24 percent to 74.2 million, EpiCell revenue increasing 77 percent to 31.8 million, and 2.6 million of revenue related to the barter procurement of Nexbrit. As Nick discussed earlier, Macy third quarter results were impacted by COVID-19 headwinds. Additionally, When comparing third quarter Macy revenue to Q3 2020, it is important to keep in mind that the third quarter of 2020 was positively impacted by a significant catch-up after the initial COVID-19 related lockdowns, which impacts the year-over-year comparison. We estimate that approximately $5 million of Macy revenue in the third quarter of 2020 was related to cases that shifted from the prior quarter due to the initial COVID-related restrictions on elective surgeries. So while Macy revenue was down 2 percent for the quarter on a reported basis, the underlying growth was over 20 percent, excluding this estimated $5 million catch-up in Q3 of 2020, which is more consistent with the year-to-date Macy growth. Gross profit for the quarter was $22.1 million, or 64 percent of net revenue, compared to 22.5 million, or 70 percent of net revenue, for the third quarter of 2020. The reduction is primarily due to higher non-cash stock compensation expense related to our higher share price, an increase in manufacturing headcount, and our product mix. Total operating expenses for the quarter were 27.1 million, compared to 19 million for the same period in 2020. The increase in operating expenses was primarily driven by higher non-cash stock compensation expense, as well as a normalization of spend across all areas of the business as compared to the constrained spend in 2020 due to COVID-19 related factors. Net loss for the quarter was $4.9 million, or $0.11 per share, compared to net income of $3.6 million, or $0.08 per share, for the third quarter of 2020. Non-GAAP adjusted EBITDA for the quarter was $4.3 million, or 12% of net revenue, compared to $6.8 million, or 21% of net revenue, in the third quarter of 2020. Finally, we generated approximately $4 million of operating cash flow in the quarter, and as of the end of the third quarter, the company had approximately $119 million in cash investments compared to $100 million as of December 31, 2020, and no debt. Transitioning to our updated financial guidance for 2021. Our previous guidance for MACIE assumed that biopsy conversion rates and the timing of conversions would generally be in line with historical patterns, or at least normalized by year end, and that COVID-19 dynamics would not materially change those patterns versus prior years. With the recent COVID impacts that Nick mentioned earlier, we exited the quarter with a backlog of approximately 7 million worth of cases that under normal conditions would have converted from biopsy to implant this year. And given this disruption in the second half of the year, we now anticipate that conversion rates will not fully normalize until next year and that the majority of our incremental backlog will convert to new cases in 2022. Based on these COVID-related dynamics, we are updating our MACI guidance in 2021 being the low 20 percent growth range for the full year. This change to our full-year guidance mainly reflects our updated expectations on the timing or calendarization of when cases will convert to implants, not a decrease in underlying demand as demonstrated by our surgeon and biopsy growth. Although COVID headwinds remain, we have seen an acceleration in MACE ordering patterns to start Q4, And our updated guidance for the fourth quarter implies what would be a sequential increase of over 64 percent from Q3 to Q4, which represents the highest sequential increase since the launch of Macy, and also would represent the highest Macy revenue quarterly revenue to date. With the majority of the incremental biopsy backlog now expected to convert to implants next year, as well as the increases in the other key Macy growth drivers that Nick discussed earlier, We believe that this should allow for a further acceleration of Macy growth in 2022, with Macy full-year growth next year expected to exceed this year's overall growth rate. Moving to EPICEL, our updated guidance now anticipates growth for the full year to be in the low 50% range, with over $40 million in full-year revenue. This revised EPICEL guidance represents a full-year growth rate of approximately three times our initial growth rate expectations to start the year and a further increase versus our most recent guidance, as our year-to-date results for EPICEL of approximately $32 million have already exceeded our full-year results in any prior year. Finally, we expect approximately $3.3 million of next-grid BARDA-related revenue for the full year. In total, this brings our full year 2021 revenue guidance roughly back to where we started the year, which at that time did not assume significant headwinds from COVID-19. We now expect total revenue in the $158 to $161 million range, representing full year growth in the range of 27 to 30 percent. Apart from 2020, which was more severely impacted by COVID-19, This would continue VeriCell's strong track record of generating over 25 percent growth for the company each year since the launch of Macy. With our updated revenue outlook, we now expect full-year gross margin to be approximately 70 percent and full-year adjusted EBITDA margin to be approximately 22 percent. We expect full-year operating expenses to decrease to approximately $114 million, slightly below our previous guidance of $115 million. Importantly, our adjusted EBITDA guidance for the full year would essentially double our adjusted EBITDA of approximately 19 million in 2020 demonstrating the continued strengthening of the overall financial profile of the company. And looking forward, we expect that both our gross margin and adjusted EBITDA margin will further increase next year as the company's profitability profile continues to progress. This concludes our prepared remarks. We will now open the call to your questions.

If you would like to ask a question, please press star 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from Ryan Zimmerman with BTIG.

Hey, good morning. Thanks for taking the questions. I want to ask first on Macy biopsies a little bit. I can appreciate the conversion dynamics kind of pushing into the next year. But, you know, you guys were on track, I think, for greater than 50% growth in biopsies in the first half of 21. Now you're talking about maybe 30% growth for the year. So can you just discuss kind of what you saw this quarter and then what your expectation really is on biopsies in fourth quarter based on your run rate for the year?

Yeah, thanks, Ryan. This is Joe. I'll start, and Nick can chime in. So, you know, I think in the last call, what we talked about was through the first half of the year, we had seen, you know, roughly 50% or more when you look at that year-to-date biopsy growth. And I think as we, you know, as we also said in the last call, we talked about Macy kind of in that, you know, 30% plus range on revenue. So there certainly was a bit of a disconnect as we were seeing the biopsies come through in the first half of the year. And that was compared to 2020, which obviously had some COVID impacts in the first half of the year. When you look kind of more broadly, you know, what we're saying is on a full year basis now, we expect biopsies to be over 30 percent for the full year. And, you know, I would say in the third quarter, you know, we did see some disruption in the health care systems. But biopsies were kind of close to what we saw in the prior quarter. And I would say if you look kind of at the first three quarters of the year and you compare those to 2019, which is probably a cleaner comparison, you see growth rates of over 30% across all those quarters. So you kind of put that together, and I think that gives you a sense of where we are year to date and also the 30% being what we expect on the full year.

Okay. And then, you know, EpiCell is becoming a more material portion of the business. I think, you know, you think back a few years and that necessarily wasn't the case. But now the growth rates have become pretty material. And so, you know, Nick, as you think about EpiCell next year in a normalized environment, how do you think about the growth rate that can sustain for an EpiCell-like product that you're now seeing such growth from?

Yep. Thanks, Ryan. So, you know, obviously this has been just an outstanding year for EpiCell. And as we continue to focus on sort of the growth drivers of increasing the number of biopsying and grafting operations, burn centers, treating more patients, and maintaining that higher utilization of grafts per patient, you know, that will form the basis for the growth going forward. So, you know, I think it'd be sort of silly to say we'd expect, you know, 50% growth year over year, but we certainly expect EpiCell to continue to grow as we sort of broaden the user base and then have deeper penetration into those So, you know, we're not prepared at this point to give guidance for next year. We'll do that sort of early next year. But we certainly do expect continued growth for EPICEL in the years ahead.

Okay. I'll hop back in queue. Thanks for taking the questions.

And your next question comes from the line of Jeffrey Cohen with Leidenberg-Tallman.

How are you?

Hey, Jeff. Good morning.

Good morning, Jeff. So a few from our end. So firstly, could you talk about United and Patella defects and give us a sense of what percent of your revenues that may be or how large the patient pool is?

Yeah, so as we mentioned earlier this year, Jeff, UnitedHealthcare did expand its medical policy to include Patella cases. And the way we sort of wanted people to sort of think about that. As you know, UnitedHealthcare is the largest commercial payer in the U.S., right, representing about 15% of commercial lives. And, you know, I think what we've said is basically the approval rates now for United cases for patella are basically on par with other plans and non-patella cases. So I think you can kind of just At a high level, think about what percentage of our business would be united. Well, if it covers, you know, if they're the largest payer covering 15% of covered lives, that's probably a good proxy in terms of how to think about our portion or the portion of our business that is represented by UnitedHealthcare, now be it a Patella case or a non-Patella case.

Okay, got it. Could you talk a little bit about the arthroscopic delivery tool? Would that be a Class II filing, and what would you expect as far as uptake from the surgeons out there? Would you expect that to turn into a majority of cases or maintain in the minorities?

Well, I don't, you know, I think it's a little premature to sort of forecast what percentage of the cases would be done arthroscopically versus through the mini-arthrotomy. I think taking a step back, you know, this is another step on the path that, you know, we are taking with this franchise where when you moved from Carter Cell to Macy, you took a highly invasive procedure, made it less invasive. Over the past couple of years, we've had basically sizing tools available for a more uniform procedure. sort of defect, debridement, and then implant, and that sort of has become very popular. And then, of course, arthroscopic as a less invasive and potentially even simpler procedure just continues on that journey. And you see this in the industry often, right, where you take these highly invasive surgeries. turn them into minimally invasive surgeries, and that's what fuels the growth. So, you know, that's the path we're on. You know, last year we talked about the fact that the first thing you want to do is be able to demonstrate that you don't impact cell viability through arthroscopic delivery. We've been able to do that through our feasibility studies and demonstrate that you can meet minimal... cell number and other release criteria for MACIE when it's delivered arthroscopically. The next part of the project is sort of designing instruments, and we've been working very closely with a group of our KOLs on instrument design over the course of this year, and we expect to kind of finalize the design of the instruments by the end of the year. Whether it's a Class I or Class II device will depend on whether they're disposables or reusables. That's a question we're still considering. And so, you know, we're very pleased with the prospect of an arthroscopic delivery method. Obviously, as I mentioned, there's sort of two dimensions to that. One is there certainly are surgeons who only do open procedures but do high volumes of cartilage repair, and so that obviously – you know, could open up part of the addressable market for us. And then, you know, there certainly are current MESI users who may identify additional patients. We believe that would be the case when an arthroscopic alternative delivery is available. So we're excited about it and, you know, we'll provide more details early next year as we continue to proceed with the project.

Okay, got it. And then lastly, Could you talk about any activities or any ongoing activities outside the US for either of the two products as far as any channels or agreements in place?

Yeah, so we're principally focused, as you know, Jeff, on the U.S. Macy, when we acquired this business years ago, was approved in the EU. Very challenging market for these advanced cell and gene therapies. Would have required some manufacturing changes to our plant here in the U.S., which we weren't going to sort of impact U.S. production for those opportunities. As we think more broadly down the road as we continue to expand capacity. We certainly can design facilities and clean rooms to meet sort of European requirements, and that may allow us to go back to Europe. So, you know, again, I think the U.S. market by far dominates the opportunity for Macy. And same thing for EpiCell. You know, Because of the shelf life of EpiCell, if we were to go outside the U.S., we'd essentially have to build a manufacturing facility in whatever geography that would entail. And so, you know, I think it's fair to say, at least for these two products, that we'll remain focused on the U.S. market, which, again, provides the greatest opportunity.

Perfect. Thank you for the commentary.

Okay. Thanks, Jeff.

Your next question comes from the line of Danielle with SVB Learning.

Yeah, hi, good morning, everyone. Thank you so much for taking that question. Just a question. I appreciate you're not going to give 2022 guidance, but, you know, talking about Macy biopsy growth rate to 30% plus this year, you know, why is that not the right way to think about then Macy growth for next year? Are there some other dynamics? at play here. I appreciate the conversion rate, but as long as the conversion rate doesn't get materially worse and you've got the backlog, maybe arguably the conversion rate could be better. Is that the right way to be thinking about the growth outlook in 2022? And then I have one follow-up.

Yeah, so good morning. I'll start. Danielle, this is Joe. So, you know, I think, you know, we're not really ready to give guidance on 2022 as you've alluded to, but You know, I think, you know, kind of broadly speaking, we certainly talked about in the prepared remarks, you know, we expect continued double-digit growth in the number of surgeons, which is a key driver. You know, we expect the biopsies per surgeon to also increase. We do expect, you know, a normalization, you know, of the biopsy conversion rates and do have that backlog moving into next year. So certainly, you know, I think... You know, broadly speaking, we're kind of in the, you know, in the 20s this year, in the low 20s, in the full year right now, based on where we're ending the year. So I think, you know, directionally, I mean, these kind of pieces are pointing us to a higher growth rate, you know, but the absolute number is kind of hard to say. But certainly biopsies will also be part of it as we think about 2022.

Okay, that's helpful. And then just a quick question on sort of where we are in the – and I know this is probably unfair given the fact that we're dealing with COVID-related headwinds. But, you know, Macy's been on the market now for several years. And I'm just curious about, Nick, if you could sort of frame for us what inning you think we are in the Macy launch. And I ask this because, you know, the discussion about seasonality in Q3 – you know, when a product's still pretty early in the adoption phase, you're usually not dealing with seasonality as much, so just curious about what you could say on where we are in the Macy launch. Thanks so much.

Yeah, thanks, Danielle. So, you know, we certainly believe that we remain in sort of the early innings. You know, maybe it's the third inning rather than the second, as we used to say, but You know, as you think about the growth drivers for the company, and we focus obviously on increasing biopsying surgeons as the primary growth driver as we've expanded our sales force. This is, you know, the first full year that we've had our expanded sales force in place. And, you know, we expect to increase those biopsying surgeons, as we said, by, you know, 20% up to 1,800. And if you look back... to 2019, as we often talk about. At that point, we were in our third year of launch relative to our initial 3,000 targets. And even in that year, we had grown 25% in terms of the biopsying surgeons and grown to about 50% penetration and even more on a cumulative basis. So we think there's still years of growth on biopsying surgeons ahead. And then the other dynamics that we talk about, we expect to, will then kind of become the dominant growth drivers. And that's increasing biopsies per surgeon, you know, absent any COVID disruption, you know, the surgeons have full schedules. So if you're getting more biopsies per surgeon, it's because they're identifying more patients that they believe are good candidates for EpiCell. And again, we'll see growth versus last year. This year, we expect more growth next year and that to continue as well. And then, you know, conversion rates, once they normalize post COVID-19, we expect to increase because, you know, our, our, Sort of more experienced or higher volume surgeons certainly have a higher overall biopsy conversion rate. So putting all that together and knowing that there's no like competition coming down the pike, you know, we expect years of growth for Macy going forward.

Thank you. And your next question comes from Sam Odofsky with Truist.

Hi, thanks for taking the questions. I'll just ask two on the sales force here and start with the Macy's side of the business. We'll be curious to hear how you think about the newer reps there in terms of where they are relative to peak productivity and then sort of more broadly how you think about peak productivity for that side of the sales force after some of the productivity gains that were made last year with some of the new tools introduced there.

Yeah, I'll take that, Sam. And Joe, you can add any additional commentary. But, you know, we have made comments since, you know, expanding our Salesforce. We had our largest Salesforce expansion in 2020 going from 49 to 76 reps. And, you know, throughout even this disrupted period, starting back in Q3 last year, we had mentioned that that cohort of sales reps actually were sort of leading the country in terms of growth in new biopsying and implant surgeons, which is what you would expect when you're bringing sort of highly experienced sales reps on board, and that continues to be the case. You know, we're very pleased with that expansion. And, you know, quite frankly, I think by the time we get to the end of next year, we'll be looking again to say, you know, are there additional targets and, you know, would a further expansion potentially be justified? But that'll be sort of an end of next year activity. As you know, when we expanded a couple years or last year, we expected this expansion to last us for years. for a few years, so feeling really good about sort of their contribution to date. When you think about the productivity per rep, you know, we had gotten to about $2 million per rep in 2019. You know, as we expanded, we said that would fall back to sort of the lower end of the range of about $1.7 million, which is where we were back in 2017, but then, you know, absent COVID would have expected to exit 2020 sort of on a $2 million run rate. And that got pushed out because of COVID-19. But, you know, we expect we'll sort of be back there this year or at the end of this year as we exit 2021. And, you know, you can just kind of look at consensus estimates with 76 territories. If you're, you know, around $150 million in Macy revenue, then you're kind of right back to that sort of productivity level of a couple million dollars per rep. And if we don't expand further from that and continue to grow at the rates that we expect, you know, obviously the productivity per rep will go up from there.

Great. And then just on the FSL side of the business of those, and sorry if I missed this, but any updates there in terms of where we're at in the expansion of Salesforce and how we should think about that moving into 22? Thank you.

Yeah, so, you know, we talked sort of at the end of last year on our investor day about sort of the full expansion plans ahead of a Nexabrid launch. And, you know, at that time, we had, you know, about seven territories, four clinical support specialists, and, you know, ultimately... Ahead of the Nexibrid launch, we'd expect to be more in the low 20s range with about, call it 14 territories or 12 territories and the clinical support specialists and the management team. Given sort of this super strong ramp with EpiCell, we have added a few positions over the course of the year, and we're up to about seven territories, six clinical support specialists, a couple of management positions. leaders. And so that's kind of where we are now. And, you know, as we progress through next year and the timing of a potential MexiBird launch becomes clearer, you know, we'll complete the expansion ahead of that. And I think it'll be roughly in the range that we contemplated further, but of course we'll take a look at that.

Thanks for taking questions.

Okay, thanks, Sam. Your next question comes from Sway Apakula with HC Wainwright.

Thank you. Good morning, Nick and Joe. A couple of quick questions. The first one is, and I actually really appreciate Nick for explaining some of the issues that you folks face because of the COVID-19, especially for Macy's. In those comments, you said some of your best performing areas were impacted by the pandemic during the third quarter. So any commentary on those specific areas? What are they experiencing in the fourth quarter now?

Yeah, well, I think, you know, as we have discussed, both experienced and kind of discussed it this morning. There were kind of two ends to COVID disruptions in sort of the summer and throughout Q3, right? One was sort of this reopening dynamic as the economy reopened and folks were traveling and so on. And so kind of a patient-driven sort of determination on timing of sort of when they would go in for a Macy surgery. Again, we expected that once that sort of waned, you'd kind of have a recapture, but that's exactly sort of when the Delta variant surged in obviously the southeast, southwest, parts of the Midwest and west. And so that's kind of what drove sort of the dynamics we described earlier. I'd say from a patient perspective, that's probably, I think, probably mostly come and gone. I think patients make individual decisions, and it's hard for us to sit here and opine on that. I'd say from the other aspect, which is you know, were there restrictions on either a healthcare system-wide basis or individual institutions. You know, we certainly saw some of that as was widely reported in the third quarter. So you had either, you know, individual, there were no statewide restrictions like there were back in 2020, but you certainly saw individual healthcare systems or individual institutions either pausing elective surgery for some period of time or restricting the number of elective surgeries that surgeons could do in those facilities. And so, you know, that was clearly happening sporadically around the country. And, you know, for the most part, I think those have pretty much been resolved. So we don't expect to see too much of that in the fourth quarter. But again, you know, we can't sit here and predict what happens over the next couple months.

Okay, thank you for that. If I heard it correctly, you said there is a backlog of approximately 7 million sitting now, which you think could be spread more into the first, I'm guessing it's first quarter of 22. If it is first quarter of 22, generally your first quarter is one of the weaker quarters, right? You know, if I look at it historically, if I'm looking at these numbers correctly. So do you think the backlog will make the first quarter of 2022 look better than what it has been historically?

Yes, so RK, this is Joe. So, you know, I would say at this point I would say, you know, it's probably difficult to predict exactly how those cases kind of flow through. Certainly I think, you know, we are thinking about first half, you know, and certainly the first quarter is part of that. But, you know, again, I think as we get, you know, into the guidance conversation next year, I think we'll have a better sense in terms of the seasonality. But, you know, I think in general, you know, I think it's the right way to think about it. It's probably first quarter and likely second quarter based on kind of what we've seen before. And it really just depends on kind of, you know, when and how things normalize kind of from a healthcare perspective and a COVID perspective as well.

Okay. Thanks for that, Joe. One last question for you. You said during the third quarter of 2020, there was a $5 million catch-up. So it could impact, I mean, it is impacting the year-over-year metrics. Can you comment on what was the catch-up amount during the fourth quarter of 2020 so that we are better prepared going into this quarter?

So can you repeat the last part? I know you're asking about the 5 million catch-up, but can you just clarify the question for me?

What was the catch-up in the fourth quarter of 2020, if there was some?

No, I think what we were talking about was it was the third quarter of 2020. When you're looking at that, when we're looking at the third quarter of 2021, our current results, when you compare that to the third quarter of 2020, we were saying that that had some impact of kind of that V-shaped recovery, which is really impacting across the metrics across the business, including the revenues for Q3, impacting that year-over-year comparison. So it was more about Q3 of 2020.

Yeah, I got that. I was just trying to see if you have identified any anomaly at the fourth quarter of 2020. Okay.

Yeah, so RK, you know, as we have a slide in our accompanying presentation on slide six, it kind of gives you the recovery periods for Not only the initial surge in the spring of last year, but what we saw over the winter this year and sort of the difficult part in answering your question is it wasn't just a fourth quarter sort of activity, right? We mentioned on our call that the last two weeks of December, you know, we didn't sort of have the case schedule as they might have in the past, and that sort of drifted into January and early February. So you didn't have kind of a clean break of quarters to say, hey, the second surge ended in December and what happened in the first quarter of 2021. So it's a little hard to kind of pinpoint it with that degree of accuracy, given it crossed quarters and years. But I think to Joe's point, we expect this recapture to happen in the first half of the year. And it's a little hard for us to opine when sort of individual patients are going to decide that they want to move forward.

OK. Thank you very much. Thanks for taking my questions.

Thank you. Thanks, R.K.

Your next question comes from the line of Chris Cooley with Stevens.

Thank you. Good morning. I appreciate you taking the questions. If I may, let me just revisit briefly the Macy shortfall in the quarter. Fully appreciate the COVID headwinds that were there. But curious if you see anything underlying this additionally, and specifically I'm referring to maybe changes in physician practice protocols. I know we've seen some commission shift, more of a bias in favor of single versus multiple use on HA. Curious if you're seeing any subtleties like that in terms of the way that physicians are thinking about addressing these patients, either from a staging perspective or pulling them through the process that might have made this a little bit more pronounced. Because I think Danielle's prior question, again, just seasonality at this stage of the game, just trying to make sure we fully understand what's behind all the numbers in the 3Q and the 4Q. And I have a quick follow-up. Thanks.

Yeah, thanks, Chris. I'll just start with sort of what we see from a physician-patient perspective, and then Joe can kind of revisit the seasonality question. You know, as I mentioned, there were, you know, there's kind of, I guess, at least two dimensions to sort of, you know, the COVID-19 impacts. You know, one is, you know, physician-based and or institution-based, and, you know, from a physician perspective, we haven't seen any sort of impact on physician enthusiasm for Macy. And I think that's reflected in the kind of biopsying surgeon growth that we've seen and expect to continue to see. And that's really the best barometer of physician interest in this product, which is great. You know, again, there were some institutional issues that they have to navigate around, right, when their institutions either sort of pause or limit the number of elective surgeries as things were really flaring up in what was, you know, arguably, you know, a pretty significant, as we all know, Delta variant surge. So So that is out of the physician's control as well. So no impact sort of from a physician enthusiasm perspective from our standpoint. I will say the other piece of the dynamic is sort of patient behavior dynamics that we referenced. And I will say that, you know, as we talk and have sort of surveys with our key opinion leaders, I think they struggled in the third quarter and even as early as May. to sort of get patients to come in and have surgery as patients were finally able to sort of come out of the restrictions, the general restrictions, travel and do the things that people like to do. And I actually think it was much more dominated by patient behavior and choices of when they want to have their surgery than anything to do with surgeons. So I agree with you and the underlying premise of Danielle's question, which is it's kind of remarkable that we're coming into our fifth year since launch and you're still seeing this kind of uptake among surgeons and enthusiasm. It's great. And I think, you know, given that we now have 5,000 surgeons that we think are great targets, we think it's going to continue to grow from a surgeon perspective. So I'll end there, and Joe, you can kind of comment on sort of what this growth in surgeons and biopsies mean for our outlook next year and going forward.

Yeah, no, I think to the earlier question, certainly with the underlying growth driver still there, you know, we think this can continue to drive growth, you know, not only in 2022 and beyond. We talked about that a bit earlier. And I think just back on kind of the seasonality and the mix question that I think you're referencing, Chris, and Danielle had, just to make sure we answered that. You know, if you kind of look back historically on Macy, I mean, it's been pretty consistent in the fourth quarter, kind of, you know, in that 35% plus range in terms of the mix of business. And if you look at the guidance, I think it's pretty similar to that as well this year. So, You know, I think there's just from a seasonality perspective, just the way kind of physician and patient behavior, even pre-COVID and then, you know, into COVID, you know, we're still seeing that uptick in the fourth quarter. So, you know, at this point, I think, you know, just given some of the kind of physician and patient behaviors, as well as some of the kind of reimbursement dynamics that play at the end of the year, you know, we are still seeing that seasonality and still expect that certainly for the foreseeable future.

I appreciate all that, Carl. And then just very briefly for me, another call's gone over an hour now, but just curious on the next rebid resubmission targeted now for mid-year next year in 2022, just curious if you could provide any additional color there around your confidence in that resubmission, anything else that has to be done between now and that filing time. I apologize if I missed that earlier, but just wanted to see if we could gain some additional insight there. Thanks again.

Yeah, no worries, Chris. You know, as we talked about on our last call, there were really sort of four things that need to occur prior to a potential Nexabrit approval. One is, you know, the FDA asked for some additional CMC info. So, you know, we're obviously in the process with MediWound of providing that additional CMC information and integrating it into a revised CMC module for for use in the resubmission. So, you know, that entails work of kind of generating the data, putting it into a package and so on. And so that work has been ongoing and continues. The inspection issue related to CMC issues that FDA restrictions at the time, we believe those have eased and that they're now conducting CMC inspections in Israel and Taiwan. And that's something we'll discuss with the FDA upon resubmission. It's a little premature at this point, but we do know that those inspections outside the US are now occurring. The FDA also, you know, referenced observations on, you know, their GCP inspections. And so we're in the process of reviewing additional details at study sites to respond to the FDA's questions. And then finally, you know, a routine safety update is being or will be put in place. prior to their, as part of the resubmission. So those four elements are all moving forward. Again, had a productive meeting with the FDA agreement on how we were going to plan to respond to their questions. And so now, you know, that work is being done and completed. And then we'll be assembled into, you know, the resubmission package and submitted. At this point, you know, our anticipation is by mid-year. Thank you.

And we have no other questions in queue at this time. I would like to turn it over to management for closing remarks.

Okay, well, I just wanted to say thanks to everybody for your questions and your continued interest in the company. You know, overall, and despite the COVID challenges, the company continues to execute well throughout the year. We expect another, as we mentioned, year of significant top-line revenue growth, margin expansion, operating cash flow driven by both of these high-growth franchises. So given our strong financial profile, portfolio of innovative products in large addressable markets, we believe the company is really well-positioned for sustained long-term growth. So thanks again for your questions, and have a great day.

This does conclude today's conference. You may now disconnect your lines.