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.