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spk03: Ladies and gentlemen, thank you for standing by and welcome to VeriSell's fourth quarter 2021 conference call. At this time, all participants are in a listen-only mode. I would also like to remind you that this call is being recorded for replay. I will now turn the conference call over to Eric Burns, VeriSell's Head of Financial Planning and Analysis and Investor Relations. Please go ahead.
spk02: Thank you, Operator, and good morning, everyone. Welcome to VeriSell's fourth 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 fourth 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 Verasol's President and Chief Executive Officer, Nick Colangelo, and our Chief Financial Officer, Joe Marra. I will now turn the call over to Nick.
spk00: Thank you, Eric, and good morning, everyone. I'll begin today's call by discussing financial and operational highlights for the fourth quarter and full year, as well as current trends and our expectations for 2022. Joe will then provide a more detailed update on our financial performance and financial guidance before opening the call to Q&A. The company delivered another year of strong revenue and profit growth in 2021, despite the continued impacts of COVID-19 throughout the year. Total revenue for the year increased 26% to approximately $156 million. Our top-line growth, which was at the higher end of the range that we preannounced last month, was also in line with our compounded annual revenue growth rate since we launched Macy in 2017. We also generated nearly $30 million of adjusted EBITDA and operating cash flow in 2021, ending the year with $129 million in cash and investments and no debt, as we once again demonstrated the strong P&L and cash flow leverage in our business as revenue continues to grow. With respect to our fourth quarter results, Despite the unexpected emergence of the Omicron variant in late November and the resulting impact on Macy performance in December, Macy quarterly growth increased compared to the prior quarter in the same period in 2020, achieving record quarterly revenue in the fourth quarter. We also finished the year with another strong quarter for EpiCell as we generated revenue of over $9.5 million for the fifth consecutive quarter. From a commercial perspective, we continued to see strength across the underlying growth drivers for Macy and a high level of brand engagement from surgeons and patients. Importantly, we met our goal of increasing the number of surgeons taking Macy biopsies by 20% and generated biopsy growth of 30% for the year, with a record quarterly high in the number of biopsies and the number of surgeons taking biopsies in the fourth quarter. This strong biopsy growth was also driven by an increase in the biopsies per surgeon of approximately 10%. Another key performance indicator for Macy as our penetration rate in individual practices is now higher than it was prior to the pandemic. We also continued to see strength across the key growth drivers for EpiCell. EpiCell's growth of over 50% for the year was driven in large part by a significant increase in the average number of EpiCell graphs per patient, which we believe was due to the outstanding commercial execution by our burn care sales team. This strong performance was also driven by over 30% growth in both the number of EpiCell biopsies and the number of burn centers treating patients with EpiCell in 2021. We believe that these key performance indicators will continue to help drive further penetration into EpiCell's $200 million-plus addressable market over the coming years. As we announced this morning, we expect total revenue in 2022 to increase to approximately $178 to $189 million with continued margin expansion and strong profit and cash flow growth. Joe will provide further details regarding our financial guidance in a moment, but I wanted to take a minute to discuss the current operating environment and the framework underlying our guidance. As we discussed throughout 2021 and in connection with our pre-announcement in January, we generated strong growth in both Macy biopsy surgeons and biopsies in 2021. However, due to a variety of COVID-19 related factors throughout the year, we saw a much more pronounced impact on Macy implant growth as historical biopsy to implant conversion patterns were disrupted. This was the case again in December as the emergence of the Omicron variant resulted in patients deferring cases and scheduled cases being canceled because patients tested positive for COVID-19 during their pre-op screening. While these patient-related dynamics created a biopsy backlog that we believe should contribute to Macy growth this year, the timing related to the recapture of this backlog and the normalization of conversion rates remains uncertain at this point given the carryover of the Omicron wave into the first quarter. We've started to see general COVID-19 conditions begin to improve in February, and moving forward, we expect continuous improvement throughout the year. However, because the timing and impact of COVID-19 dynamics this year remain difficult to predict, we've assumed a wider range of revenue scenarios in our initial financial guidance for the year. The lower end of our revenue range assumes additional significant COVID-related headwinds and continued disruption within the healthcare environment, which would represent a more modest improvement over 2021. The higher end of our range assumes some disruption beyond the first quarter, but gradual improvements in patient flow and conversion rates during the year. Importantly, we expect the year-over-year quarterly growth rate for MESI to increase each quarter throughout the year, and the midpoint of our revenue growth range for total MESI and FSL product revenue is in line with our 20-plus percent compounded annual growth rate that we expect to maintain over the next several years. We also expect to generate additional margin expansion and increases in adjusted EBITDA and operating cash flow this year as we further enhance our strong profitability profile. Turning to our pipeline, we remain on track for a mid-year resubmission of the Nexibrid BLA, which would position Nexibrid for a potential commercial launch in the U.S. in the first half of 2023. We also continue to advance important lifecycle management initiatives for MACEI. We expect to meet with the FDA later this year to discuss the clinical development program for our custom arthroscopic delivery system, which we believe offers the potential to make MACI an even simpler and less invasive procedure and to expand the use of MACI for the treatment of cartilage defects in the knee. We also continue to advance our MACI ankle program, which we believe could increase our overall MACI addressable market to approximately $3 billion. We're very pleased to have announced plans earlier this month for a new state-of-the-art advanced cell therapy manufacturing and corporate headquarters facility in the Boston area. The new facility, which is expected to begin commercial manufacturing in 2025, will significantly increase our manufacturing capacity and demonstrates our confidence in the continued growth trajectory for Macy and EpiCell in the years ahead. I'll now turn the call over to Joe to discuss our fourth quarter and full year financial results, as well as our financial guidance for 2022.
spk10: Thanks, Nick, and good morning, everyone. Starting with the income statement, total net revenue for the full year grew 26% to $156.2 million, driven by strong growth in both of our franchises. Macy revenue grew 18% to $111.6 million, while EpiCell revenue grew 51% to $41.5 million. Total net revenue for the fourth quarter increased 5% to $47.6 million versus the fourth quarter of 2020, while product revenues excluding BARDA-related Nexabridge shipments grew 6%. Macy fourth quarter revenue was $37.3 million, growing 8% versus the prior year. Despite continued COVID-19 impact on volumes, due primarily to the Omicron variant, Macy fourth quarter revenue increased 56% sequentially versus the third quarter of 2021, compared to a 42% sequential increase for the same period in 2020. EpiCell fourth quarter revenue was $9.7 million, similar to the strong results in Q4 2020 of $9.6 million, in the fifth straight quarter above $9.5 million for EpiCell. In addition, total revenue in the fourth quarter also included approximately $0.5 million of revenue related to the procurement of Nexibrid by BARDA for emergency response preparedness. Gross profit for the quarter was $34 million, or 72% of net revenue, compared to 74% of net revenue for the fourth quarter of 2020. This decline in gross margin is mainly driven by the shortfall in revenue versus our initial expectations for the quarter do in large part to our scale-up to meet expected demand. Total operating expenses for the quarter were $29.9 million, compared to $21.4 million for the same period in 2020. The increase in operating expenses was primarily due to higher non-cash stock compensation expense driven by share price appreciation. Net income for the quarter was $4.5 million, or nine cents per share, compared to net income of 12.2 million or 25 cents per share for the fourth quarter of 2020. Non-GAAP adjusted EBITDA for the quarter was 12.8 million or 27% of net revenue. And importantly, this is now the sixth consecutive quarter that we've generated positive adjusted EBITDA. For the full year, non-GAAP adjusted EBITDA was 29.5 million, an increase of approximately 11 million compared to 18.6 million in 2020. Finally, we generated approximately $10.6 million of operating cash flow in the quarter and $29 million for the full year. And as of the end of the year, the company had approximately $129 million in cash and investments compared to $100 million as of December 31, 2020, and no debt. Before turning to 2022 guidance, I wanted to comment on capital expenditures, which increased in 2021 relative to historical trends. This growth was related to the build-out of a new office building in Cambridge that helped to free up space for additional manufacturing capacity over the next few years. We expect capital spend in 2022 to increase as we begin to make preliminary investments for our new facility, although the majority of capital expenditures for our new facility are expected in 2023 as well as 2024. Transitioning to our financial guidance for 2022. We expect total revenue of $178 to $189 million. MACI full-year revenue is expected to be in the range of $132 to $141 million. As Nick mentioned, we are assuming a wider range of MACI revenue scenarios for 2022 at this point, given the variability of potential COVID-19 related impacts on the business, the uncertainty around patient behavior dynamics, and the timing of the normalization of patient flow and capacity within the overall healthcare system. Importantly, we are expecting another year of double-digit growth in surgeons taking Macy biopsies, that conversion trends begin to normalize throughout the year, and that we start to recapture some of the COVID-driven 2021 biopsy backlog, although we expect this to be gradual during the year. While there are a number of moving parts to what we are seeing in the first quarter, More broadly, trends are beginning to improve of late, and we project MESI volume in Q1 will still represent a typical percentage of our full-year volume of approximately 18%. We would also expect trends to continue to improve during subsequent quarters, with year-over-year quarterly growth rates accelerating throughout the year. For EPICEL, we expect full-year revenue in the range of $45.5 to $47.5 million. At the midpoint, this would be approximately 11.5 million epi-cell revenue per quarter on average. However, we expect that it will take a quarter or two to get up to that higher run rate as the team continues to add new burn centers, and we anticipate that epi-cell revenues in the first quarter will be more in line with the recent run rate of approximately 9.5 million per quarter. For Nexabrid, we anticipate recognizing the remaining BARDA-related revenue of approximately $0.5 million in Q2 of this year and do not expect commercial revenue from Nexabrid this year. Moving down the P&L, we expect gross margin to be approximately 70% and full-year operating expenses to be in the range of $134 to $137 million. Non-GAAP adjusted EBITDA margin for the full year is expected to be approximately 21% and increase from 19% in 2021. For the full year, adjusted EBITDA is expected to increase from approximately $30 million in 2021 to approximately $40 million in 2022, which also points to continued meaningful growth in our operating cash flow. This concludes our prepared remarks. We will now open the call to your questions.
spk03: Thank you, presenters. Ladies and gentlemen, if you have a question at this time, please press star, then the number one key on your touchstone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Your first question is from Ryan Gimmerman of BTIG. Your line is open.
spk09: Hey, good morning. Thanks for taking the questions and congrats on your progress this year. I guess I want to start with Macy and the guidance there. I appreciate your comments on the first quarter. Nick and Joe, help us think through the backlog, though. I think by our estimates from the last quarter, there was about a $7 million backlog on Macy. And so how much of that is assumed in that guidance this year? It sounds like some of it. And kind of what's that underlying growth rate on Macy, you know, X the backlog?
spk10: Thanks, Ryan. This is Joe. I'll start and take that question. You know, I think as we think about the backlog, you know, I think the way we're thinking about it is, you know, as we talked about in the prepared remarks, we certainly want to be mindful of the operating environment we're in. We have a wider range in terms of Macy guidance for the year. You know, I think as we think about the backlog, you're right. So in Q3, we talked about that number kind of being in the $7 million range. As we came out of Q4, you know, we actually saw an increase. So I'd say the number is closer to $10 million. You know, in terms of how that plays into the scenarios, you know, what I would say is certainly on the higher end of our guidance, you know, we would assume or we are assuming a more substantial or substantive part of that backlog is kind of pulls through as part of that revenue number. And in the low end, I would say it's certainly a much lower percentage. So, you know, as we think about kind of Macy growth through the year, I mean, there's some competing dynamics. Certainly we think that backlog can help. But as we talked about, we don't think conversion rates and kind of patient flow will fully normalize or get closer to fully normalizing until the back half of the year. You know, and we also have some kind of COVID impacts to start the year. So I think all of those are certainly part of the equation when we think about the full year.
spk09: Okay. And then, you know, your cost is the follow-up. So just, Joe, help me understand. I mean, your costs are largely labor-related, right? And there's lower kind of raw material costs for development of both EpiCell and Macy. You know, we're hearing a ton of companies talk about rising wage pressures just given the inflationary environment. And so, you know, I just wanted to get your thoughts about, you know, what to think about from that perspective, both, you know, from an SG&A level and R&D level, and appreciating the guidance on adjusted EBITDA, but, you know, just help us think through kind of what kind of pressures you may be feeling on those lines. Thanks.
spk10: Yeah, no, thanks, Ryan. So certainly, you know, we're mindful of kind of the operating environment we're in from a cost perspective, and we're considering that, you know, as we're thinking about guidance for the year. You know, as we talked about, we do think we can improve on our gross margin on a year-over-year basis, and similarly on an adjusted EBITDA perspective. You know, as we think about some of those potential costs, kind of impacts. You know, I think the good news is a lot of our raw materials spend on some of our higher dollar items are tied up in kind of longer-term contracts. You know, I do think the team got ahead in some areas to make sure we had enough stock and whatnot on a materials perspective. But I think to your point, I mean, we're certainly going to see some impact in terms of, you know, inflationary increases on some of our vendor spend, some of other pieces You know, on the labor piece, you know, I think it's important to recognize and remember, you know, we've been in the Cambridge area for quite some time. There's a lot of competition for labor here. So that's something I think that's kind of been here for a while. But, you know, certainly in the environment we're in, that's going to impact, you know, labor costs, you know, a bit more on a year-over-year basis. So, you know, I think we're doing what we can certainly to manage on the cost side. But, you know, there are some impacts kind of here and there, I would say.
spk09: Thanks for taking the question.
spk10: Thank you.
spk03: Your next question is from Daniel Anzalfi of SVB OB-Link. Your line is open.
spk07: Hey, good morning, guys. Thanks so much for taking the question. Just a question on the biopsy backlog and conversion rate. I mean, Nick and Joe, do you think that there's, I guess, how are you thinking about the potential to actually keep those patients in the funnel? I guess what I'm saying is how much visibility or how many touch points do you have with those patients? in order to ensure that at some point those patients do get treated, and then I have one follow-up.
spk00: Yeah, hey, thanks, Danielle. Good to hear from you, and that's a great question and something we're really focused on here, right? So, you know, I think Joe went through sort of the dynamics of how we're thinking about, for the year, that backlog maybe worked down. And I'll just add one comment there on the first quarter. You know, obviously, the Omicron wave kind of carried into the first quarter. So, you know, I don't think we're under any illusions that, you know, backlog gets worked down in the first quarter, given the dynamics. But that's more something that we've consistently been talking about we would expect to occur over the course of the year. To your point of the sort of biopsies that were collected last year that under normal circumstances would have converted, that is something we are hyper-focused on here. You know, if you're running a commercial organization, you certainly, we're in a unique position in that we certainly understand, obviously, a biopsy comes with a transmittal form. We know the surgeon that sent it in, the patient, the nature of the defects, et cetera. And so it's very easy for us from both a marketing and sales team perspective to be able to create those biopsy lists, focus our reps on having those discussions with the surgeons, so that we're able to kind of make sure we don't lose those biopsies to the extent we can control that and that they don't go stale. So that is something we are really focused on. There are initiatives on the commercial team to be able to focus on, for instance, Q2 and Q3 biopsies from last year. So I think we're uniquely positioned to make sure we maintain those touch points. And of course, we have a very strong case management team that is routinely in contact with surgeons, offices, and staff regarding patients that are in the pipeline. So we think that's a focus for us. I'll just end there. And we think we have certainly the ability to influence that to the extent possible.
spk07: Got it. No, that's super helpful. And then, Nick, it's been a few years since you guys expanded the Salesforce. Unfortunately, I guess your last Salesforce expansion was literally right before COVID or during the early days of COVID. Just curious about where you think the Salesforce is today versus where it needs to go from here. Do you think you have the Salesforce where it needs to be? Thanks so much.
spk00: Well, yeah, we're certainly very pleased with that expansion and the results we've seen, you know, even during these COVID times. And I think we've talked about that a lot in terms of, you know, the Salesforce expansion was necessary for a bunch of reasons. One, we increased our target surge in universe. Two, we wanted to get sales territories down to kind of, you know, more manageable geographic size areas. And for those reasons, you know, it was something we needed to do. We've talked during the past couple years about the performance of the new territories and driving new surgeon acquisitions and so on. So we're very pleased. And these were highly experienced sales reps that we added. So from that perspective, you know, we're very pleased. We'll take another look, as you'll recall, when we expanded the sales force back in 2020, it was intended to cover us through pretty much a two- to three-year period. So we will look again sort of at the end of this year about what our needs are going forward. And I would just say the performance is kind of the bottom line here, right? I mean, we have, you know, access to procedural data for the procedures that make up our market, microfractures, chondroplasties, osteochondrial allografts, etc., And, you know, that data tells us that since 2019, procedures volumes for the market as a whole are down double digits. And over that time period, Macy revenues are up 20% plus. So I think that speaks to the effectiveness of our sales force. And we certainly don't ever question, you know, kind of expanding. It was definitely something that we thought was the right thing to do. And we certainly continue to think that.
spk03: Got it. Thank you.
spk00: Thanks, Danielle.
spk03: Your next question is from Chris Cooley of Stevens. Your line is open.
spk01: Good morning, and thanks for taking the questions. Just two for me. Maybe first, when we talk about expanding the number of surgeons taking biopsies for Macy, I think the target you gave there in the prepared comments was approximately 10%. Could you help us with maybe just how the sales force is incentivized in that regard? Is it going deeper within existing practices? where I would assume those surgeons would ramp faster if their peers were already utilizing Macy and they were familiar with it to some degree, or are they more incentivized this time to broaden the reach? And then if I could just go ahead and ask my second question now and then I'll be quiet and get in queue, but maybe just help us think, Joe, a little bit about the sequential gating on the spend. Obviously you're driving much greater leverage there, better cash flow, really impressive. But just help us think about, you know, with the timing of the spend, getting ready for the submission for next subred, you know, the timing of the expansion. Just help us think a little bit there about how we should think about that OPEX as it plays through the year, if there's anything different this year versus maybe the last two so-called normal COVID years. Thanks so much.
spk00: Thanks for your questions, Chris, it's Nick. I'll take the first one regarding kind of the Salesforce incentives and how you build a successful business and then turn it over to Joe. So as I think we've talked about before, at the end of the day, you know, our sales reps are paid, you know, in addition to sort of cash and salary and equity on a commission basis for the implants that are done, right? That's when we recognize revenue and that's when, you know, how their incentive comp works. But just as we talk to investors and analysts about the growth drivers for the company at the high level, that's exactly what the reps are focused on. at the territory level. And it's very clear throughout the organization to be successful as a sales rep, you need to be doing everything we talk about, which is expanding the number of surgeons taking biopsies, penetrating deeper in their practices, which is represented by the biopsies per surgeon, and then getting those cases activated and converted. So that is a focus throughout the organization and particularly with the regional directors and our sales reps.
spk10: Yeah, Chris, and thanks. Good morning. Thanks. On the second question, you know, I would say if you look back in the last couple of years, kind of from an OpEx perspective, if you look at 2021, I mean, there were some ebbs and flows during the year, but, you know, I wouldn't expect anything, you know, hugely variable from a quarter-to-quarter perspective. You know, there's certainly some things we're looking to get ahead of in terms of some of the investments, you know, on the lifecycle side that started. You know, there's certainly some spend in there as we think about Nexabrid, which will kind of balance throughout the year, and then obviously have some second-half components. So, you know, I wouldn't think of it as kind of hugely material differences from a quarter-to-quarter perspective, although it may ebb and flow if you take that full-year number and kind of work back to the quarters. Thank you.
spk03: Your next question is from Jeffrey Cohen of Leidenberg-Fallman. Your line is open.
spk04: Hi, Nick, Joe, and Eric. How are you?
spk00: Good. Thanks, Jeff. Good morning.
spk04: Just a couple questions from Aaron. So looking at the epiCell guidance for 22, can you walk us through some of the trends you've seen thus far the first couple months? And it seems a little cautious on the aggregate numbers there, particularly given the fact that you're discussing you know, higher ASPs on an average case. Is there anything to read in there, anything we should think about? I know it's been a strong five quarters in succession now.
spk00: Yeah, thanks, Jeff. So, you know, when you look back at EpiCell's growth in 2021, it was obviously a phenomenal year, particularly for a product that, as we often say, has been, you know, on the market for close to 30 years now. So, you know, 50% growth, a big piece of that, as I mentioned in my prepared remarks, was that we have seen consistently now over the past five or six quarters, you know, sort of an uptick or an increase in the average number of epicell graphs used per patient. And we talked about this last fall as well that, you know, as we adjusted our TAM upwards that the average graphs per patient had increased from about 90 to 120 graphs on average. And so that, you know, if you look at that growth for last year, you know, you can say, you know, two-thirds of it or, you know, thereabouts was due to sort of that increase in the grafts per patient. And, you know, what that did was sort of move the market up to where the premier burn centers, kind of the level of utilization per patient that they were using. So we may get some small incremental growth in that over time, right, especially when you're treating these sort of large total body surface area burns. But really where the growth is going to come from is adding more burn centers that are treating patients with EpiCell and increasing the biopsies or the patients that are being treated. And we saw, you know, both of those sort of increased last year, as I mentioned, as well. But I think, you know, it's a more realistic approach. forward-looking perspective to say, you know, we'll kind of baseline it at low double-digit growth, and then obviously we're focused on exceeding that.
spk10: Yeah, maybe just to add as well, you know, I think a couple points. So, again, on those kind of average graphs per patient, that patient utilization, you know, obviously that was a huge growth driver last year. You know, if you look back, you know, that actually has been pretty consistently high over several quarters. So, You know, even as we compare to last year, kind of the first quarter, et cetera, you know, that's really, for the most part, in the run rate. You know, a couple other things just to highlight. So, you know, if you look at the last several quarters, that run rate has actually been right around $9.5 million. You know, if you look across the last five quarters, you know, if you take a bigger picture view, you know, we think we can grow the overall kind of business. And, again, it's really thinking about adding burn centers and driving up volume. into that double-digit range. But, you know, if you look at last year, there's kind of that one outlier of 12 million plus. So, you know, we think on a full-year basis, again, we can get into that double-digit growth range, and that's a realistic number for us. But, you know, what we're kind of seeing and where we are in Q1 right now, you know, we're kind of more in that run rate, similar run rate, you know, at least at this point. So I still think, given the nature of the product, there's going to be ebbs and flows. even as we try to drive growth, although as you look back in the last few quarters, it's been more stable. You know, I still think it will ebb and flow, but overall we're still looking for that double-digit growth.
spk04: Perfect. Thanks for that commentary. And then could you talk about, you said year-over-year quarterly sequential increases for 2022. I just wanted to clarify that you don't mean the cadence of Q1 through Q4 sequential, but you mean the year-over-year increase.
spk10: Yeah, so I think when we talk, and we're talking about Macy's specifically there, I mean, what we're saying is if you kind of think about, you know, the Macy's progression throughout the year, you know, what we said in the first quarter is if you take our full year guidance for Macy's, you know, we'll be around that 18%, which is, you know, pretty typical percent of the business or of the overall revenue for the year as you think about seasonality. You know, I think given kind of the trends we're seeing, we'll probably lean a little bit more kind of to backloaded when you think about the percentage of business H2 versus H1, or at least look more like some of the years that were more slanted toward H2. So if you play that out and assume, you know, similar seasonality, you know, what you'll see there on a year-over-year basis when you look at kind of Macy quarterly is sequential, or sorry, year-over-year, each quarter will have increasing year-over-year growth rates. So just to clarify, we meant year-over-year relative to 21.
spk04: Got it. And then lastly for us, just to recap, I know there's been a couple questions on some of the conversion rates and biopsies. So anything, any read into this quarter thus far for 2022 thus far as far as any biopsy trends specifically? I mean, excluding any, you know, conversion rate commentary, but biopsy trends for this year versus, say, 20 or 19 as far as beginning of year? Is it similar?
spk00: Yeah, you know, obviously we're kind of early in the year, and, you know, as we've mentioned, you have an Omicron carryover, et cetera. I would just say that, you know, we certainly expect biopsies to grow for the year, and that hasn't changed. And so, again, when you have this dynamic of increasing the biopsying surgeons at a double-digit rate, which Joe mentioned, and then continued penetration into those practices, which means higher biopsies per surgeon, sort of by definition, you're going to have biopsy growth, right? So that is certainly something that we expect for this year as well.
spk04: Perfect. Thanks for taking our questions.
spk03: Your next question is from Samuel Radowski of TruVist. Your line is open.
spk08: Hi. Thanks for taking the question, and I'll just start off with the high-level, just kind of, I'll ask both of mine up front, but just two kind of high-level thoughts on the, on Macy going forward. Starting off with the sales force and as the expanded group matures, and we hopefully are moving into a more normalized market going forward, any kind of updated thoughts on how we think about peak or target productivity for reps on an annual basis? And then sort of as we think about biopsy growth in 22, Can you give us any granularity into where we should be expecting biopsy growth to come from, whether it be sort of the difference between that pre-COVID doc group, the docs added last year, and then new docs? Thanks.
spk00: Yeah, well, I'll start with sort of the first question or the second question around biopsy growth. you know, we kind of believe given the size of the addressable market that biopsy growth is really coming from sort of all segments in terms of, you know, the initial, the, you know, existing users, new surgeons coming in. I mean, we've commented previously, you know, about the fact that we kind of see it across the board that, you know, when new surgeons join that they end up, you you know, that they end up kind of moving up over the course of a year or two to sort of the average level. So we see growth with existing users. We see new surgeons kind of getting to that level. And so, you know, we don't expect that there will be anything other than what we've seen in the past, which is sort of across-the-board growth among our surgeon customers.
spk10: Yeah, and just to add on the productivity metric, so certainly... You know, I think we talked about in the past, you know, we're certainly looking to get back up to, you know, call that sort of that two-ish range, you know, for rep, the two million range. You know, if you look at last year, you know, 21 versus 22, there's an improvement. You know, we're not quite there based on kind of where our four-year guidance is, but we certainly think we're kind of trending back in that direction and we can kind of get back to that number that we've been talking about.
spk03: Thank you, Samuel. Your next question is from Arke Swayampakula of HC Wainwright. Your line is open.
spk05: Thank you. Good morning, Nick and Joe. Quite a bit of my questions have been answered. I'm just trying to understand certain comments that you made. Obviously, by your announcement of getting into a a new manufacturing facility, you're kind of telegraphing the expectation for, you know, total growth of both Mafe and EpiCell. So in terms of long term, you know, what sort of, you know, growth are we thinking about for both products? And also, as you said, the Salesforce expansion obviously has allowed you to penetrate better into the surgeon groups. What sort of expectations do you have on your Salesforce in terms of how much Even though it has been a tough two years, do you think the sales force is working at the optimal level at this point? Or do you still need to add more sales force, as you said, by the end of this year?
spk00: Thanks, RK. I'll start, and Joe, you can add additional comments. So, you know, first of all, with respect to the new facility, as we mentioned, you know, that is intended to support the long-term growth for both Macy and EpiCell. You know, we haven't really gone beyond sort of mid-decade, but, you know, as we talked about in our earlier pre-announcement this year, you know, we certainly expect to be in the 20-plus percent compounded annual growth rate, you know, as a product portfolio through mid-decade and then You know, given the fact that these are large, under-penetrated markets, you know, we think there's growth ahead for multiple years, especially when you sort of layer on, you know, hopefully an increased commercial presence on the burn side with the next hybrid launch and then lifecycle management for Macy's. So we're really, you know, confident and bullish on the prospects through the end of the decade and beyond. You know, when you think about the sales force, as we were mentioning earlier, you know, for the reasons we mentioned, and just to repeat myself, you know, we have obviously procedural data for the market that makes up our addressable market. And, you know, while that declined overall by double digits since 2019, you know, Macy revenues are up 20% versus 2019. So we are clearly We were outgrowing the market by a wide margin before COVID. We've outgrown it through COVID, and we certainly expect to outgrow it when we're through COVID. So, you know, we feel really good about that. That's driven in part, you know, obviously by the sales force. They continue to execute well, and we don't expect that to change. And just on the productivity, you know, question that Sam mentioned and Joey touched upon, I mean, you know, we kind of, before the expansion, we're up to, about $2 million per rep. You know, that took a step back through COVID and through the expansion, but, you know, we certainly expect to be back to those ranges and beyond as we continue to grow the brand.
spk05: Thank you. In terms of, you know, the pipeline growth, especially with the orthoscopic delivery of Macy and also the ANCO, You said you were expecting to initiate some conversations with the FDA. Could you give us a little bit more color on those timelines so that we understand how to think through some of the R&D expenses going forward?
spk00: Yeah, well, I'll start with kind of timeline thoughts, and then, Joe, you can kind of layer in the expenses. But not to preempt them, but, you know, we've said pretty routinely that for these lifecycle management initiatives, for Salesforce expansions, I mean, that's just, those are expenditures that, you know, we can sort of absorb in our operating margins and so on that we've shared with analysts and investors previously. So, but, you know, for timelines around arthroscopic Macy, you know, what we said is we plan to meet with the FDA later this year. You know, we got a lot on our plate right now, right, getting the Nexibrid submission in by midyear. But also, you know, we want to meet with the FDA, you know, shortly thereafter. So that work is ongoing to discuss what the development plan would look like going forward. And, you know, it's a little hard to give a lot of detail around that. sort of precise expenditures until you sort of understand and agree with the FDA on what the program is going to look like. And the same, of course, is for Macy. But, you know, we have placeholders in sort of our long-range plan that cover that. So, you know, as we said earlier, We expect that an arthroscopic delivery for MACE is more of a 2025-plus kind of endeavor, and the ankle indication would be more of a – towards the end of the decade, just because it would involve a more robust – clinical study to be able to get that indication under our current thinking. So, Joe, I'll let you add anything.
spk10: Yeah, I mean, not a whole lot more to add. I mean, I'd say, you know, these are certainly kind of areas we think it makes sense from an investment perspective and a business case perspective, you know, over kind of the mid to long term as you think about lifecycle management. You know, in terms of kind of the P&L and the operating expense impacts, I mean, there certainly will be an impact over that timeframe, but, you know, as Nick said, it's kind of built into the numbers and You know, we think we can kind of manage that within our kind of operating cash flow and existing P&L structure. You know, it'll add, you know, some cost, but it's not hugely meaningful over the next few years and not so much on an annual basis.
spk05: Thank you very much. Thank you both. Talk to you soon.
spk00: Okay, thanks, RK. Thank you.
spk03: Presenters, I'm sharing no further questions at this time. I would like to turn the conference back to Nicolangelo for closing remarks.
spk00: Okay, well, great, and thank you all for your questions and your continued interest in Veracell. Overall, the company continued to execute very well across all areas of the business in 2021, and we expect another year of significant top-line revenue growth, margin expansion, and operating cash flow driven by both our franchises in 2022. And given the significant market opportunities for our products, our strong financial profile, We believe the company is well positioned for sustained long-term growth in the years ahead. So we're excited about the business as we move forward. And again, I want to thank you for your questions and interest in the company. Have a great day.
spk03: Thank you, presenters. Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.
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