Vericel Corporation

Q1 2023 Earnings Conference Call


spk03: Ladies and gentlemen, thank you for standing by. Welcome to Veracell's first quarter 2023 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 would now like to turn the conference call over to Eric Burns, Veracell's Vice President of Finance and Investor Relations.
spk07: Thank you, Operator, and good morning, everyone. Welcome to Veracell's first quarter 2023 2023 conference call to discuss our financial results and business highlights. Before we begin, let me remind you 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 findings with the SEC, which are available on our website. In addition, all forward-looking statements represent our views only as of today It should not be relied upon as representing our views as of any subsequent date. Please note that a copy of our first 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 Verisil's President and Chief Executive Officer Nick Colangelo and our Chief Financial Officer Joe Mara. I will now turn the call over to Nick.
spk02: Thank you, Eric, and good morning, everyone. I'll begin today's call by discussing our financial and business highlights for the first quarter, as well as our expectations for the remainder of the year. Joe will then provide a more detailed review of our first quarter financial performance and our updated guidance for 2023 before opening the call to Q&A. We entered 2023 with a great deal of momentum as we generated strong MESI growth in the second half of last year, and achieved significant regulatory milestones, including an accelerated regulatory pathway for the arthroscopic Macy program and the FDA approval of Nexibrid. That momentum continued through the first quarter as we had a very strong start to the year from both a financial and overall business perspective, delivering record Macy and total revenue for the first quarter and making significant progress on our Macy lifecycle management programs and Nexibrid commercial launch activities. From a financial perspective, we generated total revenue of $41 million for the quarter, with both Macy and EpiCell ahead of our first quarter guidance. We also continued to generate strong profitability as we delivered our 11th straight quarter of positive adjusted EBITDA and operating cash flow, ending the quarter with nearly $140 million in cash and investments and no debt. Based on our positive first quarter results and underlying business fundamentals, We're increasing our 2023 full-year revenue guidance to $184 to $192 million. Our financial results for the quarter were driven by record first quarter Macy revenue of $34.2 million, representing growth of 32% compared to the prior year. This strong revenue growth was driven by continued significant increases in surge in engagement and utilization of Macy. In addition to generating record first quarter revenue in implants, we had the highest number of surgeons taking biopsies in any quarter since we launched Macy and a record number of first quarter biopsies. The last two quarters were our highest biopsy quarters ever, with first quarter biopsies nearly matching the record number of Macy biopsies taken in the fourth quarter of last year. This is a noteworthy performance in that we typically see a seasonal step down in biopsy surgeons and biopsies in the first quarter. It's also a reflection of the fact that our sales and marketing teams continue to execute at a high level and that the operating environment continues to improve. Macy clearly has resumed its high growth profile as we've had year-over-year growth of 30%, 24%, and 32% over the last three quarters. representing a trailing nine-month growth rate of 28%. Based on the continued momentum that we've seen to start this quarter, we also expect strong MESI growth in the second quarter, and we're increasing our full-year MESI revenue guidance to $156 to $160 million. This updated guidance implies 20% full-year MESI growth at the midpoint, and reflects strong sales rep productivity that surpasses our historical high of $2 million per rep achieved prior to our last sales force expansion. With respect to our MESI lifecycle management initiatives, the MESI arthroscopic delivery program remains on track as we continue to progress with our plans to conduct the human factors validation study this year with an anticipated potential launch in 2024. We believe that the arthroscopic delivery of MACI will be a very attractive potential option for many patients and surgeons. And importantly, the MACI arthroscopic instrument kit is designed to treat the most common defects in the MACI addressable market, which are two to four square centimeter defects on the femoral condyles, a segment which represents approximately one-third of the overall MACI addressable market, or 20,000 patients per year. If approved, Macy would be the only arthroscopic restorative cartilage repair product on the market to treat these defects. We believe that this would allow Macy to take a greater share of these procedures and provide a significant upside growth opportunity for Macy and the company in the years ahead. We also continue to advance the Macy clinical development program for the treatment of cartilage defects in the ankle and recently conducted an initial pre-IND meeting with the FDA. We believe that a potential ankle indication with an estimated $1 billion addressable market could be a significant growth driver for Macy over the long term. Turning to our burn care franchise, we reported first quarter EpiCell revenue of approximately $7 million, which was an increase over the prior quarter and ahead of our guidance for the first quarter. Importantly, as compared to the fourth quarter, we saw a higher proportion of biopsied patients moving on to treatment with EpiCell, as well as an increase towards previous levels in the average number of grafts per patient. With respect to Nexibrid, our commercial launch activities remain on track, and interest from burn surgeons and healthcare providers remains very high. From an access perspective, P&T committee packages have been submitted at about one-third of the 90 centers we are targeting this year, and we're tracking ahead of our initial goals for both P&T committee submissions and approvals. strong surgeon interest is also reflected by the fact that Nexibrid was selected for inclusion in the pre-conference healthcare professional education sessions at the upcoming American Bird Association annual meeting next week with hands-on lab demonstrations by leading burn surgeons. In terms of Nexibrid product availability, our initial expectation was that we would receive commercial product from Mediwoon and generate some initial stocking revenue towards the end of the second quarter based on the projected timelines to complete the additional manufacturing updates required by the FDA in connection with the next BLA approval. We now believe that assuming timely successful completion of these manufacturing updates, commercial product availability is more likely to occur early in the third quarter, which does not impact our full year burn care revenue guidance of 28 to 32 million for the year. I'll now turn the call over to Joe to discuss our first quarter financial results.
spk04: Thank you, Nick, and good morning, everyone. Starting with the income statement, total net revenue for the quarter was $41 million, driven by strong Macy revenue of $34.2 million and $6.8 million of EpiCell revenue. Gross profit for the quarter was $26.5 million, or 65% of net revenue, consistent with the prior year. Total operating expenses for the quarter were $34.7 million, compared to $30.7 million for the same period in 2022. The increase in operating expenses was primarily due to higher employee-related expenses, variable expenses due to higher Macy's sales volumes, and increased in-person and conference-related activity compared to last year. Net loss for the quarter was $7.5 million, or 16 cents per share, compared to 7.1 million, or 15 cents per share, for the first quarter of 2022. Non-GAAP adjusted EBITDA for the quarter was 1.7 million, and importantly, this is now the 11th consecutive quarter that we've generated positive adjusted EBITDA. Finally, we generated approximately 8 million of operating cash flow in the quarter, and we ended Q1 with approximately 139 million in cash and investments and no debt. Note that during the quarter, we paid Meadowounds the $7.5 million Nexabrid approval milestone after the approval of Nexabrid, and net of this payment, our cash and investment increased by approximately $6.5 million during the quarter. Turning to our financial guidance, we are increasing our full-year revenue guidance for 2023. We now expect total revenue of $184 to $192 million compared to our prior revenue guidance of $180 to $188 million. We are maintaining our profitability guidance and expect gross margin to be in the high 60% range and adjusted EBITDA in the mid-teens percentage range. For Macy, we now expect full-year revenue of $156 to $160 million, an increase versus our prior guidance of $152 to $156 million. with growth expected to be approximately 20% for the full year. As Nick highlighted earlier, our Macy momentum has continued into the second quarter, and we expect Macy growth in the quarter to remain strong in the low 20% range, with revenue of approximately $34.5 million in Q2. For our Burn Care franchise, we are maintaining our full-year revenue guidance of $28 to $32 million. For the second quarter, based on a continuation of the improved trends we saw for EpiCell in Q1, we expect another quarter of approximately $7 million of EpiCell revenue in Q2. And for Nexabrid, our guidance assumes product availability and the first commercial sales of Nexabrid in the third quarter. Overall, for the company, we are very pleased that Macy's strong first quarter performance and outlook for the year, coupled with our burn care revenue growing off of our Q4 quarterly run rate, has brought the company back to our high growth profile in 2023. And importantly, as we move into 2024, we would also anticipate continued acceleration of our total company revenue growth with a full year of Nexabrid in the market and the anticipated launch of arthroscopic Macy. This now concludes our prepared remarks. We will open the call to your questions.
spk03: Thank you. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment while we compile the Q&A roster. And our first question will come from the line of Ryan Zimmerman with BTIG. Your line is open.
spk08: Hey, guys. Congrats on the quarter and thanks for taking our questions. Just wanted to touch on some of the guidance commentary you gave today. So it sounds like, you know, I appreciate the commentary on second quarter, Joe, for Macy. But with the biopsies hitting, you know, these record levels the past two quarters, you know, how should we think about Macy growth, particularly in the second half of the year, you know, relative to maybe historical seasonality? And just, you know, we know fourth quarter is going to be strong, but
spk04: it now seems like you know third quarter could be primed to be to also have maybe an atypical uh seasonal dynamic yeah so good morning ryan and um thanks for the question so you know i'll probably touch on that just just briefly on three pieces kind of hit on q1 as you talked about you know talk about some of the key q2 dynamics particularly from a comparison perspective and then close out with the full year so You know, I think to your point, and as we talked about in the prepared remarks, you know, Q1 was a really strong quarter for us. So obviously great execution by the team, you know, and really just kind of strengthened across the board in our underlying metrics. So as we talked about, we had the highest number of surgeons we've had in any quarter doing biopsies, kind of record biopsies in Q1, nearly matched Q4, and really continues the trend of the last couple quarters in the back half of last year with the high growth. I would also say importantly in the first quarter that our conversion rate, which stabilized in H2 of last year, improved in the first quarter. So that's certainly an encouraging sign. And I think on a related note, you know, a lot of the headwinds in the market dynamics, you know, we think are behind us based on the metrics, kind of everything we're seeing and hearing from the field and also our kind of external data. You know, as we look to Q2 to kind of your question, you know, I would say, you know, we certainly expect kind of the continuation and, you know, we've had these strong buy-ups is that that will continue to drive a very strong Q2. So, you know, I think as you think about the second quarter, you know, a couple things to point out there as well, which is, you know, we've guided to kind of that low 20% range, but if you look at last year in Q2, we actually had a benefit from a pricing kind of payer dynamic that impacted Q2 of last year. So, know when you look at kind of that low 20 growth it actually ends up being kind of more like the high 20s when you make that adjustment on a year-over-year comparison and i actually think that's important to your question as well as you think about the cadence of this year so you know when you look at q1 to q2 and kind of ends your question into q3 you know you probably see kind of in that single digit growth range across the quarters and that's actually similar to what you saw last year particularly when you adjust for that that payer dynamic in q2 And then, you know, I think to your question in terms of kind of the full year, you know, we are, you know, assuming we have increased the guidance and we are higher than we started a year in the last couple years, and we are at 20%, you know, for the full year. But as we kind of think about kind of the growth in the back half, you know, we think we have the foundation certainly set up for a really strong kind of back half of the year in Q3 and Q4. But I would also say from kind of a guidance framework, you know, at this point, we're not going to assume that, you know, our conversion rate that was strong in Q1 continues throughout the back half of the year. And kind of our framework hasn't changed in terms of assuming that those surgeons and those biopsies continue to drive kind of strong results. So, you know, I think we want to wait a little bit longer on that and not get ahead of ourselves. But if you kind of look at the quarters and really the back half, you know, it's driven by the strong biopsies and surgeons.
spk08: Okay. Very, very helpful, Joe. Just on the margins, and I might have missed this in your prepared remarks, Joe, but, you know, given where gross margins came in relative to last year and where the adjusted unit margins are coming in, kind of what do you expect from an investment perspective as you prepare for next hybrid launch and also the arthroscopic Macy? Thanks for taking the questions.
spk04: Yeah, so, you know, I'd say from a kind of margin perspective, you know, gross margins came in line with last year and the adjusted EBITDA, you know, margins looked a little bit different, but they're, you know, from a quarterly perspective, that's probably hard to look at. I think when you look on a full year basis, you know, we still think we can be in that, you know, high 60% range on a full year basis. On gross margin, you know, still think we can be in that mid-teens range and likely improve on a year-over-year basis when we think about the adjusted EBITDA on a full year basis. So, you know, I think certainly as we kind of think about the year, there are investments that are kind of part of our P&L, whether that's life cycle management and arthroscopic Macy, et cetera, or, you know, for the next big launch. But, you know, we think, you know, we still think we're kind of in that margin range that we initially laid out. Okay.
spk08: Thanks, guys. Thank you, Troy.
spk03: And one moment for our next question. That will come from the line of Sam Brodowski with Truist Securities. Your line is open.
spk06: Hey, guys. Thanks for taking the question, and congrats on a good start to the year. I'll just ask two on NexoBread. One, just to start off with the supply, can you give us any color on what needs to get accomplished there to get that available in 3Q and how confident you are in that being available in the updated timeframe?
spk02: Yeah, hey, Sam, this is Nick. So, you know, I think as we mentioned, you know, post-approval and, you know, in earlier calls, there were just, you know, inspections of MediWound and the CBC facility in Taiwan occurred sort of late last year. There were some updates that, you know, were ongoing and needed to be made, and that sort of drove the timeline for the initial product availability. You know, as we mentioned, we always expected that maybe we'd have a little stocking revenue, you know, if product was made available towards the end of the second quarter. You know, I think that it's just a dynamic of, you know, straddling a quarter end and we're just more comfortable saying that, you know, we think it's more likely Q3. So all the work that's been going on continues. And, you know, that's kind of what's driving our updated guidance, just more prudent to assume it starts in Q3. If it happens in Q2, you know, great. Okay.
spk06: And then as it relates to the broader burn guidance, should we think about any different complexion of how much of that is epicell versus nexobrid this year, given the strong quarter and that supply dynamics?
spk04: Sorry, did you hear the last part, Sam? Just repeat the last part of your question.
spk06: Sorry, just how much, excuse me, in the burn guidance should we think about any different complexion there between EpiCell and Nexobrid given the supply issue and the stronger 1Q for EpiCell?
spk04: Yeah, I mean, I think if we think about kind of the burn care number, You know, it kind of starts in the first quarter. Obviously, we were able to improve off Q4 and kind of grow off that number, as we talked about. You know, we're higher than that run rate of $6 million a quarter by double digits in the first quarter. And I think to your point, you know, the guidance for the second quarter is around that $7 million number. So, again, ahead of kind of our initial expectations. So, you know, I think as you kind of put the first two quarters together, the results from Q1 and our guidance for Q2, you know, you're at roughly $14 million for the first half. Yeah, that's certainly, I think, a strong first half on FSL if we kind of think about the guidance of 28 to 32. In terms of the components, you know, it's probably similar to kind of what we talked about last quarter, which is, you know, there's still a number of scenarios to kind of get to that four-year guidance. You know, if FSL, depending on kind of what FSL does, and again, our kind of goal coming in the year was 6 million, but, you know, if you're kind of at that run rate, then, you know, the balances of Nexabrid can kind of get you, you know, you know, that guidance or obviously epithelium kind of trending on its own, you know, at a higher rate right now. So, you know, broadly speaking, I would say kind of no change in terms of kind of the mix of kind of how to get there and, you know, just on kind of the stocking dynamic. I mean, that's really just a timing element. It doesn't change kind of our uptake forecast and patient forecast. That's just, you know, right now we're just from a guidance perspective, assuming that that takes place in Q3 versus Q2. So really no change. you know, other than probably the start of the year on epithelial is probably a bit stronger than anticipated.
spk02: Great. Thanks for taking the questions.
spk03: Thank you. One moment for our next question. And that will come from the line of Jeffrey Cohen with Ladenburg-Zalman. Your line is open.
spk01: Hey, good morning, and thank you for taking our questions. Congrats on a strong quarter. A few from Aaron. I guess firstly, could you talk about the commercial organization relative to Nexibran? I know that previously you were talking about breaking out a separate sales force to go after non-burn focus centers. Any update there from your end?
spk02: Yeah. Hey, Jeff, it's Nick. So our plan for the commercial Salesforce expansion, you know, remains the same with respect to the next big launch. So, you know, obviously we have a field force out there now of sales reps and clinical support specialists to support EPISEL. And as we had mentioned, you know, with the launch of next, we were adding 6 additional only reps to start and that has sort of remained the same. And so, you know, the majority of those reps have already been hired in our out in the field. So we're kind of excited, obviously, to have a bigger footprint and reach more centers as we move forward throughout the rest of the year.
spk01: Okay, great. And then, um. Could you talk about Macy a little bit as far as geographies or centers, utility number of docs, surgeons that have been trained out there? Any kind of big picture snapshots worth calling out?
spk02: Yeah, I think, you know, building on sort of our metrics from last year where we said we had about 2,000 biopsying surgeons out of our 5,000 targets, you know, obviously we had a lot of strength in the first quarter where we had the highest ever biopsying surgeons. And again, that's pretty meaningful in the first quarter where historically you'd seen a bit of a step down from the fourth quarter into the first quarter. So we're really, you know, quite frankly encouraged and quite excited about sort of the continued increase in surgeon engagement in terms of surgeons. So And in terms of, you know, geographies, you know, our Salesforce, we expanded to 76 reps back in 2020. You know, we feel at this point that those are obviously much more manageable territories for the reps. You know, as we look forward, we don't think we need to sort of realign territories to add additional resources yet. But we're certainly open to doing different things like, you know, piloting, you know, support reps and some of the higher volume territories and so on to make sure that, you know, we have adequate coverage of cases and so on.
spk01: Okay, got it. And then lastly, for us, any commentary about The FDA and what perhaps in a trial relative to the ankle may look like as far as number of patients and any endpoints. How are you thinking about running the trial or how might the agency be thinking about running a trial?
spk02: Yeah, well, as I mentioned, we, you know, we did have an initial pre-IND meeting with the FDA on our planned program. And there's a little preclinical work element to it. And then there's, you know, a clinical study. And I think it's safe to say we're kind of generally aligned at this point on that. And we've always said that unlike Macy arthroscopic where, you know, we're very pleased to sort of have gained alignment with the FDA on simply a human factor study as opposed to a clinical study. You know, for Macy in the ankle, it would be more like the summit study for Macy in the knee, where it was, you know, in that case, about 150 patients, probably maybe closer to 200 for the ankle program. And, you know, that would be our operating assumption at this point. And, you know, we'll continue to update investors on it as we continue to refine timelines and program details.
spk01: Super. Thanks for taking our questions, and congrats on the quarter. Thanks, Jeff.
spk02: Thank you.
spk03: Thank you. One moment for our next question. And that will come from the line of George Sellers with Stevens. Your line is open.
spk00: Hey, good morning, and thanks for taking the question. Congrats on a great quarter. Maybe to dig in a little bit more on that first quarter biopsy number, what are some of the dynamics that are driving that? Is it primarily, you know, market staying strong here in the first quarter, or are you seeing physicians getting more comfortable with the procedure, or is there some positive reimbursement change? You know, what's kind of driving that elevated biopsy number here in the first quarter?
spk02: Well, I would say that, you know, as Joe alluded to that, you know, we definitely have seen sort of improvements in the market, and obviously that wins and just higher patient flow, things like that. So that's obviously as there's more traffic in these surgeons' offices, you know, that obviously is a contributor as well. I'd say, you know, there's also just a continued expansion in surgeon engagement around the brand as more, you know, as their practices normalize and sort of more surgeons become aware of Macy, you know, we just have stronger engagement. And that's what, you know, resulted in the highest number of biopsies and surges in any quarter in the first quarter. So we're very encouraged that, you know, as those headwinds abate and our reps are out in force, that we're just kind of continuing to make good, strong progress on surging engagement. No reimbursement sort of changes of note, continued strong approval rates, as we've talked about in the past. And, you know, obviously that's helpful as well.
spk00: Okay, that's helpful. And then maybe to revisit the comments around sales reps, it sounds like they're continuing to drive productivity there. And you mentioned you don't plan to need to add any realigned territories yet, but just curious the timing on that as you think about continued productivity improvements and then the arthroscopic option coming in 2024. You know, what's sort of the timeline for potentially adding additional reps?
spk02: Yeah, well, you know, when we added reps back in 2020, we said, you know, we felt like we were sizing the Salesforce properly for the next two to three years or more, and that we would revisit it a couple years out. Obviously, we had all the disruption of COVID, so that, you know, that kind of influenced, you know, we did take another look and felt like we're comfortable at this point. I think as we look ahead to arthroscopic Macy, as You know, I mentioned earlier when we increased our targets from 3,000 to 5,000 surgeons, we made a corresponding increase in the sales force size. You know, we'll go through that exercise again as we get, you know, closer to next year and a potential launch. And depending on the number of targets we would add from, you know, the predominant or arthroscopic only surgeon pool, that'll dictate sort of whether we need to add reps or not. I don't think it would be anywhere near the same size or percentage expansion that we did in the past, but that's something we'll determine as we move throughout the year.
spk00: Okay. Very helpful. Thank you, and congrats again on a great quarter. Thanks, Jordan.
spk03: Thank you. One moment for our next question. And that will come from the line of Sean Lee with HC Wainwright. Your line is open.
spk05: Good morning, everyone. Congrats on a great quarter, and thanks for taking my questions. My first question was, I was wondering if we could provide a bit more color into the surgeon metrics from MACEI in terms of what are your net surgeon goals, the number of biopsy growth, and as well as the conversion rates?
spk04: Yeah, so good morning. This is Joe, so thanks for the question. you know, I guess the way I would kind of frame it is probably more similar to what we talked about, you know, on a call and some of the questions, which is, you know, earlier in the year, it's probably hard to look at kind of absolute, you know, percentage growth and whatnot, particularly on the surgeons. But, you know, I think that kind of point that we've had the highest number of surgeons biopsying in any quarter is kind of sort of speaks for itself. So clearly that is, you know, a significant number. And then in terms of the biopsy, growth, again, we're a quarter into the year, but I think what's important and what's really been driving, particularly the first quarter results on the revenue side, which were quite strong, is I would say kind of an acceleration of that biopsy growth that started toward the end of last year and certainly has continued into Q1. So I think we're encouraged by the engagement and the number of surgeons being kind of at its highest point in a quarter. but also I would say the accelerating growth on the biopsies, which we think, you know, certainly drives the first quarter, but also positions as well for the remainder of the year.
spk05: Great. Thanks for that. My last question is on the manufacturing side. I was wondering whether the new manufacturing facility is still on track for 2025, I believe, is what your last guidance called for.
spk02: Yeah, so the new facility in Burlington is on track with our prior timelines and, you know, we would expect that, you know, The office space will be done earlier and, you know, obviously manufacturing space needs to go through the FDA approval process. So, you know, it could very well be a staged move where the office portion of the company kind of moves up there maybe late next year. And then commercial manufacturing, you know, we would expect to begin in Q1 2020.
spk05: Great. That's all I have, and thanks again for taking my questions.
spk02: Okay. Thank you very much.
spk03: I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Nicolangelo for any closing remarks.
spk02: Okay. Well, thank you, operator, and thanks to everyone for your questions and your continued interest in VeriCell. You know, obviously, the company executed well in the first quarter and had a great start to the year. We expect to deliver another year of strong financial and operating results in 2023, and we look forward to providing further updates on our next call. So thanks again, and have a great day.
spk03: Thank you all for participating. This concludes today's program. You may now disconnect.

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