Vericel Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the VeriCell's third 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 will now turn the conference call over to Eric Burns, VeriCell's Vice President of Finance and Investor Relations.

Thank you, Operator, and good morning, everyone. Welcome to VARISO's third quarter, 2023 conference call to discuss our findings, results, and business highlights. Before we begin, let me remind you on today's call, we will be making four looking statements covering the prior Securities Litigation Reform Act of 1995. These statements may involve risks and uncertainties that could cause actual results that are material expectations and describe more fully in our findings of 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 in this call by Verasol's President and Chief Executive Officer, Nick Colangelo, and our Chief Financial Officer, Joe Marr. I will now turn the call over to Nick.

Thank you, Eric, and good morning, everyone. I'll begin today's call by discussing our financial and business highlights for the third quarter, as well as our expectations for the rest of the year. Joe will then provide a more detailed review of our third quarter financial performance and our updated 2023 financial guidance before opening the call to Q&A. The company had another excellent quarter as we delivered strong revenue growth and record third quarter revenue. continued profitability and positive operating cash flow, and achieved significant milestones in the quarter, including securing commercial availability of Nexbrit in the United States, which significantly expands the total addressable market for our burn care franchise, and completing the human factors validation study for the Macy arthroscopic delivery program, which remains on track for commercial launch in the first half of 2024. From a financial perspective, total revenue for the third quarter increased 18% to approximately $45.6 million, which was ahead of our guidance for the quarter. We also continued to generate strong profitability as our gross margin increased compared to last year, and we delivered our 13th straight quarter of positive adjusted earnings and operating cash flow, ending the third quarter with nearly $150 million of cash and investments and no debt. Through the first three quarters of the year, total revenue has grown nearly 20%, and we're raising our full-year revenue guidance for the third time this year. Importantly, as we look toward next year, we believe that we're well-positioned to deliver higher total revenue growth in 2024 based on continued strength in the core Macy business, the anticipated launch of arthroscopic Macy, and accelerated Nexabrid uptake. We also expect further strengthening of our profitability metrics and further expansion of our gross margin and adjusted earnings margin, driven primarily by sustained strong revenue growth. From a commercial perspective, Macy had another strong quarter with record third quarter revenue of $37.6 million, representing sequential quarterly growth over the second quarter and 21% growth compared to the third quarter of 2022. Macy's achieved a sustained high growth trajectory with five consecutive quarters of 20 plus percent revenue growth and 26% growth year to date. Given these results and continued momentum to start the fourth quarter, we're increasing our Macy revenue guidance and now expect more than 20% growth for the full year. We also had a strong quarter with respect to the Macy core growth drivers as we generated record third quarter highs for both Macy biopsies and the number of surgeons taking biopsies. We expect this momentum to continue as we remain on track for another year of double digit growth in surgeons taking Macy biopsies. With respect to our MACI lifecycle management initiatives, we announced this morning that we completed the human factors validation study for the arthroscopic MACI program, and that we remain on track for commercial launch during the first half of next year. As we discussed on our last earnings call, the MACI arthroscopic instrument kit is designed to treat smaller two to four square centimeter defects on the femoral condyles, which represents the largest addressable market opportunity for MACI. This segment consists of about 20,000 patients per year, or approximately a third of the $3 billion addressable market for Macy. Our recent market research indicated that orthopedic surgeons view arthroscopic Macy as a meaningful innovation in the cartilage repair market, and that regardless of their current Macy usage, surgeons expect to shift a meaningful share of their procedures in this segment from alternative products and procedures to the Macy arthroscopic procedures. We believe that the addition of an arthroscopic delivery option represents another significant growth driver for Macy and will positively impact our overall business in the years ahead. Before moving on from Macy, I wanted to address the ongoing commentary regarding the GLP-1 weight loss products and their potential impact on the med tech and other industries. With respect to MACI, we do not expect that GLP-1 or any other weight loss product will have any negative impact on MACI performance. As we've noted previously, MACI patients are typically young, active, and otherwise healthy patients seeking to get back to the physical activities they enjoyed prior to experiencing the debilitating knee pain caused by their cartilage injuries. Typically, MACI patients have relatively lower BMIs. The average BMI for Macy patients in the summit pivotal study was approximately 26, and the average BMI for Macy patients treated in the U.S. since 2020 is approximately 28, both of which are below the BMI level indicated for use of a GLP-1 product in patients without other weight-related comorbidities. So a typical Macy patient wouldn't even be eligible for treatment with a GLP product. In addition, Typical MACI payer policies require that patients have a BMI of 35 or below to be eligible for treatment with MACI, and we specifically excluded patients with high BMIs from our MACI addressable market of 60,000 patients per year. So to the extent that the use of GLP-1 products allows more patients to be eligible for MACI treatment, these products would actually serve as a tailwind for MACI utilization. Turning to our burn care franchise, we reported a total third quarter revenue of approximately $8 million. Epizel had a solid quarter with revenue in line with our expectations for the quarter. Average grafts per patient remained strong in the third quarter, although a slightly lower proportion of biopsy patients moved on to treatment with Epizel due to patient health-related issues. With respect to Nexibrin, We're very pleased to have worked successfully with the FDA to ensure that this important product is now commercially available to treat severe burn patients in the US. Nexibrid launch activities are well underway, with the first patients treated soon after the product became available in the US. Our commercial and medical teams continue to focus on supporting P&T committee approvals to enable burn center access to Nexibrid, training burn surgeons and their staff and supporting initial cases at burn centers that are treating their first patients. While year-to-date P&T committee submissions at our target centers remain on track despite the manufacturing-related delay, uncertainty around the ultimate timing of product availability did cause a number of centers to defer or delay Nexabrid training and P&T committee approval processes. As such, we've been focused on restarting these activities in the fourth quarter and reestablishing the strong momentum that we had ahead of the planned launch in June. Although we expect this to have some impact over the first few months of launch, Nexabrid already has gained P&T Committee approval and a number of additional hospitals over the past month. Based on the continued enthusiasm for Nexabrid in the burn care community, we believe that Nexabrid will be well positioned for a very strong year in 2024 and will make a significant contribution to our revenue growth next year. enabling our burn care franchise to become a second high growth franchise for the company in 2024 and beyond. I'll now turn the call over to Joe to discuss our third quarter financial results and our updated financial guidance.

Thanks, Nick, and good morning, everyone. Starting with the income statement, total net revenue for the quarter was $45.6 million. It was comprised of $37.6 million of Macy revenue, 7.4 million of epiCell revenue and 0.6 million of initial stocking revenue for Nexabrid. Total revenue grew 18% in the third quarter and has increased 19% on a year-to-date basis, representing a significant acceleration in total revenue growth for the company versus the prior year. For Macy, third quarter revenue grew 21% versus the prior year, and through three quarters of the year, Macy revenue increased 26% versus the same period last year, as it has resumed its high growth profile, with now five consecutive quarters of 20-plus percent growth. Total burn care revenue is $8 million in the third quarter, which increased versus the prior year for the second consecutive quarter, with a meaningful contribution from Nexibrid in Q3. Gross profit for the quarter was $30.6 million, or 67% of net revenue, which increased compared to both the prior quarter and the prior year. For three quarters of the year, our gross margin was 66%, an increase of approximately 160 basis points compared to 2022. In addition, for the second consecutive quarter, the revenue growth pull-through to gross margin was approximately 80% as we continue to see the expansion of our key profitability metrics. Total operating expenses for the quarter were $35.7 million, compared to $32 million for the same period in 2022. The increase in operating expenses is primarily due to higher sales and marketing expenses and research and development program costs. Net loss for the quarter was $3.7 million, or $0.08 per share, compared to $6.6 million, or $0.14 per share, for the third quarter of 2022. Non-GAAP adjusted EBITDA for the quarter was $5.4 million, which grew 64% versus the prior year. And importantly, we have now generated positive adjusted EBITDA each quarter for more than three years. The company generated approximately $7.2 million of operating cash flow in the quarter and ended Q3 with approximately $149 million in cash, restricted cash and investments, and no debt. Turning to our financial guidance, based on the strong results through the first three quarters of the year and our outlook for Q4, we are increasing our full year total revenue guidance for 2023 to 192.5 to 197.5 million, an increase compared to our prior guidance of 190 to 197 million. This represents the third time this year that we are raising our total revenue guidance driven by increased revenue expectations for both of our franchises. Starting with Macy, we now expect full year revenue of $160 to $164 million, with growth in the low 20% range for the full year, an increase versus our prior guidance of $159 to $163 million. Macy results were ahead of our prior guidance for the third quarter, And our updated Q4 guidance of approximately $54 million at the midpoint also represents an increase versus our prior guidance for the fourth quarter. Overall, this Macy outlook represents a significant increase versus prior year growth rates and our initial expectations to start the year. For burn care, which includes both EpiCell and Nexibrid, this is our first opportunity to update our burn care revenue guidance since Nexabrid became commercially available in late September. As a reminder, our prior guidance assumed that Nexabrid would not be available until 2024, and under that scenario, we assumed that we would recognize approximately 1 million of BARDA-related revenue in Q4 of this year. With the commercial availability of Nexabrid in the U.S., we now anticipate only commercial revenue and we do not expect any BARDA procurement revenue this year, a change from our prior guidance. We now expect full-year burn care revenue of $32.5 to $33.5 million versus our prior guidance of $31 to $34 million. This updated guidance represents an increase in burn care revenue of $0.5 million at the midpoint, even after removing the $1 million of BARDA-related revenue for Nexabriss. With this updated guidance, the midpoint represents approximately $8.5 million of burn care revenue in the fourth quarter. We are also 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 the full year. Overall, we are very pleased with our third quarter performance and encouraged by the start to the fourth quarter. As we look toward 2024, we anticipate a higher total company revenue growth rate with continued strong execution on our core products, as well as the anticipated contributions of Arthroscopic Macy and Nexabrid. In addition, we expect to significantly enhance our P&L profile in 2024 with anticipated increases in both gross margin and adjusted EBITDA margin next year. This now concludes our prepared remarks. We will open up the call to your questions.

In order to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. And your first question comes from the line of Ryan Zimmerman with BTIG. Your line is now open.

Hey, guys. Nice quarter. Thanks for taking our questions. I'll ask both my questions up front. Nick, if you can just elaborate a little bit. You talked a little bit about kind of the cadence and kind of commercialization of NexaBrid, you know, for the end of the year and then into next year. But I'm just kind of wondering if you can elaborate a little bit on kind of how you're thinking about you know, you've got some stocking revenue, I think the third quarter, you know, how you're thinking about kind of revenue, fourth quarter, and then just, you know, the pace at which you're getting through some of these P&T committees to help us kind of think about sales for next year. And then I have a follow-up on the cartilage side.

Yeah, thanks, Ryan. So appreciate the question. So I'll start, and Joe can add some commentary as well in terms of how we're thinking about next year. But You know, I would just start by saying that, first of all, you know, fantastic work by our, you know, cross-functional team to be able to work with the FDA to secure commercial availability in the U.S. You know, that doesn't happen by accident, and it was just a tremendous accomplishment for the team to be able to do that. You know, our original assumption was that product would be available from MediWound at the end of June, and obviously all of our pre-commercial activities were geared to that launch date. And, you know, our activities essentially include training the burn centers and identifying and gaining commitment from surgeons to kind of shepherd the product through the P&T committee approval process. And then of course, providing materials for surgeons to be able to do that. So, you know, we certainly had a lot of momentum as we were moving towards that June date when we had sort of the manufacturing-related delay. You know, obviously, we continued with our activities, but, you know, not surprisingly, burn centers, as I mentioned, you know, Some of them delayed or deferred sort of the P&T committee process or sort of postponed training until there was clarity around product availability. So obviously, last week of September, product became available. You know, we restarted those efforts in earnest. And as I mentioned on the call, you know, we've secured a number of P&T committee approvals since that time. And I would say from our sort of goals, the things that we control, which again includes identifying those champions, gaining commitment from them, and then doing the P&T committee submissions through October, we're actually ahead of our commercial plan in that regard. So our team has done a good job in terms of kind of getting to where we need to be on our 90 target burn centers that we are initially focused on. And so I think the cadence essentially places us in October and early November where we originally planned to have been in July and early August. And so it kind of pushed it out a little bit, obviously. And just to finish up at that time, we had said, you know, we would expect sort of the meaningful portion of Nexabert revenue coming in the back half of the year as those activities continue to unfold. And, you know, so that's what we said we think will be pretty well positioned for 2024 going forward.

Yeah, very helpful.

Oh, please, Joe. Yeah, please, sorry.

Yeah, just to add, I think Nick kind of hit the key points in terms of how we're thinking about Nexabrid, but just maybe to frame that a bit on kind of your question on cadence, you know, and just maybe transitioning from Q4 to next year. So, you know, for this year, you know, we raised guidance kind of on both franchises. You know, I think it's important to understand kind of the exit rate, which I think is part of your question on the burn care side. So, you know, as Nick talked about, You know, we're in a different place than we were last quarter, you know, in Q4 and now in the back half of the year with Nexibrids. So, you know, our prior guidance, again, assumed commercial availability wouldn't happen until 2024, and that had assumed the barter revenue. So as you're thinking about 2023, it's important to remember that that million of barter revenue comes out, and it's essentially replaced by the commercial revenue that comes back in on Nexibrids in the back, and really the last quarter. And so I think as you think about the last quarter of the year, you know, for Nexabrid and kind of the revenue and the cadence in the next year, you know, essentially for, you know, the way we look at it, it's really been launched in Q4, given that, you know, this was announced in late September. There was some stocking revenue in Q3, but, you know, that's really kind of the end of the month. And by the time it gets, you know, from kind of our 3PL, the specialty distributors, the hospitals, and ultimately the patients, and given those activities are restarting, you know, we really think about kind of Q3 and Q4 in total. So I would say kind of the way we're thinking about it is, you know, we're probably kind of in the range of about a $1 million number as we think about Q3 and Q4 collectively. And that's probably how we think about an exit rate into next year. So I'd get you to Q4, kind of a similar revenue range as Q3. And again, just to reiterate what Nick said, as we move into next year, you know, to start the year, we assume the mid-year launch and really the vast majority of our revenue would have been in the second half of the year. So if you kind of think about where we are now, I mean, that's very much in line with, I think, expectations, you know, really for essentially one quarter. And I think sets us up really well for 2024. You know, in terms of 24, you know, obviously we would expect to, you know, as we get into the year to start to see that number start to increase. And, you know, we're not given specific guidance for for NexaBridge at this point. But, you know, as we talked about company level growth at a higher level, certainly that, you know, the NexaBridge growth is going to drive, we think the burn care to be kind of high growth as a franchise. So we do think that'll be a significant driver. And then lastly, just, you know, on NexaBridge, because I think it's important, you know, as just that kind of maybe help how to think about it from an investor and analyst perspective. You know, when we think about the uptake on Nexabraid over the next few quarters and the framework, you know, it really is kind of comes down to a couple of key aspects. So one, you know, we think about the burn center adoption. So, you know, as a reminder, we're targeting about 90 of the 140 centers to start, and we would expect that would increase during the year next year, and we'd get a significant portion of those through P&T, and then a meaningful subset of those will actually place orders. And then the second piece is really just thinking about the patient opportunity. So, you know, as a reminder, our TAM's around 30,000 patients on an annual basis. So if you break that down by center, it's probably about 200 patients per year at each center. It's around 15 per month. So ultimately, you know, our adoption, as we think about kind of our cadence next year, is going to come down to how many burn centers and what's the penetration within those centers. So, you know, it's obviously just, you know, just literally a couple weeks or a few weeks in the launch, so it's very early days. But I would expect us to start to give some updates on those metrics as we move into next year.

Okay. Very thorough. Thank you. Just on the accelerated growth next year, I can appreciate a lot of that is coming from NexoBridge, you know, driving the company's overall growth. I just want to be clear about your comments, though, and make sure there's no misinterpretation. You know, you guys are exiting right now, you know, above 20% on Macy. And you have the arthroscopic product coming to market next year. You know, just to be clear, you're not expecting growth next year, specifically within Macy, to accelerate over the 20 plus percent that you're seeing this year.

Yeah. So I think at this point, you know, all we've talked about is total company growth. Yeah. Just to sort of reiterate and clarify. So we're saying, you know, if you look at our guidance this year, you know, we're kind of just under that 20% range. You know, we think, you know, based on kind of the momentum we have, and then the additions on next to bring an arthroscopic Macy, we can be at, you know, that 20% plus as a company next year. You know, I will say on Macy, as we've kind of talked about, you know, we've had a ton of momentum this year and kind of the key indicators. You know, I think as we think about the framework for next year, it's probably pretty similar. As we think about core Macy, the surge in growth continues to be strong. Biopsies kind of layer in price. So I think we're set up for another solid, you know, strong year on Macy. And then kind of on the arthro piece, you know, as we talked about, we anticipate, you know, a first half launch. You know, probably more likely Q2 is a better place to start. So, you know, and I would also say kind of given the sales cycle component on Macy, you you know, by the time you start seeing kind of biopsies and the ARTHRO usage, you know, you're probably looking at kind of later in the year or Q4. Now, all that being said, you know, we expect another very strong year in Macy, but we're not giving specific growth rates. It's at the company level, just to answer your question.

Yeah. No, I appreciate that, Joe. I wanted to make sure it was clarified. Thank you. Thanks for taking the questions, guys.

Thanks, Ryan.

And one moment for the next question. Your next question comes from the line of Mike Kratky with Lyric Partners. Your line is now open.

Hi, everyone. Thanks for taking our question. I guess first, just on the manufacturing standpoint on Nexabrid, can you provide any additional color on your expectations of supply continuity for that product amid some of the recent geopolitical concerns that have emerged since the start of 4Q? And then is that part of revenue? I mean, should we be baking that in for the start of 2024? And then I have a separate follow up on Macy.

Yeah, so I'll start it, Mike. Thanks. So, you know, obviously we have been monitoring the ongoing war in Israel. and been in close contact with Medwoon. You know, at this time, obviously, manufacturing operations continue, and we've actually received deliveries during October, you know, after this situation began. So, you know, for the time being, we – the supply –

issues are under control and we continue to receive product but obviously we're going to continue to monitor this yeah just on the barter piece i would say you know again we don't expect that in q4 as i talked about given the priorities now commercial product you know i would not bake that into next year that's not our assumption you know bark the stockpile is starting to expire so you know at some point it you know it makes some may make some sense to replenish but

i think we'll get more visibility as we get into the next year but at this point you know i would not take that into our assumptions got it really helpful and then just on the macy's side just wanted to clarify in terms of your preliminary revenue growth dynamic comments for 2024 so is it fair to say that that does consider some additional contribution from the arthroscopic macy's side

Yeah, no, it definitely does. I think we're just, you know, when I was talking to the Macy components, you know, we think of kind of like core growth drivers that extend into this year based on what the business is doing this year. And then with a launch around mid-year, you know, it's probably more like Q2. We're just saying with the sales cycle, it'll probably take, it'll really be the back half until arthroscopic Macy starts contributing. But we certainly do expect it to have an impact in 2024. Perfect. Thanks very much.

Thanks, Mike. Thank you.

And one more for the next question. Your next question comes from the line of Jeff Cohen with Latin for common. Your line is now open.

Hi, Nick and Joe. How are you? Morning. Thanks for taking our questions. Um, Could you talk a little bit about the instrument kit for arthroscopic maceo as far as what will be in an assembly manufacturing delivery of those kits? And then maybe talk about the surgeon audience itself and the opportunity for opening up additional surgeons and centers based upon the approaches.

Yeah, thanks, Jeff. I'll take it. So, you know, first of all, the kit, you know, those instruments that, you know, you can see on our website are disposable instruments that will be made available to surgeons. You know, we obviously have an implant kit currently that is used. And so, you know, over time, you know, the idea would be to try to integrate all of the instruments, whether it's an open or an arthro procedure. So, you know, that's relatively straightforward. And, you know, I think the team's done a great job in designing a set of instruments that are really appealing to those surgeons. In terms of opening up additional surgeons, as we've talked about in the past, we currently have about 5,000 surgeons that we target, and that was based on our Salesforce sizing exercise and targeting exercise we did back a few years ago. where we were able to acquire CPT code data on cartilage repair procedures and open procedures and obviously find the intersection of high-volume cartilage repair surgeons that did open procedures. We know there's, you know, a segment of essentially arthroscopic-only surgeons out there. At the time, we had data on about 5,000 surgeons that, you know, did, that had, you know, cartilage repair activity, but we didn't have open procedure data on it. There's probably half of those that fall into a category of doing high volumes of cartilage repair. And, you know, the commercial team is actually doing this exercise now to identify, you know, how many of those call it 2,500 high volume, no open data surgeons, you know, should become targets for us. So we haven't locked in on a number yet. You know, my guess is it's probably 1,000 to 2,000 new targets that we will be calling on. And just as a reminder, you know, the market research said that both surgeons that currently utilize Macy would expect to do more procedures or shift procedures to arthroscopic Macy. And then, of course, the other component is surgeons that do arthroscopic procedures not currently using Macy would be the other part of that growth opportunity for us.

Okay, thanks. And then one more quick one. Joe, could you comment? We're not looking for guidance on margins, but you did have a nice speech.

in q3 any commentary on some of the overall inflationary pressures have they diminished to a certain degree yeah and i would just say i mean we're obviously um you know we're kind of focused on that on that gross margin and the margin expansion so you know certainly kind of be at the higher revenue growth i think kind of helps us you know we're seeing higher margins we're seeing higher pull through you know so you know i don't think certainly a lot of that's kind of baked in already and i think we're just trying to manage kind of margins effectively. So, you know, nothing new to call out that's adding additional pressure. I just think, you know, there's a focus right now from a team perspective to, you know, do what we can to grow the top line, but also enhance those margins, you know, this year and into next year, as we talked about in the prepared remarks.

Got it. Thanks for taking our questions. Thank you.

One moment for the next question. And your next question comes from the line of Samuel Rudofsky with Truist Securities. Your line is now open.

Hey, guys. Thanks for taking the questions. Just to start off, just want to ask a clarifying one on NexoBread. With the presumed contribution in 4Qs, that's still largely expected to be stocking revenue. And one, how long do you think stocking can be a driver of revenue and when should we think about sort of procedural revenue taking over. That's that first half 24 comment, you think?

Yeah. So, you know, I think as Joe mentioned, we're kind of, you know, product was shipped from our cardinal, our 3PL, to the specialty distributors the last couple of days of the quarter. So, it's essentially one quarter of, you know, activity in this year. the stocking you know essentially is done once once that initial stocking happened right they think about sort of obviously there's kind of three main distributors they have different locations they think about sort of you know sort of uptake at hospitals and and so i'd say we're kind of through that phase And now it's really just, as Joe mentioned, kind of getting through, getting the P&T committee approvals, getting the initial orders, getting initial patients treated. That then turns into reorders. And that's how we build our model going forward. So I'd say, again, as we ramp up through the fourth quarter and get these hospitals on board, we'll start to see some initial utilization revenue. And then that kind of feeds into Q4 and the uptake that we were talking about.

Okay, that's helpful, thanks. And then on Arthur's topic, should we be thinking about any price component in terms of that adding to revenue growth next year?

Yeah, I'd say, you know, from, again, you know, the main component of our revenue on Macy's is really the implant itself, right? And so, you know, we've, you know, taken typical price increases as we've talked about, you know, each year and we would expect to do that again next year. I think having an innovative instrument set will help shape sort of the price increase that we would take. And then, you know, we're still sort of in the process of, you know, determining sort of, you know, instrument revenue opportunities as well. That obviously would be like our biopsies kits currently where it contributes a little bit of revenue, but is not kind of the main driver for the Macy business.

Got it. So then just, I guess, I know it's early days here, but As we think about Macy over sort of the medium term, what will be a reasonable expectation for the mix between the traditional sort of open versus arthroscopic revenue mix or implant mix is maybe the better way to frame it over the next few years here?

Yeah, that is a good question, and you're right, it is early days. I think it's important, as Joe mentioned, that assuming a Q2 launch, And given the revenue cycle one, you know, the initial question is going to be, you know, do surgeons kind of look at it prospectively? You know, and maybe I'll take a step back. As we said earlier, You know, we expected to complete the human factor study in the third quarter and great job by the team getting that done. We expect, as we said publicly, to to submit the prior approval supplement by the end of the year. That's typically, you know, by statute, a six month review period, although they try to get them done within, you know, in a shorter period of time. So that's what kind of gets you to sort of the later latter portion of the first half of the year for anticipated approval and launch. You know, the first question will be, do surgeons kind of look at it prospectively? In other words, now the instruments are available. As patients come in, I'm going to identify patients with, you know, two to four square centimeter defects on the femoral condyles, and then you're kind of into the you know typical sort of revenue cycle that and you know when you go from biopsy timing for going from uh biopsies to implants which again kind of points you towards the back half of the year and when we think you know macy arthroscopic could could start contributing as you move out um into the sort of midterm years you know i think it will still, it's to be determined kind of exactly what that mix looks like. You know, if you looked at sort of the addressable market, as we mentioned, a third of the defects fall into that sort of arthroscopic eligible category. And, you know, the rest, you know, kind of fall into sort of the more of the open opportunities, be it patella defects or larger defects, et cetera. So, you know, I think that sort of puts some bounds around what you might think over time it could end up being.

Thanks for taking the questions. Thank you.

One moment for the next question. Your next question comes from the line of George Sellers with Steven Cienk. Your line is now open.

Good morning. Thanks for taking the question and congrats on the quarter. Maybe sticking with a question on the arthroscopic delivery option, you touched on some of the regulatory timeline pieces. I'm just curious from a commercialization perspective, You touched on some of the arthroscopic-only surgeons, maybe 1,000 to 2,000 target range. Would that imply a few extra sales reps need to be hired, or how should we think about some of the commercial investments ahead of launching that arthroscopic delivery option?

Yeah, just from kind of a headcount perspective, we would anticipate adding a relatively small number of support reps and specialists to kind of support the rollout. But again, nothing that sort of would change kind of the margin profile that Joe has been alluding to. So sort of like when we expanded our burn care franchise to support the launch of Mexibrin,

you know somewhere kind of in in a similar range half a dozen to call it a dozen folks over the course of the year okay that that's really helpful and then maybe switch into that burn care franchise i know it's still uh very early days with the next hybrid rollout but um could you just give us any any color on maybe some initial indications of what the the cross-selling opportunity or the pull through of epicell

uh might look like yeah you know we mentioned on even the second quarter call uh once we had the initial group of Nexibrid only reps in place, you know, that we had actually received biopsies and orders from, you know, what we kind of refer to as dormant or naive epi-cell centers. Because again, we have Nexibrid reps in there talking not only about Nexibrid, but epi-cell as well. And that continued into the third quarter. You know, as you noted, it's early days. You know, we did kind of fill our remaining couple of next hybrid positions recently once product availability was clarified. And so, you know, we really haven't had the full force out there yet, so I think time will tell. But there's absolutely no doubt, you know, that part of our strategy was, you know, in having a larger footprint and both George Malavasic, You know the episode only initially. George Malavasic, And then the next word reps they're going to be talking about both products and we would absolutely expect that that pull through would continue.

George Malavasic, Okay that's really helpful Thank you all again for the time. George Malavasic, Okay, thanks George.

One moment for the next question. And your next question comes from the line of Arthur Hay with HCW. Your line is now open.

Hey, good morning, Nick and Joe. This is Arthur on 4RK. Congrats on another strong quarter. Most of my questions have been asked. Just a quick one on Macy. When we're looking beyond the arthroscope, how could you give us more color on the Ming Lei, Ph.D.: : Future new productive Robin in in the ankle for me see in the is there any more color on the exact timing for studying the study.

Yeah, thanks. So, you know, as we talked about previously, you know, we think obviously the Macy ankle opportunity is kind of the, you know, as you paint sort of the long-term vision, you know, strength in our core current indication layer on arthroscopic Macy kind of mid-decade. And then, you know, a potential ankle indication towards the end of the decade. And, you know, just gives Macy a really, really long runway with, you know, no near-term competition. So we're pretty excited about that opportunity. The initial steps there, as I've mentioned previously, is that there is some preclinical work that needs to be done. But, you know, that work is ongoing. And We'd expect that potentially towards the end of 2024, we may be in a position after discussions with the FDA to initiate that study or sometime in early 2025. Great.

Thanks for thinking of my question.

Okay. Thank you.

And we have no further questions at this time. I will now turn the call back over to Nick Colangelo.

Okay, well, thank you very much and in just in closing, you know just wanted to kind of reiterate that, at this point, you know the company continues to operate at a very high level across the entire business and. As we've delivered strong financial results and achieve significant milestones throughout 2023. So we believe we're very well positioned for a strong close to the year and an even stronger year in 2024. From a revenue perspective, as we mentioned, total revenues grow nearly 20% through the first three quarters of the year. We expect total revenue growth to increase in 2024 based on continued strength in our core products, as well as the anticipated contributions of Arthro Macy and Nexabrid. From a profitability perspective, we've delivered sustained positive adjusted earnings and operating cash flow each quarter for more than three years. And we expect further strengthening of our profitability metrics and margin expansion in 2024, driven by sustained high revenue growth. And obviously, we're starting from a very strong financial position with $150 million in cash and investments and no debt. So overall, really excited to deliver a strong finish to the year and look forward to continuing our momentum in 2024 as we as a company remain focused on continuing to deliver on our long-term strategy to bring innovative products to even more patients and drive significant growth and profitability in the years ahead. So look forward to providing further updates on our next call. Thanks again and have a great day.

This concludes today's conference call. Thank you for your participation. You may now disconnect.