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.