Vericel Corporation

Good day and thank you for standing by. Welcome to the VeriCell Corporation fourth quarter 2024 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Eric Burns, Vice President of Finance and Investor Relations. Please go ahead.

Thank you, Operator, and good morning, everyone. Joining me on today's call are Verasol's President and Chief Exec. Officer Nick Colangelo and our Chief Finance Officer Joe Marks. Before we begin, let me remind you that on today's call we will be making four 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 defer materially some expectations and are described more fully in our columns of the SEC. In addition, all forward-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 and a short presentation with highlights from today's call are available in the investor relations section of our website. I'll now turn the call over to Nick.

Thank you, Eric, and good morning, everyone. As highlighted in our preliminary results released last month, the company delivered outstanding financial and business results in 2024, generating top-tier revenue growth and even higher profitability growth, along with significant operating cash flow. The company also achieved several key business objectives for the year, including FDA approval and commercial launch of Macy Arthro, approval of a pediatric indication for Nexibrid, and completing construction of our new corporate headquarters and manufacturing facility, which will support the company's continued growth in the years ahead. From a financial perspective, total revenue was more than $237 million as the company delivered another year of 20% total revenue growth, as well as growth at 20% or more for both the Macy and Burncare franchises. The company also delivered significant profit growth in operating cash flow. As adjusted EBITDA increased to over $50 million, the company achieved GAAP profitability for the year, and operating cash flow increased to nearly $60 million. For the fourth quarter, the company delivered record quarterly revenue of over $75 million, as well as record profitability, highlighted by gross margin of 78%, adjusted EBITDA margin of 40%, and net income of nearly $20 million. Macy had a very strong close to the year, with record fourth quarter revenue of more than $68 million, representing 21% growth versus the prior year, and 53% sequential growth versus the third quarter. Macy's fourth quarter performance was driven by strong underlying fundamentals as we had the highest number of Macy implants, implanting surgeons, surgeons taking biopsies, and biopsies in any quarter since launch. For the full year, Macy's results were driven by strength in its key growth drivers, including growth in biopsy surgeons and biopsies per surgeon, as well as a slight uptick in the overall biopsy conversion rate. Based on these results, Macy sales rep productivity increased significantly to $2.6 million per rep in 2024, as our commercial team continues to execute at a very high level. The strength of these key growth drivers, together with another quarter of significant increases in the number of peer-to-peer programs and attendance at those programs, which are at the highest level at any time since launch, demonstrates that surge in interest in Macy remains extremely high. In addition, as I'll cover following Joe's comments, several key performance indicators for the Macy-Arthro launch have been very strong to date, providing significant momentum for Macy-Arthro to begin the year. We also developed BurnCare into a second high-growth franchise in 2024, with full-year revenue increasing 22% to approximately $40 million. In the fourth quarter, although we had more epi-cell biopsies compared to the third quarter, EpiCell revenue was below recent run rates due to a lower number of patient treatments as a result of patient health issues and fewer grafts per patient. While EpiCell quarterly results can be variable given the relatively small patient population and the critical nature of their injuries, overall demand for EpiCell was strong in 2024 as EpiCell revenue grew 16% for the year and we generated business in several dormant accounts as a result of our expanded burn care sales force. Nexabrid ended the year with strengthening underlying demand, as hospital orders in the fourth quarter increased 42% versus the third quarter, a strong leading indicator of continued adoption of Nexabrid. Overall, the company executed very well in 2024, and we expect continued high revenue and profitability growth as well as an inflection in cash generation as we move into 2025 and beyond. I'll now turn the call over to Joe to provide a more detailed review of our financial results in guidance for 2025.

Thanks, Nick, and good morning, everyone. As Nick referenced, VeriCell had an outstanding year in 2024 and closed out the year with very strong financial performance across the P&L. The company's substantial revenue growth translated into significant margin expansion, with both gross margin and adjusted EBITDA margin ahead of our guidance for the quarter and the full year. Revenue was in line with our preannounced financial results, and gross margin, net income, and adjusted EBITDA results were even stronger, all coming in ahead of our preliminary financial results. Total net revenue for the year increased 20%, to 237.2 million, driven by high growth for both of our franchises, with record fourth quarter revenue of 75.4 million. Macy revenue increased 20% to 197.3 million for the year, and fourth quarter revenue was 68.3 million, growing 21% versus the prior year and 53% sequentially over the third quarter. representing the highest fourth quarter sequential step-up in the last three years. Burn care revenue for the year was $39.9 million, representing 22% growth, and consisted of $36.6 million of FSL revenue and $3.3 million of Nexabrid revenue. In the fourth quarter, burn care revenue was $7 million, with $6 million of FSL revenue and $1 million of Nexabrid revenue. Gross profit for the year was 172.1 million, or 73% of net revenue, an increase of approximately 400 basis points compared to 2023. Full year gross margin was ahead of our prior guidance and 300 basis points higher than our initial guidance of 70% to start the year. For the quarter, gross profit was 58.5 million, or 78% of net revenue, which increased approximately 300 basis points versus the prior year, and represents the highest gross margin for the company in any quarter to date. Total operating expenses for the year were $167.6 million compared to $142 million in 2023. For the quarter, operating expenses were $40 million compared to $35.8 million for the same period in 2023. The increase in operating expenses in 2024 was primarily due to development and commercial launch activities for Macy Arthro, increased headcount and related employee expenses, as well as additional marketing initiatives that helped drive a significant increase in physician engagement across both franchises. From a profitability perspective, the company achieved GAAP profitability for the full year, a key goal coming into the year, with net income of $10.4 million, or 20 cents per share, compared to a net loss of $3.2 million or $0.07 per share in 2023, representing an improvement of over $13 million versus the prior year. In addition, net income for the fourth quarter grew 52% to $19.8 million or $0.38 per share, compared to $13 million or $0.26 per share for the fourth quarter of 2023. And net income was also significantly ahead of our preliminary results announced last month. Non-GAAP adjusted EBITDA for the year grew 58% to $53.4 million, or 23% of net revenue, compared to $33.9 million, or 17% of net revenue in 2023, representing an increase of approximately $20 million versus the prior year. Similar to gross margin, adjusted EBITDA margin for the year was ahead of our most recent guidance of 22%, and 300 basis points ahead of the initial 20% guidance to start the year. For the quarter, adjusted EBITDA grew 34% to $29.9 million, or 40% of net revenue, an increase of over 500 basis points versus the prior year, representing the highest adjusted EBITDA margin for the company in any quarter to date. Importantly, adjusted EBITDA growth of 58% for the full year was more than double the company's top-line revenue growth of 20% as our results continue to demonstrate very strong P&L leverage and a top-tier profitability profile. The company generated operating cash flow of $58.2 million in 2024, ending the year with approximately $167 million in cash, restricted cash and investments and no debt, up from approximately $153 million to start the year as our cash balance increased for the year despite significant CapEx investments in the new facility. Turning to financial guidance for 2025, we are maintaining the full-year guidance announced at the start of the year, with revenue expected to grow 20% to 23%, gross margin of 73% to 74%, and adjusted EBITDA margin of 25% to 26%. In terms of our revenue guidance, we are using a similar framework as was used in 2023 and 2024 for both franchises. For Macy, we expect another strong year of revenue growth, and as a starting point, expect revenue growth similar to 2024 in the low 20% range, with biopsy surge in growth, biopsy growth, and price continuing to serve as the primary Macy growth drivers. While Macy-Arthro cases will contribute to Macy revenue, our initial guidance to start the year does not build in a significant change in Macy's current strong growth trends. For the Burn Care franchise, we expect continued progression of Nexabrid revenue throughout the year with full-year revenue in the high single-digit million range. As a starting point for EpiCell, we expect full-year growth in the high single-digit percentage range. driven primarily by an increase in price. After a very strong close to the year in Q4, we expect main fee revenue in the first quarter to be approximately 45 to 47 million, with a similar quarterly mix of full year revenue as in prior years. For burn care, although epi-cell biopsies in the first quarter currently are ahead of recent quarterly trends, patient treatments and grafts per patient continue to be at the lower end of our typical range, mainly due to patient health issues. As a starting point for the first quarter, we expect burn care revenue will be in the $7 to $8 million range. Moving down the P&L, we expect another year of very strong margin expansion and profitability growth. In terms of the quarterly progression on margins, as is typical, we expect to have the lowest margins of the year in the first quarter and expect to have the highest margins in the fourth quarter. which is our highest revenue quarter of the year. Full-year operating expenses are expected to be approximately 195 million. It is important to note that following the completion of construction of our new facility, operating expenses will now include approximately 10 million of incremental depreciation and other building-related expenses starting in 2025. Excluding these incremental building-related expenses, core operating expenses are expected to increase in the low double-digit percentage range in 2025. Finally, with the vast majority of the spend for the new facility complete, we anticipate a significant decrease in capital expenditures in 2025. We expect approximately 15 to 20 million of capex in the first half of the year, primarily related to the final equipment purchases for the new facility, after which CapEx is expected to return to significantly lower annual run rates in the mid single digit millions with a corresponding inflection in cash generation. In total, this guidance points to continued high revenue growth and further enhancement of the company's top tier profitability profile in 2025, which supports the increased midterm profitability targets that we announced earlier this year of gross margin in the high 70% range and adjusted EBITDA margin in the high 30% range by 2029. I will now turn the call back over to Nick.

Thanks, Joe. The company had a strong year in 2024, and we expect continued strong performance in 2025 and the years ahead. While we're still early in the Macy Arthur launch, we're seeing significant interest and engagement with both previous Macy targets as well as the incremental 2,000 high-volume arthroscopy surgeons that are now part of our 7,000 target surgeon base. Surgeon feedback has been very positive and clearly supports the potential patient benefits noted by surgeons in our market research, as the MACE arthro procedure offers a less invasive treatment option requiring smaller incisions, which may result in less postoperative pain and faster postoperative recovery for patients. In terms of some of the early key performance indicators for the Macy-Arthro launch, we've trained approximately 250 Macy-Arthro surgeons to date, have had Macy implants scheduled or completed from each of our surgeon segments of previous Macy and non-Macy users, have received a meaningful number of biopsies from our new Macy-Arthro only targets, and have had several cases treating smaller defects outside of the femoral condyles. Looking more closely at our trained surgeons, the biopsy growth rate for Macy Arthro trained surgeons to start the year is substantially higher than surgeons that have not been trained, which would be expected to drive a potential increase in their Macy implant activity over time. And importantly, a significant percentage of the trained surgeons are those that historically used Macy primarily for patella defects, suggesting that these surgeons may be considering Macy for a broader patient population that encompasses the largest segment of the Macy addressable market. So overall, we're very pleased with the initial launch progress and continue to believe that Macy-Arthur will have a meaningful impact on overall Macy utilization and potentially bolster its current high growth trajectory. We're also encouraged by the recent positive trends for Nexibrid, with the strong sequential growth in hospital orders in the fourth quarter carrying over into this year as more centers regularly order and use Nexibrid. Importantly, the efficacy and value proposition for Nexibrid remains strong. We have a number of key initiatives this year designed to continue to drive uptake and utilization of Nexibrid in 2025 as more centers become consistent users and we have our larger sales force, which is now cross-trained on both products, in place for the entire year. Similar to the dynamic we saw in 2024, we also expect that our larger burn care footprint with Nexbrid will continue to drive EpiCell usage from new and dormant accounts in 2025. We also continue to advance the Macy ankle development program, and remain on track to submit an IND in the first half of this year and expect to initiate the Phase III clinical study in the second half of the year. With an estimated addressable market of $1 billion, potential Macy ankle indication represents a substantial longer-term growth driver for Macy and would enable the company to expand into other orthopedic markets. Finally, with construction of our new commercial manufacturing facility complete, We've initiated the tech transfer process and remain on track to begin commercial manufacturing for Macy in the new facility next year. This facility is designed to meet both U.S. and global manufacturing requirements, which provides strategic flexibility for the company to potentially commercialize Macy outside the United States. We've recently initiated an evaluation of the market opportunities and regulatory requirements in several OUS geographies, as we continue to expand the long-term growth and value creation opportunities for the company. Overall, we believe we're very well positioned to deliver a unique combination of sustained high revenue and profitability growth in 2025 and the years ahead based on the strength of our core portfolio, the recent launch of Macy Arthro, and the continued progress on other long-term growth initiatives. This concludes our prepared remarks. We'll now open the call to your questions.

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to 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. Our first question comes from the line of Ryan Zimmerman with BTIG. Your line is now open.

Good morning, and thanks for taking our questions. Congrats on all the progress. I want to start with Macy and guidance for the year, if I could, and talk about it in the context of both the training and the contributions to Macy-Arthur. When we think about the growth for Macy this year, I could be wrong, but it doesn't appear that you're assuming a meaningful contribution from Macy Arthro and the guidance, but when you reconcile that with the training, with the expectations for adoption and a broader customer base, I guess why wouldn't that come through potentially both in the first quarter, which is, by my math, 15% growth, but for the broader year?

Good morning, Ryan. This is Joe. I'll start in this one. Appreciate the question. You know, I'd say from a framework perspective, you know, obviously we reaffirmed the company guidance, you know, and I think we've had a solid framework the last couple of years. And I think to your point, as we think about Macy on a full year basis, our starting point for the year is essentially a very similar year as 2024. So same core growth drivers, you know, think about strong biopsies, continue to expand our surgeons and price. So it's really the core growth drivers in Macy that, you know, that gets you to call it, kind of the low 20% range, you know, something in the high 230s, call it 239, is probably a good starting point. That's about 21% growth. And I think from, you know, from your question, you know, just to comment on that, you know, as Nick mentioned, we are seeing a number of very encouraging indicators on Macy Arthro, you know, including that 250 trained surgeons to date. But I would say to start the year, and importantly, you know, to answer your question, you know, we are not building in at this point, a significant change in the Macy trends into the guidance to start the year. You know, having said that, you know, clearly the indicators have been strong. You know, we think there is an opportunity to potentially outperform on Macy due to Macy Arthro, but again, it's early in the year, and, you know, we're not going to assume that kind of out of the gates. And then from a Q1 perspective... Oh, please, yeah, please, Joe, yeah. Yeah, so just from Macy and Q1 on the question there, so... Yeah, so from a guidance perspective, I think a couple of important pieces to think about as you think about the first quarter. So first off, we're essentially using the same guidance framework we used a year ago in Q1. We were also coming off a very strong fourth quarter, which was around 22%. We guided last year in the mid-teens. We ended up a little bit higher than that on a year-over-year growth basis. This year, kind of a similar dynamics. We're coming off a strong fourth quarter, 21%. you know, our guidance is in a very similar range. It's actually a little bit higher in the midpoint, around that 15%. So first off, you know, we just want to make sure we're consistent and have a similar approach from a year-over-year perspective. You know, the other piece that will have an impact is, you know, we do have one fewer selling day and one fewer day for Macy cases in the quarter. So, you know, for us, that's around 150 basis points. So, you know, if you adjust adjust for that you know you're kind of more in the call it 16 range you know which is which is similar to last year so you know that's kind of how we're thinking about q1 you know we we still think we're set up you know for a strong first half and we think the macy the guidance in general is the right starting point for the year including the way we're thinking about macy arthro okay very helpful very clear um maybe turn to nexo bread uh for for a minute here i mean

You know, you've historically talked, Nick, about kind of the number of, you know, ordering sites, the number of sites on P&T committee, et cetera. We didn't hear that this quarter. What do you think it's going to take to accelerate NexoBrit adoption? And I'm also trying to reconcile the 42% order growth with the fact that, you know, NexoBrit sales just stepped down a hair from Q3 to Q4. and kind of what the expectations are for that franchise in 25?

Yeah, thanks, Ryan. So, you know, the Q4 dynamic, as we've talked about sort of in kind of the early-ish launch phase, is that hospital orders obviously were up 42%. As we've talked about before, we recognize revenue, you know, based on our specialty distributor revenue. purchases from our 3PL Cardinal. And so you can definitely have mismatches as they're managing different inventory levels to end the year. And that's really what ended up happening. So we're really focused on the underlying hospital demand As we mentioned in our prepared remarks, it was a pretty big progression in Q4. You know, we've seen continued momentum as we come into the year, as hospitals begin to become more consistent users, and we expect that to continue. I think Joe, you know, kind of mentioned high single-digit Nexaprid revenue guidance for the year, and, you know, that's a pretty meaningful uptick versus where we we were last year.

Okay. I'll hop back in queue. Thanks for taking the question. Thanks, Ryan.

Thank you. Our next question comes from the line of Mike Kratke with Lyric Partners. Your line is now open.

Hi, everyone. Thanks for taking our question. One thing that stood out, you talked a little bit about the conversion rate. So what factors would you call out that could be responsible for that uptick in the conversion rate? Do you expect to see that continue this year and beyond? And then lastly, is a potential increase in your conversion rate factored into your 2025 guidance in any capacity?

Yeah, so, you know, yeah, so we saw a small uptick for the year, as I mentioned, on the conversion rate. You know, I think we've always said that as our customer base sort of matured, which was the case before we expanded our customer base for Macy Arthro from 5,000 to 7,000 surgeons that you'd likely see a little drift. And, you know, so I think that was primarily the reason for it. As we go forward, you know, again, we're adding a lot more surgeons that were, you know, will be in the customer base with the launch of Macy Arthro. So as Joe mentioned, we really haven't sort of factored a big movement in the conversion rate in our guidance for the year. Again, those are the kinds of things that potentially provide upside. We certainly believe that the hurdle for patients moving forward with surgery with an arthroscopic option potentially could be less. So we're hopeful to see conversion over time, as we've always talked about, increase, but that's not baked into our guidance for the year.

Understood. That's helpful. Thanks. And then if you just want to follow up, you had some helpful commentary on the 250 trained surgeons for Macy-Arthro. Just curious if there's any color you can provide on the utilization that you're seeing from some of the new surgeons not previously trained or using Macy-Arthro. and how we should think about the pace at which they could start to get on board.

Yeah, so as we talked about to finish last year, Q4 obviously is kind of a monster quarter for us and a lot of the activity is really bringing home the cases for Q4. And we were very successful with that. And so from our perspective, the Macy-Arthur launch is really kicking into full gear to start this year. As you know, we're kind of giving you some commentary right now around biopsies because that's sort of a leading indicator for us, right? You know, we did mention that we've seen either cases scheduled or completed from all four of the Macy user and non-user previous segments. So that's obviously very encouraging when you have the trained surgeon biopsy growth outperforming sort of the, you know, the total. That's encouraging. And so I think all these indicators give us a lot of optimism about the potential impact of Macy-Arthur. We are, as you know, given the sort of timelines from biopsies to implants. We're kind of in the early innings here, but just wanted to share some commentary on sort of the early leading indicators and what we've seen with Macy Arthro to date. Got it. Thanks very much.

Thank you. One moment for our next question. Our next question comes from Richard Newiter with Truist Securities. Your line is now open.

Hi, this is Felipe Lamar on for Rich. You guys are making real progress on physicians being trained. I think it was 250 in 2024. Looking at the 2025, can you just give us some color on any incremental physicians being added and expectations for potential like revenue, like incremental revenue growth contributions for 2025? Thank you.

Yeah, so just to be clear, we ended the year with 150 trained surgeons as we talked about it at the JP Morgan conference. And then, you know, as of, you know, now we're up to around 250 surgeons. So good progression, you know, to start the year in 2025. Obviously, our commercial team has a goal that they would like to get to and Um, you know, we would expect over the course of this year, obviously, that, you know, we'll continue to train a meaningful number of surgeons. And as Joe alluded to, we haven't baked in. Obviously, we're, we're already doing Macy, Arthur cases as we talked about, you know, during Q4 and in. And that obviously is continuing into Q1. We have not yet. I mean. The reality is the guidance for the year is already above Macy growth for last year. So, you know, obviously we're maintaining and expecting some increase in the growth rate. But, you know, there's obviously some upside to that if Macy arthro progresses as we hope it will.

Great. And then just on the high signal digit growth guide for EpiCell, I know performance has been a little bit lumpy. So, if you could help us understand the cadence of growth for EpiCell 325, that would be helpful. Thank you.

Yeah. So, you know, from an EpiCell perspective, you know, if you think about the framework, I think, you know, a couple important points. So, last year, You know, obviously there was some quarterly variability, but from a full year perspective, the performance was very strong. You know, we grew 16% on a four year basis. Um, you know, we had a higher share of voice in the market with next to bread. We had, you know, we had an expanded sales force for part of the year. So, you know, a lot of good signs on, on episode in 2024, you know, I think to start the year, we're probably going to be a little bit more, you know, conservative perhaps, or a little bit more of a traditional guide on episode, which is, you know, in that high single digit range. So that probably gets you, you know, kind of around $40 million plus or minus. You know, I think as you think about the framework, one important point I think we had in the prepared remarks as well is, you know, essentially that's, you know, very little volume growth, you know, on a year-over-year basis because we do get some growth from price on EPICEL. That is part of the guidance framework. So, you know, essentially if we can kind of have flat, you know, call it flat volume of a year-to-year basis, that kind of gets us into that, you know, high single-digit range. You know, from a quarterly perspective, you know, I think we can certainly, I think we will certainly still see some variability. We saw that last year, but I think from a framework perspective, as we think about EPICEL, particularly coming off a very strong year, that's, I think, an appropriate starting point for the year this year.

Thank you. One moment for our next question. Our next question comes from Josh Jennings with TD Cohen. Your line is now open.

Hi. Good morning. Joe, Nick and Joe, I wanted to just ask about the LRP kind of margin targets. You put out some gross margin, adjusted EBITDA margin, expectations, suggested attractive expansion trajectory. I was hoping to just... getting better at saying why was now the right time. I think Q4 gave the team a lot of confidence, even more confidence in the margin expansion performance over the next couple of years, but also just maybe help us think in 2026 as you start manufacturing the new facility, if there's any turbulence there in kind of the ramp up to the high 70s gross margins and high 30s adjusted EBITDA margins you guys have put on the table.

Yeah, so good morning, Josh. Thanks for the question. So, you know, I would say, you know, a couple things on kind of increasing our midterm targets. So, you know, if you think about 2024, you know, we started the year with a guidance on gross margin of 70%, and we said from a, you know, call it a midterm perspective, you know, mid to long term, we can kind of get to that 70% plus range. You know, that was the kind of thinking and the midterm assumption a year ago. So, know obviously as we progress throughout the year you know we significantly kind of over performed and outperformed our initial expectation you know got up all the way to 73 on a full year basis so you know we're kind of close to that kind of mid 70 range you know exiting last year and we think we can improve a little bit on it this year so you know i think that is certainly part of kind of you know the reasoning in terms of why we wanted to update that you know start the year this year that that felt like the right time thinking about from the gross margin perspective so If you think about that high 70s, to your point, we were 78% in the fourth quarter, which is an important data point as we think about where this can be in a few years at scale. It's essentially around a point a year from a gross margin perspective. I don't really want to get too far into 26, et cetera, right now because the targets are by the end of the decade, but we will have to incorporate this building into the gross margin, et cetera, in the next couple of years. You know, I think it's, we had quite a bit of expansion last year. We assume it's going to go out this year. You know, what exactly that shape looks like from now to 29, you know, it could vary a little bit as we include the building in 26, for example, but we think, you know, kind of that one point a year and, you know, particularly given if we can maintain that strong top line is, you know, the right assumption on the gross margin side. And then just briefly, it's kind of a similar story on the adjusted EBITDA side, but You know, we kind of started at 20% last year, you know, we ended at 23% on a full year basis. And again, if you look at the fourth quarter, you know, it's a great marker where, you know, we got the 40% adjusted EBITDA margin. So, you know, as we think about that margin, you know, by the end of the decade, as we think about kind of the revenue growth and the opportunity, thinking about, you know, Macy Arthrow, et cetera, you know, we think it's reasonable to assume, you know, call it around three points a year of expansion over the next few years. So, That's kind of how we're thinking about the mid-term targets and why we wanted to make the update to start the year.

Gotcha. Thank you. And I wanted to ask a follow-up on the biopsy bank for Macy and how just thinking about some of the ephemeral condyle lesions that are in that biopsy bank and how that's been sized up. Is that a potential? small driver, at least, of volume growth in 2025, but is also benefiting maybe the commercial effort to go back to the Macy's surgeon base and get them trained up on Macy-Arthro if they're seeing that they have some patients with femoral condyle lesions that are now and potentially now candidates for Macy-Arthro. Thanks for taking the questions.

Yeah, I think, Josh, as you'd expect, our commercial team did a really nice job in advance of launch to kind of take a look back and say, hey, you know, of biopsies that haven't converted to date, you know, which of these patients might be candidates for an arthroscopic administration, provide that list to each of the reps so that they could go have discussions with their surgeon. So, of course, all of that happened and I'd say, you know, there certainly would have been some examples of that even in those early days of the fourth quarter launch where, you know, those cases were done. You know, obviously, the first case was done a couple days after approval and that was an existing femoral condyle case that had planned to be done open and then was shifted over to Macy-Arthro. You know, that actually has happened and, you know, certainly will have contributed to some of those early cases, as I mentioned, and may contribute to cases in 2025 as well.

Great. Thanks a lot, Nick.

Thank you. One moment. Our next question comes from the line of Caitlin Cronin from Canaccord Genuity. Your line is now open.

Morning. Thanks for taking the questions. So just to touch on the Macy Commercial Org, I mean, you just touched on a focus in the early days on existing biopsies for the team. You know, what's the sales team focus and strategy for this year as Arthur ramps? And then just any more color on if you'll conduct a Salesforce sizing exercise for the Macy team this year?

Yeah, so, you know, as I mentioned, to close out Q4, I mean, it's all hands on deck to bring the quarter home. And the team did a really nice job doing that, obviously, with record MESI revenue and sort of all-time highs on all the underlying metrics of biopsies, implants, surgeons, et cetera. So that was obviously a big focus in Q4. you know, national sales meeting in January was all about the Macy-Arthur launch. And so, you know, that's a high priority activity for, you know, the sales force for this year. So I'd say kind of that is in line with what we had kind of expressed earlier that we just expected their efforts to kick off in earnest to start the year. And I think there's a high level of enthusiasm around the Macy-Arthur opportunity. It really doesn't take a lot to significantly move the needle when you think about hundreds of trained surgeons and if each surgeon does even one more implant throughout the year at our price point, it can really have a big effect. So I think everybody in our organization understands that. In terms of kind of the sales force sizing, We last did a meaningful expansion from 49 to 76 territories back in 2020. I think we had said previously that we will be refreshing that analysis along the way in some of the higher volume, more geographically dispersed territories. We have added some junior territory managers to help with the workload, but we will be refreshing that analysis this year You know, it's similar to the playbook that we ran when we expanded essentially every year, you know, from 2017 through 2020. We'll do that analysis, hope to have it wrapped, or we'll have it wrapped up by the middle of the year. And depending what the outcome is of that, you know, if it's more, you know, junior support reps, then that's something you could implement sort of during the year. If it's, you know, a more... meaningful somewhat territory realignment, you know, we would probably do that into 2026 like we did each of the prior expansions because we obviously don't want to disrupt anything in the second half of the year, which is the bigger part of the year for us.

Got it. Makes sense. And then just on the Macy OUS opportunity, you've noted that might start to materialize in 2026 as you move to the new facility. and you begin assessing the opportunities there, what do you currently expect for the cadence of that expansion?

Yeah, I would say, you know, we've kicked off the evaluation this year. You know, the timing would be we would hope to be commercially producing and expect to be Macy in this facility in 2026. I think we've talked previously that we'd expect, you know, there's obviously a regulatory component to it once you decide there might be attractive countries to go into, and so that will take some time. And, you know, this would probably be more of a 2027, 2028 sort of opportunity, but, you know, on a country-by-country basis, and those can move at different time, in different timeframes. It will not be a 2026 launch, I wouldn't expect, but probably 2027 and 2028, as I mentioned. Great, thank you.

Thank you. Thank you. Our next question comes from Mason Carrico with Stevens, Inc. Your line is now open.

Hey, thanks for taking the questions, guys. We saw a post on your starter surgeon training on the arthro technique program. How many of these programs are you guys offering around the country this year? What kind of adoption utilization trends are you seeing after surgeons attend one of these programs? And how soon after do you begin to see them taking biopsies or even scheduling arthro procedures following one of these events?

Yeah, so we have, you know, a number, I think I've mentioned this before, a number of different training events and opportunities. You know, just to take a step back for a minute, just like Macy Open, you know, there are different ways surgeons can be trained. As part of our submission, you know, we had to submit sort of the online training materials so surgeons can simply go online and train on If they choose to do that, they can attend some of these kind of start programs, as you mentioned, which are sort of bigger programs with, you know, call it a dozen or two surgeons at a time. They can, you know, kind of have individual cadaver lab training, or we have synthetic models that can be used as well. So there's a number of different ways surgeons can train. The START program, as you mentioned, is just one of them where we tend to bring surgeons together on the weekends. We'll do several of those during the course of the year, but there'll be a lot of regional and individual trainings as well. I think I mentioned earlier that we certainly think we're off to a good start with 250-ish trained surgeons already. It's pretty early in the year. We'd certainly expect that to increase meaningfully throughout the year and so you know we're trying to make sure that you know it goes without saying that you get the surgeons trained you know they can be taking biopsies even before they're trained right you can expect that some will take biopsies having you know attended a peer-to-peer program and and then maybe get trained later or having seen videos and get trained right before the surgery we see that all the time so there's a a bunch of different sort of ways this happens. You know, and I think what you've seen, as I mentioned earlier, is that there's been a, we've seen already, and it's very early in the year, we're only, you know, through February now, but the biopsies coming from the trained surgeons, the growth rate is significantly greater than those who have not been trained. So I think that gives you some sense of the idea on how quickly they start taking biopsies. And then, of course, it's a patient dynamic of when exactly surgeries get done.

Got it. Okay. And on the potential international expansion of Macy's, could you just give us your thoughts on maybe what initial markets you would be targeting there and what the required commercial infrastructure would look like to support an OUS Macy's business?

Yeah, so just to kind of remind you the, you know, Macy was approved in Europe and bought this business 10 years ago. And, you know, for various reasons, a lot had to do with the fact that the clinical trial, the pivotal study was conducted in Europe, that product, you know, for this study was made here in the US and then shipped over and You know, there would have been some manufacturing facility changes that would have been required to to reintroduce Macy into the market. And so, you know, we weren't going to interrupt our U.S. manufacturing for that. But we did build this facility, you know, with global manufacturing requirements in mind. So there are a number of European countries that we believe will be attractive markets. You know, we do not expect to have to run a clinical study, the pivotal study with for The summit study was already conducted in Europe, so our expectation is that it will be more of a regulatory process. And again, we'll go on a country-by-country basis and look at both the regulatory requirements, reimbursement, market opportunity, et cetera. As another reminder, we did have a nice opinion in the UK that was positive for the product. So there's some good starting foundation points for us to kind of potentially go back into certain countries in Europe. You know, we'll also look at certain countries in South America as well as in Asia Pacific. So it'll be a country-by-country basis and, you know, that's kind of the way that we'll be approaching it. The commercial infrastructure, you know, I think we'll vary on, again, a country-by-country basis. There are certain countries in Europe where patients with these kinds of cartilage injuries are treated more at a small number of centers of excellence. That's something we could think about doing on our own. There may be countries where we might want to use a partner or a distributor, so that will be part of the assessment as well. Got it. Thanks.

Thank you. Thank you. Our next question comes from the line of Jeffrey Cohen with Leidenberg, Bauman & Co, Inc. Your line is now open.

Hi, Nick and Jo. Thanks for taking our questions, and congrats on the Q4 and your readout. So, a couple questions is, I guess, firstly, could you talk about the IND for Macy and Ankle in the back half of this year and give us a sense of perhaps the size of the patient population as well as the sites or locations?

Yeah, so just for the study itself, you know, there's obviously always some preclinical work that needs to be done. We've been working with the FDA over the past, you know, year plus on sort of our plan for the Macy ankle development program. You know, that work is essentially complete and will be, you know, compiled and submitted as part of the IND for the study, which again, we expect in the first half of the year. With that done, we would then expect to initiate the study in the second half of the year. In terms of the patient numbers, there were a couple hundred patients-ish in the summit study. You'd expect something along those lines, probably a little bit more just because these are smaller defects. You want to make sure you power the study appropriately to demonstrate That may see results so but it won't be you know, it'll be within those kinds of parameters that we would Be conducting the study when we look at the summit study took a couple years to enroll There's a two-year follow-up call it roughly 18 months to two years to kind of go through the regulatory process. So I We consider this kind of a 2030-plus opportunity for the company, but again, in the context of really strong core Macy growth currently, Macy Arthro on top of that, in earnest this year and going forward, potential OUS opportunities in the back half of this decade, and then Macy Ankle in 2030 and beyond. We think Macy's really well set up for the next decade,

Got it. And then, second for us, could you talk about the expanded label on Nexibrid? Congrats on that to Pediatrics. Any effect on the size or scope of the commercial organization regarding call points and areas that it may open up?

Well, yeah, if you'll recall, we went, you know, basically to, we expanded to 17 territories. in the middle of last year with all reps kind of selling both products, so that was kind of the ultimate plan that we had in place. So that has already occurred. The pediatric indication, you know, we mentioned at that time there were about 90 Tier 1 and Tier 2 targets. The pediatric indication, you know, there's about 20 pediatric burn centers around the country, so those are obviously on the list now. And there definitely are a handful of centers that are already using the product, as there was a pediatric study that included centers in the U.S. as well. So familiarity with the product even before the approval.

Super. Thanks for taking our questions. Thank you. Thanks, Jeff.

Our next question comes from the line of Swayam Pakula, Ramakant with HCW. Your line is now open.

Thank you. Good morning, Nick and Joe. A couple of quick questions for me. On the Arthro product itself, does that product require separate P&T meetings in the hospitals that are already using MACEI, and is that another hurdle to cross in the commercial cycle?

Yeah, so just to be clear, the drug product and the drug substance is the same for Macy, which has its own J code. And so billed separately, unless the hospital wants to buy and bill. So P&T committee approvals have never been part of the equation for Macy open procedures. You know, there are some institutions that require back committee approval for the instruments that we're now selling for Macy Arthro. You know, these are not, you know, particularly expensive. It's a revenue generator for us. So, you know, there are cases where you have to go through that process, but it really has not been, it's not something that is kind of a hurdle to being able to move forward, you know, with Macy Arthro cases.

Okay. So on the ANCO program, as you're, you know, planning to initiate this IND, would some of the centers that conduct the study be the same centers that are already using MACIE, and would that help in reducing the timeline for enrollment and also running the study as such?

Yeah, certainly there are surgeons in the U.S. who are already doing Macy ankle cases. I mean, there are a number of publications out there. You know, it was a pretty big part of the business in Europe back in the day. And, you know, surgeons who do, we can't promote, obviously, ankle cases at this point. But there certainly are cases that are done, either patient self-pay or, you know, insurance payers that will cover those cases. So, And yes, there are some surgeons that do both ankle and knee procedures. So, you know, those are obvious go-tos as potential sites in the clinical study.

Okay. The last question is on the growth margin and the growth of, I mean, on the expansion of the growth margin, you know, down over the coming years. So, with the new manufacturing facility coming on board, you know, would there be a dip in the gross margin initially before that facility completely starts contributing? Or that is already, you know, that really should not matter too much?

Yeah, so for this year, we've obviously given the guidance, you know, we expect to, you know, kind of be in that 73 to 74% range. I think the facility, as it works with the P&L initially, a lot of those costs this year on the OpEx side, that will mix in as we're manufacturing starting in 26. Generally, I would say we obviously feel like we can get to the high 70s by the end of the decade. Again, as I said earlier, it may not be exactly linear. We probably expect it to be probably similar, I would say. You know, as we're taking that, you know, as a facility kind of works its way through the P&L. But, you know, we don't think that'll be hugely material over the next couple years. But, you know, it's certainly a consideration as we kind of move from call it 25 to 29. But, you know, we're obviously thinking about that in the next year. And, you know, from a longer-term 29 perspective, you know, we feel like the high 70s is definitely the right number from a gross margin perspective with the new facility.

Okay, and the last question for me is on the burn franchise itself. In terms of the factors that are helping to grow the burn franchise, what generally are the ones which are doing that? And then, what sort of factors do you think will be sustainable, not only for this year, but beyond?

Well, I think if you look at the Burn Care franchise performance, you know, obviously, as Joe mentioned, while EPICEL was variable last year quarter to quarter, it still had a pretty good year in terms of being up 16% on a revenue basis. And we expect EPICEL will continue, as Joe mentioned, you know, to contribute to growth for the company starting the year kind of in the high single-digit range. At the same time, we obviously had strong underlying demand for Nexabrid in the fourth quarter in terms of hospital orders that we said has carried through into Q1. And so we expect continued progression for Nexabrid throughout this year and revenue growing from a little over $3 million last year to high single digits as a starting point this year. So I think both products... you know, we expect to continue to contribute to that growth. And, you know, having the larger bird care Salesforce team for the full year versus only part of the year last year, we think will contribute as well as that team continues to kind of enhance its execution as we move throughout the year. Okay, fantastic.

Thank you both. Thanks for taking all my questions. Thanks, Arquette.

Thank you. I'm showing no further questions at this time. I would now like to turn it back to Nick for closing remarks.

Okay, well, just want to thank everyone for your questions and continued interest in Veriso. Obviously, the company had a really great year last year, and we expect continued strong growth and momentum in 2025, so we look forward to providing further updates on our progress on our next call. Thanks, and have a great day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.