Vericel Q2 2025 Earnings Call Transcript

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Provided by Quartr
July 31, 2025

Key Takeaways

  • Positive Sentiment: Company delivered a solid Q2 with total revenue up 20% to $63.2 M, gross margin expanding over 400 bps to 74%, and adjusted EBITDA growing 112% to $13.4 M.
  • Positive Sentiment: MACI achieved record Q2 revenue of nearly $54 M (21% YoY growth), has trained 600 surgeons on MACI Arthro, and plans to expand its salesforce from 76 to ~100 territories to drive future growth.
  • Negative Sentiment: Updated H2 burn care guidance to ~$10 M per quarter despite strong Epicel biopsy and NexoBrid order momentum, citing variability from patient health–related cancellations.
  • Positive Sentiment: Received FDA IND clearance for the Phase III MACI Ankle study (~300 patients, two‐year endpoint), aiming to tap a ~$1 B addressable market when initiation begins in H2 2025.
  • Positive Sentiment: Ended Q2 with $164 M in cash and investments, no debt, and remains on track to start commercial manufacturing in a new facility next year.
AI Generated. May Contain Errors.
Earnings Conference Call
Vericel Q2 2025
00:00 / 00:00

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Operator

Day, and welcome to the Vericel Corporation Second Quarter twenty twenty five Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Eric Burns, Vericel's Vice President of Finance and Investor Relations. Please go ahead.

Eric Burns
Eric Burns
VP - Finance & IR at Vericel

Thank you, operator, and good morning, everyone. Joining me on today's call are Vericel's President and Chief Executive Officer, Nick Colangelo and our Chief Financial Officer, Joe Mara. Before we begin, let me remind you that on today's call, we will be making forward looking statements covered under the Private Securities Litigation Reform Act of 1995. These statements may involve risks and uncertainties that could cause actual results to differ materially from expectations and are described more fully in our filings with the SEC. 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.

Eric Burns
Eric Burns
VP - Finance & IR at Vericel

Please note that a copy of our second 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 will now turn the call over to Nick.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

Thank you, Eric, and good morning, everyone. Company delivered solid financial and business results in the second quarter with significant revenue growth and margin expansion and substantially higher profitability growth. Total revenue increased 20% in the quarter, while gross margin expanded more than 400 basis points to 74% and adjusted EBITDA increased 112% versus the prior year to over $13,000,000 We also saw continued strength in the MACI growth drivers and key performance indicators for the MACI Arthro launch and significantly better performance for the burn care franchise. Importantly, we've had a very good start to the third quarter for MACI and the burn care products, and the company remains well positioned for a strong second half of the year. MACI generated record second quarter revenue of nearly $54,000,000 representing 21% growth versus the prior year and 15% sequential growth versus the prior quarter.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

MACI's performance was driven by strong underlying business fundamentals as we continue to expand the MACI surgeon base and drive growth in biopsies with the launch of MACI Arthro. In the second quarter, we generated the second highest number of MACI biopsies in a quarter since launch, essentially matching our highest biopsy quarter to date in the seasonally high fourth quarter of last year. MACI Arthro Surgeon Training, a key priority for our commercial team in 2025, continues to outpace our initial expectations in the original MACI launch as we've now trained approximately 600 surgeons through the July. Both the biopsy and implant growth rates for MACI Arthrotrained surgeons continue to be significantly higher than the growth rates for surgeons that have not yet been trained. Given the substantial increase in the number of MACI Arthrotrained surgeons, overall MACI biopsy growth outpaced implant growth through the first half of the year.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

Based on historical performance, we expect the implant growth rate to converge with the biopsy growth rate as we move into the second half of the year and beyond, which we believe will sustain strong MACI revenue growth in the quarters ahead. To that end, MACI is off to a strong start to the third quarter, with both biopsy and implant volume growth in July accelerating versus the first half of the year. While the treatment of patella defects remains the key driver for overall MACI growth, the treatment of small femoral condyle defects, which are the defects that MACI Arthro instruments are designed to treat, increased 40% in the second quarter over the prior year. This is a strong indicator that this segment, which represents approximately a third of the over $3,000,000,000 addressable market for MACI, has the potential to become MACI's highest volume growth segment over time with the MACI Arthro delivery option. In addition, as we discussed on our last call, MACI Arthro is being used to treat a meaningful number of patients with trochlea defects, and this segment has now accounted for nearly twenty percent of MACIARTHRO implants to date.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

The trochlear defect segment is similar in size to the patella segment with approximately 10,000 patients per year and has the potential to become a significant source of business and a meaningful driver of upside MACI growth beyond the treatment of condyle defects. Finally, we've generated over 100 biopsies from our new arthroscopic only surgeon segment, another positive indicator that an arthroscopic delivery option for MACI can drive additional utilization from surgeons that previously did not use the product. Based on the strong MACI Arthro launch indicators to date and our expectation for significant MACI implant volume growth in the second half of this year and into 2026, we're implementing our full MACI sales force expansion this year. We'll be increasing our Macy sales force from 76 territories to approximately 100 territories, with our new sales reps supporting current territories during our seasonally highest fourth quarter this year and then moving into their new territories at the start of next year. We believe that having the entire expanded sales force in place this year will help support our significant fourth quarter volume and position MACI for continued strong performance for the full year in 2026 and then beyond.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

Turning to burn care, as expected, Epicel performance rebounded in the second quarter with a substantial increase in biopsies, grafts, and revenue, which was more in line with its run rate coming into the year. Biopsies in the second quarter were the highest in any quarter since 2023, with an increase of nearly 40% over last year, and we ended the quarter with the highest monthly biopsies on record in June. Given the strength of second quarter biopsies, Epicel is also off to a strong start in the third quarter with July graft volume higher than any other month to date this year, positioning Epicel for another solid quarter. NexoBrid also had a strong close to the quarter with the highest number of ordering centers and hospital units ordered in any month since launch. This momentum has carried into the third quarter as July hospital orders exceeded the record number of units ordered in June.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

Of note, the category three temporary CPT code for NexoBrid also went into effect as of July 1, which we believe can help drive increased utilization and further enhance NexoBrid uptake over the long term. Overall, the company delivered significantly stronger revenue and profitability results in the second quarter. We have started the third quarter with a great deal of momentum for both MACI and the burn care products. In terms of our longer term growth initiatives, we received FDA clearance of the IND for the Phase III MACI Ankle clinical study in the second quarter and remain on track to initiate the study in the second half of this year. A potential MACI Ankle indication represents a substantial longer term growth driver for MACI and would enable the company to potentially expand into other orthopedic markets.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

Finally, we also remain on track to initiate commercial manufacturing for MACI in our new facility next year. I'll now turn the call over to Joe to provide a more detailed review of our financial results and guidance for 2025.

Joe Mara
Joe Mara
CFO at Vericel

Thanks, Nick, and good morning, everyone. Starting with our Q2 results. As Nick noted, we had a very strong revenue and profitability growth in the second quarter. The company achieved record total net revenue for the quarter of $63,200,000 with 53,500,000 of MACI revenue, dollars 8,600,000.0 of Epicel revenue and $1,200,000 of NexoBrid revenue. MACI had a strong second quarter with 21% revenue growth over the prior year and 15% sequential growth versus the first quarter, as growth accelerated in the second quarter.

Joe Mara
Joe Mara
CFO at Vericel

MACI also had another quarter of strong double digit biopsy growth, which outpaced implant growth. And as Nick mentioned, implant and biopsy growth accelerated in July, and we expect that implant growth will converge with biopsy growth over the coming quarters. Burn Care also had a much stronger second quarter with revenue of $9,800,000 relatively in line with the lower end of our guidance range for the quarter. Epicel in particular had a much stronger second quarter with $8,600,000 of revenue, representing 11% growth versus the prior year. The underlying metrics on Epicel were also very strong with Q2 biopsy growth of nearly 40% versus the prior year.

Joe Mara
Joe Mara
CFO at Vericel

This also included our highest Epicel biopsy month to date in June. Although Epicel revenue increased significantly during the second quarter, we continue to see a somewhat higher ratio of canceled cases due to patient health related issues, which impacted our revenue for the quarter. NexoBrid revenue of $1,200,000 represented 52% growth versus the prior year, with solid growth in both hospital unit orders and ordering centers. Although the underlying NexoBrid fundamentals continued to progress in Q2, orders placed by specialty distributors were slightly lower than the prior quarter, which impacts the revenue comparison to the first quarter. As Nick mentioned, we ended Q2 in June with our highest month to date for NexoBrid hospital orders and then surpassed these June orders in July.

Joe Mara
Joe Mara
CFO at Vericel

The company's substantial revenue growth translated into significant margin expansion, with gross profit of $46,600,000 or 74% of revenue, an increase of more than 400 basis points compared to 2024. This also represents a record quarterly gross margin outside of our seasonally highest fourth quarter. Total operating expenses for the quarter were $48,600,000 compared to $42,600,000 for the same period in 2024. The increase in operating expenses was primarily due to increased headcount and related employee expenses and additional costs related to the company's new facility, including depreciation and MACI Tech Transfer related activities. Moving forward, we expect relatively similar quarterly operating expenses for the balance of the year.

Joe Mara
Joe Mara
CFO at Vericel

Net loss for the quarter narrowed to $600,000 or $01 per share compared to $4,700,000 or $0.10 per share in the prior year, which was an improvement of more than $4,000,000 versus 2024. Adjusted EBITDA more than doubled during the quarter with an increase of 112 to $13,400,000 or 21% of revenue, an increase of more than 900 basis points versus the prior year as we continue to drive very strong bottom line growth. Finally, the company generated $8,200,000 of operating cash flow and ended the second quarter with approximately $164,000,000 in cash and investments and no debt. With the investment for the company's new facility completed in the second quarter, we expect cash generation to inflect moving forward, further enhancing the company's strong balance sheet and financial profile. Turning to our financial guidance.

Joe Mara
Joe Mara
CFO at Vericel

We are maintaining our MACI revenue guidance and expect MACI full year revenue growth in the low 20% range, with third quarter revenue growth in the low 20% range as well or approximately $54,000,000 to $55,000,000 for the quarter. For Burn Care, while we are very encouraged by Epicel's improved performance in the second quarter and the meaningful increase in biopsies in the first half of the year, we are updating our second half quarterly burn care revenue guidance to be more in line with recent run rates of approximately $10,000,000 per quarter, consistent with our second quarter revenue and our average quarterly run rate in 2024. Importantly, our internal expectations for burn care performance remain higher, and we believe there are still multiple scenarios to achieve our initial guidance range. However, we believe that updating our guidance framework and resetting external expectations for burn care revenue in the second half is appropriate at this point in the year, given the difficulty in accurately predicting Epicel quarterly revenue, Recognizing that if our team continues to execute well and maintains the current momentum, there remains an opportunity to significantly outperform this updated guidance. I would also note at this point, we are not assuming any additional NexoBrid revenue related to the BARDA RFP process that was recently initiated, although there is potential for incremental NexoBrid BARDA revenue in the fourth quarter of this year.

Joe Mara
Joe Mara
CFO at Vericel

In terms of profitability metrics, we expect another quarter of strong financial results in the third quarter with both gross margin and adjusted EBITDA margin in a similar range as the second quarter. For the full year, we have reaffirmed profitability guidance of gross margin of 74 and adjusted EBITDA margin of 26%. Note that this profitability guidance includes the operating expenses in 2025 related to the acceleration of our MACI sales force expansion. I will now turn the call back over to Nick.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

Thanks, Joe. We're very pleased with the pace of MACI Arthro surgeon training and the resulting strength in both the MACI arthro leading indicators as well as the overall MACI business fundamentals, which provides a strong foundation for MACI implant growth moving forward. The significantly improved trends for Episele NexoBrid position the burn care franchise for stronger performance as well. So we believe that the company is well positioned to continue to deliver a unique combination of sustained high revenue and profitability growth in the second half of this year and the years ahead. With that, we'll open the question or the conference call for questions.

Operator

Thank And we'll take our first question from Ryan Zimmerman with BTIG. Please go ahead.

Ryan Zimmerman
MD & Medical Technology Analyst at BTIG

Good morning. Thanks for taking our questions, Nick and Joe. Want start with MACI. I appreciate many of the metrics that you provided that point to an uptick in the second half. But if we can unpack the second quarter a little bit, I mean, I think about the guidance, Joe, 53.8% to 54.6%, that didn't happen.

Ryan Zimmerman
MD & Medical Technology Analyst at BTIG

So what do you think is happening here that's impacting that growth at least right now? And again, I appreciate the confidence, but if you could speak to certainly the uptick in the fourth quarter especially and the conversion ratio that you're expecting to allow you to either beat or meet that guidance for Macy?

Joe Mara
Joe Mara
CFO at Vericel

Yes. So good morning, Ryan, and thanks for the question. So in terms of MACI, maybe just talk a little bit about the second quarter and the cadence as part of your question. So in terms of the second quarter, relatively in line at $53,500,000 It was, I'd say, slightly below kind of that range and call it approximately $54,000,000 But first off, I would say, as we talked about on the call and Nick talked about, the underlying indicators remain strong. The biopsy growth was strong in the second quarter.

Joe Mara
Joe Mara
CFO at Vericel

And we are starting to see an acceleration of both biopsy growth and implant growth as we get into of late and into July. So that's certainly encouraging. I would say probably on the margins, there was probably some degree of there are probably a few implants from a timing perspective, if you will, where if we looked at what we predicted in the second quarter, perhaps some of the kind of where June ended up, some of those implants probably moved into July relative to our assumptions to start the quarter. I wouldn't say that was all that material certainly but it's certainly one thing to point out as you think about Q2. So I think Q2 generally was in line with our expectations.

Joe Mara
Joe Mara
CFO at Vericel

It was a significant step up from the first quarter and solid year over year growth. And so then as you kind of think about the rest of the year, first off, I would say, as we said in the last call, we're still kind of in that $240,000,000 range that I referenced in the last quarter. And so if you think about the cadence for the second half, the first thing I would point to is before really even getting into Arthro, it's pretty it's a pretty similar mix when you kind of look at that revenue level from H1 to H2. So that's not all that different. Q3 and Q4, there certainly could be some variability there, know, which is why we're providing a range, you know, sometimes kinda August and September are difficult months to forecast just given, you know, kinda out of office and and vacations, particularly as you move kinda farther from the COVID dynamics.

Joe Mara
Joe Mara
CFO at Vericel

But generally, again, I think what we're seeing is a lot of strong metrics. The trained surgeons continue to tick up. We're seeing very strong metrics from that group in particular. So I would say nothing has really changed as we move from where we were last quarter and we kind of continue to progress throughout the year as you think about And full year

Ryan Zimmerman
MD & Medical Technology Analyst at BTIG

just to be clear, Joe or Nick, if you want to answer this, and then I have a follow-up on Epicel. But the 100 arthrobiopsies that you did this so far year to date, can you comment and, you know, obviously, you know, give us specifics if if you're comfortable? How much of those have converted to MACI at this point?

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

Yeah. So, you know, we don't talk about sort of how those biopsies have converted. I mean, there's we haven't seen any difference in sort of how the, you know, arthrobe segments and just the segments generally have converted versus normal rates. So, you know, it's really just a timing issue of when those biopsies convert. And so, you know, I would just say kinda as we discussed, whether you're talking about, you know, Macy Arthur opening up different surgeon segments, or kinda different locations in the knee, all of those trends are in line with kind of what we had hoped for or expected.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

And the dynamic that Joe was referring to that we saw when MACI was originally launched, that biopsies increased first, you know, over time implants tend to catch up with those biopsies. You know, it's kind of all unfolding as we had expected and as we discussed on our last conference call.

Joe Mara
Joe Mara
CFO at Vericel

Yeah, and Ryan, just one thing to add too. The 100 biopsies, that was just one data point from our kind of new arthro only segment. It wasn't meant to represent all of Arthro, just to make sure that was clear Yeah. In in our prepared remarks.

Ryan Zimmerman
MD & Medical Technology Analyst at BTIG

No. That that I appreciate the clarification there, Joe. And then just, you know, turning to Epicel. So, you know, the biopsies were, I think, up 38% in the first half. You you do have a price benefit as well.

Ryan Zimmerman
MD & Medical Technology Analyst at BTIG

So, you know, you alluded to this a little bit, Joe, that, you know, the patients are experiencing health issues, whether that's expiration or some point. But, you know, trying to reconcile the lower guidance on the burn business overall with that biopsy dynamic, you know, this seems to be kind of sustaining despite it what, you know, what would have been maybe a blip, right, with some of these health issues. So just what's the new reality there that you're factoring in the guidance in terms of patient expiration for these severely burned patients in the back half of the year? Thanks for taking my question.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

Ryan, I'm gonna start, and then Joe can take that. So so what we said on the call was that biopsies were up thirty eight percent in the second quarter. But, you know, for the first half of the year, biopsies were actually up twenty percent over last year. So, you know, one would expect that, you know, you might see some volume growth on graphs as well, you know, even with kind of the regular patient health issues that we face. So that, I think, you know, based on the analytics we've had over time, have would have suggested, you know, kind of the the uptick that we had sort of started guiding to earlier in the year.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

You know, obviously, as we said, June was the strongest month we've ever had for Epicel biopsies. So while they didn't convert into revenue in full in the second quarter, you know, obviously, that's what supports our third quarter commentary that we're off to a strong start with Epicel. So, you know, there's a bit of that, you know, the the patient health issues we referred to where we didn't see quite and, again, part of this started from q four last year into q one where, again, it was a sort of unproductive cohort of biopsies that impacted q one. So, you know, we don't we expect these things normalize over time. There's nothing, you know, different in the underlying dynamics.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

We do track, you know, all of the metrics you might expect, you know, the TBSA of biopsies we received, the TBSA of patients that are treated, and there's really no change in any of those underlying patient demographics or otherwise. So it really, you know, we think there's no reason it won't normalize as usually happens.

Joe Mara
Joe Mara
CFO at Vericel

Yeah. And just to maybe talk a little bit about the Epicel and sort of the burn care kind of change in our approach, Ryan, I think which I think is important. And we had some of this in the prepared remarks. But again, I think what we're saying on the burn care side, as Nick said, we've had a stronger second quarter of around ten million Obviously, upsells biopsies were very strong. Strong start, really strong start for both brands to start the third quarter.

Joe Mara
Joe Mara
CFO at Vericel

So at this point, our metrics are pointing to a higher Q3. But I think what we are talking about or what we're doing here is we're essentially making a change to our approach for the second half of the year. And so as we've often talked about, precisely forecasting Epicel is very difficult because of these unpredictable patient health And just the reality is over the last two to three quarters in particular, our underlying trends, to go into the quarter, our forecast has supported higher volumes. And so for whatever reason, which we've seen a higher ratio of cancellations and whatnot, we've either been on the low end or below a little bit below our Epicel forecasted range. And just to be clear, this is not where we want our guidance to be.

Joe Mara
Joe Mara
CFO at Vericel

And so as Nick said, the first half of the year, we've actually generated strong biopsies. It hasn't correlated to the revenue expected yet. And so from a guidance perspective, to better account for this, we're essentially shifting concept versus kind of thinking about our forecast and how we start the quarter. So as we talked about, the average quarterly revenue last year was $10,000,000 That's what Q2 was. That's going to be our guidance for Q3 and Q4 right now.

Joe Mara
Joe Mara
CFO at Vericel

I would also say to some of your question around the stronger start in Q3, importantly, this is not our forecast for burn care. And our metrics to date are pointing to something higher. Our expectations are higher. Our team's commercial goals are higher So certainly, we think it's an opportunity to outperform this guidance, and that's what we're focused on.

Joe Mara
Joe Mara
CFO at Vericel

But again, where just a couple of patients could be the difference between $1,000,000 and a quarter, we think just being a bit more conservative with the guidance is appropriate as we close out the year on the Epicel and the burn care side.

Operator

We'll go next to Richard Newitter with Truist Securities.

Richard Newitter
Richard Newitter
Managing Director at Truist Securities

Hi. Can you hear me okay?

Joe Mara
Joe Mara
CFO at Vericel

Yes. Yes. Good morning. Morning, Rich.

Richard Newitter
Richard Newitter
Managing Director at Truist Securities

Okay. Thank you. A couple of questions here. So it's it's and I was jumping around some calls, so apologize. But it sounds like the effectively reiterating, Macy, even though 2Q wasn't, you know, quite at the guide, but just under.

Richard Newitter
Richard Newitter
Managing Director at Truist Securities

And it's really just maybe a slight call down from EpiCell for the full year, and you hope to exceed that, but just to be prudent. But A, is that the summary?

Joe Mara
Joe Mara
CFO at Vericel

Yeah. I think that's fair. Exactly.

Richard Newitter
Richard Newitter
Managing Director at Truist Securities

Okay. So so two two two two quick follow ups on that. One, on MACI, with respect to, you know, the the range of outcomes of when your conversion rates could hit, do you feel confident that that's just a matter of timing within a six month time frame, a three month time frame, or it could extend beyond because MACI Arthro is a bit of new territory for you. So while the the biopsy trends are are are improving and and good, is there anything that's different versus MACI traditional and maybe our throw in the conversion rate or or the timeline to conversion that, you know, maybe just won't work the the same as it has in the past? And I have one follow-up.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

Rich. So this is Nick. No, we have not seen, as I mentioned previously, any difference in conversion rates for MACIARTHRO cases versus you know, MACI open cases. So, you know, as we talked about previously with the launch of MACI in 2017, you saw a very steep increase in biopsies. And then, you know, an increase in implant growth, but that kind of played out over the back half of 2017.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

And then as we talked about on the last call, you know, you went from forty plus percent biopsy growth in the 2017 to 54 implant growth in 2018. So, you know, it it definitely doesn't play out over a quarter. It plays out over multiple quarters. And anytime we've seen a sort of out biopsy growth outpacing implant growth, it tends to catch up over time. And there's no reason to think that that won't happen here.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

And on our prepared remarks, we mentioned that, you know, the MACI both, and this is really encouraging, you know, obviously biopsies outpaced implants in the first half of the year, but even biopsy growth is now accelerating, and implant growth is accelerating. And I think we've kind of laid the foundation for this kind of dynamic earlier this year, and those are the trends that we're seeing play out now.

Richard Newitter
Richard Newitter
Managing Director at Truist Securities

Okay. Thank you.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

Thanks, Rich.

Operator

If you if you find that your question has been answered, you may remove yourself from the queue by pressing star two. We'll move next to Mike Kratke with Leerink Partners.

Mike Kratky
Senior MD - Medical Devices & Technology at Leerink Partners

Hi, everyone. This is Sam on for Mike. Thanks for taking our question. You mentioned biopsy growth outpaced implant growth the first half of the year. Are you just seeing a deceleration in biopsy conversion rates around this time of year?

Mike Kratky
Senior MD - Medical Devices & Technology at Leerink Partners

What's ultimately the underlying cause of this? And then kind of appreciate that you saw an acceleration in July, but what really gives you confidence that these biopsy and implant rates can converge in the second half of the year? And then I have a follow-up.

Joe Mara
Joe Mara
CFO at Vericel

Yes. I mean so I think, again, as Nick talked about, we've seen this dynamic before in the MACI launch, which I think is very important context, which is there's times when biopsy growth can be kind of growing faster than implants. But I would just say broadly, when we think about kind of conversion, biopsy growth and implants, you know, they tend to kinda move together when the conversion is stable, which is what has been going on, you know, for the last few years. You know, that said, there can certainly be points in time or kind of points during a year where one might be kinda moving slightly different than the other. So I don't think this is it's not atypical that they're not moving they're not exactly sort of in sync at any point in time.

Joe Mara
Joe Mara
CFO at Vericel

But I think at this point, what's encouraging is we've seen that strong biopsy growth in the first half of the year. And I think that we think that puts us in a very good position as we think about both the 2025 but also into next year as we talked about as well. Again, this is not atypical to see that move in slightly different pace. And it's what we would have expected with the Arthrole launch.

Mike Kratky
Senior MD - Medical Devices & Technology at Leerink Partners

Got it. That's helpful. And then as a second question, can you just kind of comment on to what degree MACI arthro surgeons that have been trained to date are surgeons from your existing MACI customer base? Or have you kind of begun to get more meaningful penetration incremental 2,000, arthroscopic surgeons that you flagged as being part of your TAM expansion?

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

Yeah. That's a great question. You know, obviously, as we mentioned, we're really pleased to kind of be at 600 trained surgeons through the end of the July. And as we talked about sort of the surgeon segments on the last call, you had, you know, about 2,500 existing MACI users prior to launch, and those were broken out into surgeons who had typically done patella only implants previously, and then the other half of those users would do patella and typically smaller or larger, I'm sorry, condyle defects. So we'd say about a third of our 600 trained surgeons come out of each of those two buckets, the existing MACI users.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

And then the other third comes out of either the former MACI open targets who had not engaged yet or the new new arthro only surgeons that we added when we launched MACI. So really encouraged to see, you know, the trained surgeons, the third coming out of those prior nonusers. And as we mentioned on the call, you know, we've now had a 100 biopsies more than a 100 biopsies out of the kind of Arthro only segment as well. So exactly what we would want to see for the prior users who were patella only. They are obviously now increasing both biopsy and implants in terms of their growth rates and expanding into condyle defects.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

And then what you see out of the prior kind of combo patella and larger femoral condyle defect users, they're migrating down into the smaller, MACI Arthro defect. So it's exactly the dynamic that you would wanna see, in these early launch indicators.

Mike Kratky
Senior MD - Medical Devices & Technology at Leerink Partners

Understood. Thanks.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

Okay. Thank you.

Operator

We go next to the line of Joshua Jennings with TD Cowen. Please go ahead.

Joshua Jennings
Managing Director at TD Cowen

Hi. This is Eric on for Josh. Thank you guys for taking the question. On MACI ankle, congrats on receiving the IND there. It sounds like the clinical study is going to be kicking off, in the back half of the year.

Joshua Jennings
Managing Director at TD Cowen

Are you able to share any detail on on what the trial design looks like there? Any any thought on patient enrollment, and what the the timing, could be for complete enrollment? Thank you.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

Yeah. So, very pleased that we received FDA, IND clearance for the MACI ankle study. As I mentioned on the call, you know, it's about a billion dollar, addressable market for us. So we think it could be a substantial longer term growth driver for the business over time. Know, it's a not to get into too much detail as it's listed on clintrials.gov, but it is, you know, a prospective open label randomized controlled phase three study, two year endpoint, just like the SUMMIT study for MACI in the knee, will be approximately three hundred patients that, you know, two to one ratio between MACI and bone marrow stimulation or microfracture, which is the active comparator.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

And then, you know, it will focus on patients with lesions that are greater than one point two square centimeters. So pretty straightforward, and then the endpoints are much like the endpoints were in the SUMMIT study, where you're looking at pain and functions improvements at two years.

Joshua Jennings
Managing Director at TD Cowen

Great. Thank you for reviewing that. And then just curious to check-in on some of the midterm profitability targets that you guys have in play for gross margin and adjusted EBITDA margin by 2029. Are those high 70% and high 30% margin targets respectively still in play here? Thank you for the questions.

Joe Mara
Joe Mara
CFO at Vericel

Yeah. So, you know, we we had a, know, from a profitability perspective, the company had a pretty strong second quarter. Our gross margin in the second quarter was kind of in that mid-seventy percent range, consistent with where our full year guidance is that we reaffirmed as well from a profitability perspective. Adjusted EBITDA was strong as well, kind of into the low 20s into the second quarter, which is strong for a middle of the year quarter for us. And we reaffirmed our full year there.

Joe Mara
Joe Mara
CFO at Vericel

So yes, I know as we think about kind of end of the decade, kind of getting from the mid-70s to the high 70s on the gross margin side, certainly still seeing that we're we would really nothing's changed, I would say, in our view on either gross margin or adjusted EBITDA. So again, we're not too far on the gross margin side. We need to keep kind of driving strong revenue growth and kind of manage our spend. But certainly, from adjusted EBITDA perspective, we very much remain on track there as well. No change in terms of our kind of long midterm targets, I would say, the profitability side.

Joshua Jennings
Managing Director at TD Cowen

Okay. That's great to hear. Thank you again.

Joe Mara
Joe Mara
CFO at Vericel

Thank you.

Operator

And we'll move next to Caitlin Cronin with Canaccord Genuity.

Caitlin Cronin
Director at Canaccord Genuity Inc

Hi. Thanks so much for taking the questions. I guess just to start off with the, the arthrobiopsies, you mentioned a 100 arthro naive, surgeons with the biopsies. I mean, how many total biopsies to date are you seeing across all the surgeon cohorts? And then, you know, how many of those have have converted already into implants?

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

Yeah. So, you know, the it's not really possible. I suppose you could, you know, look at the size and location of defect and say this may be a defect that's intended to be treated arthroscopically, but even there, you know, it really depends precisely on the location and so on. So, you know, I guess we would just say this. Biopsies generally, as we said, increased at a double digit rate in the first half of the year, and that's accelerating as we move into the second half of the year, as we would have expected, because we're now up to six hundred MACI Arthrotrained surgeons.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

Both their implant and biopsy growth rates are significantly higher than the overall averages. So as we continue to train more surgeons, and they take more and more biopsies, that's the dynamic that ends up leading towards, you know, this accelerating biopsy growth. And we did mention on the call as well that the small femoral condyle defects increased forty percent in the second quarter this year over last year. So, you know, good indicator there about the impact that that MACI Arthur can have. And as, you know, we've talked about with you before, it's the largest part of our addressable market.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

So when that growth rate is kinda ripping like that, you know, it can have a pretty big impact on our business over time.

Caitlin Cronin
Director at Canaccord Genuity Inc

Got it. Okay. And then just any more color on the Macy's Salesforce expansion and, you know, how many have been hired already, and then just the the timeline to just add the further members this year?

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

Yeah. So, you know, these positions were posted last night. So we haven't hired anyone yet, but I, you know, expect it will be done in pretty short order. And the whole rationale there, as we mentioned on the call, is that, you know, we have some we're gonna have some very significant volumes in the fourth quarter. And, you know, we're already kinda right at the August.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

And so, you know, you'll have reps who will be hired kinda towards the August into September. So we expect, you know, a decent number, meaningful number of reps will be in the the field supporting our current reps in their existing territories, you know, probably by early October. And so give them a good chance to, again, support a very high volume quarter and then realign the territories and and all the representatives will be in their new territory starting on January 1. And we believe that is very important. You know?

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

As Joe mentioned on our last call, you know, things don't change when the calendar flips to January 1. And the momentum that we're seeing and expecting the back half of the year, we wanna capitalize on that day one in 2026. And that is what led to accelerating the the growth based on the leading indicators we're seeing from ACR throw and sort of our expectations for implant growth in in the back half of the year.

Caitlin Cronin
Director at Canaccord Genuity Inc

That's great. And then just one more quick one. Any update on if you're continuing to see this kind of dynamic of dormant epithelial accounts becoming active given the NexoBrid engagement in those accounts?

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

Yeah. We've definitely you know, it continued this year where, you know, I'll just roughly say a handful of centers that hadn't used Episel recently, you know, are sending in in biopsies. And so, you know, we think as we continue to have a greater presence in a larger number of burn centers, you know, that that that dynamic will continue.

Caitlin Cronin
Director at Canaccord Genuity Inc

Great. Thanks so much.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

Thanks, Caitlin.

Operator

We go next to the line of Mason Caracol with Stephens. Please go ahead.

Mason Carrico
Research Analyst at Stephens Inc

Hey guys, thanks for the questions here. I'll ask my two upfront if that's all right. You've called out MACI ASP increasing mid to high single digits annually. I think approval rates have stayed north of 90%. Can you just confirm or speak to your confidence in sustaining that price momentum moving forward without triggering some form of access pushback?

Mason Carrico
Research Analyst at Stephens Inc

And then second, could you just update us on the international expansion opportunity? What are your latest thoughts there on the timeline, specific geographies you may plan on targeting?

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

Yeah. So on pricing, you know, Mason, as we've talked about before, we do an extensive amount of MACI and really for all our products pricing research to make sure that, you know, we can optimize pricing on our on what are considered by payers, surgeons, patients alike, you know, highly innovative products. And so, you know, we have always, you know, been thoughtful about how we implement price increases. You know, as we've said, MACI is a biologic product. Payers and hospital administrators expect that you'll be taking sorta, you know, mid to high single digit prices on an annual basis, and and, you know, we've done that.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

And as you know, as you mentioned, you know, our prior approval rate for MACI cases is in the mid 90% range. And so we haven't seen any change in that over the years as we've continued to take price. And so that's an important part of the equation for us and it's a pretty unique position to be in, you know, in the med tech space. On the OUS side, you know, we continue to progress with our evaluation with our outside sort of global consulting group, and, you know, we had planned and expect to have a road map for the OUS opportunity by the end of the year. So it's progressing well.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

You know, I think we have a clear intent to be able to expand in to certain OUS geographies sort of in the next few years. You know, we prioritized Europe and entry into that region first. And there are some interesting pathways that, you know, kind of along the mutual recognition front that would allow us to to do that in a relatively, you know, at a relatively fast pace. And so, you know, that time frame of potentially launching in, you know, certain countries or in the 2027, '28 time frame is still our current thinking.

Mason Carrico
Research Analyst at Stephens Inc

Got it. Thank you.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

Thank you.

Operator

We turn next to Jay Collin with Ladenburg Thalmann. Please go ahead.

Jeffrey Cohen
Director - Research at Ladenburg Thalmann & Co. Inc

Hey, Nick and Joe. Thanks for taking our questions. Could you talk Joe, I guess, could you tease out a little bit the back half SG and A guide and talk about sales expansion and perhaps talk about geographies as well? Yes.

Joe Mara
Joe Mara
CFO at Vericel

So good morning. And so yes, would say from operating expense perspective, we've been kind of around $49,000,000 in total in the last couple of quarters. There may be a little bit of a mix shift as we kind of close out the year as we start hiring kind of on the sales side. But I think I said in the prepared remarks, obviously, reaffirming our overall guidance from profitability perspective for both gross margin and adjusted EBITDA. And I think we're assuming essentially kind of flat quarters or around that same number from an OpEx perspective over the next couple of quarters.

Joe Mara
Joe Mara
CFO at Vericel

So as we talked about, the hiring will probably sort of, by the time kind of everyone's hired, it'll take some time for that. And so there'll be some impact in the fourth quarter. But really, it's more of an annualized, if you think about roughly 25 additional sales reps, it's kind of more of a twenty twenty six impact, I would say, from a sales force expansion perspective.

Jeffrey Cohen
Director - Research at Ladenburg Thalmann & Co. Inc

Okay. Got it. That's helpful. And then secondly for us, can you talk about the BARDA RFP as far as the the time frame or duration and size of the RFP that's out there?

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

Yeah. So the, you know, the r RFP is in the public domain. And so, you know, anybody who's interested can take sort of a a deeper look at it. But, you know, proposals or responses are due in sort of late August, and, you know, presumably, a decision will be made shortly thereafter. You know, what the RFP covers would be procurement of a basically, a a stockpile for preparedness.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

And the details of that, you know, are are clearly stated that, you know, the initial procurement would be for, you know, 2750 units. There would be a management funding for that. There's a there's a second ramp up procurement that is, you know, listed. So the first one is between October and and September year, the ramp up procurement for the year after that. And then there's just a number of other items around managing what's essentially a VMI inventory for BARDA, other development projects for room temperature formulations, different indications, and so on.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

So there's a a pretty long list of about a dove dozen funding opportunities under that RFP. Obviously, at this point, you know, the the timing, the negotiations around that have not occurred. So there's you know, we can't really speak to, you know, a, you know, whether we would assume that BARDA typically, when they fund the program and then they look to stockpile a program, that it would be you know, NexoBrid will have a very strong opportunity. But in terms of the exact timing and funding amounts, you know, that's left to negotiation after being selected.

Jeffrey Cohen
Director - Research at Ladenburg Thalmann & Co. Inc

Got it. That's helpful. Thanks for taking our questions.

Joe Mara
Joe Mara
CFO at Vericel

Thank you.

Operator

And we go to our next question from Swayam Pakula Ramakanth with H. C. Wainwright. A

Swayampakula Ramakanth
Managing Director & Senior Equity Analyst at H.C. Wainwright & Co.

couple of quick questions. So in your prepared remarks, Joe, you were talking about there's a potential for the burn franchise to outperform your $10,000,000 per quarter guidance. So what are the pushes and pulls for that to happen?

Joe Mara
Joe Mara
CFO at Vericel

Yes. I mean, so I mean, again, try to lay out I think it was Ryan's initial question. I just wanted to make sure people understood. From an external guidance perspective, we want to be very clear, which is our external guidance is $10,000,000 a quarter. It's more of a run rate concept.

Joe Mara
Joe Mara
CFO at Vericel

So that's our approach. I would say internally, as we talked about, I'd say the first piece is we've had a pretty strong start to July on both products. So that's always kind of what you want. And so again, our guidance is is not meant to be our forecast. But, you know, essentially, if, you know, NexoBrid can continue on a stronger run rate that we've seen in June and July, for example, you know, that could kinda help it continue to tick up.

Joe Mara
Joe Mara
CFO at Vericel

And it's really at this point, you know, obviously, about Epicel given the scale of the two products. And really, it's about what happens from a conversion of those strong biopsies in the second quarter. It's been a strong start in July, but we need to see how that plays out in August and September. Again, metrics point to this is a strong start. So it points to it should be a stronger quarter.

Joe Mara
Joe Mara
CFO at Vericel

But again, we just don't want to get ahead of ourselves not knowing exactly what the rest of August looks like, let alone September at this point with Epicel because you can always have cancellations and whatnot. But again, strong start. So it would be continuing to drive kind of a higher conversion rate or call it, a more average conversion rate and then, you know, not getting those cancellations due to Patient Health. That's probably what's most variable as we think about the quarter, but, again, a strong start.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

And I would just add that, you know, as Joe mentioned in his prepared remarks, at this point, we're not including any potential barter revenue that could come in the fourth quarter in our guide. So there's a commercial piece that could allow us to outperform, and then there's some potential barter revenue as well. Again, timing and amount can't determine at this point, but there's multiple paths to kind of exceed the guidance that Joe provided.

Swayampakula Ramakanth
Managing Director & Senior Equity Analyst at H.C. Wainwright & Co.

Nick, you kind of stole my question, but, on that BARDA revenue, from the fourth quarter, you know, potential, in general, is there a is there a range you folks are thinking about, you know, on on on the on the dollar amount if it happens?

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

No. That's what I that's what I said earlier. I mean, the RFP clearly states forth or sets forth the sort of procurements that BARDA is interested in. So the 2,750 units, you know, from October year through September, and then, you know, up to 5,000, you know, in the following year. Obviously, without knowing sort of the pricing on that, you can't really estimate the revenue.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

And then, of course, there's management contracts to manage that VMI inventory and and other things, so that are stated there. I think they'd like to have access to some commercial inventory, and there's funding for that that that would be involved. So, you know, there's a lot of pieces, and it it's just impossible at this point to kind of quantify from a revenue perspective what that would be or the timing thereof. But, you know, one would expect that if BART is interested in in having an available stockpile through a BMI kind of procedure that, you know, they'd wanna have it sooner than later. So, anyway, more to come on that.

Swayampakula Ramakanth
Managing Director & Senior Equity Analyst at H.C. Wainwright & Co.

And then on the Arthro product, you know, you stated that there are 600 trains at this point. In general, you know, once once a surgeon gets trained, you know, how long does it take for them to kind of become comfortable enough to start taking biopsies and, you know, start sending them over to you folks?

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

Yeah. I'd say, actually, you know, it often happens in reverse where surgeons will take biopsies and then get trained when they're ready to move forward with the So no time at all to get comfortable taking a biopsy. They do arthroscopic chondroplasties all the time, and that's when when they end up taking a biopsy. So that's not, you know, no impact there at all.

Swayampakula Ramakanth
Managing Director & Senior Equity Analyst at H.C. Wainwright & Co.

Okay. Perfect. Alright. Well you very much. Thanks.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

Okay. Thank you.

Joe Mara
Joe Mara
CFO at Vericel

Thanks, RK.

Operator

There are no further questions. I'd like to turn the floor back to Nick Colangelo for any additional or closing remarks.

Dominick Colangelo
Dominick Colangelo
President, CEO & Director at Vericel

Okay. Well, we just wanted to say thank you to everyone for your questions and continued interest in Vericel, and we look forward to providing further updates on our progress on our next call. So thanks again, have a great day.

Operator

This concludes today's conference. We thank you for your participation. You may disconnect at this time.

Executives
Analysts
    • Ryan Zimmerman
      MD & Medical Technology Analyst at BTIG
    • Richard Newitter
      Managing Director at Truist Securities
    • Mike Kratky
      Senior MD - Medical Devices & Technology at Leerink Partners
    • Joshua Jennings
      Managing Director at TD Cowen
    • Caitlin Cronin
      Director at Canaccord Genuity Inc
    • Mason Carrico
      Research Analyst at Stephens Inc
    • Jeffrey Cohen
      Director - Research at Ladenburg Thalmann & Co. Inc
    • Swayampakula Ramakanth
      Managing Director & Senior Equity Analyst at H.C. Wainwright & Co.
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