Vericel Corporation (NASDAQ:VCEL) Q1 2024 Earnings Call Transcript

George Sellers: Okay. That’s really helpful. And then maybe on NexoBrid, I’m just curious if you could give us some additional detail on some of the inventory and specialty distributor impacts, how we should really think about those 30 centers that are starting to see orders, how that will flow through the P&L and then maybe the cadence as we think about the rest of this year, where inventory levels are now and how that compares to what you’re seeing in terms of actual utilization?

Joe Mara: Yes. So good morning, George. It’s Joe. I’ll take that one. So if you kind of think about NexoBrid revenue during the quarter and we talked about this on the last call, we expected kind of a similar revenue range. We ended up about $400,000 kind of similar to last quarter about $500,000. I think it’s important as kind of Nick talked about on his prepared remarks, the strength in the center level KPIs continues to be very strong as part of your question there. I think importantly, we saw increases in the number of ordering centers, a significant increase from hospital orders to our specialty distributors and also significantly more patients treated in the quarter. So I think as kind of in addition to that, as we think about kind of our revenue trends, particularly early on, I think this is much kind of an early launch dynamic.

If you think back the first quarter in the market, Q3 of last year, we had kind of some destocking. The second quarter in the market in Q4, I’d say there was a fair amount of hospital stocking, if you will, where they were starting to order products and kind of get it on their shelves, particularly early adopters. And then just as a reminder, again, we recognize revenue when our specialty distributors order and this can vary each quarter depending on ordering patterns or inventory levels, et cetera. And really what happened again during the first quarter is the hospital orders to the FDs went up, but our orders from our specialty distributors to our 3PL, where we recognize our revenue came down. And essentially what that means is the specialty distributors managed to a lower inventory level.

And you do often see as kind of launches progress, the distributors will kind of get to different inventory levels. So I think as anticipated, a little bit choppy out of the gates. But I think as we continue to progress throughout the launch, it’s really going to be about continuing to add centers, treat additional patients, see those metrics come up and also really that additional utilization as centers become more comfortable. So there’s certainly going to be an element of inventory dynamics as we go through this. But generally, I think as we move forward, particularly in the back half and into next year, it’s really going to be driven by patient utilization and hospital ordering and this should be kind of a lower component, if you will, on the revenue side.

George Sellers: Okay. That’s really helpful. Thank you all for the time this morning.

Joe Mara: Thanks, George.

Operator: Thank you. One moment while we prepare our next question. The next question comes from Swayampakula with H. C. Wainwright. Go ahead. Your line is open.

Swayampakula Ramakanth: Thank you. This is RK from H.C. Wainwright. A couple of quick questions. So Nick, as your team continues to increase the targeted surgeons, right, from 5,000 to 7,000 and also in anticipation of the MACI Arthro. I’m just trying to understand what sort of relative benefit could we start seeing from this increase in the cartilage repair business as some of the surgeons or most of the surgeons work on both sorts of injuries, the cartilage and the arthro?

Nick Colangelo: Yes. So MACI Arthro is going to address cartilage defects as MACI our current product does. As we’ve discussed, the instrument set is targeted to smaller defects on the femoral condyle, which makes up the largest part of the addressable market for 20,000 patients a year. So while MACI is certainly a go to in patellofemoral defects, larger condyle defects, this allows us to have a preferred way to administer the product on those smaller defects on the femoral condyle. So we think obviously that it will allow us as I mentioned on the call to have greater penetration into the largest part of the segment. So the impact is presumably increased basic procedures when you have an arthroscopic delivery option.

Swayampakula Ramakanth: Perfect. And then, just trying to understand the commercialization. I’m not sure if it’s the right word. Commercialization process of for NexoBrid. So once, the centers, get the P&T approval, and what’s the time lag between I know you were saying that there are some additional procedures that need to get done before they order product. So I know it’s too early, but we can call it to trend. to call it a trend, but what are you seeing currently as the time line between approval and initial order?

Nick Colangelo: Yes. So that certainly, it differs by hospital, and there could be some then around the quicker side and there can be some that take weeks to months to be able to get what is called the epic system, which is what they use in the pharmacy to order all those products essentially. And before a product gets into that system, in certain cases it can take quite a bit of time. So we obviously are focused on helping centers kind of navigate that process if they happen to have an issue. But it really varies, like I said, from it can be days or weeks to it can be months in certain cases. So those are just some of the kind of couple processes and procedures that different hospitals have to go through before they’re really able to start ordering product in treating patients.

Swayampakula Ramakanth: So, one last question for me. Just within this, burns franchise. As we had historically noticed how FSL, we could I mean, at least, I know in public comments you always said that I cannot predict how Epicel business will grow from quarter-to-quarter and year-to-year for a bit of time. Are we going to see a similar trend with NexoBrid or do you think NexoBrid’s growth will be quite a bit smoother than what we have seen with Epicel?

Nick Colangelo: Well, I would say that the way we’ve always positioned it, RK, is that with Epicel, if you think about the 40,000 hospitalized burn patients each year, there’s really only, call it 600 to 800 surviving patients each year. So very small numbers and that’s what leads to the variability you see in Epicel. With NexoBrid, obviously once you get through these initial quarters, where you’ve got again centers coming on board at different paces, you’ve got inventory and ordering pattern dynamics going on because in our view three quarters or 30,000 patients a year are eligible for NexoBrid treatment that over time as it ramps up it becomes a more kind of consistent basis the overall franchise should have less variability.