Q1 2021 Vericel Corp Earnings Call

May 5, 2021

Ladies and gentlemen, but he's conference will begin shortly please continue to standby once again today's conference will begin shortly discontinue the standby and thank you for your patience.

[music].

Okay.

Yeah.

Okay.

Yeah.

Once again, thank you for standing by and welcome to day very soft first quarter 2021 conference call.

At this time all participants are in a listen only mode.

I would also like to remind you that this call is being recorded for replay.

I would now like to turn over the conference over to Eric Berg Bear itself.

The financial planning and analysis and Investor Relations, Sir the floor is yours.

Thank you operator, and good morning, everyone. Welcome to Verso Corporation's first quarter 2021 conference call to discuss our financial results and business highlights.

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 you described more fully and on.

Our filings with the SEC, which are available on our website.

And 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 first quarter financial results press release is available on the Investor Relations section of our website and we.

Also have a short presentation with highlights from today's call that can be viewed directly on the webcast or accessed on our website.

I am joined on this call by their sales President and Chief Executive Officer, Nick Colangelo, and our Chief Financial Officer, Joe Mara.

I'll now turn the call over to Nick.

Thanks, Eric and good morning, everyone. We entered 2021 with a great deal of momentum based on the strong revenue profitability and cash flow that we generated last year and the strength of the underlying growth drivers across our business that.

And that momentum continued through the first quarter as we had a very strong start to the year from both a financial and commercial perspective.

This morning, we reported total revenue growth of 30% and the first quarter achieving record first quarter revenue gross margin adjusted EBITDA and operating cash flow, we reported positive adjusted EBITDA for the first time and what is historically, our seasonally lowest revenue quarter of the year.

And generated operating cash flow of more than $10 million for the second straight quarter, ending the quarter with $110 million and cash and investments and no debt.

We believe that these results demonstrate the strength of the company's financial profile as we continue to generate strong revenue growth and increased profitability and cash flow, which was recognized by the addition of aerosol to the S&P Smallcap 600 index in March.

Based on these results and our underlying business fundamentals were raising our revenue guidance and now expect total revenue for the year to be and the range of $165 million to $168 million or approximately 33% to 35% growth with macy revenue growth and the mid 30% range.

And episode revenue growth and the high 20% range.

Joe will provide further details regarding our updated financial guidance and a few moments.

From a commercial perspective, both Macy and episode had strong performances in the quarter.

<unk> implant and biopsy growth exceeded 20% for the quarter with the growth and biopsy is continuing to outpace the growth and implants, which is important as biopsy growth remains a leading indicator for the Macy's business.

The growth and biopsies was driven by an increase and the number of surgeons, taking biopsies and the quarter versus the first quarter of last year as we continue to focus on broadening our macy surgeon base.

While in most years, we see a seasonal step down in the number of surgeons, taking biopsies and in the first quarter compared to the prior fourth quarter. This.

This year the number of surgeons, taking biopsies and the first quarter was comparable to the fourth quarter of 2020, and we had the second highest number of surgeons, taking biopsies and any quarter since we launched Macy.

Given the lingering COVID-19 headwinds and the first half of the quarter. We're very pleased with this performance and believe that we're on track to deliver over 20% growth and surgeons, taking biopsies for the full year.

We also saw significantly higher approval rates for Unitedhealthcare patella cases, following the expansion of its Macy medical policy, which became effective on February one we.

We believe that the expanded coverage will not only improve access for United healthcare patients, but also reinforce with surgeons to broad access and favorable reimbursement profile from Macy and contribute to its continued growth and the years ahead.

Overall, we believe that the underlying macy business fundamentals remain very strong positioning us to continue to drive sustainable penetration into Macy's addressable market.

Turning to our burn care franchise after a great close to 2020 for episodes with fourth quarter revenue of nearly $10 million. We continued to deliver very strong results to start the year.

First quarter revenue per episode increased over 50% compared to the first quarter of 2020, as we achieved a new monthly volume record for episode Grafts and February and the second highest quarterly revenue and history.

The average quarterly revenue for episode all over the past three quarters is now more than $8 million and the underlying episode business fundamentals remained very strong.

<unk> biopsies over the past two quarters were the highest and history and the average number of grafts per patient also continued to outperform historical levels.

Although episodes can be challenging to forecast due to the variability and the number of severe burn patients. We believe that these recent trends indicate a sustainably higher level of utilization of this important product and we therefore have increased our growth expectations for episodes in 2021.

To support the recent growth and increased demand for <unk> and to prepare for the planned launch of <unk>, We're continuing our staged expansion of the burn care commercial team.

Our increased commercial efforts on episodes and together with the structural changes to our sales force to include both sales and clinical support roles have driven the increased demand for episodes and we believe that additional resources for the burn care team will drive continued increases and the episodes utilization and support our preparation for the planned.

Launch of Nexobrid.

In terms of Nexobrid, we continue to make significant progress with our with respect to our commercial and medical affairs prelaunch activities.

In addition to and ongoing disease state awareness campaign, our commercial team continues to advance multiple brand development and market access initiatives.

Our clinical and medical Affairs teams also are continuing to engage with burn centers and training and educational initiatives through the next expanded access study, which is enrolling new adult and pediatric patients at leading burn centers across the country.

From a regulatory standpoint, the nexobrid could do for gold date remains 2000 and nice how's.

However, as is apparent from recent FDA actions across the industry travel restrictions related to the COVID-19 pandemic are impacting the fda's ability to complete manufacturing facility inspections and the FDA has informed meta wound that due to these restrictions the EBIT agency may not be able to.

Conduct.

Conduct and required inspections of Nexobrid manufacturing facilities, and Taiwan and Israel prior to the <unk> date.

The FDA has also requested additional CMC information from meta wound and it has informed med womb debt. It is unlikely that the additional CMC information provided will be reviewed during the current review cycle.

Accordingly, we expect the timing of the potential approval and commercial launch of Nexobrid to be impacted.

As we previously communicated while we're not expecting any significant nexobrid commercial revenue in 2021, we are expecting to recognize the remaining BARDA procurement revenue of approximately $3 8 million in 2021.

Given its robust clinical data package, we believe that nexobrid remains well positioned to become a standard of care for removing eschar in patients with severe burns and we.

Look forward on approval to bringing nexobrid to the U S market.

I'll now turn the call over to Joe to provide more details on our first quarter financial performance and our updated 2021 financial guidance.

Okay.

Thanks, Nick.

Starting with the income statement.

Total net revenue for the first quarter increased 30% to $34 6 million compared to $26 7 million and the first quarter of 2020 and included $23 8 million and Macy revenue and $9 $8 million and Epistyle revenue compared to $20 3 million and $6 $4 million and Lacey.

And episode revenue, respectively, and the first quarter of 2020.

Total revenue for the quarter also included approximately 0.9 million and revenue related to the procurement of Nexobrid by BARDA for emergency response and preparedness.

Macy revenue grew 17% compared to the first quarter of 2020.

Note that Macy revenue and the first quarter about 2020, and 2021 included favorable revenue adjustments related to prior period estimates and if you exclude the net impact of those adjustments revenue growth would have been over 20%, which is in line with our implant growth.

<unk> first quarter revenue grew 54% compared to Q1, and 2020 and our total burn care revenue of $10 8 million increase versus a strong fourth quarter of 2020.

Gross profit for the quarter was $23 million or 66% of net revenue compared to $16 8 million or 63% of net revenue for the first quarter of 2020, representing an approximate 350 basis point improvement and our gross margin versus the prior year.

Total operating expenses for the quarter were $26 3 million compared to $21 8 million for the same period and 2020.

Increase in operating expenses was primarily driven by higher non cash stock compensation expenses related to our higher share price as well as incremental employee expenses related to the Macy's sales force expansion expansion in 2020.

Note that Q1 2021 results did not include a full quarter of stock compensation expense based on the increase and our share price.

And we will see sequential growth and operating expenses into Q2 to account for a full quarter impact of this expense, which is already factored into our full year operating expense guidance.

Net loss for the quarter was $3 3 million or <unk> seven per share compared to a net loss of $4 7 million or <unk> 10 per share for the first quarter of 2020.

Non-GAAP adjusted EBITDA for the quarter was $4 6 million from.

From 13% of net revenue compared to a loss of zero point $7 million and the first quarter of 2020.

Importantly, this is our third consecutive quarter with positive adjusted EBITDA and our first time reporting positive adjusted EBITDA for the first quarter, which is seasonally our lowest revenue quarter of the year.

Finally, we generated $10 1 million of operating cash flow and the first quarter and as of the end of Q1, the company had approximately $110 million and cash and investments compared with $100 million as of December 31, 2020, and no debt.

Transitioning to our updated guidance for 2021.

Based on the strength and both Macy's and <unk> and Q1, both in terms of revenue and underlying growth drivers. We are increasing our full year revenue guidance and now expect total revenue of $165 million to $168 million or approximately 33% to 35% growth. This <unk>.

Pairs with our previous full year guidance of $161 million to $164 million or 30% to 32% growth.

In terms of our franchises and we expect may seem to be at the upper end of our previous guidance with growth and the mid 30% range.

The increase to our full year revenue guidance range from Macy is driven by higher expectations for the second half of the year based on our biopsy performance over the past few months.

Which typically would begin to convert to implants in the third quarter.

Moving to our burn care franchise after a strong start to the year. Both in terms of revenue and underlying commercial trends. We now expect revenue growth to be and the high 20% range for the year versus our previous guidance of mid teens growth.

Our overall burn care franchise, including Nexobrid BARDA revenue is now expected to be approximately 30% for the year.

Moving down the P&L, we continue to expect gross margin to be $70 to 71% for the full year and operating expenses to be approximately $115 million for the full year with a sequential increase of about $5 million and spend expected in the second quarter, and then approximately $30 million of operating.

<unk> expenses and each of the remaining quarters.

And finally based on our increased revenue expectations, we are increasing our non-GAAP adjusted EBITDA margin for the full year to be approximately $21 five to 23, 5% compared to the prior guidance of 21% to 23%.

This concludes our prepared remarks I'd now like to.

I'll now ask the operator to open the call to your questions.

Okay.

Thank you as a reminder, if you wish to ask a question simple.

The press Star then the number one on your telephone keypad once again that a star one on your telephone keypad.

First question is from the line of Ryan Zimmerman of <unk>. Your line is now open.

Okay.

Thanks for taking the questions. So maybe to start on the next on Brad delay here and I know <unk> given their call right now to stay on and some additional commentary but.

And you talk about kind of how long you expect this delay to occur.

And what guidance you have in terms on the review cycle, just any color. There I think in terms of helping investors think about when next on Brad.

I'll be approved.

And then <unk>.

On activities pick up on and proceed.

Yes, Thanks Ryan.

So.

At this point Ryan what we're trying to do is say with less than two months.

Left to the Paducah date, and without and inspection being scheduled it's likely that there is going to be and impact now we certainly arent in a position to speak for the FDA or predict what theyre going to do or how the.

How the likely delay will.

Play out, but what we're trying to do is bring the information that we have to investors' attention.

A number of different scenarios that can happen you can see it across the industry right where.

If theres a delay it can either fall into the category of a major amendment when additional information as requested.

A deferral.

Or it can be a complete response letter and I think you see all of those happening.

And the recent history with the FDA around these these kinds of issues.

Okay.

Sure.

And here more of that about that.

Steve.

Turning to guidance for a moment as a follow up so.

Clearly doing better I think than and your expectations and guidance.

And so about two 5% or so I think from the midpoint that you guys beat by 7%, 7%. So maybe just help us understand the underlying dynamics in terms of the composition and the guidance for the year or maybe just said differently. How do you think about Macy gross and.

And the mid Thirty's here.

Just with respect to the biopsy dynamics so.

You clearly have more surgeons sand and you biopsies, but you exited last year I think was a bit of a backlog.

And you know really strong biopsy and Carlson and so.

And how are you.

Maybe some more additional color I think around biopsy dynamics in terms of.

And whether youre seeing maybe less biopsies for surgeon, but.

Broader surgeon base and any color there I think would be helpful.

Yes, I'll start Ryan and then Joe can pick up the guidance, we mentioned on our fourth quarter call that we were we saw strong biopsy growth and the fourth quarter. Obviously it wasn't the same growth we would have had without the COVID-19 impact and.

And then of course, 20% biopsy growth.

Plus.

First quarter, so, we're seeing a strengthening and that biopsy growth and.

And we also mentioned that the biopsies per surgeon and after taking a dip during the first half of the year related to COVID-19 hit sort of bounced back to 2019 levels and we'd expect that to grow throughout 2021, and so the dynamic remains the same where we expect 20% growth and the biopsy and <unk>.

And as you are right to note as we pointed out on the call that that was a big driver for the strong biopsy performance.

But when we then guide to sort of mid 30% revenue growth, it's because we expect additional ore and the increase and the average number of biopsies per surgeon. So that dynamic is pretty consistent with what we've been saying over the past couple of quarters.

And just just to add as well so again I think the way to think about that is as Nick talked about on the call and just and just referenced again as we are seeing underlying strength and both our surgeons and those biopsies over the last few months. So as we think about that increase on the Macy guidance basically from about low to low mid low to mid 30% growth.

To now mid Thirty's, and really is the strength and those biopsies and as we think about the cadence of that our expectation is relative to our initial guidance thats going to be more on the back half of the year.

Okay.

Thank you.

Your next question is from the line of Guy that from from Cresting Securities. Your line is now open.

Great Hi, guys. Thanks for taking our questions. So just just a follow up to Ryan's earlier question on on next to Brad can you just clarify the steps that have to be completed at this point before gaining approval and the U S and I mean, it sounds like the FDA hasn't officially scheduled the inspection for the Netherlands facility, but.

And they given any sort of ballpark date for that yet and then I.

Thank you guys were still trying to determine the right price for the product a couple of months back have you made on any additional progress on on that at this point.

Yes so.

The words that we used was that they may be unable to conduct and inspection prior to the <unk> date and Thats. All we know at this time. So there's no sort of indication of when that would get scheduled and I think thats kind of standard practice.

In terms of the pricing study for Nexobrid that is wrapping up.

We expect to kind of get the final results here and pretty short order and then we.

We would just sort of share that at the appropriate time.

Okay that makes sense and then just on <unk>, you've now had two consecutive quarters of almost $10 million performance. So first was there anything specific that drove the record month and February and then can you help us understand why sort of 9 million wouldn't be a baseline for quarterly performance going forward.

Thank you.

Yes, Thanks Kayla.

So you.

You can't really say that Theres anything, particularly unique about February we as we mentioned on the call. We did have over the past two quarters a record number of biopsies for that time period, and so obviously when the top of the funnel is filled with more patients.

<unk> tend to get.

Higher volumes, but nothing particularly.

Unique about February I think it really just goes back to what we've talked about before where we are having seeing a higher number of grafts per patient and per order, which is important as our sales reps, who are doing a great job sort of engage earlier and the process on treatment plans with surgeons I think that's a key.

<unk> dynamic.

And that we've seen and that we expect that to continue going forward in terms of.

And the baseline on Joe I'll, let you take that one yes. So thanks for the question I think as we think about <unk> of course. This is a difficult product to predict and terms of and you just given the variability and the type of product. It is but if you look back over the last three quarters and you talked about there is two really strong quarters, and Q4 and Q1 and if you look really over the last three quarters and.

On a run rate is about $8 million. So as we think about guidance on.

Initial guidance was and the teens, which was higher than single digits now we're up to the high Twenty's. So.

From a run rate perspective, youre looking at something closer to $8 5 million as we think about the remaining quarters and the year and certainly is next and the team is doing a great job and we will continue to continue to push on that product, but I think and it is an increase relative to where we were and still above our run rate over the last three quarters.

Great. Thanks, guys.

Thank you. Thank you.

Okay.

Your next question is from the line of Danielle and thought.

And Duffy.

Yes.

Leerink Your line is now open.

Hi, good morning. Thanks, so much for taking the question congrats on a really strong start to the year.

Or maybe Joe whoever wants to take this one.

It's about what youre seeing from a productivity perspective.

And with the sales force debt that you added greatly to add that added them right before COVID-19.

It sounds like you were able to at least onboard that and Intel.

The productivity ramp likely delayed given that they started sort of correct me, if I'm wrong, but Carlos on the April timeframe of last year.

Have you seen now as Youre seeing restrictions start to ease.

Is that part part of what's driving the stronger biopsy growth your store productivity start to ramp there and.

Any color would be great.

Yes, Thanks, Danielle and as we mentioned last year.

We've always followed the same practice in terms of our sales force expansions, which.

I have been pretty productive I think compared to industry norms as we as we scaled our sales force. We essentially we're seeing increased rep productivity as measured by revenue per rep.

And we expected that to take a bit of a step back when we added such a relatively larger number of reps but.

And the delayed and getting into the field last year was about a month.

We talked about the fact that it really gave the teams a lot of time, the new new reps to build strong business plans and then get out there and hit the ground running think and the third quarter last year, we mentioned that in terms of growth of new biopsy and surgeons the new <unk>.

Territories, we're leading the way and that often happens right because we brought in really experienced reps I think average.

On average they were sort of large cap med tech.

And sports Medicine reps with about 10 years of experience. So they bring relationships and I think we saw a little bit of that and then as you look into the first quarter of the year you have to remember that at this point, we're kind of taking existing territories and.

And basically realigning them. So it's not like the reps are walking into a greenfield situation. There's a book of business there and I think we can say that from a biopsy perspective, and even and implant perspective that the metrics for those 27 and expansion territories.

Much aligned with our legacy.

Original territory growth rates and so so we're feeling good we expect that there'll be.

Up.

Had the same productivity profile.

The prior cohort cohorts of reps that we've added.

Understood. Thank you for that and then just a question on the biopsy conversion rate. So biopsies are outpacing.

And plans it sounds like which is great to see and certainly a positive leading indicator, but the other big needle mover here is on the conversion side of things are you guys seeing any.

And any progress on that front and how should we be thinking about that contributing to the growth profile. As we look ahead to 2021, but and then also obviously and more importantly over the next few years. Thanks, so much.

Thanks, Danielle and.

We've talked pretty consistently about the three growth drivers for the ACB business being the number of biopsy and surgeons and the growth of those surgeons, taking biopsies. The average number of biopsies per surgeon and then the conversion rate and certainly as we talked about earlier for this year and.

Probably over the next couple of years. The primary growth drivers are going to be adding the new biopsy and surgeons and then getting more biopsies per surgeon and the first driver being the breadth of penetration into our target customer base and then the second being the depth of penetration into their practices and.

We expect the conversion rate to remain stable as that dynamic is unfolding and that has a lot to do with the fact, when we're adding a large number of new surgeons.

<unk> tend to convert at a lower rate as the first engage with the brand and then overtime work up towards towards the average and so.

Once we saturate our target surgeon base of 5000 and surgeons over the next few years, then the number of biopsies per surgeon and the conversion rate will will take the predominant role in terms of driving growth and the out years. So so for this year, we expect the conversion rate to be stable and.

And then increase over time.

Got it okay. Thanks, so much thanks.

Thanks, Danielle thank you.

Your next question is from the line of police Schooley from Stephens. Your line is now open.

Good morning, and congratulations on great starts and a year and <unk>.

Taking the questions.

And just to quickly from me on the.

Nick or could you, maybe just talk a little bit about the operating model now and below and we wanted to get out as well.

With the leverage that you're seeing and the burn franchise.

How do we think going forward just about the margin profile of the business.

Are you essentially at scale now, although with the existing group and so we just think about incremental reps coming on top of that or.

Is the existing groups there is still scaling and you still see increased productivity opportunities there just trying to get at.

And the op margin contribution from <unk>.

Or the burden and franchise more broadly.

Longer term and then I'll have a quick follow up.

Yes, so I'll just start with sort of the.

The first part of that question and then turn it over to Joe to talk about sort of the operating margin impacts but.

I do think that as we restructured the <unk> sales force as we talked about into both sales rep and clinical support roles that were seeing increased efficiency efficiencies there and this dynamic that's driving growth.

Because we really haven't added a meaningful number of sales reps over and over the past two quarters for sure.

And it's really just the fact that they are continuing to scale and increase productivity now we did mention earlier on the call as you know as we were our plan.

Planning for the next day bridge launch that we're planning to go from seven reps and for clinical support specialists to 11 reps and.

And seven clinical support specialists and we are embarking on that expansion.

Currently so we're going to add another couple of clinical support people and and one on the sales management side and so forth.

Continuing our staged expansion and that's because we think there's a lot of.

Room to grow still just and the <unk> business alone I think that's clear.

And then of course deployment plan for the <unk> launch and get up to full scale for that event. So that's kind of the the kind of.

<unk> that we're taking and I'll, let Joe talk about sort of the operating margin impacts as those our margins generally continue to improve with our increased performance.

Yes. So thanks for the question and I mean, just to add to what Nick talked about I mean, I think broadly speaking we are certainly looking to continue on the leverage we have in both franchises, but as we think about the burn franchise, where it is right now.

I think thats kind of fits into our gross margin profile of around 70% plus gross margin as we think about the operating income line potentially being around 20% and I think as we're thinking about this increase on the <unk> on the burn care side and these are really modest investments from an operating expense perspective.

So.

And I don't think it will have a material impact as we think about the burn care. Both this year and beyond and will continue and look to actually add leverage and increase margins and I would point you back to kind of the bigger picture for the company, which is if you look at EBITDA. For example, last year, which is a great proxy for operating cash flow. We are at around 18.002 million 20 and.

And if you look at our guidance this year and Youre at two <unk> that number of around 36 $38 million. So this is certainly something we pay attention to do from a margin perspective, but we think from an investment perspective.

We will certainly help on the burn care side, but not not impact on margins and Thats something were going to continue to look to grow over time.

Thank you for some color on and then.

And I apologize on this earlier.

On the call, but just curious thinking your prepared remarks, you stated that you are seeing increased acceptances from unitedhealth.

And just curious when you look at the increase and.

Biopsy is taken on the macys side of the equation.

Are those surgeons that are skewed more towards the.

On the health type market and just.

Just trying to parse that a little bit.

Finally, there are you seen basically a benefit.

From the growth and surgeons as a result of the change and Tim.

And the coverage from UNH. Thanks, so much.

Yes, so yeah as we mentioned on the call.

And obviously previously on our first quarter earnings call. We believe that this is a very important win for us right.

Not only because we will be able to treat these united healthcare patella patients more frequently but just sort of the overall sort of halo effect of reinforcing really strong reimbursement for basi. So yeah, we saw and almost immediate uptick remember that policy update just became effective on February one so sort of.

Middle of the of the first quarter immediate uptick in terms of approval rates for those cases that are at or maybe even slightly above non patella cases and right in line or maybe slightly above the overall national average so so really.

Accelerated sort of increase and the approval rates I'd say, it's a little early to sort of take defined cut of saying the new surgeons that you've added are they principally united sort of focused or dominant physicians I don't think we know that information yet United.

Is the largest commercial insurance plan and the country, but even then it only represents about 15% of covered lives right. So.

It would be a little surprised if theres someone who jumped on board just because they happen to have a skewed United practice I just think it's sort of the overall effective on a great product and people have.

And good success with their patients.

Thank you.

Your next question is from the line of <unk>.

P Cohen from Ladenburg Thalmann, and your line is now open.

Alright, and Nick and Joe how are you.

And we're doing well thanks, Jeff great. Thanks.

So Joe if I could share with you on the.

On the Opex Guide that you gave from 115 and you had some additional commentary on was there some additional composition of on.

The opex that we should be thinking about.

The cadence of the year.

Yes, so what we've talked about on Opex.

We did about 26, I think our Opex was $26 million and Q1, and what we said our previous guidance for the full year was $115 million and that full year guidance of $115 million has not changed so that's still our latest outlook on on operating expenses, while we talked about in terms of the quarters.

We expect a sequential increase and Q2 of about $5 million and then approximately $30 million and the remaining two quarters and really what youre seeing there and we talked about it as just.

And have a timing and the way that the higher share price, which is impacting our noncash stock compensation expense, which is part of operating expenses, how thats flowing through the P&L. So said differently. There was a portion of that and Q1 and that will step up in Q2, and then also on the remaining couple of quarters.

Okay. That's super helpful and could you talk about surgeon training throughout the first quarter and maybe how that's looking so far and the second quarter I didn't hear on your previous commentary bits or anything to call out there.

Yes, Jeff we kind of focus on sort of the number of biopsy and surgeons right. The training element from AC because it's such a simple procedure it.

It can be done online so that isn't that sort of a gating item for us.

It's really about how many how many what's the growth and the biopsy and surgeons as and as we mentioned on the strength and the biopsies that we saw on the in the first quarter was really driven by the the.

And the biopsy and surgeon growth. So I think that kind of tells you that the brand continues to be adopted broadly by and increasing surgeon base.

Okay got it and then lastly from me.

You've probably done some work on this front.

Do you have a feeling your balance.

And the additional or extra time with regard to Petro and some of the cartilage defects that are out there.

Yes, we talked about that.

<unk>.

Around the United Obviously medical policy expansion and the way to think about it is.

Of the 60000 patients that make up our addressable market.

About 20% of cartilage injuries or defects involved the patella and.

And then on the United covers about 15% of patients commercial patients in the U S. So you can kind of do the math and say that.

That gets you to about I think 1800 patients times, our price point gets you two of the $2 billion Tam you could say 70 ish million dollars of it relates to United Patella cases, now we were already getting that business.

Issue was not all of the business, obviously, the approval rates were much lower than sort of the overall approval rates.

But the issue is surgeons and really don't want to spend a lot of time trying to kind of go through the whole process on a one off basis to get these cases covered so so really it just helps there.

And there isn't a there's a portion of the addressable market that is attributable to these patients there is a.

A number of patients each year that were denied because it was <unk> and it wasn't on.

On the medical policy. So you pick up that piece and then there is incremental business out there.

For the years ahead.

Okay, and then lastly from me you.

You had mentioned.

Three eight remaining on the BARDA contract for 2021, I think we had.

And so at around three <unk>.

And.

The Q1 route continues through the balance of the three quarters and which is like four.

And your commentary on this year and also on 2022 with regard to BARDA on to itself.

And so.

For the year and obviously, we recognized $900000 of this revenue already but the remainder of the contract.

<unk> was 3 million $3 $8 million and total so theres, a little bit less and three to be to be recognized over the remaining three quarters. So that remains the same.

The next and so that.

And no commentary beyond that so for at least for this year you can kind of keep that in the model.

Perfect. Okay that sounds from me thanks for taking the questions.

Alright. Thank you. Thank you.

Your next question is from the line of Kevin <unk> of Oppenheimer. Your line is now open.

Hey, great. Thanks for taking my questions guys.

With regard to <unk>.

I appreciate the comments with regard to the site inspection, probably no big surprise, there, but did I hear you correctly.

You stated the.

Yes.

Request additional CMC information from anyone and and if Thats correct and you provide some context around that statement.

Yes, we did mention that right. So there is the inspection issue and then anytime you go through and FDA review Theres requests for information and so on and so yes, we did say that the FDA.

As communicated to many wounded that it's unlikely there'll be able to.

Review that additional information during the current review cycle.

Got it.

And then with regard to commercial preparation and just kind of given this uncertainty and.

With regards to timing.

What portion of the prelaunch investment and scale up.

Do you feel comfortable kind of continue more or less yes.

According to plan and.

What sort of developments.

Do you at least need a little more clarity.

And on our reduction and uncertainty and before.

Moving forward with.

And so I'm just trying to put some of the particularly some of the opex guidance and context.

Yes, well I'll just start with our philosophical approach and Joe can kind of chime in on that.

What might the impact that might have on opex. So number one as I mentioned from kind of the medical affairs and clinical side, we continue to.

Enrolled patients and the expanded access study that will continue during this period from a commercial prep standpoint really the activities fall into three buckets right. We developed a disease state awareness.

On the campaign that is still being implemented at the various conferences and so on and then there is brand development and market access activities and those continue to move forward. There are some things you can kind of slow down if you want but.

It's still important to us.

Looking at.

Completing our pricing study, putting PNT kits together and all of those training materials all of that stuff is ongoing.

Because we don't want to be caught flat footed upon approval and so that's moving forward.

And same thing so the market access activities once they began and we're going to see them through to completion and then brand development again, that's moving forward. There is some small pieces you can potentially keep the timing a little bit but.

We expect that these are just timing issues and so we're going to move forward with the majority of the initiatives that we were already on that were already underway.

Yeah, and just to add to that as we talked about on the call.

Going forward the expansion of the burn care team of course, which will support.

And the episodic growth as well as the potential launch and <unk> brands and then really as Nick said number of launch preparations are still ongoing so certainly there could be some pieces of that to move around on the sales and marketing side, but I wouldn't expect that to materially impact our operating expenses for the year.

Great and then and lastly from me can you just provide an update with regard to the expanded access study. The next study either.

Number of Surgeons, who you have been able to bring in and gain access to the tax and bread or patient procedures or whatever metric and takes months Ralph and here.

Yes, so we talked previously.

About sort of the the program itself right, which initially was treating up to 150 patients at up to 30 sites and the U S.

On the pediatric <unk> study was ongoing at that time and and now the enrollment is closed and that study in pediatric patients can be treated and the next study.

And the protocol was actually amended to increase the number of sites up to up to 35, and then up to 200 patients and so.

There is.

We're probably somewhere in the.

Low to mid Twenty's and terms of the number of sites that are currently engaged and that study.

Sure.

And there have been COVID-19 impacts right, where we're sites weren't starting new studies and so on but we hope to continue to increase that over the balance of this time ahead of approval and so.

We continued to enroll patients.

We have plenty of room to continue to enroll more patients, which is really important right. We want sort of the steady execution of the study up to approval. So that we have and the maximum number of centers and surgeons experienced.

With the product.

That's very listen congratulations on a really terrific quarter, and and and all the progress.

Thanks, Kevin.

Thank you.

Once again, if you wish to ask questions and please press Star then the number one on your telephone keypad and our next question is from the line of Ryan Zimmerman from <unk>. Your line is now open.

Just one follow up from me.

Nexobrid approval.

Good day and excuse me.

I believe there is a milestone payment of $7 5 million. So Joe the $115 million Opex guidance I assume doesn't contemplate that milestone payment and then second to that is.

And what provisions do you have and the agreement with <unk> two.

And modify that payment if at all.

Given that.

Open ended question on time and thank you.

Yes, I'll take I'll take the first part so so again the $115 million of Opex is unchanged and.

Actually that that milestone was not part of the 115. So there is some different accounting works on the would impact our cash flow, but not the P&L. This year and then maybe you can repeat the second part of the question Ryan.

And just any provisions on the contracts that dictate that that milestone payment and the amount that you may pay to matti wound.

On whether it's a timing delay or something that at a certain point.

Does the $7 5 million has the potential to become six five for $5 five based on.

And whatever provisions you might have struck with the company.

Right now there are no provisions like that and.

I think thats really typical to kind of.

Kind of scale those payments with timing.

So as Joe mentioned number one that was never included and Opex just because it has different accounting treatment. So no change there.

And when the product is approved we will make the $7 $5 million payment.

Okay. Thanks for taking the follow up.

Great. Thanks, Brian.

Seeing no additional questions I will now turn over the call back to Nick Colangelo for closing remarks.

Okay. Thank you operator, and thanks to everyone for your questions and your continued interest and very yourself.

Also wanted to thank all of our employees for their continued hard work and dedication to the patients we serve the company executed extremely well and the first quarter and we remain focused on continuing to execute on our long term growth strategy, providing our therapies to even more patients in need and and the process, creating significant value for all of our stakeholders.

Including patients and shares colder so thanks, again and have a great day.

And with that this concludes today's conference call. Thank you for attending you may now disconnect.

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Q1 2021 Vericel Corp Earnings Call

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