Q2 2023 Vericel Corporation Earnings Call
Ladies and gentlemen, thank you for standing by welcome to be ourselves second quarter of 2023 conference call. At this time all participants are in a listen only mode.
I'd also like to remind you that this call is being recorded for replay.
We'll now turn the conference call over to Eric Burns <unk>, Vice President of Finance and Investor Relations, Let's just go ahead.
Thank you operator, and good morning, everyone.
Welcome to the era of second quarter.
The conference calls.
Result in business highway.
Before we begin.
And you want to pay a call you're only making forward looking statements covered under the <unk> Securities litigation with one after the 1995.
These statements.
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The results of your connected with expectations <unk>, which are available on our website.
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Okay statement representative use only as of today.
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That'd be a any subsequent day.
Please note that a couple of <unk>.
It is available I mean, that's relations section on our website.
I have a short presentation with cards in today's call.
<unk> reacted on our website.
Enjoying the color <unk>, President and Chief Executive Officer Nickel Angela.
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That's what I call up your neck.
Thank you Eric and good morning, everyone. I'll begin today's call will be discussing our financial or business highlights for the second quarter as well as our expectations for the rest of the year.
Joe will then provide a more detailed review of our second quarter financial performance and are updated financial guidance for 2023 before opening the call to Q&A.
The company had an outstanding quarter as we delivered significant revenue growth and record second quarter revenue continued profitability operating cash flow and strong underlying business results from AC an episode.
From a financial perspective total revenue for the second quarter increased 24% to approximately $46 million, we both Macy's and epicel exceeding our second quarter financial guidance.
We also continued to generate strong profitability as we delivered our 12th Street corner of positive adjusted EBITDA, which increased by 60% over last year in operating cash flow of over $10 million and in the second quarter with $147 million of cash and investments and no debt.
Based on the strength of our performance in the first half of the year, which included combined total revenue growth for amazing episode, 20%, we're raising our full year revenue guidance to 192 $197 million as.
As we look beyond this year 2024, we expect the momentum in our core business to continue with the anticipated commercial launch a arthroscopic Macy and a significant contribution from next the bread. We believe that we're well positioned to drive further revenue growth acceleration with total company rubber new growth of over 20 per cent in 2000.
24.
Our financial results for the second quarter were driven by continued strength and momentum for Macy's as we generated record second quarter revenue of $36.3 million, representing 27 per cent growth compared to last year.
Are sustained macy revenue growth over the past few quarters has been driven primarily by the continued expansion of our surgeon base and the resulting strength and biopsies both of which were ahead of our forecast for the first half of the year.
In addition to generating record second quarter Macy revenue in implants. We also had the highest number of surgeons, taking biopsies in any quarter since launch and the second highest number of biopsies and a quarter, which were only a handful shorted a record number of biopsies taken in the fourth quarter last year.
This performance reflects the continued strong execution of our sales and marketing teams and engaging new surgeons and the continued improvement in the overall market dynamics as we've now delivered three consecutive quarters with a record number biopsy surgeons and our three highest score does a biopsy since we launched me C.
Based on these underlying business fundamentals Macy's achieved a sustained high growth trajectory with nearly 30 per cent growth through the first half of the year and four straight quarters of mid 20 per cent to low 30 per cent growth give.
Given these results and they continued momentum to start the third quarter and what should we expect another quarter of 20 per cent growth. We are increasing our full year macy revenue guidance to $159 million to $163 million.
This updated guidance range represents more than 20 per cent growth for the full year and acceleration in the basic growth rate versus last year.
With respect to our Macy's lifecycle management initiatives, we continue to advance to Macy arthroscopic and Macy ankle development programs Importantly, we plan to initiate the human factors validation study for arthroscopic Macy this quarter and to submit the study results as part of a prior approval supplement to expand the Macy label to.
Include arthroscopic knee C by the end of this year we.
We know anticipate commercial launch of arthroscopic Macy in the first half of 2024, which we believe will positively impact the growth trajectory from AC in the years ahead and have a significant impact on our overall business.
We recently completed an extensive quote quantitative market research project that included more than 100 orthopedic in sports medicine surgeons to evaluate the potential impact arthroscopic delivery could have macy penetration of the addressable market.
This research confirmed our view that arthroscopic macy over represent a meaningful innovation in the car to bridge repair market.
First the research indicated that there was a high degree of interest in arthroscopic knee see across all surge in groups, which included basically users as well as non users.
Surgeons pointed to several potential benefits and advantages of arthroscopic knee C delivery, including a less invasive procedure, resulting in less postoperative pain faster recovery and improved aesthetic outcomes for patients.
The Macy arthroscopic instrument Kid is designed to treat smaller two to four square centimetre defects on the femoral condyles and the research indicated that regardless of their current Macy's usage surgeons expected to ship to ship to meaningful share of their procedures. In this segment from alternative products and procedures to the arthroscopic <unk>.
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Importantly, two to four square centimeter femoral condyle defects represent the largest market opportunity for Macy is this segment represents about 20000 patients per year or approximately a third of the 3 billion dollar addressable market for me C.
Well Macy has significant volume in this segment is penetration rate is lower compared to other areas of the knee for.
For example, in <unk>, which represent about 10000 patients per year, Macy's penetration is greater than 10% and we continue to see very strong growth in this segment.
Four able to achieve similar penetration in the federal Condyle segment with arthroscopic Macy read effectively double our current macy business over the coming years.
We believe that arthroscopic macy delivery will be a valuable option in the cartilage repair market.
And will help drive an acceleration in the company's overall growth trajectory beginning next year.
Finally as noted in our earnings release. This morning, we recently and <unk> executed a longterm extension of our exclusive supply agreement with Matt yourself for the <unk> College in memory.
Disagreement not only provides for continued supply of this key component of the Macy final product, but also price provides rare so with exclusive rights to the membrane for the next decade and beyond which is an important part of our long term protection strategy for me C.
Turning to our burn care franchise, we reported second quarter episode revenue of $9.6 million, which was one of our higher quarters to date and significantly ahead of recent trends in our guidance for the second quarter with growth of 40% versus the first quarter and 17% versus the prior year <unk>.
This strong performance for episode was driven primarily by the fact that we continue to see a higher proportion of biopsy to patients moving onto treatment would that be cell and continued stabilization and the average number of graphs per patient.
Episode revenues of $16.4 million for the first half of the year is 20 per cent higher than in the second half of 2022 is our burnt care team is driven a significant improvement in our performance trends and increase utilization of this important product.
We're also beginning to see examples of positive pull through for episode from our <unk> sales reps based on the high level of engagement and interest in <unk>, helping to drive usage at Gorman Epicel accounts.
Although we expect it episode revenue will still be variable from quarter to quarter. We're very pleased to see significant improvement in a recent results and a strong first half of the year for the product.
With respect to <unk>, our pre launch activities have remained on track throughout the first half of the year and are burnt care teams generated a tremendous amount of interest and enthusiasm for next to Britain in the burn care community.
In terms of <unk> product availability, we received our first slot a finished product from <unk> for the U S market at the end of June , which currently has warehouses or third party logistics provider.
While this next spring blocked meant all release criteria for distribution in the U S market.
We're not able to commercially distribute the product at this time due to a deviation associated with a third party testing lab in Taiwan used in med wounds manufacturing process.
As we've prelease Lee discussed there were several manufacturing process updates that were required to be implemented by <unk>. Following approval of the <unk> and all of those updates related to the medical facility had been successfully completed.
However, one of the process updates was a new upstream in process control test on an anti oxidant solution or a preservative that's sprayed on the appeal pineapple stems and one of the first process steps for the botanical raw material at C. B C, which manufacturers the intermediate drug substance for <unk>, Taiwan.
This routine in process control testing was outsource to a lab in Taiwan that subsequently was not approved by the F. D. A giving rise to the deviation that issue and invalidating. Your test results for all of the current lots of intermediate drug substance currently available to produce <unk> finished product.
This impact will not in pet or this issue will not impact next to break finished product manufactured for the U S market for new intermediate drug substance thoughts as the in process control tests will be done directly by Mediwound, which is the testing site of record and the B L. A however.
However, apps and F D a allowing commercial distribution of the finished product effected by this deviation, we would not be able to distribute this product and would expect to begin commercial sales of an expert in the first quarter of next year following the upcoming fall pineapple harvest season.
Which is our current operating assumption until we hear otherwise to that and we are currently engaged in discussions with the F. D. A following a formal request that the agency exercise its discretion to allow the distribution of <unk> impacted by this deviation.
Although there may be a delay in the commercial availability of next grade the fda's determination will not affect borrowed his plan to 3 million dollar procurement of next to bring to replenish the national stockpile from emergency response preparedness, which we now expect in the second half of 2023.
In terms of our overall burn care revenue guidance based on our improved episode trends in the anticipated BARDA procurement revenue, we're increasing our guidance for the year from $28 million to $32 million to $31 million to $34 million, which show will discuss in more detail later in the call.
And finally as we look beyond 2023, we continue to expect <unk> to make a significant contribution to our revenue growth in 2024 and at our burn care franchise will become a second high growth franchise for the company in 2024 and beyond and.
In summary, we're pleased with our excellent start to the year strong second quarter financial results and continued progress on Macy lifestyle management activities Importantly, we've raised our revenue expectations for this year and we expect company growth to accelerate to over 20 per cent in 2024 with continued strong performance where.
Our core products and significant contributions from the launch new products I'll now turn the call over to Joe to discuss our second quarter financial results and updated financial guidance.
Thanks, and good morning, everyone.
Starting with the income statement total net revenue for the corner was 45.9 $9 an increase of 24% versus the prior year driven by strong making revenue of 36.3 million $9.6 million an episode revenue.
Or maybe during the first half of the year, we generated revenue of $78.5 million, which represents 29 per cent growth breakfast that first half of last year. In addition over the last four quarters is now consistently a strong macy growth each quarter with 30 per cent, 24% 32.
<unk> and now 27 per cent growth versus the prior year.
A total this represents a 28% growth on a trailing four corner basis as making it resumed its high growth profile.
Or epistyle the 9.69 of revenue in the second quarter. It was our highest quarterly revenue Q1 of 2022, and Q2 revenue, 40% compared to the first quarter and 17% versus the prior year.
In addition, our first half Epistyle revenue was more than 16 million significantly ahead of our quarterly run rate of approximately 6 million per quarter entering in a year.
Gross profit for the quarter was 29.9 million or 65 per cent of that revenue and increase compared to 62% in the second quarter of 2022.
Total operating expenses for the quarter with 35.9 $9 compared to 31.9 $9 for the same period in 2022 <unk>.
The increase in operating expenses is primarily due to higher sales and marketing expenses and R&D program related cops.
Net loss for the quarter is 5 million or 11 cents per share compared to $9 million.19 per share for the second quarter of 2022.
non-GAAP adjusted EBITDA for the quarter with $4 for Naya, which were 60% versus the prior year and importantly, this now represents the 12th consecutive quarter and we have generated positive adjusted EBITDA.
Finally be generated approximately $10 million of operating cash flow in the quarter. We ended Q2 with approximately 147 million in cash restricted cash and investments and no debt.
Turning to our financial guidance.
We are increasing our full year revenue guidance for 2023, but now it's back total revenue of 190 to 190 $79 an increase compare a prior revenue guidance of 184 to 192 million driven by both of our franchise.
Maintaining our profitability guidance and expect gross margin it can be in a high fixed eight per cent range and adjusted EBITDA in the mid teens percentage ranch.
From AC we now expect full year revenue of $159 million to $163 million, an increase versus our prior guidance of $156 million to $150 million with growth with growth expect it to be in the low 20 per cent range for the whole year.
As Nick highlighted earlier or maybe momentum as continue into the third quarter.
We expect macy growth in the <unk> in the corner to the approximately 20% with revenue of $37 million.
For our broke her franchise based on the strength of Epistyle during the first half of the year and with anticipated next of Red barter revenue in the fourth quarter. We now expect all your revenue of 31 $34 million, an increase compared to our previous guidance of $28 million to $32 million.
Four episodes based on a higher quarterly run rates over the last three quarters, we anticipate revenue of approximately 7.5 million in Q3.
In total or increase broker revenue guidance does not assume any commercial revenue for next of Red during the 20th 20th during 2023 at this point. Although it does now include our share of Bartow Pro camera revenue of over $1 million, which we would expect to occur in the fourth quarter.
Overall, we are very pleased with our second quarter performance are strong start to the third quarter.
Look towards 2024, we anticipate continued acceleration of our total company revenue growth rate to over 20% with continued strong execution on our core product as well as the anticipated contributions of arthroscopic Macy's and accurate.
It's now concludes our prepared remarks little open the call to your questions.
Thank you.
A reminder to ask a question. Please <unk> one one on your telephone and wait for your name to be announced to enjoy your question. Please <unk> one one again.
Please stand by while we compiled roster.
Our first question comes from the line up Bryan Zimmerman D. T. I T. Chase go ahead.
Hey, guys good morning, and congrats on next quarter.
Oh I'm Gonna start off Joe I appreciate all your comments on guidance and there's a lot of moving components here uhm.
I guess I'll start off of Macy.
Given the first half 20th <unk> performance I guess I'd like you to speak maybe a little bit to end market dynamics patient behavior and interest levels.
Relative to last year, and then on that topic.
Okay, and your your third quarter commentary suggestion and acceleration from your prior expectations, but maybe help us understand it as broadly you know why that couldn't continue to accelerate in the fourth quarter and and why not raise it by by a bit more given the record biopsies were saying.
Yeah, Good morning line and and thanks for the questions. So I'll, probably take that and pieces and talk about where we were in the second quarter kind of your point on a third quarter and then round that out if you think about the four year and of course, such on Q4, so far.
First off I would say in the second quarter, you know I'd be talked about you know just I got a really strong quarter for may 8th 27 per cent growth head of our guidance you know I think the team's doing an excellent job from an execution perspective, I really just a continuation of the trends we've seen with with a number of quarters now and it kind of made 20th or 30 per cent plus and you're looking back you know.
Basically at 29% relative the first half of last year. So it really strong growth and I think to that point and enter your question.
Really that strength has been <unk> been driven by the underlying metrics and really the top of the final. So biopsy to ban extremely strong you know that continued in Q2 already nearly matched our queue for number the growth insurgent has continued very strong at three straight record quarters. So those are really kind of the key drivers I would save a result to date this.
Sure and asked me look for it so I'm from a Q3 perspective, as we touched down and then prepared remarks.
You know talk to another strong start and I think we expect another high growth quarter of 20%, which is approximately 37 million for the quarter and that does importantly imply a step up from Q2 Q3, which you know we don't always see so I think that's certainly a sign of continued momentum.
And then the other piece I would say is and it's quite a queue for as well, but we are running into some more difficult comps in the sense that two three in queue for last year were also quite strong I grew 30 per cent and 24% respectively. So that's certainly a consideration as we look forward you.
You know as as we think about the full year guidance I think it really starts with you know we started the year kind of mid to high teens, we continue to increase that an hour and the low 20 per cent range, which is above the last couple of years and above the guidance for the last couple of quarters. So we have certainly increase that of you know throughout the year.
The main point there at 161 is about 22 per cent on a four year basis in both Q2 being ahead and enter your point H. Two was also ahead of kinda wherever we expect to come in the last quarter.
And then I think just to kind of get contacts on I Q for you know at the mid point you know it would be kind of growth in in the mid eighties, certainly I think we're setup potentially do better than that but you know I think we just wanted to be balanced in the sense that you look at Q for it kind of lines up with what we typically see it's about a third of the full year revenue, it's still a pretty significant.
Step up in the mid 40 per cent range and again, we are running into some more difficult kop. So broadly speaking I would say you know pleased with the performance and cute too that's continued into Q3 and on a full year basis. We're now into the low 20 per cent range. So you know I just think at this point, we don't Wanna get too far ahead of ourselves in queue for but that's what you know.
Actually call for that that strengthen the business continuing throughout the second half and again, while you know will continue to drive the business.
Yeah.
That's great Joan I appreciate all your your card and thoughts there.
<unk> <unk> <unk>.
<unk> lunchtime in I I think it's important thing was to pull it out of numbers for the back half of the year, but.
You know I I, just want to understand and I think investors would wanna understand so so is there a potential and kind of what is your view of potential of of the F. D. A allowing there's lots to essentially be on the market. This year and what what would they need to see I guess to allow.
That that you know maybe re establish the next spring launched in the second half of this year cause. This is I mean, I think is the second delay we've had an extra bread you know since doing the deal with 91.
Yeah right.
You're right. It is the second delay we've had obviously the product was not approved on the first go round we stepped in.
Got the product over the goal line.
You know obviously, we're frustrated and disappointed that were seven months beyond the approval and we still don't have product from next <unk> next of bread or better wound that we can.
You know put into the commercial market. So you know.
I think that's a fair comment and you know again, we're trying to step in here now again engage with the F D, a and and be able to use. These these batches of intermediate.
Drug substance to to supply the U S market. So you know I can't go into all the details of our discussions with the the F. D. A as we included in our.
10-Q, you know we have done a detailed risk assessment, we don't believe there's any incremental risk to product quality or patient safety.
And you know obviously and those are the discussions we are having with the F. D. A so this is.
There were a number of manufacturers, we talked about before a number of manufacturing updates that were required to be implemented following approval.
You know as we talked about previously we were engaged with <unk> in the inspections last fall of their Israeli facility. The drug substance facility with C. B C and Taiwan those inspections, obviously went well and the product was approved but we.
He had some of these updates or metal we've had updates that needed to be completed they completed the ones related to their own facility and those were successfully completed.
Again, this third party testing lab.
Is basically testing that.
Microbrew, it's a microbial test of an anti oxidant solution that sprayed on the pineapple stems and one of the first processing steps. There are a number of other microbial controls that have been added. This one the F. D. A did not approve this testing site you know we were not.
[noise] involved with that obviously <unk> is our contract manufacturer is responsible for that and they didn't execute and so we're going in and working with the F. D. A to you know try to be able to use this material.
At the end of the day again, we don't think that there's anything incremental risk to using this it's the same process that was used for all prior.
Uhm Nexobrid manufacturing so all material that was used in clinical trials all material that was used to treat over 10000 patients globally.
The bar to stockpile all of that product was manufactured without this upstream in process control test. So we think there's a good case to be able to move forward with it but I think as you mentioned, it's prudent not to you know have that in our second half numbers until and unless we get.
The green like from the F D a.
Okay, and just to follow up and to find finer points on that one.
Or the the Barbara revenue that's been recognized in the back half of it here.
Those are the same locked that are being held off currently and then yes conceivably when would you get an update from F. D. A if you get one in the second half of the year, if you can share with us.
Yeah. So they would be the same lots right because all of the Kurds.
Intermediate drug substance lots were tested by this lab for both the 2021 minutes the 2020 to harvest seasons.
And then in terms of the timing of the F. D. A discussions you know we would expect it to be relatively soon obviously you need.
B, we collectively needed determination on this in pretty short order. So I think we'll know but again the operating assumption is unless we hear otherwise we're just gonna assume that we have to wait for the next pineapple harvest season, and that would result in new batches of both intermediate drug substance.
And next a bird finished product.
In the first quarter of 2024.
Okay. There's a lot of good pineapple going to last I guess, but I appreciate the help desk.
Thank you.
One moment please for our next question.
Our next question comes <unk> Ah Choi Securities. Your line is now open.
Hi, Thanks for taking a question just first I'll click on them and started to touch on this a little bit before on on this.
<unk> from Macy's should we expect two two to three Q increases Ah sort of normal spelling for it or are there some market dynamics and install a little unusual behind on.
And your confidence in being able to grow sequentially. This year.
Okay. Good morning, <unk>, you're trailing off a bit at the end, but I think you were asking about should we kind of expect this quarter vacated it's going forward.
Yeah, sorry <unk>.
Is anything unusual behind a sequential encourage you to take you to three keillor or is that a more normal seasonality gone forward.
Yeah, I mean, I would say I think you know I think the way you were thinking about it is you know obviously, we kind of got off to a good start with with strong results about you want in Q2.
We're off to another good start in Q3. So you know if you look historically to kind of your point. It can certainly bounce around a little bit you know, we certainly have seen some some years, where there is you know Q3 kind of stepped out with you too, but I think kind of where we are now is certainly could change a little bit going for it but I think what you're seeing come together this year or.
Three pretty strong quarters sequentially, Q1, Q2, and Q3, which I think is you know kind of driven by this momentum within a within a field and kind of driving biopsies and new searches et cetera, which is great. So I think it's you know I think it's just continued execution and and that's that's playing through in terms of the cadence of the numbers.
It's a pretty great pretty strong quarters.
Step up in queue for because of that may not be quite as high as we've seen in the past, but that's kind of out of this year is playing out and you know I think that that's probably how we would be thinking about going for it but I would say you know it could still barely a little bit you know waiting quarters, but we actually make it certainly a good sign to see that continue momentum throughout the year.
Yes, that's a great color and then switching to arthroscopic and and thanks for the market commentary that was really great how.
How shall we think about the the scale of that launch progressing through.
24 should we think about second half being.
And fall market release or is that gonna be staged for the year.
Yeah, Hey, Sam it's Nick in terms of the launch itself you know once the label is updated for arthroscopic Macy delivery will be out there, obviously and sort of full launch mode. You know I <unk>.
Think the dynamic will it'll you know, we'll wait to see exactly how it rolls out I think experienced <unk> users, who do a lot of Macy cases.
Having an opportunity to do it arthroscopic Lee you know <unk> sort of.
<unk> trained in you know, it's not obviously very complicated, but you know they'll probably pick it up a little quicker you know the segment of searches that are non macy users. They may wait to sort of kind of attend to peer to peer program. So they may they may come sooner. They may come a little later, so I think.
We'll wait to see sort of how it plays out exactly and it will differ by you know obviously, the differing surgeons, but you know in terms of our efforts and rolling it out and making it available when we launch relaunch.
Thanks for taking my questions.
Thank you.
Thank you one moment please for our next question.
Our next question comes from the line out Jack Bitcoin update and Bank line is now open.
<unk>, thanks for taking our questions.
<unk> firstly.
Alright, <unk> sounds like you commented about Bart in the back half of your being a few million dollars and.
He was talking about you still a cue for impact of approximately a million dollars for forecasting purposes, what should we fixed up all our embargo for it.
Okay for this year.
Yeah. So just to clarify that so what are you talking about one that <unk> will be replenishing part of their stockpile, which in total is about a 3 million dollar replenishment, Nevada perspective, but then there's some economics that play into that and we and we would share it.
That wasn't that a woman so essentially what I sat in which is I think the the right number to think about from our revenue and we would expect something you know over a million dollars our portion.
That $3 million. So you know over a million dollars part accumulating a million and a half and that would be our expectation would be that would be in the fourth quarter.
Okay. So for modeling purposes don't think about anything for the third quarter.
Exactly.
Okay I got it could.
Could you talk a little bit about the.
An extra <unk> commercial expansion that seems like it seems like most of your organization wishing place. It was expanded over the past few quarters hurt us a look now.
And how much I'll look going forward specific to an extra <unk>.
Yeah, So you're right, Jeff we've kinda, we mentioned that we're adding you know half a dozen rex for it that would be <unk> only reps under R.
Original and current plan and you know that we've executed on that pretty successfully.
The you know if we get the green light from the F. D. A shortly then of course, we'll kind of deploy them as an extra bread only account managers as originally intended and then some time down the line they'd be trained up on episodes and you know eventually all reps would sell both products.
If we have to wait to a Q1 lunch then you know will accelerate that episode training get them up to speed there as well.
And you know in the meantime, we have as I mentioned in in the call. We started to see the impact of of our <unk> reps in.
In terms of you know as a call on the <unk> account that they're actually getting some episodes pull through now and we've had cases from those doormen burn centers as well, which is exactly what we were hoping to see when we expanded the sales force.
Okay got it that's helpfulness and then lastly for US any recent commentary to discuss about the ankle indication as far as progress your news or what we may expect in the back half of your.
Yeah, you know obviously, our focus as we talked about over the past years that you know arthroscopic Macy was.
The nearer term and larger opportunity and that's been kind of a heavy focus for the team for Macy ankle that continues to progress there's some.
Upfront work that needs to be done another preclinical nature and and that's progressing and you know once we kind of get to the point, where we're ready to start talking about our clinical payment plan.
We will provide more guidance on that either later this year and early next year.
Okay got it thanks for checking my questions Congrats on the strong quarter.
Thank you.
Thank you one moment please for our next question.
Our next question comes from the <unk> <unk> <unk> H T. W. Your line is now open.
Thank you uhm good morning <unk>.
I'm trying to triangulate to your comments on <unk>.
Continued increase in biopsies and at the same time I'm trying to be careful.
Uhm regarding for quite amazing numbers. So it is how has the conversion rate being.
The biopsies.
To use of Macy.
And <unk> <unk>, adding additional surgeons uhm has that conversion rate stayed the same or is it tending to checked into a higher number.
Yeah, Hey, arcades, Nick So you know as Joe mentioned really the outperformance for the year. So far has been driven principally by.
Difficult an increase in the number of biopsy surgeons, obviously three street corners of a record number of biopsy surgeons. They of course, you know are driving an increase in biopsy, which is really kind of the top of the <unk> and that's principally driving.
Again, the outperformance we did mentioned in the first quarter that but there was kind of an uptick in the conversion rate and that sorta maintained in the queue too, but I'd say, that's kind of secondary to the the prior to drivers that I mentioned in terms of new surgeons and their increasing biopsies.
I'd say, we're kind of in the situation that we've been in in the past even kind of pre Covid, where you know as you're adding a substantial number of new surgeons you know your experience surgeon surges segments of those <unk> their conversion rates are going up a new surgeon typically have a lower <unk>.
Version right as they come on board and you know, we're kind of seeing that same dynamic now. So I think that's the explanation overall in terms of the drivers from AC.
Thank you for that next and then on the Macy arthroscopic product do you need to change anything in the manufacturing of the product itself or is it the same product, but having a new indications.
Yeah, no. It's the exact same product there's no changes to the drug substance or drug product and that's why we were able to move.
Move forward from a regulatory standpoint, and in an accelerated manner with the human factor study versus having to do any additional clinical work. So it's really the instrument kit.
That has been the development work in that kind of form the basis around the human factor study.
Okay, Uhm, and then with the new <unk> <unk> <unk> from Germany.
Is that going to beach, I'm, making any changes or is that just trying to make sure that you have on national supply because you're going to be adding additional indications.
24 25.
Yeah. So that your cell is not a new supplier, they're actually our existing supplier for the membrane. So what we mentioned is that we executed.
At long term extension.
That will take as well and do 20 thirties into the 20 thirties in terms of our supply agreement and that's important because it's an exclusive.
Agreement, so that they can't sell these membranes to anybody else who might be interested in sort of following down. This path. So it's an important part of our sort of long-term market protection strategy for Basie.
Okay. One last question from me.
So traditionally you know you've been careful about talking to <unk> I'm, giving guidance on episode sales, but.
I'm glad that you're doing that now uhm does that mean, you are becoming more and more confident about the dynamics of that burnt burnt care market or is it more because.
You have more feet underground for that product.
Well no I think it's kind of a stabilization of the market right over the past year and change.
The incidents of large burns has come down so you're kind of fighting that dynamic and now that's stabilized more and you know the teams just out there executing and.
Think that's reflected in sort of kind of the the stronger first half of this year that we've had compared.
To the the second half of last year, So I think it's a.
Just an execution story of market stabilization story, I do think and again, we're not talkin' huge numbers of new rep. Some them on the ground right, but you know having <unk> reps in dormant Epicel accounts and then realizing you know both biopsies and then orders from those accounts.
Contributor right and that's important and as I mentioned earlier, that's exactly what we that pull through is exactly what we were intending to happen as we expanded the sales force.
Perfect.
Great <unk> I was all of this and I'm looking forward to talking to you. Thanks.
Sounds great. Thanks, Thanks, Okay.
Thank you.
Alright, one moment please for our last question.
Our last question comes from the lineup charge sellers of Stevens incorporated your line is now open.
Hey, good morning, Congrats on the courtroom and thanks for taking my question.
I guess my my first one sticking with the arthroscopic delivery option in that dynamic I'm just curious how does that option change the sales strategy. If at all in terms of what you expanding that salesforce, given the increased target market or with the current sales.
<unk>, maybe just shift their focus or how do you expect that launched impact your sales operations.
Yes. So you know I think as we talked about in the past when we did our sales force sizing exercise back in 20th 19, now we had data on you know.
12000, orthopedic surgeons and we could obviously drawing intersection of searches that did high volumes of cartilage repair and open procedures and that sort of form the basis for our initial 5000 targets. There was also a group of those surgeons.
That did high volumes of cartilage repair, but we did not have open.
Procedure data on them and so the.
The presumption is that those are kind of arthroscopic only surgeons are predominantly our arthroscopic.
Procedure surgeons and so you know our intention is to kind of refresh that data and to the extent there are additional targets that will focus on in that latter bucket, which I expect there will be that would drive whether we feel like we need to increase the sales force or not.
Terms of the sales process you know the Macy clinical data speaks for itself and it's obviously very strong basically now. This just gives surgeons an option to inappropriate cases deliver the product arthroscopic Lee which again.
We think and they think there's potential.
Meaningful benefits and advantages to do that to doing that and so it won't fundamentally change kind of how we sell I expect we'll add some targets.
And then you know again, if it requires us to expand the sales force will do that I would not envision.
Any sort of.
Wholesale restructuring of ourselves force, if we add a thousand or two targets you're dead you know maybe a dozen reps, we'll think about that as we get closer to lunch.
Okay. That's really helpful. And then I I believe you mentioned in your prepared remarks that arthroscopic delivery has the potential to double Macy's in the coming years and I'm. Just curious what are some of the key assumptions that would go into that is it simply sort of what's going on now that more surgeons.
Taking biopsies and and more biopsies is gonna drive that that revenue growth or is there any change in your expectations for botchy conversion rates associated with arthroscopic delivery.
Yeah, well I'll, just start and Joe can kind of go into the sort of the the math of the.
That comment but.
Basically said was that you know over the coming years, we could essentially double our current business. If we had the same share of those smaller femoral condyle defects as we do in the <unk>. So you know Macy's or go to product and <unk>, there's about 10000 patients in.
The addressable market with <unk>, there's double bed in this segment of.
Femoral condyle defects that are two to four square centimeters in sizes Triple that if you added all you know femoral condyle defects below four centimeters. So it's a big market opportunity and the point is.
If we get to the same share because now you have a delivery advantage in those smaller defects.
You could basically double besides.
Besides of our current business.
Yeah, and I, just just to add a matinee kind of here that this is gerald but I would also point out we have a slot at are earning stack I think it's helpful already kind of double quite a bit on the tan.
Visually showers baths, but.
Yeah, I think what we're saying there is again at the <unk> you know, it's about 500 million dollar opportunity and kind of north of in the double digits on that and again from for that competitive and potentially it could be so in that in two to four square centimeter segment. You know that that can be significant which is where you don't have a potentially affect of like gambling.
That's kind of play it again, so I think the 0.1 to make it again make the slides helpful. This is a pretty big opportunity.
We think arthroscopic may save a potentially make as much more competitive in that space.
Okay, Okay that that makes a lotta sense. Thank you for that color and thank you for the time I'll I'll leave it there.
Thank you.
Thank you.
Hello, It now like to turn to conference back to C. O a niche calendula foreclosing on my mind.
Okay. Thank you operator, and thanks, everyone for your questions and your continued interest in bear. So obviously the company at a very strong financial and business results of the second quarter and we expect that momentum to continue in the second half of the year and beyond so we look forward to providing further updates on our next call and with that.
Thanks, again and have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect.
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Okay.
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