q2 2018 VCEL - It's a good one

For whoever else is in VCEL, my favorite little biotech company. Back in May I wrote them up for the board. http://discussion.fool.com/vcel-deep-dive-33061604.aspx. Vericel reported another very nice quarter yesterday. Here is what I wrote about what they do.

“Vericel (VCEL) was brought to the board a few months ago by Rizzz. http://discussion.fool.com/vcel-33032279.aspx?sort=whole#3303264…… . The company has an interesting past. They use to be called Aastrom Biosciences. They had multiple products that never really went anywhere but had developed a technology platform that allowed them to grow patient’s cells reliably. In 2014 VCEL executed a huge pivot and acquired a french company that had developed and produced Epicel (more below) and Carticel. Carticel is a similar product to MACI that is more difficult technically and has longer surgery times. After acquiring MACI, vericel has gone through the regulatory and structural issues to now sell MACI. The company now brands themselves specializing in autologous cell therapies. Basically what they do is take the patient’s own (autologous) cells grow them in a culture over an appropriate membrane and reimplant them into the patient’s body. So far they have two commercial product lines.”

Business highlights
-Surgeon training going well. End of 2017 at 500, on track for 900 at end of 2018
-Completed a 74.8 million public offering
-Hinted at deals to come
-Training going well of their additional sales force (increased from 28 to 40)
Continue to improve pipeline, especially insurance approval process

Revenue and margins
-Revenue 19 million compared to 17 last year, they had to recognize some revenue in q2 of last year from a contract dispute that they won. Comparable revenue is really 15.6. For about 22% growth
-MACI revenue of 14.1 million vs 4 million last year (launched last year so not the best comparison) probably ~34% growth when adjusting for everything
-EPI revenue of 4.9 million, 20% growth (this will be lumpy), some tough comparables due to lots of people getting burned last year. :frowning:
-Gross margins increased to 59% (this is awesome as it means manufacturing cost is on the low side of their guidance)

-Operating expenses grew to 15.5 million (growing quickly as expected because of all the additional sales staff they have hired, should level off now)
-Non-gaap EBITA down to 1.4 from 2.7 million

-Increased guidance from 73-78 million in revenue to 80-83
-Expect MACI to grow >30% for the year
-Looking for additional products with their 95 million in the bank

My Take
This quarter played out almost exactly as anticipated. Expenses were high as predicted, they solidly beat on revenue as predicted, increased guidance as expected and margins are increasing faster than I thought. I’d like to point out the seasonality in their revenue, they say that they estimate their revenue looks like this over the year, Q1-21%, Q2 -24%, Q3 - 22%, Q4 - 33%. I still think they will solidly beat their revised guidance as their additional salesforce is going to go from shadowing to selling during the busiest time of year. They are vastly increasing their surgeon count which portends good things for the future. Obviously the market thinks similar things because VCEL is up 25% today. With their current products they have at least 5 years of growth. I like that they are getting ready for phase 2 of VCEL. Long story short, this is early in their growth. I like VCEL.