VCEL deep dive

Vericel (VCEL) was brought to the board a few months ago by Rizzz.… . 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.

Epicel - This is a cultured skin product for burn patients. The company estimates they have captured about 15-20% of their TAM for this product. TAM of ~120 million.
MACI - Restorative cartilage repair product currently only approved for knees in people <55. Current TAM isn’t huge, ~500 million, because of their limited indication and age group. Company estimates they have about 10% penetrance. Studies show a large sustained benefit over the current possibilities. 100% sure they are working on expanding their allowed indications to include other joints and age ranges.

Some business highlights:
Salesforce expanded from 28 to 40 which was completed april 1st.
100 new surgeons trained on MACI (now 600 total)
Now marketing directly to patients

“Significantly” Increased # of burn centers (i couldn’t find the number)
Making it easier for centers to be paid and increased surgeon training.

First quarter of positive operating cash flow

Financials: Before 2017 they don’t matter much as that is when MACI launched. Despite being in business for many years this is basically a new company. I didn’t go into much historical detail below in the financials because the last two quarters are really when MACI kicked into gear.

2017 9.4, 17, 14.3, 23.4 Annual 64.1
2018 18.3

Guidance: 73-78 million for the year. (they will almost assuredly beat this)

Cash on hand 29.8 million, increased from 26.9 from last quarter (due to positive cash flow from operations). They expect to achieve profitability without any more capital raises.

Debt payments Due:
2018 417k
2019 5 million
2020 5 million
2021 7.083 Million

gross margins now at 57%. Marginal cost of goods ~15-20% so as they increase volume we should expect their margins to continue to improve.

Vericel is in the beginning innings of monetizing their MACI product. They have a lot of room to grow within their current indication for knees in people <55 but i expect their actual TAM to be much much larger than the 500 million annual spend they estimate for the above indication. Before 2017 this was a company that was taking on debt and doing equity raises. Many people got burned/diluted hence the 1 star cap rating on the motley fool. Now the company is operating cash flow positive, growing like mad, and has a superstar product that will likely be able to used in many other indications (ankles, hips, shoulders) . I expect they will handily beat their 2018 guidance for revenue. Their salesforce has rapidly increased in size from 21 to 28 last year, and now to 40 this year. By the end of this year we should begin to see the effects of the new additions. In the meantime Vericel’s expenses will be higher due to the almost doubling of their salesforce. Epicel will continue to grow, the mortality benefit is large, but this product will never be a huge one unless they can get it approved for general skin graft usage. I haven’t seen any talk of doing that so that is pure speculation on my part. Before 2014 the company was working on a 3rd product called ixmyelocel-T. It is another autologous cell product that they were targeting for dilated cardiomyopathy. They are doing a phase 2b study that should be completed in nov 2018. They haven’t talked much about ixmyelocel-T so I’m guessing this isn’t going swimmingly. Their Market cap is ~480 million, with ~67 million in revenue. I would expect that we will see at least 30% revenue growth due to them adding surgeons and centers so quickly and now vastly increasing their sales force. Manufacturing is basically a fixed cost for them for the foreseeable future so their margins will dramatically improve with additional volume. They said they have no need to build additional manufacturing capacity anytime soon. All in all this is a company i’m excited about. Unless something changes with the science/efficacy of MACI and Epicel then I think we will see positive earnings, a much larger TAM for MACI and a rapidly growing company for the next few years.


P.s. As with most elective surgical products MACI will have some pretty large seasonality to its revenues. They estimate q1 21%, 24%, 22%, 33%. They did 10.7 million in q1 of just MACI and 5.97 million of Epicel with 21 season sales people and 7 new ones. For q4 this year they will have 21 seasoned people, 7 moderately experienced people and 12 new people. On top of that q4 is the busiest time of year so I’d expect them to do more than the 16.8 million in MACI that the above statement is implying.


Thanks for that Vericel (VCEL) summary, Ethan. Well done. And thanks for reminding me that it was Rizzz who brought this company to the board’s attention. I was meaning to thank whoever brought this company to my attention, but I had forgotten who and when. So, Rizzz, if you’re reading this, I owe you buddy!

Why do I owe you? Because about two weeks after I read your introductory information (it takes me a while to research a stock), I began acquiring shares of VCEL. Between mid-April and today, my VCEL position grew from 0 to 5+%. Checking my records, I was buying shares almost every day at prices between $11-$12/share. All my lots are in the black with some showing a 10+% profit. I actually sold some of my most profitable lots before the earnings report (I’m just conservative that way). At any rate, I share the optimism expressed by others and intend to hold on to my shares for the foreseeable future.

May we all live long and prosper!

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Any information regarding insurance and/or medicare coverage on either of these products?