VCEL email discussion.

Fuma and I have been discussing VCEL by email. With his permission I have posted our lightly edited email train. Italics are Fuma, normal is me.

Fuma posted this on NPI,

I responded with the following, but it is worth reading that whole thread linked above.

I’m going to disregard the ixmyelocel-T stuff because that is basically the eternal story of a biotech company looking for a product and it not working out.

VCEL is an investment in MACI, pure and simple. Their other product is Epicel which is never going to be a big product. Epicel is a skin replacement that shows great mortality benefits in severe burn patients. It will likely slowly grow with lots of quarter to quarter variability just due to how many burns happen in a particular year.

Alright, so why is MACI a good investment? Cartilage defects hurt and your body doesn’t regenerate the cartilage. Eventually the defect will lead to bone on bone rubbing, pain, and a total knee replacement. The orthopedic community historically has had a few options.

  1. Microfracture - They going in an create little fractures or punctures in the defect area which stimulates healing. The problem is you don’t get healthy cartilage. The recovery is really really long, painful, and people don’t regain much function.

  2. Allograft - Taking cartilage from someone else and implanting it in the knee.

  3. autograft - growing your own cartilage and implanting it in the knee. MACI is the only product in the space although there is a procedure called the OATS procedure that takes a plug of bone with cartilage and transplants it isn’t the defect area. It has a lot of limitations but works pretty well.

There are two big studies that are worth looking at.

STAR study and the SUMMIT study.
The STAR study established that an autograft procedure works but was for CARTICEL, the procedure that MACI replaced.

The SUMMIT study is a long term study that recently released their 5 year data showing sustained benefit of MACI over microfracture.…

To my knowledge there is no study comparing allograft to MACI. I’ve talked to numerous orthopedic surgeons about the options for cartilage repair. THeir main problem with MACI is it takes two surgeries. 1 to harvest the chondrocytes that vericel then grows. Then a second one to implant it. They also say it works really well and is a potential game changer.

Here is the thing. MACI is very new and is an entirely new surgical procedure. It is much easier, faster and has a quicker recovery than CARTICEL but everyone doing MACI now had to be trained on it. THe fact that they have increased volume so much in such a short time to me speaks to the strength of the procedure.

Fuma, you listed revenue the revenue by quarter. I just wanted to point out that q4 2016 MACI wasn’t FDA approved yet. q1 2017 is its first quarter and vericel is having to train surgeons, get insurance approvals and get the word out that there is an autologous transplant option that doesn’t suck (Carticel). Carticel was a difficult operation (so say the 4 orthopedic surgeons i’ve talked to), it took a long time, was technically challenging and had long recovery times. MACI is much easier.

My other point is elective surgical procedures have seasonality to them. Typically q1 is slow, q2 is a bit bigger, q3 normally drops down to around q1 levels and then q4 is huge. You will notice that the seasonality is gone with MACI. Their q3 2018 is larger than their q4 2017. Q4 is typically 50% higher revenue than q3…so that is a big deal that they are losing their seasonality because they growing so fast.

As far as their TAM goes. I’ll let them speak to that,


what makes you sure of future VCEL growth? I’m seeing MACI sales somewhat similar to carticel and a company that has not been able to be successful for a few decades. I’m seeing genzyme and Sanofi not make the leap to MACI from carticel, so do you think VCEL just outsmarted these two companies?.. I just have a hard time believing those last two points. Plus they cant expand labeling beyond knees for a while since they havent even started trials yet.

I understand they have expanded their sales team and trained orthopods on MACI; what makes you think that it will pan out? just experience interacting with orthopods?

If they show growing sales in the next two quarters, and some trials in the hopper, then I would actually consider a starter position; but what is it that makes you confident these two things will happen?

“sure” is a stronger word than I would use for how I feel about MACI :slight_smile: but here is what I think. I do however feel relatively confident.

Carticel was a technically difficult surgery, and a long one, with a pretty long recovery time. The surgeons I have spoken to, (one of them helped develop the original study) like the results but all said the surgery was too involved and people had a lot of pain afterwards because of the periosteal flap. MACI is a lot easier surgery and doesn’t take near the amount of time. The surgeons were also impressed with the result. So part of my thesis is a lot more surgeons will use MACI as it is easier, works well, and takes less time. MACI is a much more surgeon friendly surgery, easier, faster, better results. ALl which means the ortho folks can make more money.

They don’t need to expand their label beyond knees anytime soon. Their revenue is still tiny compared to even their original estimates of their TAM. They estimated 500 million tam originally, now they think more like 2 to 2.5 billion a year. For 2018 they are going to do MAX, and absolutely max of 60 million worth of MACI. Even growing 40% a year that would mean 6+ years of growth just to hit the 500 million TAM and over a decade to hit 2.5 billion. If they grow 40% a year we are all going to make a lot of money.

yeah they are expanding their sales force and training more orthropods. They had a lot of geographic areas that they didn’t even cover. With more sales people they will be able to cover more places, more surgeons,

I’d encourage you to not wait for trails in the hopper. They really don’t need an expanded indication for many years yet. I understand wanting to see MACI grow a little more. for all the reasons above I haven’t waited.

In regards to genzyme and Sanofi, I don’t have an answer for that. I don’t know what the market was like back then, what those companies positions were, etc etc. To my eye though, vericel is sitting in a pretty nice spot right now.

understand that there seems to be some meaningful patient centered outcome improvements, but that does not necessarily correlate to sales.

While I think the patient centered outcomes are important, the point I was trying to make is that MACI is much more surgeon friendly. Most of them said they wouldn’t consider microfracture for many of the lesions that MACI is good for. Just too hard of a recovery and too incomplete of a recovery.

How does the MACI procedure compare to microfracture in terms of time in OR?

microfracture (mfx) is quick to do but the recovery is a really difficult and not near as complete as MACI. It is painful and the patients have to be non-weightbearing for 6weeks +. That is a seriously long time. Microfracture definitely still has a role in small defects but no we are getting into the nitty gritty that is better answered by our orthopedic colleagues.

Can the first step of the procedure ever be performed in office? if the answer is no, that’s a potential hinderance amongst some orthopods.

I don’t see a world where the first step is ever performed in the office. Probably is always going to need someone like me. The holy grail of restorative cartilage procedures is a single stage procedure that works well. So far none of the single stage procedures have made it, or they have been withdrawn from the market. I’m not with my notes right now but there was a whole bunch of them being investigated right around the same time as MACI. MACI is the only one that made it to market, or in some cases, stayed on the market.

Next, see attached, though I’m sure you did something like this. sales growth is a bit lumpy and unpredictable currently, but it wont stop me from trying! Sheet one is MACI revs by quarter, YoY growth calcs, Quarterly calcs, and sequential growth. Sheet two is calculations with various revenue growth models. Even at 8x sales, VCEL needs more than 30% revenue growth for the next 3 years to beat the market (assuming a 10% annualized return). At 40% rev growth, it would beat the market by 40 points over 3 years… 40% YoY for 3 years is alot! (even though it only leaves it at 180m annually)… and does not take into account any slowdowns in growth!

I noticed you didn’t add epicel back in. Even if we assume no growth for epicel , say they still do just 25 million a year in 2021, with 30% MACI growth that gives them ~ 165 million of revenue (25 epicel 140 MACI). Apply whatever ev/s you want, if you keep with 8 then that would be a cagr of 21%. Nothing to sneeze at. Epicel should grow, albeit slowly so the situation should be a little rosier than the above. if they drop below 25% MACI growth I’d start thinking about selling.

Lets take 3 scenarios, in 2021 i get the following

  1. 20, MACI, 5% epicel, - 141 million revenue
  2. 25% MACI growth, 10% epicel, 160
  3. 30% MACI, 15% epicel, 180

I figure those are pretty good bounding boxes for reasonable expectations. At the low end if we assigned an ev/s of 6 we get a market cap of 860 million, and at the high end an ev/s of 10 we get a market cap of 1.8 billion. We would get CAGRS of 5% to 33%. Naturally I think we will be on the higher end :slight_smile:

With that in mind, I see your point about it taking some time to reach $500m TAM. Correct me if I’m wrong, but I think that 2b TAM they reference is all potential joints / markets, so 2b is probably not even a number to talk about for a few years.

The 2b TAM is just knees. I don’t know the exact numbers but knees are by far the largest market. I don’t think shoulders or elbows will ever be anything since they are non-weight bearing so the cartilage just isn’t as important. Ankles and hips are probably the only other two targets, and they are definitely smaller targets. I think they will start going for smaller cartilage defects which would increase their TAM but that is pure speculation on my part. Please don’t ascribe any weight to it.

Theyre also guiding for 87-90m in annual revs. take out 25m for epicel, and thats 62-65 annually for MACI, which would be 19.4-22.4m in Q4 for MACI, or a 20 - 39% YoY … this is still short of 40% growth needed to beat the market over the next 3 years as outlined above.

Thanks for correcting my off the cuff math, I was do all that in my head based on remembered numbers! You are absolutely correct that the MACI revenue should be in the 62-65 range, not the 60 that i said.

VCEL has been in the beat and raise game. In q3 they absolutely murdered their normally seasonally slow q3. q4 normally accounts for 33% of their revenue. If that were to be the case they should hit on the high end of that range. Or close to 40% growth. If epicel grows some small percentage and MACI grows >25% we should have a solidly performing investment. If MACI grows >30% then We should do quite well.

In my last email I used 40% MACI revenue growth out in perpetuity purely to demonstrate that VCEL didn’t need any expanded indication anytime soon. I don’t think in 5 years they will still be growing MACI 40% a year (although that would make me very happy if they were).

This presentation has a lot of the info that we are discussing,…

Can you remedy between slide 70 in the April 2018 slide deck saying 500m TAM and 2b?

500m seems to the knee target market (large lesions age 17-55), and 2b is what? All knees, including smaller procedures? I’m not sure exactly where that 2b is coming from, and where it fits with it’s labeling.

he vcel deck you sent is from april. The one I sent you is from november. 2 billion is an updated TAM. Here is what they said in their latest CC.

And in terms of the inputs into the new TAM, let me take a step back and just explain to you how the old TAM was created. That was really looking at published epidemiology and procedure data. And what we did was take the epidemiology data and understand from that the size of the lesions that were being seen on diagnostic arthroscopies, the types of lesions. And from that, we overlaid it on the procedure data and then took demographic cuts in terms of BMI, age, et cetera. What it turns out is the cartilage procedures that are – that occur actually are not representative of what’s seen on diagnoses nor is it representative of the overall U.S. demographic.

So there is many more, a much higher percentage of cartilage repair procedures fit on our label than you would think if you just look at the diagnostic epidemiology data. The second thing is we tried to talk to doctors, that’s the large survey, to better understand where they thought MACI would fit. So we layered at that on top of the epidemiology data, the survey data in terms of what type of lesions are treated because, otherwise, actually, it would have had a much, much larger TAM. So that’s on a qualitative basis how the framework we used to use and we’re using now to come up with the TAM


Thanks guys. Very informative discussion. And thanks for bringing Vcel to our attention. Made a tidy paper profit so far these past few months.

Not all cartilage is created equally. Joints need articular (hyaline) cartilage. The gold standard would be regenerating this. Microfracture appears to generate fibrocartilage, which, unfortunately, shears off and degrades faster than it heals on weight bearing joints. Think of it more like scar tissue. So initially, results are good but as the years go by, the new cartilage degrades and microfracture fails.

Not sure if the jury is still out on MACI. Results appear to at least show it has a lower % of fibrocartilage generated to hyaline, which is good. It might be age dependent, which is why they are focusing on <55 year olds. Clearly, as years go by, it’s proving better than microfracture - significant different after 5 years but not so different after just 2 years between MACI and microfracture. This gives support to MACI’s durability over microfracture, and should hopefully make it the current gold standard for knee cartilage repair.

Microfracture - cost effective, simple to do, one surgery, - effective for small defects.
But short-term and produces fibrocartilage.

MACI - more expensive. Requires two ops. Apparently also unfortunately produces fibrocartilage. Proliferation (growth of the cartilage) decreases with age, so effectiveness might not be so good for the >55s, which is a big market to miss out on! Proven significantly better than microfracture for large defects over 5 years.

Why compare the two? Because it’s important to really establish the TAM. It looks like microfracture, due to its simplicity (one-surgery), cost, and effectiveness, trumps MACI for small defects.

From an August 2018 journal review of surgical options.
A large number of commercial products for the implementation of this method and its modifications are already available. These are mainly expanded autologous chondrocytes seeded onto different types of scaffolds that mimic the mechanical properties of the matrix of native articular cartilage, such as the bilayer collagen type I/III scaffold (MACI), honeycomb bovine type I collagen scaffold (NeoCart®), bilayer type I collagen sponge containing chondroitin sulfate (NOVOCART® 3D), mesh of hyaluronic-acid-based microfibers (Hyalograft® C), and agarose/alginate hydrogel (Cartipatch®). Scaffold-free (endogenous scaffold-based) spheroids of autologous cells (Chondrosphere®) and neocartilage discs composed of allogeneic juvenile chondrocytes (RevaFlex™) are also available

We know recently that NeoCart has been withdrawn from market. What about the others? Worth exploring?

Note, not a doctor. Not a specialist. Willing to be corrected on any of the above. I really like what Vcel is doing, but its far from the finished product. How much are they spending on R&D? I’m worried about them being disrupted before they get started. This is not like ABMD or ISRG, who have no competition in sight - with competition prohibited by expense. Vcel has competition from other scaffolds, stem cell injections, 3d printing, gene therapy expression…etc. I’m invested and will be following the money over the next few quarters. I think they’re on to something here and will be looking to see whether they spend on R&D to improve their current offering - maybe combining MACI with some of the other methods to obtain better results.


Neocart- Failed

Novocart3d - By aesculap biologics, owned by braun. Already in the orthopedic market. Approved in europe. Only investigational use in the US, in phase 3 trials. Primary study ends May 2019. The actual procedure is somewhere inbetween Carticel and MACI. It requires suturing vs gluing. It does have braun behind it which is a big name but the actual procedure seems to favor MACI.

Hylagraft C - This was pulled from the european market in 2013 because they couldn’t provide enough data to keep it on the market. They are trying again now with hyalofast, which is a “non-woven, single-step, off-the-shelf, biodegradable HA-based scaffold for hyaline-like cartilage regeneration to treat cartilage injuries and defects” Primary endpoint results in december 2020. Main positive with them is this is a single stage procedure unlike MACI.

Cartipatch - study terminated

Chondrosphere - to my knowledge and brief search is approved in the EU but has no ongoing trials in the US.

Revaflex - ISTO’s website says they are still recruiting for their phase 3 trial. says the study is terminated. I’d believe

The only one that looks like a potential issue to me is Hylagraft c, which is now called hylafast. We have a couple years before that one is an issue. They need to complete their phase 3 study and then submit data to the FDA. One to watch, but not worry about right now. Novocart is the next one up, they don’t seem to have any advantages over MACI, only disadvantages other than they are owned by Braun.



I’ve been reluctant to post this, but out of respect for all who contribute to this board, I have a contrarian view:

Orthopedic Surgeons have been looking for the holy grail since before Lanny Johnson invented Abrasion Arthroplasty (1980). Just about everything you can imagine has been used as a potential resurfacing agent, in the lab, in animals, and in humans.

Biological resurfacing took a step forward with the Carticel procedure, but enthusiasm waned as the limitations became more clear. Only a small part of the limitations relates to technique. MACI, while an advancement, may assume some of the marketshare currently attributed to biological resurfacing techniques, but importantly, it will not expand the market.

The ability of surgery to alter or reverse the progression is isolated only to very early stages of disease. The problem is, Orthopedic Surgeons know that the majority of our patients with early stage osteoarthritis will become minimally symptomatic with conservative treatment, and none of the biological resurfacing treatments work reliably in advanced stages of arthritis. Widespread chondral loss, bone architectural changes, malalignment, and laxity conspire to limit the effectiveness of biological joint resurfacing. There are anecdotal reports of success stories in cases of advanced joint damage, but all with very limited, and mostly clinical, follow up. MACI is no more suitable for advanced joint damage than the alternatives it is meant to replace.

There are marketplace issues as well. These procedures are marketed to the over-insured. Think of in-flight magazines as the target audience. The select few patients between 30 and 70, with an isolated lesion of the articular cartilage, who don’t cope as well as expected, and have the means and desire to undergo surgery for a minor problem, are frequently willing to pay “extra” to travel to where “expertise” exists. They’re chasing a dream, frequently with unreasonable expectations, but highly motivated (cash does that for patients). It’s a match made in heaven.

Let me be clear. This operation is not difficult. Every certified Orthopedic Surgeon should be capable of performing it competently. As part of my tool kit it might supplant what I currently use, but it will not expand indications for surgery. It may expand the indications of a few boutique clinics (Miami, Beverly Hills, Chicago, or San Francisco), but it will be market driven.

OPINION: Utilization rates will be parabolic. Successful marketing will lead to over-utilization. In time, studies will better outline the limitations. Workman’s Compensation will cover it for a while, until it is clear cheaper alternatives are comparable. Eventually it may be dropped as a covered benefit, or only available with very specific indications (as will have been clear from the onset). By this time, the “boutiques” will have moved on to another “latest”. The unreasonable guy (who is now much more reasonable) will be in my clinic ready for his osteotomy, uni or total knee. The time between onset of symptoms, and progression to surgery will be no different, but he will remain satisfied with the service he received for the 30K he spent in Vail.

Ironically, the truly unique “boutiques” (Hamburg, Milan) tend to come up with their own proprietary swill, so the bit about the boutiques using it will be mostly limited to the second tier centers. You generally don’t travel commercial to the first. The world-wide “rejuvenation” medical care movement succeeds by trafficking in hope. There are pockets of wisdom and honesty, but they float in a sea of misinformation. I’m more sad than angry, to be honest.

As an investment, I’m sitting this one out. If you must, I suggest exiting soon after the apex of the slope of the sales curve.

Willing to listen to alternative viewpoints.


JBlutarskyII - I welcome a contrarian viewpoint. Please don’t be reluctant to post a well informed opinion!

Only a small part of the limitations relates to technique. MACI, while an advancement, may assume some of the marketshare currently attributed to biological resurfacing techniques, but importantly, it will not expand the market.

I don’t think the market needs to be expanded for vcel to be a solid investment. Their revenue and marketcap are currently tiny. They don’t address very much of their TAM to be grow quite a bit.

Let me be clear. This operation is not difficult. Every certified Orthopedic Surgeon should be capable of performing it competently. As part of my tool kit it might supplant what I currently use, but it will not expand indications for surgery. It may expand the indications of a few boutique clinics (Miami, Beverly Hills, Chicago, or San Francisco), but it will be market driven.

what do you currently use? Honestly I think the above statement is enough though. Their original tam estimate was just for sports medicine orthopedic surgeons. I think they are realizing that they can target general orthopedists too.

Ironically, the truly unique “boutiques” (Hamburg, Milan) tend to come up with their own proprietary swill, so the bit about the boutiques using it will be mostly limited to the second tier centers. You generally don’t travel commercial to the first. The world-wide “rejuvenation” medical care movement succeeds by trafficking in hope. There are pockets of wisdom and honesty, but they float in a sea of misinformation. I’m more sad than angry, to be honest.

Isn’t this the truth? SO much snake oil in the “regenerative” medicine field. Leaves a bad taste.

Thanks for your post, your warning is especially useful. I’ll be interested to see how revenue growth plays out over the next few quarters.



In sequence of damage severity, my choices are micro-fracture, allograft (Prochondrix), OATs, osteotomy, and arthroplasty. I perform meniscus allograft replacement when appropriate.

I previously harvested TicTac-sized specimens necessary for chondrocyte culture when the condition indicated, but only a third of patients had symptoms warranting the second procedure. Genzyme was not enthusiastic about cultures that were never implanted, yet I couldn’t in good conscience commit the rest of the patients to implantation, so I ceased contributing to harvest morbidity.

Here’s the thing. As a surgeon, in order to implant 100% of harvested specimens, I’ll either need to be selecting more advanced cases (to ensure the persistence of symptoms), or implanting minimally symptomatic patients. Neither is ok with me, as they’ve not shown that future joint degeneration is prevented by implantation. If they do, if it’s shown that asymptomatic cartilage lesions do better with surgery, over many years, then my surgical dance card will fill, without a doubt. Be careful what you wish for.

Meanwhile, meniscus root repair is poised to be the fastest growing knee procedure as awareness, imaging identification, and reliable techniques for root repair become commonplace.

MACI revs		
	2016	2017	2018
Q1		5	12.1
Q2		12.9	14.1
Q3		9.9	16.4
Q4	12.8	16.1	
Q1		#DIV/0!	142.00%
Q2		#DIV/0!	9.30%
Q3		#DIV/0!	65.66%
Q4		25.78%	-100.00%
	Quarterly	Sequential	YOY
Q4	12.8		
Q1	5	-60.94%	
Q2	12.9	158.00%	
Q3	9.9	-23.26%	
Q4	16.1	62.63%	25.78%
Q1	12.1	-24.84%	142.00%
Q2	14.1	16.53%	9.30%
Q3	16.4	16.31%	65.66%

I had additionally attached this, their quarterly & annual revs. 

Kinda considering q4 2016 was with an alleged outdated technology (carticel)! 

To meet price:sales of 8x, they'd need to grow 30% YoY for 3 years and that would really only get them to about a 10% annuallized gain (or, what the market averages).

My take has been that:
-im not sold in management yet
-id like to see a more clear trend in sales growth
-eventually like to see some discussion from management on expanding markets

#2 is most important to me on VCEL. This boils down to risk aversion. Im willing to wait for a quarter or two and miss out on the early gains but minimize my downside risk if growth does not materialize by sitting this one out.