Vericel @ Needham

They bought the products from synovis in 2014 for 6.5 million dollar!!! At the time it was doing 40 million of revenue which was flat to declining. Epicel didn’t have a pediatric approval and MACI wasn’t approved yet. They saw two growth drivers, MACI approval and a pediatric label for epicel. Both happened in 2016. I’ve italicized just what was basically a rehash of stuff we already know. The good stuff is down below the italicized bit.

Foundational portfolio- highly efficacious, both are the only FDA approved treatment in their class. Not subject to generic competition due to use of autologous cells

Leading high growth company . 58% revenue increase, MACI up 66%, Epicel up 36%. Doubled revenue of business since owning it.

They think lots of growth ahead.
Enhanced profitability for company. Strong margin expansion (20% marginal cost) 64% vs 50%.
40 to 48 sales force,
5 reps for epicel,
50% of each incremental revenue dollar falls to EBITA

MACI - 60% of all knee arthoscopies have cartilage defects. trauma or degenerative conditions. Cartilage is unable to heal can lead to ostereoarthritis, treatment goals reduce pain, increase function, reduce degeneration.

Blah blah about stuff we have already covered.

750k cartilage procedure, 50% within MACI label. 125k patient clinically appropriate, 60k patient a year with appropriate payers. >2 billion annual market.

90% of covered lives cover MACI. Medical authorizations process has improved and now is very quick (i missed how quick).

Epicel - made similarly to MACI .profound survival benefit >90% survival rate. 500k patients with burns, 40k hospitalized, 1500 per year within label, 600 patients with >40% burns . Average order is 200k+ for a TAM of 120million a year.

Inflection point since MACI, 42% yoy CAGR. They expect strong earnings growth going forward.

They feel their strengths:
Highly trained sports medicine sales force, room for more products
Capacity to increase products in burn
Expertise in autologous cell therapies

17 million in term loans were paid off in the 4th quarter (these were at 9%, this is good news). Vericel doesn’t have any debt now.

Turn around time to make product, is there opportunity to improve that? Not needed as MACI is an elective procedure. Epicel - epicel isn’t limiting factor , patient need to be stabilized before surgery so no real opportunity to improve it. Already improved it from 1 month to 17 days, no need for further improvement.

Global rights for both of these products, own both of them outright. Right now not marketing in europe. Low on list because market there is difficult. Select countries there maybe, but not as robust of a market.

Few questions that i skipped since they added no new information.

Some good tidbits.
Because they are in biologics there are no generics which means if anyone wants to get into this market they need to run clincial trials. Mentioned histogenetics failed trial and not going to market. Said it took them 7 years to enroll their patients.
They think they have a very desirable market.
CEO said only one other company (subsidiary of Braun) running trials which wouldn’t make it to market until mid 2020.
Said the trials are very difficult to enroll patients right now since MACI is on market. Patients don’t want a 50% change of having microfracture.
Doesn’t see anyone trying to compete on epicel.

How to grow TAM?
Lifecycle opportunities for MACI, Other joints. Exploring ankle . Depends on requirements.
Business development (m&a)

My Thoughts
First I’ve heard that they retired their 17 million in loans which is great news. They were at 9% and they didn’t need them. I couldn’t understand why they still had them…well turns out they don’t.

He discussed competition in response to one of the questions which I found to be very very helpful. Was good to hear that the Novocart3d - By aesculap biologics, owned by braun. Wouldn’t make it to market until mid 2020 even if they have good data from phase 3. This is great news since their study is supposed to end may 2019. He said anybody that wants to compete against MACI has a really hard time getting patients because the patients have a 50% chance of getting microfracture as part of the study which nobody wants. Said histogenetics took 7 years to enroll their patients. The one product he didn’t mention is hyalofast, but if Novocart3d wouldn’t make it to market until mid 2020 that would mean hyalofast wouldn’t make it to market till almost 2030. I came away feeling great about the competitive market. Now we just see how they execute.

Here is my post about VCEL competition,…



Hi Ethan,

excellent notes. thank you for sharing.
Seems like valuation is reasonably attractive if they stop bleeding cash (which it seems they are getting there).

I have been vacillating on this name… tempted to start a position with your notes.

I do remember Saul shared a small / trial position at the end of the month review.

Dont remember if you said you are already in.


Yeah I’ve owned a solid sized position since may. Been adding each quarter

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