Vericel - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered strong operational leverage: revenue $63.2M (+20% YoY), gross margin 74% (+400+ bps YoY), and adjusted EBITDA $13.4M (21% margin, +900+ bps YoY).
• Results vs consensus: revenue was a slight miss ($63.2M vs $64.5M*), while EPS beat (-$0.01 vs -$0.037*) as margin expansion offset the burn-franchise variability; MACI grew 21% YoY to a record $53.5M.
• Guidance: MACI full-year revenue growth reaffirmed at low-20%; Burn Care 2H reset to ~$10M/quarter; full-year profitability reaffirmed at 74% GM and 26% adjusted EBITDA margin.
• Strategic catalysts: ~600 MACI Arthro surgeons trained, MACI Ankle Phase 3 IND cleared, and sales force expansion to ~100 territories to support 2H volumes.

What Went Well and What Went Wrong

What Went Well

• Record MACI quarter: $53.5M (+21% YoY), with 15% sequential growth; strong biopsy and implant indicators and accelerating July momentum.
• Margin outperformance: gross margin 74% (record outside Q4), adjusted EBITDA +112% YoY to $13.4M (21% of revenue).
• Commercial execution: ~600 MACI Arthro surgeons trained; small femoral condyle implants +40% YoY; sales force expansion to ~100 territories to capture 2H volume.

Management quote: “We expect continued strong revenue growth and profitability for the remainder of the year and beyond.” — Nick Colangelo, CEO.

What Went Wrong

• Burn Care variability: Epicel revenue $8.6M (+11% YoY) but impacted by higher canceled cases due to patient health issues; Burn Care 2H guidance reset to ~$10M per quarter.
• Slight revenue miss vs Street: total revenue $63.2M vs ~$64.5M* consensus, driven by Epicel cadence and modest timing shifts of MACI implants from late Q2 into July.
• NexoBrid distributor ordering cadence: despite stronger hospital unit orders, specialty distributor orders were slightly lower than Q1, impacting sequential comparison.

Transcript

Speaker 7

Good day and welcome to the Vericel Corporation's second quarter 2025 earnings call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Eric Burns, Vericel's Vice President of Finance and Investor Relations. Please go ahead.

Speaker 10

Thank you, Operator, and good morning, everyone. Joining me on today's call are Vericel's President and Chief Executive Officer, Nick Colangelo, and our Chief Financial Officer, Joe Mara. Before we begin, let me remind you that on today's call, we will be making forward-looking statements covered under the Private Securities Litigation Reform Act of 1995. These statements may involve risks and uncertainties that could cause the actual results to differ from expectations and are described more fully in our filings with the SEC. In addition, all forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. Please note that a copy of our second quarter financial results press release and a short presentation with highlights from today's call are available in the Investor Relations section of our website.

I will now turn the call over to Nick.

Speaker 5

Thank you, Eric, and good morning, everyone. The company delivered solid financial and business results in the second quarter, with significant revenue growth and margin expansion, and substantially higher profitability growth. Total revenue increased 20% in the quarter, while gross margin expanded more than 400 basis points to 74%, and adjusted EBITDA increased 112% versus the prior year to over $13 million. We also saw continued strength in the MACI growth drivers and key performance indicators for the MACI Arthro launch, and significantly better performance for the Burn Care franchise. Importantly, we've had a very good start to the third quarter for MACI and the Burn Care products, and the company remains well positioned for a strong second half of the year. MACI generated record second quarter revenue of nearly $54 million, representing 21% growth versus the prior year and 15% sequential growth versus the prior quarter.

MACI's performance was driven by strong underlying business fundamentals as we continue to expand the MACI surgeon base and drive growth in biopsies with the launch of MACI Arthro. In the second quarter, we generated the second highest number of MACI biopsies in a quarter since launch, essentially matching our highest biopsy quarter to date in the seasonally high fourth quarter of last year. MACI Arthro surgeon training, a key priority for our commercial team in 2025, continues to outpace our initial expectations in the original MACI launch as we've now trained approximately 600 surgeons through the end of July. Both the biopsy and implant growth rates for MACI Arthro trained surgeons continue to be significantly higher than the growth rates for surgeons that have not yet been trained.

Given the substantial increase in the number of MACI Arthro trained surgeons, overall MACI biopsy growth outpaced implant growth through the first half of the year. Based on historical performance, we expect the implant growth rate to converge with the biopsy growth rate as we move into the second half of the year and beyond, which we believe will sustain strong MACI revenue growth in the quarters ahead. To that end, MACI is off to a strong start to the third quarter with both biopsy and implant volume growth in July accelerating versus the first half of the year. While the treatment of patella defects remains the key driver for overall MACI growth, the treatment of small femoral condyle defects, which are the defects that MACI Arthro instruments are designed to treat, increased 40% in the second quarter over the prior year.

This is a strong indicator that this segment, which represents approximately a third of the over $3 billion addressable market for MACI, has the potential to become MACI's highest volume growth segment over time with the MACI Arthro delivery option. In addition, as we discussed on our last call, MACI Arthro is being used to treat a meaningful number of patients with trochlea defects, and this segment has now accounted for nearly 20% of MACI Arthro implants to date. The trochlea defect segment is similar in size to the patella segment with approximately 10,000 patients per year and has the potential to become a significant source of business and a meaningful driver of upside MACI growth beyond the treatment of condyle defects.

Finally, we've generated over 100 biopsies from our new arthroscopic-only surgeon segment, another positive indicator that an arthroscopic delivery option for MACI can drive additional utilization from surgeons that previously did not use the product. Based on the strong MACI Arthro launch indicators to date and our expectation for significant MACI implant volume growth in the second half of this year and into 2026, we're implementing our full MACI Salesforce expansion this year. We'll be increasing our MACI Salesforce from 76 territories to approximately 100 territories, with our new sales reps supporting current territories during our seasonally highest fourth quarter this year and then moving into their new territories at the start of next year.

We believe that having the entire expanded sales force in place this year will help support our significant fourth quarter volume and position MACI for continued strong performance for the full year in 2026 and then beyond. Turning to Burn Care, as expected, Epicel performance rebounded in the second quarter with a substantial increase in biopsies, grafts, and revenue, which was more in line with its run rate coming into the year. Biopsies in the second quarter were the highest in any quarter since 2023, with an increase of nearly 40% over last year, and we ended the quarter with the highest monthly biopsies on record in June. Given the strength of second quarter biopsies, Epicel is also off to a strong start in the third quarter, with July graft volume higher than any other month to date this year, positioning Epicel for another solid quarter.

NexoBrid also had a strong close to the quarter, with the highest number of ordering centers and hospital units ordered in any month since launch. This momentum has carried into the third quarter as July hospital orders exceeded the record number of units ordered in June. Of note, the category III temporary CPT code for NexoBrid also went into effect as of July 1, which we believe can help drive increased utilization and further enhance NexoBrid uptake over the long term. Overall, the company delivered significantly stronger revenue and profitability results in the second quarter, and we have started the third quarter with a great deal of momentum for both MACI and the Burn Care products.

In terms of our longer-term growth initiatives, we received FDA clearance of the IND for the phase 3 MACI ankle clinical study in the second quarter and remain on track to initiate the study in the second half of this year. A potential MACI ankle indication represents a substantial longer-term growth driver for MACI and would enable the company to potentially expand into other orthopedic markets. Finally, we also remain on track to initiate commercial manufacturing for MACI in our new facility next year. I'll now turn the call over to Joe to provide a more detailed review of our financial results and guidance for 2025.

Speaker 1

Thanks, Nick, and good morning, everyone. Starting with our Q2 results, as Nick noted, we had very strong revenue and profitability growth in the second quarter. The company achieved record total net revenue for the quarter of $63.2 million, with $53.5 million of MACI revenue, $8.6 million of Epicel revenue, and $1.2 million of NexoBrid revenue. MACI had a strong second quarter with 21% revenue growth over the prior year and 15% sequential growth versus the first quarter, as growth accelerated in the second quarter. MACI also had another quarter of strong double-digit biopsy growth, which outpaced implant growth. As Nick mentioned, implant and biopsy growth accelerated in July, and we expect that implant growth will converge with biopsy growth over the coming quarters.

Burn Care also had a much stronger second quarter with revenue of $9.8 million, relatively in line with the lower end of our guidance range for the quarter. Epicel, in particular, had a much stronger second quarter with $8.6 million of revenue, representing 11% growth versus the prior year. The underlying metrics on Epicel were also very strong, with Q2 biopsy growth of nearly 40% versus the prior year. This also included our highest Epicel biopsy month to date in June. Although Epicel revenue increased significantly during the second quarter, we continued to see a somewhat higher ratio of canceled cases due to patient health-related issues, which impacted our revenue for the quarter. NexoBrid revenue of $1.2 million represented 52% growth versus the prior year, with solid growth in both hospital unit orders and ordering centers.

Although the underlying NexoBrid fundamentals continued to progress in Q2, orders placed by specialty distributors were slightly lower than the prior quarter, which impacts the revenue comparison to the first quarter. As Nick mentioned, we ended Q2 in June with our highest month to date for NexoBrid hospital orders and then surpassed these June orders in July. The company's substantial revenue growth translated into significant margin expansion, with gross profit of $46.6 million, or 74% of revenue, an increase of more than 400 basis points compared to 2024. This also represents a record quarterly gross margin outside of our seasonally highest fourth quarter. Total operating expenses for the quarter were $48.6 million, compared to $42.6 million for the same period in 2024.

The increase in operating expenses was primarily due to increased headcount and related employee expenses and additional costs related to the company's new facility, including depreciation and MACI tech transfer-related activities. Moving forward, we expect relatively similar quarterly operating expenses for the balance of the year. Net loss for the quarter narrowed to $0.6 million, or $0.01 per share, compared to $4.7 million, or $0.10 per share in the prior year, which was an improvement of more than $4 million versus 2023. Adjusted EBITDA more than doubled during the quarter, with an increase of 112% to $13.4 million, or 21% of revenue, an increase of more than 900 basis points versus the prior year, as we continue to drive very strong bottom-line growth. Finally, the company generated $8.2 million of operating cash flow and ended the second quarter with approximately $164 million in cash and investments and no debt.

With the investment for the company's new facility completed in the second quarter, we expect cash generation to inflect moving forward, further enhancing the company's strong balance sheet and financial profile. Turning to our financial guidance, we are maintaining our MACI revenue guidance and expect MACI full-year revenue growth in the low 20% range, with third quarter revenue growth in the low 20% range as well, or approximately $54 to $55 million for the quarter. For Burn Care, while we are very encouraged by Epicel's improved performance in the second quarter and the meaningful increase in biopsies in the first half of the year, we are updating our second half quarterly Burn Care revenue guidance to be more in line with recent run rates of approximately $10 million per quarter, consistent with our second quarter revenue and our average quarterly run rate in 2023.

Importantly, our internal expectations for Burn Care performance remain higher, and we believe there are still multiple scenarios to achieve our initial guidance range. However, we believe that updating our guidance framework and resetting external expectations for Burn Care revenue in the second half is appropriate at this point in the year, given the difficulty in accurately predicting Epicel quarterly revenue, recognizing that if our team continues to execute well and maintains the current momentum, there remains an opportunity to significantly outperform this updated guidance. I would also note at this point we are not assuming any additional NexoBrid revenue related to the BARDA RFP process that was recently initiated, although there is potential for incremental NexoBrid BARDA revenue in the fourth quarter of this year.

In terms of profitability metrics, we expect another quarter of strong financial results in the third quarter, with both gross margin and adjusted EBITDA margin in a similar range as the second quarter. For the full year, we have reaffirmed profitability guidance of gross margin of 74% and adjusted EBITDA margin of 26%. Note that this profitability guidance includes the operating expenses in 2025 related to the acceleration of our MACI Salesforce expansion. I will now turn the call back over to Nick.

Speaker 5

Thanks, Joe. We're very pleased with the pace of MACI Arthro surgeon training and the resulting strength in both the MACI Arthro leading indicators as well as the overall MACI business fundamentals, which provides a strong foundation for MACI implant growth moving forward. The significantly improved trends for Epicel and NexoBrid position the Burn Care franchise for stronger performance as well. We believe that the company is well positioned to continue to deliver a unique combination of sustained high revenue and profitability growth in the second half of this year and the years ahead. With that, we'll open the conference call for questions.

Speaker 7

Thank you. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that is star one to signal for a question. We'll pause just briefly to assemble our queue. We'll take our first question from Ryan Zimmerman with BTIG. Please go ahead.

Good morning. Thanks for taking our questions, Nick and Joe. I want to start with MACI. I appreciate many of the metrics that you provided that point to an uptick in the second half, but if we can unpack the second quarter a little bit, I mean, if I think about the guidance, Joe, $53.8 million to $54.6 million, that didn't happen. What do you think is happening here that's impacting that growth, at least right now? I appreciate the confidence, but if you could speak to certainly the uptick in the fourth quarter especially and the conversion ratio that you're expecting to allow you to either beat or meet that guidance for MACI.

Speaker 1

Yeah. Good morning, Ryan, and thanks for the question. In terms of MACI, maybe just talk a little bit about the second quarter and the cadence as part of your question. In terms of the second quarter, I'd say we're relatively in line at $53.5 million. It was, I'd say, slightly below kind of that range and call it approximately $54 million. First off, I would say as we talked about on the call and Nick Colangelo talked about, the underlying indicators remain strong. The biopsy growth was strong in the second quarter, and we are starting to see an acceleration of both biopsy growth and implant growth as we get into late and into July. That's certainly encouraging.

I would say probably on the margins, there was probably some degree of, there are probably a few implants from a timing perspective, if you will, where if we looked at what we predicted in the second quarter, perhaps some of the kind of where June ended up, some of those implants probably moved into July relative to our assumptions to start the quarter. I wouldn't say that was all that material, but it is certainly one thing to point out as you think about Q2. I think Q2 generally was in line with our expectations. It was a significant step up from the first quarter and solid year-over-year growth. As you kind of think about the rest of the year, first off, I would say as we said in the last call, we're still kind of in that $240 million range that I referenced in the last quarter.

If you think about the cadence for the second half, the first thing I would point to is before really even getting into MACI Arthro, it's a pretty similar mix when you kind of look at that revenue level from H1 to H2. That's not all that different. Q3 and Q4, there certainly could be some variability there, which is why we're providing a range. Sometimes August and September are difficult months to forecast just given kind of out of office and vacations, particularly as you move kind of farther from the COVID dynamics. Generally, again, I think what we're seeing is a lot of strong metrics. The trained surgeons continue to tick up. We're seeing very strong metrics from that group in particular. I would say nothing has really changed as we move from where we were last quarter and we kind of continue to progress throughout the year.

Yeah.

As you think about, you know, MACI on a full-year basis.

Just to be clear, Joe, or Nick, if you want to answer this, I have a follow-up on Epicel, but the 100 Arthro biopsies that you did so far year to date, can you comment, and give us specifics if you're comfortable, how much of those have converted to MACI at this point?

Speaker 5

Yeah. We don't talk about sort of how those biopsies have converted. We haven't seen any difference in sort of how the Arthro segments and just the segments generally have converted versus normal rates. It's really just a timing issue of when those biopsies convert. I would just say, kind of as we discussed, whether you're talking about MACI Arthro opening up different surgeon segments or kind of different locations in the knee, all of those trends are in line with what we had hoped for or expected. The dynamic that Joe was referring to that we saw when MACI was originally launched, that biopsies increased first. Over time, implants tend to catch up with those biopsies. It's kind of all unfolding as we had expected and as we discussed on our last conference call.

Speaker 1

Yeah, Ryan, just one thing to add too, since the 100 biopsies, that was just one data point from our kind of new Arthro-only segment. It wasn't meant to represent all of Arthro, just to make sure that was clear in our prepared remarks.

I appreciate the clarification there, Joe. Just turning to Epicel, the biopsies were, I think, up 38% in the first half. You do have a price benefit as well. You alluded to this a little bit, Joe, that the patients are experiencing health issues, whether that's expiration or some point. Trying to reconcile the lower guidance on the burn business overall with that biopsy dynamic, this seems to be kind of sustaining despite what would have been maybe a blip with some of these health issues. What's the new reality there that you're factoring into guidance in terms of patient expiration for these severely burned patients in the back half of the year? Thanks for taking my question.

Speaker 5

Yeah. Yeah, Ryan, I'm going to start and then Joe can take that. What we said on the call was that biopsies were up 38% in the second quarter. For the first half of the year, biopsies were actually up 20% over last year. One would expect that you might see some volume growth on grafts as well, even with kind of the regular patient health issues that we face. That, I think, based on the analytics we've had over time, would have suggested kind of the uptick that we had started guiding to earlier in the year. Obviously, as we said, June was the strongest month we've ever had for Epicel biopsies. While they didn't convert into revenue in full in the second quarter, that's what supports our third quarter commentary that we're off to a strong start with Epicel.

There's a bit of that, the patient health issues we referred to where we didn't see quite. Part of this started from Q4 last year into Q1, where it was a sort of unproductive cohort of biopsies that impacted Q1. We expect these things normalize over time. There's nothing different in the underlying dynamics. We do track all of the metrics you might expect, the TBSA of biopsies we received, the TBSA of patients that are treated. There's really no change in any of those underlying patient demographics or otherwise. We think there's no reason it won't normalize as usually happens.

Speaker 1

Yeah. Just to maybe talk a little bit about the Epicel and sort of the Burn Care kind of change in our approach, Ryan, I think which I think is important. We had some of this in the prepared remarks. Again, I think what we're saying on the Burn Care side, as Nick said, we had a stronger second quarter of around $10 million. Obviously, Epicel's biopsies were very strong. Really strong start for both brands to start the third quarter. At this point, our metrics are pointing to a higher Q3. I think what we're talking about or what we're doing here is we're essentially making a change to our approach for the second half of the year. As we've often talked about, precisely forecasting Epicel is very difficult because of these unpredictable patient health dynamics.

The reality is over the last two to three quarters in particular, our underlying trends to go into the quarter, our forecast has supported higher volumes. For whatever reason, we've seen a higher ratio of canceled patients and whatnot, we've either been on the low end or a little bit below our Epicel forecasted range. Just to be clear, this is not where we want our guidance to be. As Nick said, the first half of the year, we've actually generated strong biopsies. It hasn't correlated to the revenue expected yet. From a guidance perspective, to better account for this, we're essentially shifting to more of a run rate concept versus kind of thinking about our forecast and how we start the quarter. As we talked about, the average quarterly revenue last year was $10 million. That's what Q2 was.

That's going to be our guidance for Q3 and Q4 right now. I would also say to some of your question around the stronger start in Q3, importantly, this is not our forecast for Burn Care. Our metrics to date are pointing to something higher. Our expectations are higher. Our team's commercial goals are higher than this. Certainly, we think it's an opportunity to outperform this guidance, and that's what we're focused on. Again, where just a couple of patients could be the difference between $1 million and a quarter, we think just being a bit more conservative with the guidance is appropriate as we close out the year on the Epicel and the Burn Care side.

Yeah, thanks, guys.

Thank you.

Speaker 7

We'll go next to Richard Neuwetter with Truist Securities. Please go ahead.

Speaker 5

Hi, can you hear me okay?

Yes.

Speaker 1

Yes. Good morning. Morning, Rich.

Okay. Thank you. A couple of questions here. I was jumping around from calls, so I apologize. It sounds like you're effectively reiterating MACI, even though Q2 wasn't quite at the guide, but just under. It's really just maybe a slight call down from Epicel for the full year, and you hope to exceed that, but just to be prudent. A, is that the summary?

Yeah, I think that's fair. Exactly.

Okay. Two quick follow-ups on that. One, on MACI, with respect to the range of outcomes of when your conversion rates could hit, do you feel confident that that's just a matter of timing within a six-month timeframe, a three-month timeframe, or it could extend beyond because MACI Arthro is a bit of new territory for you? While the biopsy trends are improving and good, is there anything that's different versus MACI traditional and MACI Arthro in the conversion rate or the timeline to conversion that maybe just won't work the same as it has in the past? I have one follow-up.

Speaker 5

Yeah, Rich. This is Nick. No, we have not seen, as I mentioned previously, any difference in conversion rates for MACI Arthro cases versus MACI open cases. As we talked about previously with the launch of MACI in 2017, you saw a very steep increase in biopsies and then an increase in implant growth, but that kind of played out over the back half of 2017. As we talked about on the last call, you went from 40+% biopsy growth in the back half of 2017 to 54% implant growth in 2018. It definitely doesn't play out over a quarter. It plays out over multiple quarters. Anytime we've seen a sort of biopsy growth outpacing implant growth, it tends to catch up over time. There's no reason to think that that won't happen here.

In our prepared remarks, we mentioned that the MACI, both, and this is really encouraging, obviously, biopsies outpaced implants in the first half of the year, but even biopsy growth is now accelerating and implant growth is accelerating. I think we've kind of laid the foundation for this kind of dynamic earlier this year. Those are the trends that we're seeing play out now.

Okay, thank you.

Thanks, Rich.

Speaker 7

If you find that your question has been answered, you may remove yourself from the queue by pressing star two. We'll move next to Mike Kratky with Lingert Partners.

Speaker 1

Hi, everyone. This is Sam on for Mike. Thanks for taking our question. You mentioned biopsy growth outpaced implant growth in the first half of the year. Are you just seeing a deceleration in biopsy conversion rates around this time of year? What's ultimately the underlying cause of this? I appreciate that you saw an acceleration in July, but what really gives you confidence that these biopsy and implant rates can converge in the second half of the year? I have a follow-up. Yeah. I think, again, as Nick talked about, we've seen this dynamic before in the MACI launch, which I think is very important context. There are times when biopsy growth can be growing faster than implants.

I would just say broadly, when we think about conversion, biopsy growth and implants tend to move together when the conversion is stable, which is what has been going on for the last few years. That said, there can certainly be points in time or points during a year where one might be moving slightly different than the other. I don't think this is atypical that they're not moving exactly in sync at a point in time. At this point, what's encouraging is we've seen that strong biopsy growth in the first half of the year. I think that puts us in a very good position as we think about both the second half of 2025 but also into next year, as we talked about as well. This is not atypical to see that move at a slightly different pace. It's what we would have expected with the Arthro launch.

Got it. That's helpful. As the second question, can you comment on to what degree MACI Arthro surgeons that have been trained to date are surgeons from your existing MACI customer base, or have you begun to get more meaningful penetration in the incremental 2,000 arthroscopic surgeons that you flag as being part of your TAM expansion?

Speaker 5

Yeah, that's a great question. Obviously, as we mentioned, we're really pleased to be at 600 trained surgeons through the end of July. As we talked about the surgeon segments on the last call, you had about 2,500 existing MACI users prior to launch. Those were broken out into surgeons who had typically done patella-only implants previously. The other half of those users would do patella and typically smaller or larger, I'm sorry, condyle defects. We'd say about a third of our 600 trained surgeons come out of each of those two buckets, the existing MACI users. The other third comes out of either the former MACI open targets who had not engaged yet or the new Arthro-only surgeons that we added when we launched MACI. Really encouraged to see the trained surgeons, the third coming out of those prior non-users.

As we mentioned on the call, we've now had more than 100 biopsies out of the Arthro-only segment as well. It's exactly what we would want to see for the prior users who were patella-only. They are obviously now increasing both biopsy and implants in terms of their growth rates and expanding into condyle defects. What you see out of the prior combo patella and larger femoral condyle defect users, they're migrating down into the smaller MACI Arthro defects. It's exactly the dynamic that you would want to see in these early launch indicators.

Speaker 1

Understood. Thanks.

Speaker 5

Okay, thank you.

Speaker 7

We go next to the line of Joshua Jennings with TD Cowen. Please go ahead.

Hi. This is Eric on for Josh. Thank you guys for taking the question. On MACI ankle, congrats on receiving the IND there. It sounds like the clinical study is going to be kicking off in the back half of the year. Are you able to share any detail on what the trial design looks like there? Any thought on patient enrollments and what the timing could be for completing enrollment? Thank you.

Speaker 5

Yeah. Obviously, very pleased that we received FDA IND clearance for the MACI ankle study. As I mentioned on the call, you know it's about a $1 billion addressable market for us. We think it could be a substantial longer-term growth driver for the business over time. It's just not to get into too much detail as it's listed on clinTrials.gov, but it is a prospective open-label randomized controlled phase 3 study, two-year endpoint, just like the SUMMIT study for MACI in the knee. It will be approximately 300 patients at a 2:1 ratio between MACI and bone marrow stimulation or microfracture, which is the active comparator. It will focus on patients with lesions that are greater than 1.2 square centimeters. Pretty straightforward. The endpoints are much like the endpoints were in the SUMMIT study where you're looking at pain and function improvements at two years.

Great. Thank you for reviewing that. Just curious to check in on some of the midterm profitability targets that you guys have in play for gross margin and adjusted EBITDA margin by 2029. Are those high 70% and high 30% margin targets respectively still in play here? Thank you for the questions.

Speaker 1

Yeah. We had a, from a profitability perspective, the company had a pretty strong second quarter. Our gross margin in the second quarter was kind of in that mid-70% range, consistent with where our full-year guidance is that we reaffirmed as well from a profitability perspective. Adjusted EBITDA was strong as well, kind of into the low 20s into the second quarter, which is strong for a middle-of-the-year quarter for us. We reaffirmed our full year there. As we think about kind of end of the decade, kind of getting from the mid-70s to the high 70s on the gross margin side, certainly still seeing that we would, nothing's changed, I would say, in our view on either gross margin or adjusted EBITDA. We're not too far on the gross margin side. We need to keep kind of driving strong revenue growth and manage our spend.

Certainly from the adjusted EBITDA perspective, we very much remain on track there as well. No change in terms of our kind of midterm targets, I would say, on the profitability side.

Okay, that's great to hear. Thank you again.

Thank you.

Speaker 7

Once again, if you'd like to signal for a question, please press star one on your telephone keypad at this time. We'll move next to Caitlin Cronin with Canaccord Genuity.

Hi. Thanks so much for taking the questions. I guess just to start off with the Arthro biopsies, you mentioned 100 Arthro naive surgeons with the biopsies. How many total biopsies to date are you seeing across all the surgeon cohorts? You know, how many of those have converted already into implants?

Speaker 5

Yeah. It's not really possible. I suppose you could look at the size and location of defect and say this may be a defect that's intended to be treated arthroscopically. Even there, it really depends precisely on the location and so on. I guess we would just say this. Biopsies generally, as we said, increased at a double-digit rate in the first half of the year. That's accelerating as we move into the second half of the year, as we would have expected, because we're now up to 600 MACI Arthro trained surgeons. Both their implant and biopsy growth rates are significantly higher than the overall averages. As we continue to train more surgeons and they take more and more biopsies, that's the dynamic that ends up leading towards this accelerating biopsy growth.

We did mention on the call as well that the small femoral condyle defects increased 40% in the second quarter this year over last year. Good indicator there about the impact that MACI Arthro can have. As we've talked about with you before, it's the largest part of our addressable market. When that growth rate is kind of ripping like that, it can have a pretty big impact on our business over time.

Got it. Okay. Any more color on the MACI Salesforce expansion and you know how many have been hired already? What is the timeline to add the further members this year?

These positions were posted last night. We haven't hired anyone yet, but I expect it will be done in pretty short order. The whole rationale there, as we mentioned on the call, is that we have some, we're going to have some very significant volumes in the fourth quarter. We're already kind of right at the beginning of August, so you'll have reps who will be hired towards the end of August into September. We expect a decent number, meaningful number of reps will be in the field supporting our current reps in their existing territories probably by early October. That will give them a good chance to support a very high volume quarter, and then realign the territories. All the representatives will be in their new territory starting on January 1. We believe that is very important.

As Joe Mara mentioned on our last call, things don't change when the calendar flips to January 1. The momentum that we're seeing and expect in the back half of the year, we want to capitalize on that day one in 2026. That is what led to accelerating the growth based on the leading indicators we're seeing from MACI Arthro and sort of our expectations for implant growth in the back half of the year.

That's great. Just one more close one. Any update on if you're continuing to see this kind of dynamic of dormant Epicel accounts becoming active given the NexoBrid engagement in those accounts?

Yeah. We've definitely continued this year where I'll just roughly say a handful of centers that hadn't used Epicel recently are sending in biopsies. We think as we continue to have a greater presence in a larger number of burn centers, that dynamic will continue.

Great, thanks so much.

Thanks, Caitlin.

Speaker 7

We go next to the line of Mason Caracol with Stephens. Please go ahead.

Hey, guys. Thanks for the questions here. I'll ask my two up front if that's all right. You've called out MACI ASP increasing mid to high single digits annually. I think approval rates have stayed north of 90%. Can you just confirm or speak to your confidence in sustaining that price momentum moving forward without triggering some form of access pushback? Then, could you just update us on the international expansion opportunity? What are your latest thoughts there on the timeline, specific geographies you may plan on targeting?

Speaker 5

Yeah. On pricing, you know, Mason, as we've talked about before, we do an extensive amount of MACI and really for all our products pricing research to make sure that we can optimize pricing on what are considered by payers, surgeons, patients alike, you know, highly innovative products. We have always been thoughtful about how we implement price increases. As we've said, MACI is a biologic product. Payers and hospital administrators expect that you'll be taking sort of mid to high single-digit prices on an annual basis. We've done that. As you mentioned, our prior approval rate for MACI cases is in the mid-90% range. We haven't seen any change in that over the years as we've continued to take price. That's an important part of the equation for us. It's a pretty unique position to be in in the med tech space.

On the OUS side, we continue to progress with our evaluation with our outside sort of global consulting group. We had planned and expect to have a roadmap for the OUS opportunity by the end of the year. It's progressing well. I think we have a clear intent to be able to expand into certain OUS geographies in the next few years. We prioritized Europe and entry into that region first. There are some interesting pathways along the mutual recognition front that would allow us to do that at a relatively fast pace. That timeframe of potentially launching in certain countries or in the 2027-2028 timeframe is still our current thinking.

Got it. Thank you.

Thank you.

Speaker 7

We turn next to Jay Cullen with Ladenburg Thalmann. Please go ahead.

Oh, hey, Nick and Joe. Thanks for taking our questions. Could you talk, Joe, could you tease out a little bit the back half SG&A guide and talk about sales expansion and perhaps talk about geographies as well? Thank you.

Speaker 1

Good morning. From an operating expense perspective, we've been kind of around $49 million in total in the last couple of quarters. There may be a little bit of a mix shift as we close out the year as we start hiring on the sales side. I said in the prepared remarks, obviously reaffirming our overall guidance from a profitability perspective for both gross margin and adjusted EBITDA. We're assuming essentially kind of flat quarters or around that same number from an OpEx perspective over the next couple of quarters. As we talked about, the hiring will probably, by the time everyone's hired, take some time for that. There will be some impact in the fourth quarter. Really, it's more of an annualized, if you think about roughly 25 additional sales reps, it's kind of more of a 2026 impact from a Salesforce expansion perspective.

Okay. Got it. That's helpful. Could you talk about the BARDA RFP as far as the timeframe or duration and size of the RFP that's out there?

Speaker 5

Yeah. The RFP is in the public domain, so anybody who's interested can take sort of a deeper look at it. Proposals or responses are due in sort of late August, and presumably, a decision will be made shortly thereafter. What the RFP covers would be procurement of basically a stockpile for preparedness. The details of that are clearly stated, that the initial procurement would be for 2,750 units. There would be management funding for that. There's a second ramp-up procurement that is listed. The first one is between October of this year and the end of September next year; the ramp-up procurement is for the year after that. There are just a number of other items around managing what's essentially a BMI inventory for BARDA, other development projects for room temperature formulations, different indications, and so on.

There's a pretty long list of about a dozen funding opportunities under that RFP. Obviously, at this point, the timing and the negotiations around that have not occurred, so we can't really speak to whether we would assume that BARDA, typically, when they fund a program and then they look to stockpile a program, that it would be NexoBrid will have a very strong opportunity. In terms of the exact timing and funding amounts, that's left to negotiation after being selected.

Got it. That's helpful. Thanks for taking our questions.

Speaker 1

Thank you.

Speaker 7

We go to our next question from Swayam Pahlowar-Ramakanth with H.C. Wainwright. Please go ahead.

Thank you. Good morning, Nick and Joe. A couple of quick questions. In your prepared remarks, Joe, you were talking about there's a potential for the burn franchise to outperform your $10 million per quarter guidance. What are the pushes and pulls for that to happen?

Speaker 1

Yeah. I mean, again, I try to lay out, I think it was Ryan's initial question. I just wanted to make sure people understood, you know, from an external guidance perspective, we want to be very clear, which is our external guidance is $10 million a quarter. It's more of a run rate concept. That's our approach. I would say internally, as we talked about, I'd say the first piece is we've had a pretty strong start to July on both products. That's always kind of what you want. Again, our guidance is not meant to be our forecast, but essentially, if NexoBrid can continue on a stronger run rate that we've seen in June and July, for example, that could kind of help it continue to tick up. It's really, at this point, obviously more about Epicel, given the scale of the two products.

Really, it's about what happens from a conversion of those strong biopsies in the second quarter. It's been a strong start in July, but we need to see how that plays out in August and September. Again, our metrics point to this is a strong start. It points to it. It should be a stronger quarter. We just don't want to get ahead of ourselves not knowing exactly what the rest of August looks like, let alone September at this point with Epicel because you can always have cancellations and whatnot. Again, strong start. It would be continuing to drive kind of a high, you know, higher conversion rate or I call it a more average conversion rate and then not getting those cancellations due to patient health. That's probably what's most variable as we think about the quarter. Again, a strong start.

Speaker 5

I would just add that, as Joe mentioned, at this point, we're not including any potential BARDA revenue that could come in the fourth quarter in our guide. There's a commercial piece that could allow us to outperform, and then there's some potential BARDA revenue as well. Again, timing and amount can't determine at this point, but there's multiple paths to kind of exceed the guidance that Joe provided.

Nick, you kind of stole my question, but on that BARDA revenue from the fourth quarter, you know, potential, in general, is there a range you folks are thinking about, you know, on the dollar amount if it happens?

No, that's what I said earlier. I mean, the RFP clearly sets forth the sort of procurements that BARDA is interested in. The 2,750 units, you know, from October of this year through September of next, and then up to 5,000 in the following year. Obviously, without knowing the pricing on that, you can't really estimate the revenue. There are management contracts to manage that BMI inventory and other things that are stated there. I think they'd like to have access to some commercial inventory, and there's funding for that that would be involved. There are a lot of pieces, and it's just impossible at this point to quantify from a revenue perspective what that would be or the timing thereof. One would expect that if BARDA is interested in having an available stockpile through a BMI kind of procedure, they'd want to have it sooner than later.

More to come on that.

On the Arthro product, you stated that there are 600 trained at this point. In general, once a surgeon gets trained, how long does it take for them to kind of become comfortable enough to start taking biopsies and start sending them over to you folks?

I'd say actually, you know, it often happens in reverse where surgeons will take biopsies and then get trained when they're ready to move forward with the procedure. No time at all to get comfortable taking a biopsy. They do arthroscopic chondroplasties all the time, and that's when they end up taking a biopsy. That's not, yeah, no impact there at all.

Okay. Perfect.

All right.

Thank you very much. Thanks.

Okay, thank you.

Speaker 1

Thanks, okay.

Speaker 7

There are no further questions. I'd like to turn the floor back to Nick Colangelo for any additional or closing remarks.

Speaker 5

Okay. We just wanted to say thank you to everyone for your questions and continued interest in Vericel. We look forward to providing further updates on our progress on our next call. Thanks again, and have a great day.

Speaker 7

This concludes today's conference. We thank you for your participation. You may disconnect at this time.