Title

Presentation

Vericel Corporation beats earnings expectations. Reported EPS is $-0.02, expectations were $-0.05.

Operator: Ladies and gentlemen, thank you for standing by. Welcome to Vericel’s Third Quarter 2024 Conference Call. At this time, all participants are in a listen-only mode. I would also like to remind you that this call is being recorded for replay. I will now turn the conference call over to Eric Burns, Vericel’s Vice President of Finance and Investor Relations.

Eric Burns : 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 Finance Officer, Joe Mara. Before we begin, let me remind you that on today’s call, we will be making forward-looking statements covering the Private Security Litigation Reform Act of 1995. These statements may involve risks and uncertainties that could cause actual results that are prematurely some expectations and are described more fully in our findings of 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 third 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.

Nick Colangelo : Thanks, Eric, and good morning, everyone. The company had another outstanding quarter as we generated total revenue growth of 27% and record third-quarter revenue of approximately $58 million, which exceeded our guidance for the quarter. This strong performance was highlighted by record third-quarter MACI revenue and the highest Epicel revenue in any quarter-to-date. We also delivered another quarter of significant margin expansion and operating cash flow as the company’s profit growth continues to outpace our high revenue growth. Finally, the company achieved two very important regulatory milestones with the FDA approval of MACI Arthro and the next-of-kin pediatric indication, which positioned the company for sustained high revenue and profit growth in the years ahead.

MACI had another solid quarter and was well-positioned for a strong close to the year as the momentum in underlying growth drivers continued through the third quarter. We achieved record third-quarter highs for MACI biopsies and the number of surgeons taking biopsies, driven by robust growth in both biopsy surgeons as well as biopsies per surgeon, which has become a meaningful growth driver for MACI this year. The strength of these key growth drivers, together with another quarter of significant increases in peer-to-peer programs, which more than doubled in the third quarter compared to last year, and attendance at those programs, which is at the highest level at any time since launch, demonstrates that surgeon interest in the core MACI procedure remains extremely high.

In addition, with the recent approval of MACI Arthro, MACI is now the only restorative biologic cartilage repair product approved for arthroscopic administration. The first MACI Arthro case was successfully performed a few days after we announced the approval, and there’s been considerable engagement and interest in MACI Arthro from both current MACI users and non-users at training programs, as well as our launch meeting at the orthopedic summit in September, an important early indicator of the potential for MACI Arthro to meaningfully expand utilization and sustain MACI’s high revenue growth over the long term. Turning to Burn Care, Epicel’s third quarter revenue was its highest quarterly revenue to-date, and we continue to generate significant Epicel revenue from NexoBrid selling activity at previously dormant burn centers.

NexoBrid adoption continued to progress, with more than 70 burn centers completing P&T committee submissions, and approximately 50 burn centers obtaining P&T committee approval and placing initial orders since launch. With the NexoBrid pediatric indication now in place, more than a third of the pediatric burn centers have completed P&T submissions, with several pediatric centers placing initial orders. Finally, NexoBrid recently received a category three CPT code, which is scheduled to be posted on the AMA website on January 1st and go into effect on July 1, next year. Overall, the company had an excellent third quarter, and importantly, we remained on track to meet all of the key objectives for 2024 that we established at the beginning of the year, including sustaining high revenue growth for MACI and the company, establishing a second high-growth franchise in burn care, securing FDA approval and launching MACI Arthro in the third quarter, and continuing to drive substantial margin expansion and profit growth.

I’ll now turn the call over to Joe to provide a more detailed review of our third quarter financial results and guidance for the remainder of 2024.

Joe Mara : Thanks, Nick, and good morning, everyone. As Nick referenced, Vericel had an excellent quarter across all financial metrics, with record third quarter revenue and profit margins coming in ahead of our guidance for the quarter. Total net revenue for the third quarter was $57.9 million, an increase of 27% versus the prior year. MACI revenue grew 19% in the third quarter to $44.7 million and remains on track for a strong fourth quarter and approximately 20% growth for the full-year. Total Burn Care revenue in the third quarter grew 66% to $13.2 million, well ahead of our guidance. The outperformance was driven by record quarterly Epicel revenue of $12.2 million, with the increased graft volume primarily due to considerably higher grafts per order.

Importantly, based on our higher share of voice in the burn care market, both new and dormant Epicel accounts have contributed a meaningful portion of Epicel’s nearly 30% growth on a year-to-date basis. NexoBrid revenue grew sequentially to $1.1 million for the quarter, as we continue to add new ordering centers and the number of centers regularly using NexoBrid increases. The company’s substantial revenue growth translated into significant margin expansion, with gross profit of $41.7 million, or 72% of net revenue, an increase of 480 basis points compared to 2023, which also represents a record quarterly gross margin outside of our seasonally highest fourth quarter. Through the third quarter, the company has generated gross margin of 70%, an increase of 450 basis points versus the prior year.

Total operating expenses for the quarter were $44.1 million compared to $35.7 million for the same period in 2023. The increase in operating expenses was primarily due to development and commercial launch activities for MACI Arthro, increased headcount and related employee expenses, as well as additional marketing initiatives that helped drive a significant increase in engagement across both franchises. Net loss for the quarter narrowed to $0.9 million, or $0.02 per share, compared to $3.7 million, or $0.08 per share, in the prior year. In addition, the company has generated positive GAAP net income on a rolling 12-month basis, and importantly, we remain on track for positive GAAP net income for the full-year. Adjusted EBITDA for the quarter increased 84% to $10 million, or 17% of revenue, an increase of over 500 basis points versus the prior year, as we continue to drive very strong bottom line growth.

On a year-to-date basis, adjusted EBITDA has more than doubled to nearly $24 million. Finally, the company generated over $10 million of operating cash flow and ended the third quarter with $151 million in cash, restricted cash, and investments, and no debt. Notably, our cash and investments balance has remained consistently in the $150 million range throughout the year, as the company’s strong financial and cash generation profile has allowed us to completely self-fund the investment in our new manufacturing facility to support the company’s future growth. Turning to our financial guidance. For the full-year, we are maintaining our total company revenue guidance of $238 million to $242 million, or 20% to 23% total revenue growth, which implies fourth quarter revenue of $76 million to $80 million.

In terms of our profitability guidance, based on the company’s financial performance year-to-date and expectations for a strong fourth quarter, we are increasing gross margin guidance to 72% and adjusted EBITDA margin guidance to 22% for the full-year, compared to the prior guidance of 71% and 21%, respectively. Overall, 2024 is set up to be another very positive year for the company, with another year of high top-line growth, as well as significant margin expansion and profit growth ahead of our initial expectations. As we look ahead to next year, we believe that the durable growth in our core portfolio, together with our recent product launches, positions the company to sustain strong top-line and bottom-line growth and deliver a meaningful inflection in our cash generation, giving significantly lower CapEx as we complete the construction of our new facility early next year.

I will now turn the call back over to Nick.

Nick Colangelo : Thanks, Joe. The company’s performed extremely well to-date in 2024, and as we move into 2025 and beyond, we expect the momentum across our business to continue. While we’re still very early in the MACI Arthro launch, we’re seeing substantial interest and engagement with both previous MACI targets, as well as the incremental 2,000 high-volume arthroscopy surgeons that are now part of our 7,000-target surgeon base. As I mentioned earlier, the first MACI Arthro case was performed within days of approval, and surgeons have already performed or scheduled dozens of MACI Arthro cases to date. Importantly, surgeon feedback has been very positive with respect to the potential patient benefits noted by surgeons in our market research, as the MACI Arthro procedure offers a less invasive treatment option, requiring smaller incisions, which may result in less post-operative pain and overall faster post-operative recovery for patients.

We’re very pleased with the launch to-date, and given that the MACI Arthro instruments target the largest segment of the MACI addressable market, representing approximately 20,000 patients per year, we believe that MACI Arthro will have a meaningful impact on overall MACI utilization and potentially bolster its current high-growth trajectory, providing a significant potential upside growth opportunity for the company in the years ahead. We also continue to advance the MACI Ankle development program, remain on track to submit an IAMD in the first half of 2025, and expect to initiate the Phase 3 clinical study in the second half of the year. A potential MACI Ankle indication represents a substantial longer-term growth driver for MACI, with an estimated addressable market of $1 billion that would enable the company to expand into other orthopedic markets.

Lastly, we’ll be moving into our new facility early next year and plan to begin commercial manufacturing of MACI at that site in 2026. The new facility is designed to meet both U.S. and global manufacturing requirements, which provides strategic flexibility for the company to potentially commercialize MACI outside the United States. We’re initiating an evaluation of the opportunities and regulatory requirements in several OUS geographies as we continue to expand the long-term growth and value creation opportunities for the company. Overall, we believe the company is well positioned not only for a strong close to 2024, but also to deliver a unique combination of sustained high revenue and profitability growth in 2025 and beyond, based on the strength of our core portfolio, the recent launch of MACI Arthro, and continued progress on other long-term growth initiatives.

This concludes our prepared remarks. We will now open the call to your questions.

Operator: Thank you. [Operator Instructions]. And our first question will come from Ryan Zimmerman from BTIG. Your line is open.

Ryan Zimmerman : Good morning, and thanks for taking the questions. Congrats on a really nice quarter. I guess I want to start with NexoBrid because it’s getting off the ground this year. There’s some decent expectations on NexoBrid in the next year as it normalizes and becomes more routine of a product versus having to go through the P&T process. And so Joe, I know you’re not going to give guidance for 2025, but conceptually, I guess, can you talk a little bit about kind of the drivers for growth next year, kind of where you see NexoBrid potentially settling into a rhythm or when you see it settling into a rhythm, and whether or not MACI Arthro is really an accelerant or a sustainable kind of driver of current MACI expectations?

Joe Mara : Yes. So, Ryan, I’ll kind of start there. Maybe kind of just talk a little bit about the framework from a guidance perspective for ’24, and then kind of how we’re thinking about ’25. So for ’24, I think we’ve been consistent kind of all year in our framework. And I think as we think about MACI, we think that’s still very much on track for 20%, around 20% growth on a full year basis this year. So that hasn’t changed. As we move into 2025, I would say kind of the way we’re thinking about from a company perspective, kind of thinking about the framework for next year, we haven’t given specific guidance at the company level or at the product level as of yet. But we have pointed out that we do expect another year of strong growth.

We’ve talked about kind of being in the 20%-plus range. So I would say just kind of more as a framework as we move toward next year, I think the right starting point as we think about ’25 is really to think about the total company growing at a similar range as kind of where we started this year and kind of the range we’re in from a growth perspective. So what does that mean kind of across the franchises? For MACI, obviously, the leading indicators have been extremely strong this year, kind of throughout the year. Biopsies have been strong driven by surgeons and biopsies per surgeon. The initial feedback on MACI Arthro, as Nick talked about, has been very strong. But I think as we think about next year, probably the way we’re thinking about MACI to start is just based on those strong leading indicators and their core growth drivers.

And I would kind of say a modest contribution from MACI Arthro. We think MACI can kind of be in a similar growth rate next year, just thinking about it that way. And maybe just to kind of round out ’25, you know, I think on Burn Care, I think from a NexoBrid perspective, I think our expectation at this point, we’re three quarters into the year, kind of getting to our first year launches. You know, I think as we move into next year, I think at this point, we’d expect continued progression kind of each quarter on NexoBrid. And then from an Epicel perspective, probably more typical growth this year has been a little bit kind of outsized from a growth perspective. So I still think Burn Care will have very strong growth next year, but probably more in line with the company growth.

And then lastly, I would say kind of on both MACI Arthro and NexoBrid, we don’t want to get ahead of ourselves, but there’s certainly potential to outperform kind of at the starting point here, if MACI Arthro, kind of the impact is greater than we initially assumed. It may come faster. And then similarly, from a NexoBrid perspective, it really comes down to, we’ve had a lot of penetration in terms of total centers, but in terms of the centers really using it more regularly and kind of moving our centers kind of up the segment chain, if you will, that could potentially lead to faster growth on the NexoBrid side. But we’re not going to assume that out of the gate on Arthro or NexoBrid as we think about ’25.

Ryan Zimmerman : Okay. That’s very helpful. And Nick, maybe turn to MACI Arthro for a minute. We heard it was, and I could be wrong on this, we heard it was standing room only at the OSET conference in Vegas about a week or two after MACI Arthro got approved. And so, certainly a positive data point in terms of investors, excuse me, surge in interest. Can you talk about, when you talk about record biopsies, you talk about biopsies per surgeon, I mean, what are you seeing from those 2,000 or so doctors that are incremental right now as we get going? And the second part of that is, are you seeing an uplift in your existing MACI customer base as a result of Arthro, or do you expect that to be more of the driver than say new physician adoption as it gets going?

Nick Colangelo : Yeah. Hey, Ryan, thanks. That’s a great question. And when we kind of talk about MACI Arthro and have in the past, and we really think about, obviously we had kind of our current or prior MACI 5000 targets, and then adding the new 2000 surgeons. And as we think about segments within those kind of broader groupings, you have current MACI users from the 5000 targets. One bucket of them principally kind of looks at MACI as a patello or patellofemoral joint option for patients. Others do that plus femoral condyles. And so we kind of look at the surgeon segments in that way. And then you have kind of an opportunity for non-MACI users out of those prior targets, and then the new 2000 surgeons. And I would just say of the first few dozen cases that I referenced earlier, we actually have surgeons who have either performed or have scheduled MACI Arthro procedures out of all four of those buckets.

So we think that’s a great leading indicator. As I’ve said on prior calls, certainly the low-hanging fruit is our previous targets who have biopsies that haven’t yet converted that are amenable to the arthroscopic approach. And of course, when we had Dr. Banfi [ph], who’s on our website, he did the first case the week we announced the approval, obviously that was a previously scheduled case, previous biopsy that he was able to perform the arthroscopic MACI procedure with. So those are the ones that are going to be easiest. And this is, we’ve talked about we have that pool of unconverted biopsies for the year that each rep can go out and talk to their, the surgeons about. But as I mentioned, we’ve also had non-MACI users from our original targets.

And then, the new 2000 targets were surgeons have actually taken biopsies in scheduled cases. So again, we think that’s a great sort of early leading indicator for the potential that MACI Arthro can have as we move forward.

Ryan Zimmerman : Thank you.

Nick Colangelo : Thanks, Ryan.

Operator: Thank you. Our next question comes from Richard Newitter from Truist Securities. Your line is open.

Richard Newitter : Hey, guys, thanks for taking my questions and congrats on the quarter. Maybe just the first question here, following-up on Ryan, just I might have missed it. You might have said it when you were answering him, but with respect to the portion of the market where you see MACI Arthro giving you better accessibility or to the lesion sizes of the patellofemoral. I’m sorry, down the femoral condyles, rather. What, are you seeing those dozens of initial cases getting used in that seemingly expansionary segment of the market? Is that kind of what you would have expected to see? Or maybe just elaborate on that a little bit. I’m sorry if you had said that when you were answering the last question. I might have missed it.

Nick Colangelo : Yeah, hey, thanks, Rich. We — yeah, no, I hadn’t addressed that part, but as I mentioned in on prior calls, so the entire MACI Arthro instrument approach is designed for two to four square centimeter defects on the femoral condyles. Those are the most common defects, represent about 20,000 of the 60,000 patient TAM or about a $1 billion a year. And typically with the open procedure, either patella defects or larger femoral condyle defects were kind of the go-to defects for MACI. And it doesn’t mean we didn’t have surgeons doing MACI procedures for those smaller defects, but we had a much smaller penetration compared to say patella or large defects. And so that is the opportunity for us to get a deeper penetration into the largest part of the TAM.

And then, yeah, that’s of course where the initial cases are going because the instruments, again, they come in pairs of two, three, or four square centimeter cutters, cannulas, and the implant device. And so that’s exactly the size in the initial location, but we’ve also seen surgeons, and again, we’re just kind of in the early days, doing not only femoral condyle cases, but other areas of the knee as well. And of course that could open up even broader utilization.

Richard Newitter : Very helpful. And maybe just, I know you’re not giving official ’25 guidance, but similar to kind of the way you parsed out some of the considerations and ways to think of starting points for revenue, can you do the same down the P&L? This looks, it’s a great profit inflection that we’re seeing in the business continuing in ’24. It looks like that should continue into ’25, but anything you want to call out as we refine our models for next year, Cadence, and maybe if you feel comfortable opining where consensus forecasts are? Thank you.

Joe Mara : Yeah, no, I appreciate the question, Rich. So I would say it’s probably too early to get into specifics on next year, but I would say, a couple of things. So one, obviously the performance kind of this year, whether you look at individual quarters, kind of year-to-date, wherever, where the full year is trending from a margin perspective, whether you’re looking at gross margin or adjusted EBITDA has been very strong. And I generally say probably a bit ahead of our expectations and ahead of our schedule for kind of getting up the curve there. So as I think, as we think about 2025, I would say, we just want to be a little bit mindful of that. I mean, said differently, I would not assume we’re going to see the same kind of year-over-year expansion as a starting point in either gross margin or the adjusted EBITDA margin next year.

We will start to see some of the depreciation and whatnot from the building start to play its way to the P&L and that’s more to get into for next year. But those are some of the considerations from an overall P&L perspective. That said, I would say when you look at gross margin, we’re kind of at or ahead of our mid to long-term expectation of 70%. So, that is certainly great to see. And I think, that’s something we think we can certainly continue to improve upon. And from an adjusted EBITDA perspective, I think we’re tracking nicely there as well. I think we’re well set up to kind of make progress and kind of hit our long mid-range targets of 30% plus. What it means for next year is, we’ll probably start out with, I would say, the kind of right expectations for that to continue to increase, but at a lower rate, at a lower rate on a year-over-year basis to start the year.

I would also say, and I guess on those two, I would say, at the appropriate time, we’ll probably think about updating some of those long-term targets. Obviously, we’re kind of at the 70%, for example, on gross margin, or 70%-plus. So, that’s we’ll update that at the right time. Just broaden it a bit as well and just say, as we move to next year, the last couple years for us, we talked about and I think we’ve experienced that inflection from a profitability perspective on the P&L. But as we move to next year, I think there’s a couple of other important dynamics, which is, one, this year, we’re expecting to be GAAP net income positive. We obviously expect to build on that next year. So, that’ll be something that I think will be very important as we move into next year and beyond.

And then we reference in the prepared remarks, but from kind of a financial profile and cash generation perspective, we did want to point out, we’ve self-funded our entire facility, primarily this year, but over the last few quarters. And essentially, once we get into early next year that will be behind us. So, in addition to kind of the P&L metrics that we’re obviously very focused on, as well as the top line, I think, the cash generation should significantly, will significantly improve in ’25 and beyond. So, that’s something I’d say we’re focused on, as well.

Richard Newitter : Okay. Thanks a lot.

Joe Mara : Thank you.

Operator: Thank you. Our next question comes from Mike Kratky from Leerink Partners. Your line is open.

Mike Kratky : Hi, everyone. Thanks for taking our questions. Maybe another one on MACI Arthro. How has the early wave of MACI Arthro procedures that are being done or scheduled guided your outlook both for 4Q and 2025, just in terms of one, the portion of implants that are going to be done arthroscopically, and then, two, again, just kind of the degree to which you could see any uplift from MACI procedures overall?

Nick Colangelo : Yeah, I’ll start, and then Joe can jump in, as well. So as we mentioned, the surge in interest, for obvious reasons, is very strong. And we have had, as we expected, sort of the low-hanging fruit, as I mentioned, is surgeons who had these biopsies that are amenable to arthroscopic procedures, and then converting those cases, essentially doing them arthroscopically instead of open. So most of those are cases that I think you could say likely would have gone forward in the fourth quarter. Probably some were incremental, as we’ve seen surgeons, again, kind of get pretty enthusiastic about it. So, we had said that we knew we would end up doing some cases this year, but given the dynamics of the launch in September, and the, obviously, each surgeon who’s in that bucket of 2,000 new surgeons, and then those who hadn’t taken biopsies for MACI in the past, that’s all prospective business.

And as we’ve talked about, the median time for biopsies to convert is about four months, and that’s why we have said consistently that we’d see kind of a bigger impact from MACI Arthro in 2025 and beyond. So, lots of momentum, as Joe mentioned, in the core business. We expect to have some incremental, obviously, as we get into 2025 MACI Arthro, and exactly how quickly that inflects, I think, remains to be seen. But we certainly, based on the initial enthusiasm, and it’s just obvious, right? It’s a less invasive surgery. As we talked about, surgeons and patients expect that there’s less post-operative pain, faster post-operative recovery, or overall recovery. And so that’s what’s driving a lot of the enthusiasm.

Joe Mara : Yeah, just to chime in briefly on 4Q and kind of the guide as well. So I think as we’ve talked about on MACI, I think another strong quarter in Q3, I think we’re set up well, kind of still at that 20% kind of growth for the year. That’s, from a Q4 perspective, I’d say, the kind of right place to start on MACI is 68 million in Q4, approximately 68 million. That kind of, that gets you to that 20% on a full-year basis. And just on that, kind of on the question, that’s not, that’s really based on the strong leading indicators and really what would be typical seasonality. So that’s based on just kind of the trends we’ve seen throughout kind of MACI’s history there with the step up in Q4. It is not based on a significant kind of uptick in MACI Arthro.

So that’s not really the driver of Q4 guidance. And then just quickly on the, on the Burn Care side, just to round out Q4, obviously a great third quarter, particularly on Epicel, which is great to see, and just perform well really throughout the year. I would say from a guidance framework perspective, I think we’ve been pretty consistent on this. We don’t typically raise our guidance based on one quarter or a prior quarter of Epicel’s performance, just because it can vary so much quarter-to-quarter. And just as a reminder, for example, even in the second, sorry, in the first quarter, we had 11 million of Epicel revenue and the following quarter, we did not change our guidance and the following quarter was 7.8 million. So I think that’s a good example of kind of holding our framework.

It’s certainly appropriate. And we continue to believe that’s the best approach just because it’s a difficult product to predict on the burn care side. So in terms of Q4 on the Burn Care side, I would say still early in the quarter and Epicel clearly remains very difficult to predict, but I think at this point it’s probably trending closer to Q2, which was in that call it 7.5 million to 8 million range. I think it was about 7.8 million. So that would point to Burn Care trending to around 9 million in Q4. So as we think about Q4 on closing the year, we think we’re set up for a very strong close, but kind of our framework is 68 million on the MACI side and 9 million on the Burn Care side. Of course, there could be some variability, but we think that’s the right place to start.

Mike Kratky : Understood. Yeah, super helpful color there. So I appreciate that. Maybe one quick follow-up. Epicel has definitely been a really positive surprise. Do you expect that the NexoBrid launch has kind of helped to drive additional engagement there? And do you expect that that is a trend that could be more durable in 2025 and beyond?

Nick Colangelo : Yeah, that’s a great question. And we’ve said even since last year, when we were first getting ramped up with NexoBrid that we’ve definitely seen pull through and now meaningful contribution to Epicel growth from the NexoBrid selling activities in either new or dormant burn centers. And yeah, it’s been a meaningful contributor, probably as much as NexoBrid itself for the year. And so we expect that will continue as we move into 2025. And I think we mentioned on our last earnings call that, we had realigned probably on the earlier side to both expand the number of Burn Care reps and ensure that all of them are selling both products now. If you recall, when we first launched NexoBrid, just because the training requirements on Epicel are pretty steep, that we kind of had a group, kind of an overlay configuration where the NexoBrid reps were calling just on the new NexoBrid accounts with the long-term vision that we would at some point have all of our reps selling both products.

And we implemented that in the third quarter. And so long story short, yeah, we expect that the cross-selling opportunities will continue to help Epicel as we move forward. And it’s really been great. I mean, obviously, even based on the guidance Joe just mentioned, you know, it’ll be up close to 30% for the year. So good, strong performance for Epicel.

Mike Kratky : Awesome. Thank you, guys.

Operator: Thank you. Our next question will come from Josh Jennings from TD Cowen. Your line is open.

Josh Jennings : Hi, good morning. Thanks, Nick and Joe. Congratulations on another strong quarter. I wanted to just ask about the MACI Biopsy Bank. And you referenced that one of the first procedures had been a biopsy that was taken prior to approval, is my assumption. But were you seeing some of that pent-up demand flow through with kind of femoral condyle biopsies as you headed into the MACI Arthro approval? And any sense of how that could kind of what that pent-up demand looks like in the biopsy bank?

Nick Colangelo : Yeah. So we did have a number of surgeons, and I believe we talked about this on our last call, roughly 100-ish surgeons that either were involved in sort of the design of the instruments and development in the human factor study and the voice of the customer labs following the submission to the FDA. So there were clearly, call it 100-ish surgeons who had participated in this. And so as you’d expect, some of the early procedures are coming from those who were familiar with it. We obviously also have biopsy transmittal forms with the size and location of the biopsy. So for biopsies essentially taken in 2024, which had not yet converted and were amenable to arthroscopic administration, again, based on the size and location, we were able to arm our reps with the surgeons and patients that they had a discussion about would it be appropriate for MACI Arthro.

So I would say, though, that it’s not — we obviously couldn’t promote the Arthro approach until it was approved. So, there wasn’t a whole lot of discussions kind of ahead of the approval or moving towards it, as you referred to. It was really once we got approval, then they’re armed to go out and have those discussions with the surgeons about the approach.

Josh Jennings : Excellent. And then thanks for that. And just wanted to get an update on MACI pricing and how to think about price increases in 2025 and kind of within that, just remind us the incremental revenues from MACI Arthro instrumentation in those cases? Sorry for the multi-part question here, but also just wanted to ask about, just to review the commercial thrust to attack these 2000 high-volume arthroscopic orthopedic surgeons and just to make sure that there’s you guys feel well equipped and positioned to maintain that kind of farming of your current accounts and hunting those new arthroscopic, that new arthroscopic camp that you unlocked? Thanks.

Nick Colangelo : Yep. So, I’ll just start with kind of the general MACI pricing. We typically take them into high single-digit price increases each year. And we’ll expect to do that in 2025 as well. In terms of the MACI Arthro instruments, we do, those are disposable instruments. So, unlike an open procedure where we have an implant kit that we basically provide to the surgeons and then we have to actually kind of process that, sterilize it, etc., these are disposable instruments that we sell to the surgeons in the MACI Arthro cases. And so, yeah, you’ll see kind of what was in our 10Q previously as the biopsy kits as a line item for MACI. We’ll also now include the instrument revenue that we generate there as well. Again, compared to sort of the reimbursement for the J code for MACI, it kind of pales in comparison, but we are charging for the instruments in the MACI Arthro cases, so.

Joe Mara : I think the last piece, Nick, was just a quick in terms of…

Nick Colangelo : Oh, yeah. So, the last piece of that is we are definitely planning early next year to kind of do a refresher on sort of salesforce sizing. As you might recall, kind of pre-COVID, each year we basically increased the size of the MACI salesforce post-launch in 2017. So, we did it in ’17, ’18, and ’19. And then for 2020, we actually engaged ZS Associates and did a pretty comprehensive assessment. And that’s when we went from roughly 48 to 75 territories. So, it was a pretty big expansion. And that has served us well to-date in this intervening period. You know, we have, as I’ve mentioned before, added territory development representatives in some of the larger volume territories. And we did that again this year to kind of help with the volume in those territories.

But we’ll be kind of refreshing that for the very reason you mentioned, which is to make sure we have kind of the appropriate reach and frequency based on the interest we’re seeing in MACI Arthro. And again, if we end up expanding, kind of run the same playbook that was very productive for us. We’ve often mentioned that each year that we expanded the salesforce, rep productivity actually went up in terms of revenue per rep. And so, there’s a playbook we follow when we do that. So, we’ll do the evaluation early next year. And then, to the extent we want to increase the salesforce, we’ll do that sort of in the back half of next year and rolling into 2026.

Josh Jennings : Excellent. Thanks so much.

Operator: Thank you. And our next question will come from Caitlin Cronin from Canaccord. Your line is open.

Caitlin Cronin : Hi, thanks for taking the questions and congrats on a great quarter. You know, so, with Arthro, you’re again increasing your serving base as noted after reaching about 50% penetration from the previous base. I guess just with this larger base, do you think that there’s a limit to the penetration you can reach with MACI longer term or if you have kind of a number that you’re targeting there?

Nick Colangelo : Well, we’ve kind of said, we’ve got two data points, I guess. One is, prior to the larger expansion that I just mentioned in 2019, we had about 3,000 surgeons at that time, the last year in 2019 that we had reported data, we increased biopsy surgeons by 25% to about 1,400 that particular year. Cumulatively, it was greater than that on the original 3,000 targets. So, we were around 50% and then we expanded to 5,000 surgeons. And over the course of kind of last year into this year, we were approaching that 50% penetration rate again. And now we’re expanding with 2,000 more. And as we’ve said, we expect that dynamic will continue where we’ll relatively rapidly, I think, get to kind of the 50% penetration. And we would never kind of run the experiment to get to a terminal sort of penetration rate.

But as I said, cumulatively, it’s typically more than you see in any particular year. So we expect the same kind of dynamic. And as we’ve mentioned, growth in biopsy surgeons will continue to be an important growth driver for the company over the next several years.

Caitlin Cronin : Great. And then just turning to Epicel with the dormant accounts reengaging with Epicel, how many have reactivated and how many burn centers are now actively using the product?

Nick Colangelo : Well, that’s kind of, it’s typically in a, you know, the year’s not done, obviously. And we have said in the past that of the 140 burn centers, there’s kind of a subset that routinely treat kind of Epicel patients. And often even if you’re an accredited burn center, those patients will be transferred to some of the larger centers because the smaller ones don’t necessarily routinely see or treat these kind of catastrophic burn patients. So I think in the past, we’ve said in any given year, we can get biopsies from 70 to 80 of those burn centers because not all the patients end up being treated because of health issues or patient expiry. Routinely you’d have roughly 40 to 50 centers that would end up ultimately treating the patients. So I don’t think that’s markedly changed yet. But there’s obviously opportunity to do that as we move forward.

Caitlin Cronin : Great. Thanks so much.

Nick Colangelo : Okay. Thank you.

Joe Mara : Thanks.

Operator: Thank you. Our next question comes from Jeffrey Cohen from Ladenburg Thalmann & Co. Your line is open.

Jeffrey Cohen : Hi, Nick and Joe. Congrats on the strong quarter. Just one question from our end, if you could talk upon about the instrumentation for MACI Arthro and the training of doctors out there? What are you finding as far as learning curve or lesson learned? And then perhaps talk about how that may play out in the future for ankle as well? Thank you.

Nick Colangelo : Yep. Well, thanks, Jeff. As was the case with MACI open procedures, the training is often done online. And for the MACI Arthro submission, we submitted online training materials. So for those who are really experienced both with MACI and arthroscopic procedures, which are a lot of the surgeons, they don’t really have to do any additional training if they don’t want to. So it’s not sort of like a bottleneck you have to work through. Now, of course, we do like we did at the orthopedic summit. And I appreciated the comments of standing remote only because it really was in the demonstration kind of in the middle of the center. But we also had training labs there. So surgeons could come in, do cadaver labs and practice doing MACI Arthro.

And so often surgeons will do that. We have examples of a case that was scheduled for Tuesday, the Friday before the rep goes down to train on a cadaver knee and then they go into the surgery. We also have models that we can provide surgeons a model knee where they can practice not on a cadaver knee, but on the model. And we’ve had example of that, the Marty model being used to train the surgeon before they went in to do their first procedure. So online cadaver training or using the Marty model are the ways that the surgeons can train before they do their first procedure.

Jeffrey Cohen : Got it. And would you expect that to follow a similar pathway for ankle?

Nick Colangelo : In terms of the administration, right now, obviously we’re kind of working with the FDA on and getting prepared to submit an IND and start the study in the second half of next year. We don’t currently have MACI Arthroscopic instruments developed for that study. So it’ll be kind of a traditional administration as they’re treating ankle cartilage defects. Now, certainly that is something over the course of the clinical study that we could follow the same playbook if that ends up being sort of a preferred route of administration for a MACI ankle procedure.

Jeffrey Cohen : Got it. Okay. Perfect. Thanks for taking our questions. Nice quarter.

Nick Colangelo : Thanks, Jeff.

Joe Mara : Thanks.

Operator: Thank you. Our next question will come from Swayampakula Ramakanth from HCW. Your line is open.

Unidentified Analyst: Thank you. This is RK [ph] from HCW. Most of my questions have been answered. Just a quick question at a high level. So as we get Arthro going in the market, just trying to understand how we should start thinking about synergies on the operating margin, especially as Arthro gains adoption and can that happen early or is this going to be a little bit of a long term gain from here?

Joe Mara : Yeah. So good morning, RK. This is Joe. I know I’m starting that one. I think as we kind of think about the outlook into ’25 and beyond, I think the real advantage here with Arthro is we essentially have a significant kind of built in synergy already, right? So this is no change to the kind of field force same number of territories to start. As Nick said, we’ll take a look and make sure we’re kind of we have kind of the right reach and frequency, etc. But from kind of a margin P&L perspective, there’s really nothing, there’s nothing really significantly different from an Arthro perspective versus an open case. So as we talked about, there’s actually some degree of revenue. So there’s a bit of a top line contribution when physicians are, when they purchase the instrument, there are some additional costs that are pretty minor and the cost of goods sold side.

But I wouldn’t think of it kind of impacting where we’re going from a P&L perspective. I think, again, having the top line revenue to support and to kind of add to the total is helpful. I don’t think that’ll be hugely material. It’s a small number relative to the cost of the implant, but I think we’re kind of well set up with Arthro and that shouldn’t impact our kind of long-term outlook. Thank you.

Unidentified Analyst: Thanks for taking my questions.

Operator: Thank you. And our last question will come from Ryan Zimmerman from BTIG. Your line is open.

Ryan Zimmerman : Hey, sorry, just a quick follow-up. I don’t think I heard anything just on the fourth quarter implied guidance. Is there any contribution or impact from either the hurricanes or the IV shortages that are impacting, particularly MACI procedures, if there is continuous irrigation use for those cases?

Nick Colangelo : Yeah, hey, thanks, Ryan. So to-date, obviously, it’s something the industry and we are monitoring. To-date, kind of from an implant perspective, we haven’t seen any impact. A MACI open procedure is a pretty low IV fluid procedure. So especially compared to things like rotator cuff surgeries or ACLs, etc. So, haven’t really seen that. Could there be a case if there’s hospitals that are in short supply and they’re trying to manage it? An Arthro case will use a little more fluid than an open case and could one of that Arthro cases be converted over to an open case? Sure. But to-date, we’re not really seeing any impact at all on the kind of implant side.

Ryan Zimmerman : Appreciate it.

Nick Colangelo : All right. Thanks, Ryan.

Operator: Thank you. And I am showing no further questions from our phone lines. I’d like to turn the conference back over to Nick Colangelo for any closing remarks.

Nick Colangelo : Okay. Well, I just wanted to say thanks again for your questions and your continued interest in the company. You know, we had a great third quarter. We’re excited to deliver a strong finish to the year and continue with our high growth momentum into 2025. So, we look forward to providing further updates on our next call. Thanks again and have a great day.

Operator: Thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.