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I chose Vericel (VCEL) as the Bull of the Day on November 2 when it was trading $19. I had owned this small-cap provider of revolutionary advanced cell therapies for the sports medicine and severe burn care markets in my Healthcare Innovators portfolio since July from under $15.
Here's what I wrote in my last report...
The goal of Vericel therapies is to repair or restore a patient’s damaged tissues or organs using their own cells. The company markets two autologous cell therapy products in the United States: Carticel for the treatment of cartilage defects in the knee, and Epicel for the treatment of severe burns.
It is also developing MACI (TM) for the treatment of cartilage defects in the knee, and ixmyelocel-T for the treatment of advanced heart failure due to ischemic dilated cardiomyopathy.
Sales for this small-cap are projected to launch 40% to over $170 million next year and profits are expected to vault more than 400% after a rough 2020 due to the massive hold on elective medical procedures during the COVID-19 shutdown.
And in September, Vericel announced the FDA accepted the company's filing for the recently submitted Biologics License Application (BLA) for NexoBrid® (concentrate of proteolytic enzymes enriched in bromelain) for eschar removal (debridement) in adults with deep partial-thickness and/or full-thickness thermal burns.
NexoBrid is a bromelain-based biological product containing a sterile mixture of proteolytic enzyme that selectively removes burn eschar within four hours without harming surrounding viable tissue.
(end of excerpt from Nov article)
Since then, Vericel reported a strong quarter and pipeline advancements, which sent shares on a steady surge for the past three months until they hit new all-time highs near $44 last week. Obviously, the little company got discovered by a bigger investor, or three, besides me.
But I, in my less-than-infinite wisdom took profits of 110% around $31 on Dec 30. What did I miss? We'll cover that story after we learn a little more about the company and its approach tissue restoration...
What is Cell Therapy?
Cell therapy is the infusion, injection or transplantation of whole cells back into a patient for treatment of a condition. In autologous therapy the patient is the source (donor) of their own tissue cells. With the patient acting as their own donor, the risk of rejection and the use of immunosuppressive therapy is minimized.
How does autologous cell therapy work?
The goal of cell therapy is to repair or restore damaged tissues using cells. For Vericel therapies, tissue from the patient is collected by a qualified and trained surgeon, and then processed and expanded by Vericel into a specific cell type or multicellular therapy. The patient’s own cells are then returned to the surgeon for implantation.
The Vericel Process
Vericel uses a proprietary cell-processing technology to expand naturally occurring populations of cells derived from the patient’s own tissue. Specific to the type of therapy needed, a small sample of tissue is taken from the patient. The sample is then sent to their laboratory in Cambridge Massachusetts for cellular expansion. Rigorous testing ensures the quality and viability of cells before they are delivered back to health care professionals. These cells, in conjunction with rehabilitation regimes, have demonstrated the ability to restore function to patients with serious medical conditions.
To learn more about the Vericel experience, check out their website with a great testimonial from 5-time Olympic swimmer and mom Dara Torres who has benefited greatly from the company's approach to knee cartilage restoration.
Why Did VCEL Launch Another 40% in January?
Here's what I wrote my group on Dec 30...
VCEL: Taking the Gain
Posted on 12/30/20
Portfolio is taking the big gain on Vericel (VCEL) as the stock exceeds all analyst targets ahead of potential approval for NexoBrid.
Here was a recent call on Dec 17...
Vericel initiated with an Overweight at Stephens: Analyst Chris Cooley initiated coverage of Vericel with an Overweight rating and $31 price target. The company is accelerating growth and expanding margins with clinically differentiated products to address the domestic regenerative sports and burn medicine markets, while the expected FDA approval of NexoBrid in 2021 can further enhance its rate of organic growth.
(end of 12/30 Trade Alert excerpt)
I also saw NexoBrid as a very small part of the company's business. Apparently I wasn't looking deep enough.
The launch party really got going in early last month when on January 5 BTIG analyst Ryan Zimmerman raised the firm's price target on Vericel to $37 from $30 citing his increased conviction in the strength of the company's MACI business and its durability in FY21. Zimmerman also explained that while the stock has risen 26% on the absolute basis over the past month, Vericel's 9.5-times enterprise value to expected next-12-month sales multiple still lags the high-growth peers valuation of 14-times.
And then the big news hit on Jan 7...
Vericel announces expansion of MACI coverage by UnitedHealthcare (UNH): Vericel Corporation announced that UnitedHealthcare has expanded its medical policy for MACI to include coverage for patients with symptomatic full-thickness cartilage defects in the patella and multiple cartilage defects in the knee. UnitedHealthcare is the largest commercial payer in the United States, covering more than 26 million lives, and more patients treated with MACI are covered by UnitedHealthcare than any other plan in the United States. The revised policy is effective February 1, 2021.
This news took VCEL shares to new highs above $36. And you only got one more chance to get back in near $30 as Monday Jan 11 saw a big morning of profit-taking that quickly reversed (of course I missed it). The selling was sparked by the company pre-announcing full-year revenues that were in-line with consensus.
Vericel projected 2020 FY revenue in the range of $123.9-$124.4 million vs. consensus of $123.67M. By product they project MACI net revenue in the range of $94.1-$94.6 million, Epicel net revenue of approximately $27.5 million, and NexoBrid revenue of approximately $2.2 million related to the BARDA procurement.
That little tidbit at the end may not prove to be so small after all. BARDA is the U.S. Biomedical Advanced Research and Development Authority and their procurement is for NexoBrid in emergency response preparedness. In other words, the US gov wants this next-gen severe burn technology supported and on-hand for any potential national emergencies. And BARDA is the agency that's been funding all kinds of COVID-19 vaccine development and testing kits. That's big.
By the end of that week, VCEL closed above $39.
Analysts Scramble to Catch Up to VCEL Shares
Surprisingly, the biggest bull on Wall Street who got me more interested in Vericel last summer, Oppenheimer's Kevin DeGeeter, downgraded Vericel to Perform from Outperform based on valuation with the stock above his prior $32 price target. DeGeeter also cited the company's "mixed" preliminary Q4 results, but saying he would get more constructive if the stock retraces back below $30 per share or if there is evidence that his current expectations for the second half of 2021 look too conservative.
Guy sounds like me.
And the next day, Jan 12, an analyst from H.C. Wainwright said "hold my enzymes." HCW analyst Swayampakula Ramakanth raised the firm's price target on Vericel to $44 from $26 -- the new high target -- affirming that the company's Q4 preliminary results indicate a continued recovery that will support a higher valuation.
A week later, Ladenburg analyst Jeffrey Cohen also raised his price target on Vericel to $44 from $27.50, citing the company's strong Q4 preannouncement. Cohen said the company continues to drive strong revenues through the COVID-19 pandemic and its current commercial products represent "best-in-class" offerings in the markets for burns and sports medicine.
And a week after that on Jan 25, BTIG analyst Ryan Zimmerman couldn't just sit back and watch everyone else get the credit for this call. So he raised his price target on Vericel to $45 from $37. The analyst rolled forward his 12-24 month revenue estimates and pointed to "meaningful upside" in Vericel's burn franchise with the launch of NexoBrid.
Bottom line on VCEL: As with all biotech small-caps, it's good to get in early. But this one could grow faster than I originally imagined. I would be a scale-in buyer from $38 down to $34 if we are so fortunate.
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