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Edited Transcript of VCEL earnings conference call or presentation 26-Feb-19 1:30pm GMT

Q4 2018 Vericel Corp Earnings Call

Ann Arbor Mar 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Vericel Corp earnings conference call or presentation Tuesday, February 26, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Daniel R. Orlando

Vericel Corporation - COO

* Dominick C. Colangelo

Vericel Corporation - CEO, President & Director

* Gerard J. Michel

Vericel Corporation - CFO & VP of Corporate Development

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Conference Call Participants

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* Chad Jason Messer

Needham & Company, LLC, Research Division - Senior Analyst

* Danielle Joy Antalffy

SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Analyst

* Jeffrey Scott Cohen

Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research

* Kevin Michael DeGeeter

Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst

* Ryan Benjamin Zimmerman

BTIG, LLC, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Vericel Corporation Fourth Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this call will be recorded. I would now like to introduce your host for today's conference, Gerard Michel. Please go ahead, sir.

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Gerard J. Michel, Vericel Corporation - CFO & VP of Corporate Development [2]

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Thank you, operator, and good morning, everyone. Welcome to Vericel's Fourth Quarter 2018 Conference Call to discuss our financial results. 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, and all of our projections and forward-looking statements represent our judgment as of today. These statements may involve risks and uncertainties that could cause actual results to differ from expectations and are described more fully in our filing with the SEC, which are also available on our website. In addition, any 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. With us on today's call are Nick Colangelo, Vericel's President and Chief Executive Officer; and Dan Orlando, our Chief Operating Officer. I will now turn the call over to Nick.

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Dominick C. Colangelo, Vericel Corporation - CEO, President & Director [3]

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Thank you, Gerard, and good morning, everyone. Our fourth quarter results reflect a very strong finish to a great year for the company in 2018. Net product revenues increased 41% compared to the fourth quarter of 2017, marking the seventh consecutive quarter with record revenues for the reported quarter, and we delivered 45% net product revenue growth for the full year. Our growth was driven largely by the continued strong uptake from MACI, which had revenue growth of 56% for the quarter and 54% for the full year. This strong revenue growth generated significant improvements in profitability and operating cash flow for both the quarter and the year. Gross margins in the fourth quarter increased to 72% of net revenues, and we delivered net income of $5.2 million or $0.11 per share on a fully diluted basis. We also generated positive full year adjusted EBITDA for the first time in the company's history. In light of the significant expansion of the target addressable market, or TAM, our continued commercial investments and lack of any near-term competitive product entrance, we expect strong growth for MACI to continue in 2019. We also believe that this revenue growth will lead to strong profit growth given our low-marginal product cost and the significant operating margin leverage in our business model. As announced earlier today, we expect total net product revenues for 2019 to be in the range of $108 million to $112 million, that approximately 80% of marginal revenues over 2018 will contribute to incremental gross profit, and that approximately 50% of marginal revenues over 2018 will contribute to adjusted EBITDA.

Gerard will provide further details regarding our financial guidance for 2019.

We're obviously very pleased with our commercial and financial performance for the fourth quarter and the full year. The underlying drivers of near- and midterm revenue growth for MACI that we've seen to date are consistent with the larger TAM that we discussed last quarter.

And I'll now turn the call over to Dan to provide more detail regarding our commercial performance and activities.

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Daniel R. Orlando, Vericel Corporation - COO [4]

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Thank you, Nick. I'll start by welcoming the new sales representatives, who recently joined Vericel and are now in training. On April 1, they'll move into their new territories increasing our MACI sales force by 20% to 48 representatives. The sales force expansion is a direct reflection of our confidence in the market research that substantiated the increased MACI TAM and confirmed the continued strong adoption of MACI by both previous advocates and new adaptors.

As we look back at the previous MACI sales force expansion, which were implemented at the same time of the year in 2017 and 2018, we find that the biopsy rate increased significantly in the expansion territories in the first year and that the expansion territories led the nation in percentage increase in implants the following year. We expect this dynamic to be repeated with this expansion as well. And we will continue to closely assess our sales force sizing, as we balance the vital sales representative and surgeon relationships with the desire to best serve the potential 60,000 annual patients who could benefit from MACI. Given that 2018 is its first full year on the market, MACI is still early in its life cycle, so we maintain focus on continued growth and expanding the targeted and trained surgeon population, which is now over 900 surgeons. And we are continuously improving our paramedical policies to best reflect the full indications for MACI, which in turn reduces case approval finance. In addition to these HCP and payer effort, we are also focused on several patient-focused marketing initiatives to increase the biopsy to implant ratio and drive MACI demand. We are launching a MACI ambassador program that will highlight compelling patient success stories and integrating this program into our celebrity spokesperson campaign, which together, will form the cornerstone of our social media brand engagement efforts. We also will be launching a number of physical therapists-focused initiatives to enhance MACI rehabilitation resources and build our network of advocates and opinion leaders within this important patient-focused community.

I'll now shift gears to Epicel which had a good year in its own right. Although it's hard to measure on a quarterly basis due to the variable incidents and burn injuries, Epicel remains strong when looking at the performance over the full year. And although a new entrant has entered the lower TBSA burn market, Epicel remains the only FDA-approved permanent skin replacement for the treatment of adult and pediatric patients with large total body surface area burns. Epicel's clinical utility in the severe burden population was further reinforced by the recent landmark publication in the Journal of Burn Care & Research, which reported outcomes data of 954 burn patients treated with Epicel compared to a standard of care treatment in over 177,000 patients in the national burn registry over the same period of time. The data demonstrated that patients treated with Epicel, 1/3 of whom were children, had an 85% survival rate, which was significantly greater than the comparative population. This demonstrated improvement in survival rates for severely burn patients treated with Epicel, certainly, will help as an important tool as we target new burn centers that have not yet utilized Epicel.

Wrapping up, I'd like to thank our commercial and operations teams for their outstanding performance in 2018. I'll now turn the call over to Gerard to review our fourth quarter 2018 financial results and the updated financial guidance.

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Gerard J. Michel, Vericel Corporation - CFO & VP of Corporate Development [5]

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Thanks, Dan. We reported total net product revenues of $31.3 million for the fourth quarter of 2018, an increase of 41% over the quarter of 2017. Total net revenues for the quarter included $25.1 million of MACI and $6.2 million of Epicel net revenue compared to $16.1 million of MACI and $6.1 million of Epicel net revenue, respectively in the fourth quarter of 2017. This represents revenue growth of 56% and 2% for MACI and Epicel, respectively.

Our full year 2018 net product revenues were $90.9 million or approximately $900,000 above the top end of our updated revenue quarters, which represented full year revenue growth of 54% and 23% for MACI and Epicel, respectively versus 2017.

Please note that 2017 product revenues and comparisons exclude $1.2 million in revenue related to the company's licensing agreement with ICT. Gross margins for the fourth quarter of 2018 improved to 72% versus 64% in the fourth quarter of 2017, and for the full year, increased to 64% versus 53% in 2017. Total operating expenses for fourth quarter of 2018 were $16.7 million compared to $13.8 million for the same period in 2017. The increase was primarily due to $1.4 million in service fees paid to MACI pharmacy distributors, an incremental $1.2 million in employee-related expenses associated with the expanded MACI sales force and an incremental $500,000 in stock-based compensation expense. Non-GAAP adjusted EBITDA was $7.7 million for the fourth quarter compared to $2.2 million in the fourth quarter of 2017. For details reconciling non-GAAP measures, see the table in this morning's press release.

Vericel's net income for the quarter ended December 31, 2018, was $5.2 million or $0.11 per share on a fully diluted basis compared to approximately $300,000 or $0.01 per share for the fourth quarter of 2017. As of December 31, 2018, the company had $82.9 million in cash in short-term investments compared to $26.9 million in cash at December 31, 2017. We ended the year with a very clean balance sheet, having retired all outstanding debt in the fourth quarter and with all but approximately 27,000 warrants having either converted or expired. We announced earlier this morning that we expect the total net product revenues for the full year 2019 to be in the range of $108 million to $112 million. We expect the majority of revenue growth for the year to be generated by MACI, with Epicel growth in the single digits. We expect revenue growth to continue to drive increased margins. In 2019 we expect the marginal cost of goods for MACI and Epicel to be approximately 20%, resulting in up 80% of marginal revenue over 2018 revenues to contribute to gross profit. Likewise, given our premium products and concentrated call points, we expect approximately 50% of marginal revenue over 2018 revenues to contribute to adjusted EBITDA. Quarterly seasonality, which impacts both revenues and margins, is expected to follow the same pattern as 2018. That completes my financial review. Now, I'll turn the call over to Nick.

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Dominick C. Colangelo, Vericel Corporation - CEO, President & Director [6]

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Thanks, Gerard. Our business continues to perform very well. And the company's in a strong position to execute on both our operating and strategic business plans. We look forward to sharing our progress with you throughout 2019. That concludes our prepared remarks. And now I'd like the operator to open the call to your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Chad Messer with Needham.

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Chad Jason Messer, Needham & Company, LLC, Research Division - Senior Analyst [2]

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My question's actually on your, sort of, cost to goods and margins at an annual level, the sort of guidance you've given about your marginal revenue makes sense and is tracked very well, but it's a lot harder to figure out what's going on a quarterly basis, so revenues, the breakdown of revenue across the quarters, that seasonality looks very different on the cost line. Just wondering, if there's something about your fixed versus variable cost structure that explains that, so I can try to understand it a little better for the future?

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Gerard J. Michel, Vericel Corporation - CFO & VP of Corporate Development [3]

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Sure. Good to hear you, Chad. The -- it tracks actually fairly well. If you just, kind of, follow the following framework, and I'll give an example for, let's say, Q2 of 2019. If you took the midpoint of our guidance, which would yield $23 million of net revenue, we did $19 million in Q2 of 2018. So the midpoint of that, the incremental revenue is about $4 million, all right? So that I'm assuming, you can follow the same seasonality. It's about 21%, as I said, take the midpoint of our guidance, that would yield $23 million in revenue for this year. Incremental $23 million over '19 is $4 million, okay? We would expect 80% of that $4 million to hit the incremental gross margin line, so you'd have $3.2 million above what we did last year, which is about $11.3 million in gross margins. So it's just 80% of the margin, the marginal revenue over the same quarter, prior year. And it works the same way for adjusted EBITDA. You'd use 50% instead of 80% of the revenue. So it should track pretty closely, and it did track pretty closely this past year of 2018 according to that framework.

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Chad Jason Messer, Needham & Company, LLC, Research Division - Senior Analyst [4]

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I could give you some counter examples. I won't do it on this call. Maybe, that's something we can take offline.

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Operator [5]

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And our next question comes from Ryan Zimmerman with BTIG.

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Ryan Benjamin Zimmerman, BTIG, LLC, Research Division - Research Analyst [6]

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So I want to talk about your guidance for (inaudible) in here. And just -- you're growing in line with the Street's expectations, but maybe if you could just speak to how you view the drivers of your growth of '19 and what some of the levels are that give you confidence in not just meeting those expectations but then potentially beating them? Then I have a follow-up.

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Gerard J. Michel, Vericel Corporation - CFO & VP of Corporate Development [7]

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Sure. Ryan, as you know, we -- giving guidance is as much of an art as a science. In terms of the growth drivers, what gives us confidence is Dan's team is seeing good, healthy biopsy growth still coming in, in line with what we'd expect with our models to convert. So conversion rates stay steady, as they have. They tick up and down half a percentage point here and there, maybe it was slightly up. But if conversion rates stay steady, we should see -- and the new doctors continue to send in biopsies, as new doctors did last year, we've got about maybe 60% or 70% of our model, the revenue for 2019 kind of in the bag, right? In the bag means people behave the way they used to. But then there's a certain number of new docs we need to get onboard and behave like new docs did last year. So our model is, again, we look at biopsy trends, we look at conversion trends, we look at new doc start trends, and we project to what extent do we think that will continue? I mean it's prudent to have new docs tail off a little bit on a percentage basis. You can't continue to grow at the same percentage year-on-year out. So obviously, you see our percentage growth is tempered a bit versus what we actually did in '18. Similarly, we make the same assumption for '20, and we're not giving guidance there, but we wouldn't expect exactly the same percentage growth over '18 and '19 that we'll see '20 over '19, so we're probably knock back out a couple of percentage points. So I gave you a bit to chew on there. Does that answer your question?

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Ryan Benjamin Zimmerman, BTIG, LLC, Research Division - Research Analyst [8]

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Yes. No, it's very helpful color, and I appreciate the thought process behind it. And then I have 2 questions. One, just can you speak qualitatively -- I know you're not speaking to biopsy trends quantitatively, but can you speak qualitatively to the biopsy trends in the early part of the year? And then my last question is, you did mention competitive entrants in the burn market. Maybe help us understand how that's either buddying up against Epicel or how you see it interacting with Epicel?

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Gerard J. Michel, Vericel Corporation - CFO & VP of Corporate Development [9]

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Sure. On the biopsy front, I think what I'll say is, it is trending per our expectations, and it's trending in a matter that gives us comfort to issue the guidance we just gave this morning, which is probably a great nonanswer for you, Ryan, but the best I can give you right now. And in terms of Epicel new entrants, Dan, can you comment on that?

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Daniel R. Orlando, Vericel Corporation - COO [10]

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So the RECELL is the new entrants, and is indicated for partial thickness and full thickness along with an autologous support up to 50% TBSA. Now Epicel, as you know, is normally used in a patient that's burned well beyond 50%. Only maybe about 10% or so of this utility is used in patient's burned under 50% TBSA. So there's really not a lot of crosstalk or crossover when we're discussing in which position to use RECELL and Epicel. There could be some patients where other extensively burned in some areas of their body, where they're been treated with Epicel and maybe on some peripheral surfaces, they're treated with RECELL, but that's yet to be determined. It's still fairly early, we haven't seen a lot of that.

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Operator [11]

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And our next question comes from Jeffrey Cohen Ladenburg Thalmann.

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Jeffrey Scott Cohen, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research [12]

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Gerard, Nick and Dan, Can you hear me okay.

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Gerard J. Michel, Vericel Corporation - CFO & VP of Corporate Development [13]

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Yes, we can.

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Dominick C. Colangelo, Vericel Corporation - CEO, President & Director [14]

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Yes.

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Jeffrey Scott Cohen, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research [15]

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So Q4, I guess, top line, a bit of blowout. Can you talk a little bit about the seasonality and the pull through as far as procedures. Was it onetime in nature where these were newer biopsies that were being converted or not and, what kind of pull through should we expect in seasonality for '19?

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Dominick C. Colangelo, Vericel Corporation - CEO, President & Director [16]

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Well, I'll start, Jeff, and then turn it over to Gerard. As I think you know, our fourth quarter is always the strongest quarter for MACI and a strong quarter for Epicel, generally as well. So as -- on total revenue basis, fourth quarter is always our strongest quarter. And that's probably been increasing a bit over the past couple of years where we continue to see even more strength in the fourth quarter. So that's just sort of the normal dynamic for the company. And Gerard, if you want to give more details on seasonality percentages.

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Gerard J. Michel, Vericel Corporation - CFO & VP of Corporate Development [17]

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Sure. Yes so -- and this year combining MACI and Epicel, the seasonality was, and I'll just give the number's, 20%, 21%, 25% and 34%. People can do the math on their own, but hopefully, I did that correctly. The one reason that the fourth quarter in the last couple of years is getting larger is, in any growing -- whenever you have growth, if you're breaking things down by a seasonal bucket, you're going to see the later quarters look larger than they would in a flat revenue scenario. So that's another factor pushing things into the fourth quarter. As I said before, I think, for those of you modeling '19, I would recommend using those seasonality percentages, that's our best estimate of what's going to happen this year as well.

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Jeffrey Scott Cohen, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research [18]

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For the pull through?

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Gerard J. Michel, Vericel Corporation - CFO & VP of Corporate Development [19]

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I think it's the same drill that Dan and his team have been doing for the last few years.

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Gerard J. Michel, Vericel Corporation - CFO & VP of Corporate Development [20]

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Yes, as far as the timing of biopsy in recent times, there's no shift in dynamics there.

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Jeffrey Scott Cohen, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research [21]

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Okay, got it. And secondly, can you talk a little bit about any data which you expect as far as the studies, podium presentations around, any other significant conferences upcoming in the coming quarter or 2?

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Dominick C. Colangelo, Vericel Corporation - CEO, President & Director [22]

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Sure. So we do not have any specific company-sponsored data that will be released anytime soon. We do have an ongoing pediatric trial that is well underway. Our sites are up and running and patients are being recruited. So that's probably the next big significant investment for MACI on the clinical front. There are a number of investigator-initiated observations that will be presented this year and in the coming years, as their own personal data on, say, patients and populations with patella, things like that are published. So you will see data, but it'll mostly come from independent investigator-initiated results.

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Jeffrey Scott Cohen, Ladenburg Thalmann & Co. Inc., Research Division - MD of Equity Research [23]

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Okay. Got it. And then lastly for me, could you discuss a little bit about the commercial expansion and how that may relate to your M&A appetite going forward? Do you feel like currently with the more recent understanding of the TAM out there that you've got plenty on your plate to address with only arguably 1% market share. Or is it that you're booking for other products, which may fit well into the space?

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Dominick C. Colangelo, Vericel Corporation - CEO, President & Director [24]

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Yes, I think our position on that, Jeff, has not changed. we don't view sort of business development activities and sort of in line activities as mutually exclusive. So Dan and his team will continue, I am confident, to execute on the commercial front with our current products. The same time Gerard and his team will continue to look for opportunities, as we've discussed before, to support our 2 commercial franchises either in sports medicine or burn care or potentially looking at other self therapy verticals, so our position on that is -- has been relatively constant and again, from our perspective, we do have a pretty high hurdle, right? We certainly understand the value drivers for the company. We have 2 great products that are the only FDA-approved products in their class. And so anything else we would bring in needs to have a similar profile. And there's other types of opportunities we could spend time looking at.

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Operator [25]

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And our next question comes from Kevin DeGeeter with Oppenheimer.

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Kevin Michael DeGeeter, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [26]

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A few things. With regard to your surgeon trend, I think you called out over 900 in the quarter. Can you just provide us a little bit of context to how to think about the assumptions within 2,000 in guidance with regard to your newly trained surgeons versus going deeper in terms of penetration with surgeons who are already trained on MACI?

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Dominick C. Colangelo, Vericel Corporation - CEO, President & Director [27]

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So, Kevin. We trained 500, the first in 2016. So that was about -- for 2017, excuse me. As we launched with MACI, we trained 400 last year, so that's where we stood at over 900. Now today, we expect to continue to invest there as much we have previously. We've got large meetings as -- that we've already attended this year with considerable training opportunities. And we've got a few here in the coming weeks. So we'll continue that investment. With the sales force expansion, we get more time in front of physicians who are now aware of MACI, so we expect that to help drive our surgeon training as well. But I think you'll see a continued decline in the rate of new physicians being trained, but we will continue to make that investment. I think what's most important is that we offer the plethora because we found that some physicians want to train online. They want to do it in their convenience, so their own home or office, others who want to attend a cadaver lab and touch and feel the product first. So it just depends on the physicians' appetite, and we make sure that we create those appropriate opportunities.

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Kevin Michael DeGeeter, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [28]

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And then a separate question, kind of, going back to one of today's themes, that's financial guidance. The guidance seems to imply, MACI growth 27%, 30% somewhere in that general range, if my math is correct. And that's, as a percentage of growth, a significant step-down from what we saw both in the fourth quarter and 2018. How do we think about through the course of 2019, the relative pacing of growth, recognizing you're not giving Q1 guidance, but it's pretty meaningful percentage-wise, deceleration to think about. Is it -- do we think about it as somewhat linear through the year or being more kind of second half of the year for that step-down?

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Gerard J. Michel, Vericel Corporation - CFO & VP of Corporate Development [29]

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Kevin, I think the best way to think about it is in your models, come up with a full year number for '19, whatever you think it should be based on our guidance in your own analysis and then in terms of -- see the seasonality for that total number, the midpoint of the guidance I think would be roughly $110 million. In terms of seasonality, I would use the same seasonality that we saw this year for both products 20%, 21%, 25% and then 34%. And then we gave you our sense of Epicel, we think single-digit growth there, so you can back into MACI from that I think.

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Kevin Michael DeGeeter, Oppenheimer & Co. Inc., Research Division - MD & Senior Analyst [30]

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Fair enough. And then just lastly one for me. With regards to insurance coverage, which has always been healthy for MACI but, specifically, in terms of any evolving language with some of the covered policies for covering patella or other, sort of, subpopulations for MACI, do you see or expect any change through '19 in terms of your specific language with regard to coverage for MACI, policy decisions? And how does that factor into potential puts-and-takes on that guidance for '19?

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Daniel R. Orlando, Vericel Corporation - COO [31]

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So, Kevin, I think we've mentioned before, as you suggest that MACI has strong coverage and access across the board, right, all the top plans cover MACI. Dan and his team did a great job in getting that access probably within 6 to 8 months after launch when -- as we announced a year ago in the third quarter when we guided -- updated its medical policy to include MACI. So all the plans cover MACI. There were some plans that didn't cover patella right out of the gate just because, as you know, MACI's label is much more expansive than for Carticel, so an easy way to update plans was just to say MACI is not investigational but it really reflected the Carticel policies. So throughout the year, Dan and his team have been working on updating those few plans that still had not formally added patella. We announced last quarter that Cigna had updated their policy to include patella. So there's really only a couple left that we want to try not to knock out. But even so, with those plans the patella cases are still approved. They just end up being approved on a case-by-case basis. We just want to make things as smooth as possible and have all policies reflect the breadth of the MACI label.

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Operator [32]

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And our last question comes from Danielle Antalffy with SVB Leerink.

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Danielle Joy Antalffy, SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Analyst [33]

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I have 2. First, I was wondering if you could talk about how high-volume centers are growing versus low-volume centers. I guess what I'm trying to get at, is where you're seeing the most growth, is it on newer centers coming onboard? Or is it actually existing centers that are already using it, but are using it a lot more? And then I have 1 follow-up.

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Dominick C. Colangelo, Vericel Corporation - CEO, President & Director [34]

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Danielle, so we've assessed that, and certainly, that's one of the factors we consider in the sales force expansion, sizing, territorial alignment and things like that. And in our models, it's been about 50-50 growth coming from, I don't want to call it necessarily, small centers, but it's centers that have not traditionally used Carticel or MACI and 50% from centers that are expanding their use, and you know the names of both the larger centers, those have been a big growth driver for us early on here as well.

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Danielle Joy Antalffy, SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Analyst [35]

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Okay, and then just a follow-up question, Gerard, just something I think you -- I think it was you that referenced it, not really yet seeing a meaningful change in the biopsy conversion rate, tell me if I got that wrong, but just curious I mean I know with this direct-to-patient initiative, I feel like that's something that could move over time, a few questions there. Why hasn't it moved the needle yet, if in fact it hasn't and -- number one. And number two, when can we see that start to move the needle. Do you have the right initiatives in place to do so? Will we see you guys have to take a broader approach or different approach to really move that?

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Gerard J. Michel, Vericel Corporation - CFO & VP of Corporate Development [36]

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All right. Talking about the conversion rates, so I mean I think, we've seen them tick up, as we said before, slightly. So I don't want to -- they're definitely not going down, let me put it that way. But we certainly haven't seen a multi percentage increase in it to date, maybe we've had a 1% tick-up, and it takes a bit of time before we can confidently say that's a trend. In terms of changing that conversion rate, there are a lot of components to it. And you have to start with why isn't the conversion happening, a lot of patients just get chondroplasty, they feel better, they go on their way. One way to change that is to try to reach out to the patients, and that's what Dan's teams is doing, but we have to -- we're not going to call the patient the day after surgery, that's probably not a good idea, and Dan go ahead and...

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Daniel R. Orlando, Vericel Corporation - COO [37]

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Yes, and I'd just say that, Danielle, we've spoken to this before, we have a strong program now to capture patient consent, and that's really the start of biopsy -- improving the biopsy-to-conversion ratio. But with that consent, we can then start to communicate with the patient. We've invested last year in making sure that as an easy opportunity for the patient. We've increased the volume of that, and it's a steady increase just like we're seeing a steady increase in biopsies. We're seeing an increase in the percentage of patients where we capture consent. Second piece of that is just how do we speak to the patient? So we have our launch materials for rehab and et cetera, we have -- this year, we are reassessing all of our patient materials, and how we speak to it. An example is something like weight-bearing, what does that mean when you translate that to a patient. How quickly can I walk? What kind of work can I do over a week, a month? And what kind of activities can I engage in, such as driving and things that are important to a patient as they get back to activity. So we're changing the way we speak to patients and the timing of when we speak to them. So we've got -- as to see when we engage with the patient first one, they have follow-up with their physician. The piece that I spoke to during the call here, we now have a strong group of patients who have had success with MACI because of the experience over the last couple of years. But we're capturing some of that in our new Patient Ambassador Program, and we're marrying that with the Dara Torres campaign, so that when patients go on to maci.com, they'll see the aspirational Olympic athlete, and they'll see a patient that looks maybe a little bit more like them, and they can connect there and see highlights on rehab. The next piece of that we are initiating is working with physical therapists who have now, successfully, treated patients and moved them through rehab quicker than they had prior with Carticel. And that's an important rate limiter for biopsy to implant in a patient's mind, when they are considering -- excuse me, MACI. It's like I ran through my 3 children right there. So Danielle, we're really confident that we're on the right track. We have seen early signs of improvement in conversion ratio, and we're confident that these further investments will reap results as well.

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Gerard J. Michel, Vericel Corporation - CFO & VP of Corporate Development [38]

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In terms of modeling, Danielle, we view increasing the conversion rate, a multiyear effort. We view that as a second leg of growth after we have probably been far more penetration into the surgeon base, got more business for those individuals surgeons. So this is kind of a multiyear effort. I don't expect this to change dramatically over quarters. This can change over years. So I think our predominant growth has been coming in the near- to medium-term from more docs, more biopsies and then longer-term higher conversion rate.

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Operator [39]

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Thank you, and that does conclude today's question-and-answer session. I would now like to turn the call back to Mr. Nick Colangelo for any further remarks.

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Dominick C. Colangelo, Vericel Corporation - CEO, President & Director [40]

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Okay. Well, thank you, and thanks for your questions and continued interest in Vericel. We're obviously excited about the opportunities ahead and look forward to reporting on our progress on our next call. Have a great day.

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Operator [41]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.