Q4 2023 Vericel Corp Earnings Call
Participants
Julie Downs; Head of Corporate Communications; Vericel Corporation
Nick Colangelo; CEO, President & Director; Vericel Corporation
Joseph Mara; CFO & Treasurer; Vericel Corporation
Ryan Zimmerman; Analyst; BTIG
Mike Kratky; Analyst; Leerink Partners LLC
Samuel Brodovsky; Analyst; Truist Securities
George Sellers; Analyst; Stephens Inc.
Jeff Cohen; Analyst; Ladenburg Thalmann
Swayampakula Ramakanth; Analyst; H.C. Wainwright & Co.
Presentation
Operator
Ladies and gentlemen, thank you for standing by, and welcome to Vericel's Fourth Quarter 2023 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 Julie Downs, Vericel's Head of Corporate Communications.
Julie Downs
Thank you operator, and good morning, everyone. Welcome to Vericel's Fourth Quarter 2023 conference call to discuss our financial results and business highlights. Before we begin, let me remind you that on today's call, we will be making forward-looking statements covered under the Private Securities Litigation Reform Act of 1995. These statements may involve risks and uncertainties that could cause actual results to differ materially our expectations and are described more fully in our filings with the SEC, which are available on our website. 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 fourth quarter financial results press release is available in the Investor Relations section of our website.
We also have a short presentation with highlights from today's call that can be viewed directly on the webcast. Our access on our website I am joined on the call by their results, President and Chief Executive Officer, Nick Colangelo, and our Chief Financial Officer, Joe Lara. I will now turn the call over to Nick.
Nick Colangelo
Thank you, Julie, and good morning, everyone. I'll begin today's call by discussing financial and business highlights for the fourth quarter and full year as well as our expectations for 2020 for Joe will then provide a more detailed update on our 2023 financial results and the financial guidance for this year.
Before opening the call to Q&A, the company executed exceptionally well in 2023 and delivered outstanding financial and business results in the fourth quarter, generating top-tier revenue growth and even higher profitability growth. Total revenue for the full year increased 20% to over $197 million, which was at the top end of our guidance range, with MACI revenue growing 25% to nearly $165 million in burn care revenue of nearly $33 million. The company also reached an inflection point with respect to our profitability profile with bottom line profitability growing at twice the rate of our top-line revenue growth as adjusted EBITDA increased 40% to $34 million, and we generated over $35 million of operating cash flow, ending the year with approximately $153 million in cash and investments and no debt.
The company also had a very strong close to the year as we generated record total revenue of $65 million in the fourth quarter, an increase of 23% over the prior year. Our strong fourth quarter performance was driven by record quarterly, may see revenue of nearly $57 million, which was above the high end of our guidance range and representing more than 50% sequential growth over the third quarter and 22% growth over the fourth quarter of 2022 marking the sixth straight quarter of 20 plus percent growth for MEC.
This outstanding IBC revenue performance was driven by strong underlying business fundamentals as we had the highest number of MEC implants, implanting surgeons, surgeons taking biopsies and biopsies in any quarter since launch. We also generated very strong growth in the burn care franchise as fourth quarter revenue grew 31% over the prior year. Our top line revenue performance drove significant margin expansion and profit growth in the fourth quarter as we generated gross margin of 75% and adjusted EBITDA margin of 34%, with adjusted EBITDA growing 50% to over $22 million and net income for the quarter more than doubling to $13 million. As we look forward to 2024 and beyond, we expect that continued high revenue growth will drive further expansion of our margins and enhancement of our profitability metrics.
From a commercial perspective, MACI's sustained growth has been driven by continued expansion of our surgeon customer base as we had another year of double digit growth in surgeons taking biopsies in 2023, we're now approaching 50% penetration of our current 5,000 target surgeons, the expansion of our surgeon base and the corresponding growth in biopsies has fueled MACI's success and helped drive sales rep productivity to its highest level ever at $2.2 million per rep in 2023. Our commercial team continues to execute high-quality peer-to-peer programs to help drive surgeon uptake that we had our highest number of programs to date in the fourth quarter, demonstrating that interest in may see continues to grow in addition, Mesa's positive long-term clinical outcomes were highlighted in a prospective study published in the American Journal of Sports Medicine last week. The study showed improved clinical scores, high levels of patient satisfaction and clinical and MRI based outcomes that were maintained out to 10 years for patients treated with MACI. The study also showed excellent long-term outcomes for MACI patients treated for both patella femoral and femoral ConBio defects, which is the focus of our MACIR. two approach based on the strength of MACI's clinical outcomes, top line revenue performance and its underlying growth drivers. Our core MACI business remains very well positioned for continued strong growth in 2024 in the years ahead.
Looking beyond this core base of growth to our lifecycle management and indication expansion initiatives. We announced last month that our may see arthroscopic delivery submission was accepted for review by the FDA and that we expect to launch may CR through in the third quarter of this year. As we previously discussed, the MACI ArthroCare Target's two to four square centimeter femoral ConBio defect, which comprise the largest segment of our addressable market, representing approximately 20,000 patients per year or roughly third of the $3 billion addressable market for MEC. In January, the US PTO issued a patent covering the complete set of MACI Arthur instruments into 2043, underscoring our market research indicating that orthopedic surgeons view may CR through a meaningful innovation in the cartilage repair market and that regardless of their current may see usage.
Certainly surgeons expect to shift a meaningful share of their procedures to the MACIR. through a procedure. Our prelaunch commercial activities are well underway in. And in addition, in connection with the May CR3 launch, we'll be expanding our surgeon target base from 5,000 to approximately 7,000 surgeons to include surgeons that perform high volumes of cartilage repair, predominantly through arthroscopic procedures. Based on our experience to date, we'd expect to achieve more than 50% penetration of this larger target surgeon base over time, meaning that surgeon adoption and biopsy growth will continue to be important growth drivers for me, see in the years ahead. We're very excited about the anticipated launch of new ZR for later this year as we believe it represents another significant growth opportunity for MACI and a key value driver for our business moving forward.
We're also advancing our MACI development program for the treatment of cartilage injuries in the ankle and expect to initiate the MACI ankle clinical study in 2025. Cartilage defects in the ankle represent the second largest market opportunity for MACI. And we believe that a potential anchor indication with an estimated $1 billion addressable market could be another significant growth driver for may see in the next decade and beyond.
Turning to our burn care franchise. We also saw strength in the underlying business fundamentals for Epicel in the fourth quarter as we had the highest number of Epicel biopsies in the quarter. Since 2021, and that momentum is carried into 2024. With a strong start to the year, we continued to see positive pull through for episode from our expanded burn care sales team, which further supports our belief that Epicel will benefit from a larger commercial footprint and higher share of voice in the burn care market.
With respect to NexoBrid our burn care team is executing on the initial phases of our launch plan following commercial availability of the product in the US beginning in the fourth quarter of last year. Our commercial and medical teams remain focused on building a strong foundation for NexoBrid by supporting P&T committee approvals to enable burn care center, access to NexoBrid training, burn surgeons and their staffs and supporting initial cases of burn centers to ensure successful patient outcomes. We're pleased with the progress that we made in the fourth quarter.
In terms of the early launch fees, key performance indicators for onboarding burn centers. As of the end of 2023, more than 50 burn centers had submitted packages to their P&T committees. More than 25 centers had gained P and T committee approval and nearly 20 centers placed in initial product orders. While our performance on these metrics was strong.
As we mentioned on our last call, the manufacturing related delay in 2023 and the resulting uncertainty around the ultimate timing of product availability did cause a number of burn centers to defer delayed NexoBrid training and P and T can Mitie approval processes, which in addition to the typical administrative hurdles at hospitals impacts ordering patterns and the timing of use and uptake at many of these centers. Most importantly, however, the clinical outcomes for the initial patients treated with NexoBrid and the feedback from burn surgeons treating those patients has been very positive, which serves as a great signal for the long-term potential of NexoBrid as we look to change the standard of care for eschar removal for patients with severe burns.
In addition to the progress with initial burn center onboarding, we also completed a number of initiatives designed to build a strong foundation for NexoBrid commercial success over time. In the fourth quarter, we submitted a supplemental BLA for a pediatric indication for NexoBrid that was accepted for review by the FDA. Currently commercial access, CMS granted NexoBrid a permanent J-code in transitional pass-through payment status, which became effective in January and provides a reimbursement pathway for the outpatient treatment of appropriate NexoBrid patients in our target burn centers as well as additional hospitals over time. So overall, we're very pleased with the strong surgeon interest in NexoBrid, our progress in market access activities and onboarding burn centers, the excellent clinical outcomes and positive feedback from surgeons treating patients and a clear impact that our broader burden care portfolio and expanded sales team is having an episode. We believe that all of these factors will enable the Company to build a strong foundation for NexoBrid in 2024, meaningfully contribute to our burn care franchise revenue this year enables the Company to have a second high-growth franchise in burn care moving forward.
Finally, turning to guidance for 2024. We expect continued strong revenue growth of 20 plus percent with full year revenue of $237 million to $241 million, driven by the continued strength in our core portfolio, our first full year of NexoBrid revenue, which will contribute to growth this year and even more meaningfully so next year and the anticipated launch of DCR through in the third quarter, which is expected to generate some revenue towards the end of the year and support a sustained high level of growth for MACI and the company in 2025 and beyond. We also expect that our sustained high revenue growth will drive further expansion of our margins and growth in our profitability metrics. I'll now turn the call over to Joe
Joseph Mara
Thanks, Nick, and good morning, everyone. Starting with our 2023 financial results. Total net revenue for the full year was $197.5 million, representing growth of 20%. Total net revenue in the fourth quarter was $65 million, with growth of 23%, driven by strong results from both of our franchises, MACI revenue of $164.8 million for the full year was above our guidance range from 25% versus the prior year. For Q4, MACI revenue was $56.7 million and grew 51% over the third quarter and 22% versus the prior year as we continued our momentum in the MACI business with our sixth consecutive quarter with growth over 20%. Total burn care revenue for the full year was $32.7 million, consisting of $31.6 million of Epicel revenue and $1.1 million of NexoBrid reps in the fourth quarter, our total burn care revenue increased by 31% with Epicel growth of 22% and the addition of NexoBrid revenue in the quarter, leading to a very strong fourth quarter for home care results.
Gross profit for the year was $135.6 million or 69% of net revenue, an increase of approximately 200 basis points compared to 2022. For the quarter, gross profit was $48.5 million or 75% of net revenue, which also increased by 200 basis points versus last year and represents the highest gross margin for the company in any quarter to date. In addition, our pull through of incremental revenue to gross profit has now returned to levels similar to 2019 with the pull through to gross margin of 83% for the fourth quarter and nearly 80% for the full year.
Total operating expenses for the year were $142 million compared to $126.8 million in 2022. For the quarter, operating expenses were $35.8 million compared to $32.2 million for the same period in 2022. The increase in operating expenses in 2023 was primarily due to increased headcount and related employee expenses, lease expense associated with the company's new facility that is under construction, variable sales and marketing expenses as well as other external expense.
Net income for the fourth quarter more than doubled to $13 million or $0.26 per share compared to net income of $5.9 million or $0.12 per share for the fourth quarter of 2022. For the full year, our net loss was $3.2 million, or $0.07 per share compared to a loss of $16.7 million or $0.35 per share in 2022, representing an improvement of nearly $14 million on a year-over-year basis. Non-GAAP adjusted EBITDA for the year grew 40% to $33.9 million or 17% of net revenue compared to $24.2 million or 15% of net revenue in 2022.
For the quarter, adjusted EBITDA grew 50% to $22.3 million or 34% of net revenue, an increase of approximately 600 basis points versus 28% in the fourth quarter last year. Importantly, our adjusted EBITDA growth of 40% for the full year is double our top line revenue growth of 20%. And our adjusted EBITDA growth of 50% in the fourth quarter is more than double our revenue growth of 23% as our results continue to demonstrate very strong P&L leverage and a top-tier profitability profile.
In addition, the company has now consistently generated positive adjusted EBITDA each quarter for more than three years and continues to convert adjusted EBITDA into strong cash flow. We generated operating cash flow of $35.3 million in 2023. We ended the year with $152.6 million in cash, restricted cash and investments and no debt, up from approximately $140 million to start the year as our cash balance increased in 2023 despite CapEx investments for our new facility.
Turning to our financial guidance for 2024 for using a similar guidance framework to start the year that we use in 2023 for both MACI and our burn care franchise. For the full year, we expect total company revenue of $237 million to $241 million, representing growth of approximately 20% to 22%, driven by continued strong growth in both of our franchise with may be on track for another strong year, Epicel benefiting from a high share, higher share of voice and NexoBrid early in its launch phase. We have multiple paths to our 20 plus percent total revenue guidance for the year. We expect another year another year of growth for MACI, another year of strong growth for MACI and as a starting point, we expect full year revenue growth in the high-teens percentage range with biopsy surgeon growth, biopsy growth and an increase in price continuing to serve as the key major growth drivers for the burn care franchise. We expect growth of over 30% for the full year based on significantly improved Epicel trends over the past several quarters, plus the initial revenue contribution.
Next for the first quarter, we expect a strong start to the year with total company revenue of approximately $48 million to $50 million, representing approximately 20% revenue growth at the midpoint. We expect Q1 may see revenue of $38.5 million to $39.5 million. And for burn care, we expect total revenue in the first quarter to be $9.5 million to $10.5 million, with the vast majority of revenue coming from Epicel, which is trending above our recent run rates based on the strength of biopsies to close out 2023 and NexoBrid revenue to be in a similar range as Q4 moving down the P&L for the full year, we expect gross margin of approximately 70% of an adjusted EBITDA margin of approximately 20%, which would imply another year of very strong adjusted EBITDA growth of around 40%. We would expect similar quarterly trends in terms of seasonality and progression for both our gross margin and adjusted EBITDA margin percentages throughout the year. And we would expect operating expenses to be approximately $165 million for the full year. Finally, we anticipate an increase in capital investment for the build-out of our new manufacturing and headquarters facility with our share of construction costs expected to be in the $50 million range for 2024. In total, this guidance points to continued high revenue growth in 2024, with further enhancement of our top-tier profitability profile. In addition, we also anticipate continued strong revenue growth in 2025 with a full year of arthroscopic meeting and further acceleration of NexoBrid usage as well as continued expansion in our key profitability measures.
This now concludes our prepared remarks. We will open the call to your questions.
Question and Answer Session
Operator
Thank you. At this time, we will conduct a question-and-answer session. (Operator Instructions)
Ryan Zimmerman, BTIG.
Ryan Zimmerman
Good morning and congrats on a really strong 2023. I appreciate all the commentary on guidance this morning. Joe, wondering if you could talk a little bit about seasonality on a top line, though, have been it is kind of an abnormal year relative to years prior with the launch of NexoBrid, potentially some benefit late in the fourth in the third and fourth quarter for arthroscopic may see. I'm just curious if you could kind of expand a little bit on that in terms of how to think about maybe seasonality and pace this year given it is a little abnormal?
Joseph Mara
Yes. So thanks for the question, Ryan, and good morning. So I can hit on that. And maybe I'll just sort of start at a high level with guidance, just to make sure people understand on the framework, and then I can touch on the seasonality as part of that.
So first off, from a total company perspective, as we talked about in that 20% plus range very consistent with our messaging to close out last year and early this year at JPM, where we updated our corporate presentation and thinking for this year and in 2025. Importantly, as part of that question, we're using the same framework we use last year. Obviously a higher starting point for the Company and both franchises. So it is a bit higher, but same framework, which is important. And so I may see and I'll touch on the seasonality. So we may see from a framework perspective, again, it's very similar to 2023 which is starting the year, assuming our key growth drivers are surging continued surging growth, which has been strong, that leads to additional biopsies and volumes and increase in price. So that gets you into the call it high 10s on a full year basis. And so as part of your question, I would say we factored in some impact of the arthroscopic launch it's really more, I would say, from a Q4 perspective. But I wouldn't say that meaningfully changes kind of how we're thinking about seasonality from a seat perspective.
So yes, it certainly could have some impact because we do think ours will have an impact in Q4. But to start, I wouldn't think from a quarterly perspective, it will be significant relative to last year and kind of what an aperture books. So if you think about MACI and we talked about in the prepared remarks, I think a good place to start. We're not giving formal product guidance, but we did want to touch on kind of our framework across the franchise. And so yes, if you assume maybe kind of in that high teens as we talked about, which was higher than our starting point for last year. That gets you in the kind of low to mid one 90s on a full year basis. So for example, if you use kind of 18% or $194 million, that would kind of lead to burn care, which the balance at our midpoint would be about $45 million. And so from a very fair perspective, and then I'll tie in the seasonality as part of this, I think that would certainly be pretty strong growth in slide 30%, more than 30% at that midpoint and call it 45%.
And again, I think what's really important is a couple of things. One, there's certainly a range of possibilities across the product. So we don't know exactly what that's going to look quite cross Epicel and NexoBrid. Again, we're not giving specific product guidance, but we'll talk a little bit about framework. But I think to that framework perspective and again, very similar to last year, which is we came out of '22 a year ago and said, we think we can grow our episode run rate off that exit rate. Our expectation is kind of the same this year. So last year, if you remember, we were coming out of the out of the year kind of, call it, $6 million to $7 million run rate range on Epicel. And actually, if you look back at where we ended '23, our run rate in the last three quarters was more like, call it $8 million-plus, around $8.3 million. So our exit rate on Epicel is actually really a $33 million number, and we certainly think it's reasonable to grow that number. So last year, we grew that extra rate over 20% and even more if you assume the starting point for like $6 million. And prior to COVID on episode, we generally grew in kind of the 20% range. So our expectation and Epicel obviously can vary from quarter to quarter but from a full-year perspective, we certainly think it's reasonable to again assume, call it low double digit growth. And importantly, we're seeing a higher share of voice. We had a strong Q4 and sort of the biopsies and part of that equation is increase in price. We do take price increases on Epicel. So it's certainly reasonable to expect, I think low double digits, which would be lower than last year and lower than pre-COVID years from relative to the exit rate on Epicel.
So obviously, from a seasonality perspective there, as you know, well, that can vary quarter to quarter, but we think from a full year perspective, that's probably a pretty good place to start. So if you assume that, for example, call it low double digit or double-digit Rainier kind of probably the starting point is, I think a good scenario scenarios cause $37 million to $38 million, for example. So in that scenario, NexoBrid would be in that $7 million to $8 million range. And clearly, NexoBrid, obviously very early in the launch and still difficult to predict the absolute number, let alone the quarterly numbers we have not given any specific guidance today on 2024, and that's still difficult. Obviously, a few months and a few weeks into our quarter added a few weeks of the launch, but we would expect kind of progression throughout the year by NexoBrid. So again, Epicel can vary a bit, as we know from quarter to quarter you I think it's safe to assume that NexoBrid will continue to build during the year. So there will be a degree of seasonality, certainly in NexoBrid on, but just to bring it back, I wouldn't assume anything materially different on may see again, episodic typical quarterly volatility.
Ryan Zimmerman
Thank you for all that color. That's very appreciative. Maybe just to ask on NexoBrid, you know, I think people were hoping it would kind of get rolling pretty quickly here. You're guiding to kind of a similar level from the fourth quarter. Talk to us about kind of, you know, how the process is going? I mean, clearly there's interest you wouldn't have that many sites ordering this early, if there wasn't. But you know, how do you thinking about kind of the early adoption of NexoBrid from what you're seeing so far, you know, couple of weeks of the launch. Thanks for taking the questions.
Nick Colangelo
Yes, hey, Ryan, this is Nick. I'll start and then Joe can kind of talk about sort of the dynamics of the distribution system. But you know, from our perspective, as you referenced, whether it's our market research or independent work that others have done. I mean, there is this high level of interest from surgeons in NexoBrid. There's no doubt about that. And, you know, obviously, we the team has done a great job on in terms of the onboarding of burn centers.
And, you know, we'll continue to keep adding those burn centers with the delay last year. You know, there was an interruption to sort of the on boarding process for many centers when the product did become available. Obviously, those that were farther along were able to kind of finish out that process and start making some initial orders.
And with respect to other centers where they had really kind of put things on hold, you know, it was a reengagement progress process and all of that is going really well. Obviously Importantly, we think about this. Obviously, as we've always said, over the long term, we are changing the standard of care for what burn surgeons have done for the last several decades in terms of their eschar removal protocols, et cetera, and those things take time, but making great progress.
And importantly, we take great care to make sure we support the initial patient applications and treatments. The outcomes have been great. The surgeons' feedback has been great. So, you know, we think we're, you know, kind of where we thought we'd be and sort of making the progress that we would expect.
Joseph Mara
Yeah. Just maybe just to add a little bit on site as well on the export side. So first, as Nick said, the metrics have been very strong to start. The clinical feedback has been very positive. So those are great signals. I think it is important to understand. We're early in the launch.
And a couple of things just to point out, which is, again, the distribution on NexoBrid is very different than safety and Epicel. And as a reminder, we have a 3PL and kind of managed our inventory. And then the distribution network that's in place consists of multiple specialty distributors, some have multiple locations, and we recognize revenue when those specialty distributors order from our 3PL.
The second kind of part of the channel, if you will, is then the burn centers and hospitals order from those that feel like the one that they typically work work with most likely for some different products sufficient at their centers. So when they order that drives additional orders from RSC each quarter and then leads to a quarterly revenue. And then lastly, it's important to remember that both the SD in the hospitals will keep some level of inventory which can which can vary and impact ordering patterns.
So just briefly, as you kind of think about the first couple of quarters, the launch again, Q3, that was yes, if you remember two, three week commercial ability better availability very late in the quarter. So that was essentially the ST's kind of ordering from a channel perspective in three. And we didn't really get into the market and start treating patients. So Q4, that's the quarter where hospitals start ordering from SC and kind of it's in the market, et cetera?
In general, I think what we've seen is a lot of the burn centers that were more physician or sorry, more. I'm more familiar with NexoBrid, some of the burn surgeon KOLs as well as the hospitals that were farther along in the P&T process even when things were disrupted last year. So I would say it was as anticipated. That means that essentially from initial stocking at hospitals now as we get into Q1, we're seeing continued use on patients.
We're seeing some of those hospitals start to use that inventory that can then lead to some reorders. And at the same time, as Nick mentioned, the team is working to add new centers on top of the ones that have already ordered and working through some of those administrative challenges at the burn centers so I think as these dynamics play out, particularly early in the launch, it's going to take some time for ordering patterns to normalize at both the ST and the hospitals which is which is anticipated, I would say, kind of this point in the launch.
And lastly, again, we have one quarter of history and thought and until a few weeks left in Q1. And again, unlike maybe an episode where the kind of history and data, we won't know exactly what those at the orders look like until we get later in the quarter. And so there's a whole range of outcomes outside of off-air.
Ryan Zimmerman
Thanks, guys, for the very comprehensive answers. Appreciate it.
Operator
Mike Kratky, Leerink Partners LLC
Mike Kratky
Hi, everyone, thanks for taking the questions. Can you speak to how you're thinking about how quickly you can get traction in the new target surgeon population once you get arthroscopic approval, I mean, can you get a sense there's pent-up demand from surgeons that are not currently using may see presently, but we'll start doing implants once you have arthroscopic approval?
Nick Colangelo
Yes, hey, Mike, this is Nick. Um, you know, obviously, as we said, we're really excited about May CR for the reasons we've described. It's the look, you know, targets to larger center segment of our addressable market would be the only arthroscopic restorative cartilage repair procedure for these femoral condo defects of a certain size. So we think and this is going to be very meaningful for us as we move forward. Obviously, we can't at this point since it's not an approved method of administration be out there talking generally to surgeons, but we are working with a couple of dozen surgeons through the human factor study, Voice of the Customer Labs additional trainings, et cetera. And I'll just say the enthusiasm from the surgeons who have been exposed to the new instruments has been significant and Great. So they're really excited about it and I would expect that that will translate to those who aren't as familiar with it right now.
And I would just last point would be that, you know, for the surgeons if you look at our addressable market right now, the vast majority of cartilage repair procedures are done arthroscopic lease, whether it's condo place, these microfracture, those are the things that make up the majority of the cartilage repair market. So this kind of is right in the wheelhouse for those surgeons in terms of how they currently do their cartilage repair procedures and there's nothing out there that has the clinical outcomes that may see has. So we think that combination is going to be very powerful for us as we move forward.
Mike Kratky
Got it. Yes, I really appreciate the color there. And then maybe just as a follow-up, is it reasonable to think that as you get arthroscopic approval that could ultimately lead to an improvement in the conversion rate just as more implants end up getting done over time with that available?
Nick Colangelo
Yes, we certainly believe in our surgeons believe that number one, you know, with a less invasive procedure that you know, obviously, there's better aesthetic outcomes. There's less postoperative pain and we would expect there to be and we feel faster post surgical recoveries. And that is something from a medical affairs perspective that will be focused on as soon as we launch the product and generating data that actually supports what I think everybody expects to be the case. So yes, I think that that is very much in line and sort of what we're thinking.
Mike Kratky
Got it. Thanks very much.
Nick Colangelo
Thanks, Mike.
Operator
Richard [Neweter], Truist Securities.
Samuel Brodovsky
Hey, sorry, it's actually Sam on. Thanks for taking the questions. Just first one on MACI's Can you just sort of walk us through the price dynamic in 2023 and then and any changes there are for 2024? And how should we be thinking about that impacting revenue and any price impact from arthroscopic as well?
Nick Colangelo
Yes. Hey, Sam, this is Nick. So yes, so we've spoken before about sort of we routinely take annual price increases for may see. We of course, expect to do that this year as well. We've typically taken a mid-year price increase. The with respect to arthroscopic may see MACI's RemX, the product itself obviously is reimbursed under a J code that pricing will not change whether a surgeon deliveries may see is in a mini, our throttle me or an arthroscopic procedure. So so that will have impacted the CPT codes.
That target is the same. So the be the reimbursement or for the surgeon will be the same for the procedure. We do anticipate charging. This will be a disposable set of instruments and we do expect to charge for those instruments. So, you know, much like RBC biopsy kits where there's a line item in our financial filings that you can see, we expect that these instruments will generate some revenue for the Company and offset some other costs potentially over time. But you know, really the main revenue driver is the reimbursement for the implant itself.
Samuel Brodovsky
Thanks, Ryan, and thanks for all the really detailed color earlier those really helpful. I did just want to touch a little more on EpiCept, given the quarterly volatility this product can have. Can you just give us a little more insight into what the visibility you have into that sort of run rate through the year and why you're so confident again?
Nick Colangelo
Yes, I'll start and Joe can Kevin and John chime in. I think Joe referenced in the prepared remarks that you know historically and pre COVID. I mean, things got a little, you know, more variable during COVID, obviously. And yes, we would always say it's probably safe place to start the year, assuming high single digit to low double digit growth for Epicel. We kind of routinely outperformed that. But again, given sort of less visibility than we have, for instance, we may see we kind of always just assume that you don't kind of communicate communicated. I should say that that was a good place to start. And, you know, I would say that over the past essentially three quarters now, you know, Epicel with a large larger share of voice has been sort of returning.
It's not even back to its highest levels ever. And even though we've seen it kind of get back to routinely into more like an eight plus million run rate. And you know, the markets kind of normalize the we had some dynamics with respect to our largest customer that have now been resolved at their facility, not episode related, but other issues. And so all of that is kind of normalized. And so we're kind of back into reserve at that that place we were in it from prior years.
And so again, it, you know, obviously, we have what we have a biopsy quarter like we did in the fourth quarter. We know that's going to create strength into the year as we discussed earlier. So so yes, we're feeling pretty good about it. And again, we said all along that we expected pull through for Epicel from having a larger share of voice were in more hospitals than we were previously in all that had an impact starting kind of the middle of last year as we talked about on earlier calls, and it continues to have an impact.
Joseph Mara
Yes, just to add, yes, just to kind of reiterate or add a little bit into kind of the earlier question around seasonality tied into it and guidance, et cetera. But I think it is important to recognize the app itself meaningfully grew on versus where it exited at '22. So that's it's a little bit tough to look at calendar years, but we know is running in the $6 million to $7 million range again, if you just use the last couple of quarters of '22, it was kind of high sixes. Now we're above a I mean, that's more than 20% growth, which also lined up historically to kind of where we were.
And again, as we think about kind of growth on a full year basis, just to reiterate, there's multiple components there. So we think the volume can be a bit better, and we're starting to see some signs of that with a larger footprint and the share of voice. But also, as I said, earlier, there's a price component in there as well. So as you think about, call it, low double digit growth and Epicel and again, that's one scenario within our guidance in burn care. There can be shifts, London franchise products. But the one I referenced I mean, that's below where we were last year on. So I certainly think that's a reasonable expectation. Again, it can vary quarter to quarter in terms of how we get there. But we think that's certainly a reasonable why inflation going into the year.
Samuel Brodovsky
Great.
Operator
George Sellers, Stephens Inc.
George Sellers
Hey, good morning and thanks for taking the question. Maybe to shift gears a little bit to the margin guidance. I'm just curious, what does that assume in terms of the improvement driven by price versus NexoBrid and Epicel ramping up? And then what's also sort of assumed related to investment for commercializing arthroscopic delivery?
Joseph Mara
Yes. Good morning, George, and thanks for the question. So I'll kind of hit that and make sure we talk a little bit about some of the guidance on the on the revenue piece. So as we talked about, we're expecting improvement in gross margin from high 60s last year to 70s adjusted EBITDA. We ended last year on a full-year basis at 17, we think we can be around that 20% number this year.
First off, I'd just kind of point out I did I did comment in my prepared remarks. But as you think about that guidance, I would say it's also important to think about the quarterly progression and the trends there. So you know, the way it kind of our business works with just some of the seasonality and whatnot as we typically see improving kind of margins throughout the year, particularly Q1 top, it ends up being kind of on the low end. And then Q4 obviously ends up being on the higher end. So there's going to be a progression, I would say, and you can really reference last year's trajectory and assume possibly on something similar on a year-over-year basis, there was improvement and they can obviously be some puts and takes within quarters.
In terms of kind of what's driving kind of the margin improvement I would say on. And I guess on the last piece on the OpEx side, just before I go there, we did talk about, call it, mid 160s. I think I mentioned 165 from an OpEx perspective. And from an investment perspective, it's the things we've been talking about. So certainly we'll want to make sure our throw it set up for success.
Yes, there's some spend there to kind of get ready from a commercial perspective to make sure the instruments are ready. So that is clearly a priority investment this year to make sure that it's successful.
And then things like Angola from a lifecycle management and other investments, just there by more modest, but you have to make sure things like that, Sabrina or kind of bomb continue to track. So those remain the investment areas are certainly are on our leverage broadly is driven by the top line, you know, growth being sustained at a high level. We certainly want to make sure we manage our OpEx growth, but at a lower level than that and we did that last year. And that's certainly our plan this year.
In terms of kind of what flows through to the margin you have, certainly, as we talked about NexoBrid kind of fits into the margin profile from a gross margin perspective. So that's helpful. And then some of that to your question, obviously, as you take the increase in price that it certainly helps from a gross margin perspective, but there's also just some natural leverage in the business. And I think we're starting to see where, again, if we can kind of manage our costs at a lower level value overall revenue. We're going to see that pull through.
And then lastly, I talked about in the prepared remarks, but you can also see we also talk about pull through in terms of how much is dropping to the bottom line. I think if you look at Q4 last year and you know what that was really strong and the adjusted EBITDA line pulled through on the gross margin, both Q4 and full year kind of in that 80% range. So I think that's kind of where it is where it needs to be last year and something we're focused on maintaining this year.
George Sellers
Okay. That's really helpful color. I appreciate all that detail. You touched on MACI. They see a goal. I'm just curious with that clinical study initiating in 2025, and then you've also talked about getting close to 30% adjusted EBITDA margins in 2025 and beyond, how do we sort of reconcile those two items? What should we think about in terms of the investments for launch in that clinical trial?
Nick Colangelo
Hey, George, Nick, Vito, as we've talked about, some of this study has always been sort of play in is included in sort of the long term longer-term projections that we've given. This is not a you know, large study by pharma or biotech standards, you know it very much like the SUMMIT study that was the pivotal study for MACI the need, you know, somewhere call it up around 200 patients. It will take a couple of years to roll. And so, you know, it's kind of single digit million kinds of study. And so, you know, it's again not compared to our overall sort of OpEx and investment. It's really not that significant.
George Sellers
That's significant. Okay, great. Thank you all again for the time.
Nick Colangelo
All right. Thank you.
Operator
Jeff Cohen, Ladenburg Thalmann
Jeff Cohen
Please go ahead for our near can go. You can well imagine couple quick ones from me. And so when you talk about MACI's or throw in the OR, the surgeon population expanding out from 5,000 to 7,000, how do we equate that and think about the overall TAM as there's certainly some other levers out there at a 40% greater TAM or one way we think.
Nick Colangelo
Yes. So as we talked about previously, when you look at our 60,000 patient TAM. Clearly, MACI's, I go to product and patella and larger defects on the femoral con dial or other areas of the knee. And, you know, we do get business on these two to four square centimeter defects in the femoral Cannondale. But just our penetration rate there is lower and we think makes the arthroscopic will allow us to have deeper penetration there.
So for MACI Arthro it's really about sort of deeper penetration into the existing addressable market of $3 billion plus the TAM expansion for me see occurs when you move to other joints. And that's where we see April comes into play. And as I mentioned in my prepared remarks, you know, that's about a $1 billion addressable market opportunity for us with around 20,000 eligible patients per year.
Jeff Cohen
Okay. Got it. And then lastly, first, could you talk about cash a little bit? You had a strong Q4 with $10 million of free cash flow. Any thoughts on cash? I know that some portion of that would be for the facility side. Any thoughts there?
Joseph Mara
Yes. So I think we talked about a pretty strong year from kind of a cash flow perspective, but it was great to end the year at a higher place than we started even as we started funding the building. I think as I talked about in the prepared remarks, you know that I mean this is more of the year where you're going to see some more substantial kind of capital and our cash kind of allocated to our new building. But we also expect to continue to generate kind of new cash, additional cash and sort of self fund that so that's probably the key dynamic, I would say, as you think about the cash flow and 2024.
Jeff Cohen
Okay. Perfect. That does it for us. Thanks for the questions.
Operator
Swayampakula Ramakanth, HCW.
Swayampakula Ramakanth
Thank you, and good morning, Mitch, and Joe, most of my questions have been answered, but I just had a quick and question regarding how to think through our NexoBrid arm of not just our 24, but even beyond and just like what we have seen with episode am I remember and even about a year a year and a half ago, you folks I'm not quite sure how to talk through the dynamics of Intercell, but now you have your you, you're able to give guidance for the year. And also I listen to what Joe had talked about special centers and specialty centers and how the product moves through it. So should we expect similar dynamics or since you have had some learnings with how to commercialize Epicel and NexoBrid probably will get to a decent dynamic and earlier than what you had be it instrument datasets.
Nick Colangelo
ARKL., I'm trying to parse that out and just you know, the variability that we had seen have seen historically with Epicel is really just a matter of, you know, a smaller patient population that you're typically treating, right? So if you have a few more or less treatments per year when the average treatment is pretty significant in terms of revenue, it can bounce around a little bit. And that's why we've kind of historically said before, again, COVID sort of disruptions that, you know, starting out high single digit or low double digits for Epicel is usually safe ground.
And we typically outperform that so it's really kind of reverting back to kind of what we did previously with NexoBrid. Of course, you're really sort of playing more at the top of the addressable market funnel where there's, you know, multiple times more patients, 30,000, we believe out of the 40,000 hospitalized patients each year are eligible for NexoBrid treatment.
And so yes, once you get through as Joe was talking sort of the initial, you know, dynamics around it and specialty distributor stocking hospital stocking, you had kind of a more mature customer base that has more kind of normalized or routine treatment protocols, then you kind of we would expect, as we've said for a long time that will help dampen any variability that you would see with Epicel as as NexoBrid Canada revenues grow over time. So nothing has changed in terms of our belief on how that will play out and sort of our excitement around NexoBrid.
Swayampakula Ramakanth
Thank you, one one quick question. So do you think you have better and leading indicators with with NexoBrid there? Obviously, it's difficult to say to do that with episode, but is NexoBrid in a better place in that sense?
Nick Colangelo
Yeah. Well, again, yes, the answer is definitely yes, because again, as we kind of get into sort of you can kind of think about, you know, we have a certain number of centers, right? 140 burn centers. We've got certain tier targeting of those. As you onboard those, they get PP. and T. committee approvals and then they start to make their initial order. And you see penetration into that. The patients that they see, you'll see sort of teen are more routine reordering patterns. And we're just so early in this right now that, you know, those patterns haven't converge yet. But once they do, we certainly will have sort of more visibility in terms of forecasting as we as we go out.
Swayampakula Ramakanth
Perfect. Thank you very much. Thanks for taking the questions.
Nick Colangelo
All right, thank you.
Operator
Thank you. I'm showing no further questions at this time. I'd now like to turn it back to Nick Colangelo for closing remarks.
Nick Colangelo
Well, thank you, everyone, for your questions and continued interest in Bear. So obviously, we had outstanding financial and business results in 2023. And we expect that the momentum in our core portfolio, new product launches will drive continued strong revenue and profit growth in 2024 in the years ahead. So we look forward to talking to you again at our next call, and thanks and have a great day and thank you for your participation in today's conference.
Operator
This concludes the program. You may now disconnect.
