Vericel Corporation Morgan Stanley 24th Annual Global Healthcare Conference

Oh, we're starting. Sorry. Good.

Perfect. Thank you very much. This is Peter Harrison from Morgan Stanley's Investment Banking Group. I'd like to welcome you to the Vericel chat. Today with us is Nick Colangelo, the CEO, and Joe Mara, the CFO. With that, we'll get started. Thank you very much for attending the conference. We greatly appreciate it. Happy to be here.

Thank you. Thanks for having us.

Let's start with MACI, of course. It's your lead product for cartilage repair in the knee. The TAM is $4 billion in the U.S. You're currently preparing to launch it outside the U.S. and conducting a trial for the product in the ankle. Can you provide an update on these two initiatives and how they will continue to drive what's been an extremely impressive growth profile?

Well, there's a bunch of sort of growth drivers that we talk about in the short term, but the ones you mentioned are really the longer-term growth drivers for MACI. Immediately after launch, we started to think about how do we continue down the pathway of sort of procedural advancements to continue to make it a less invasive, simpler, faster procedure, and that's kind of the launch of MACI Arthro that I'm sure we'll talk about a little later. In addition, you have articular cartilage in all joints. The knee is the greatest opportunity since it's the greatest weight-bearing joint, and that's why all the injuries occur in the knee. But ankle is a second opportunity for us, and so moving into other joints has been a long-term growth driver and initiative for the company, as has OUS expansion. I'll start there. Just by way of background, MACI was actually developed in Europe by a German company there before Genzyme purchased that company back in the 2010s.

The pivotal study for MACI, both in Europe and in the U.S., was conducted in Europe. So there's a long history, and it was marketed in Europe, so a long history of MACI in Europe. Once we completed our manufacturing facility in the U.S., that allows us to go back into Europe because we designed that facility with global CMC requirements in mind. That facility was completed and approved by the FDA for MACI production earlier this year. We announced last year that we intended to go back into Europe and in a staged manner, and that we would start with the U.K. We did that for a number of reasons.

Number one, there's a high degree of brand awareness and surgeon advocacy for MACI in the U.K. Because the clinical study was conducted in Europe, U.S. surgeons, when we launched in 2017, didn't really have experience with the product, and it was surgeons from the U.K. that came over and trained our trainers, who then went out and trained other surgeons in the U.S. So long history there. Number two, there's an expedited approval and reimbursement pathway in the U.K. If you have a product that's approved in the U.S., Japan, Europe, other countries, then the U.K. has a mutual recognition procedure which we qualify for and we're following. So it's an expedited approval process.

From a commercial standpoint, there really are, if you're in the national health system there, which most patients are, there are 12 or 13 centers of excellence, joint restoration or preservation centers of excellence in the U.K. where these patients will be treated. So a very sort of concentrated call point for us. We're really excited about the opportunity there. We submitted our marketing application in the second quarter. The process is that you have to go through a validation of that application. You have to have a facility inspection, just like we did by the FDA earlier this year, and then the clock starts ticking. Hopefully, sometime next year, we'll be in a position where the product's approved, and we can launch in the U.K. So really excited. Then we would move beyond that to other countries in Europe, potentially Canada, and so on.

So really nice opportunity Yep for us in the back half of this decade to sort of continue to drive growth for MACI outside the U.S.

MACI ankle, as I mentioned, we've always been focused on other joints, and MACI Ankle, really, the ankle represents the second-largest opportunity behind the knee. Just like we did in terms of the opportunity for knee cartilage repair in the U.S., a quantitative market assessment, we did the same thing for ankles. There's about 170,000 or so cartilage resurfacing procedures that are done in the U.S. each year in the ankle.

Our TAM is probably about 20,000 patients a year. But at our price point of call it roughly $70,000 per implant, it represents a really nice billion-dollar-plus market opportunity for us. That's really somewhat of a longer timeframe for us, in that it'll be, call it a three-year enrollment, a two-year- Yep follow-up, couple years for regulatory approval.

That's more of a 2030, early 2030s kind of opportunity. When you take a big step back and you say, we launched MACI in 2017, we're kind of in our 10th year on the market. We've had a 24% CAGR in terms of revenue growth over those years, really strong momentum in the business. We launched MACI Arthro last year. That allows us to access another part of the addressable market. That's an important one. You can layer on OUS opportunities and then MACI in the ankle, and you can see this multiyear, multi-decade opportunity for MACI, especially because there's no MACI-like products on the horizon.

Okay. Super helpful in the longer term. When I think about that 24% CAGR in the last couple years and in the near term as you bridge to OUS and the ankle, what has been the driver of MACI over the last couple of years? Is it price? Is it volume? Is it patient awareness? Yeah.

I would say, like our whole portfolio, and we can use MACI as an example, but essentially, we have a product portfolio, including MACI, where it's the only FDA-approved product in its class. We can talk about the burn care products a bit later, but they follow a similar model where these are, because they're the only FDA-approved products in their class, they are sort of, kind of the most clinically proven products. There's a great deal of clinical data for all of our products. Essentially, we have a model that is premium price products, concentrated call points. That has supported both the revenue growth, but also sort of the profitability and cash generation that we can talk about as well. For MACI, in particular, there's a very large addressable market. I mentioned the ankle addressable market.