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Good day, ladies and gentlemen and welcome to your Vericel Corporation First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator instructions] As a reminder, today’s conference is being recorded. I would now like to turn the call over to Gerard Michel, CFO. Sir, you may begin.
Thank you, operator and good morning everyone. Welcome to Vericel’s first quarter 2019 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 that are described more fully in our filings 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; Dan Orlando, our Chief Operating Officer; Jon Hopper, Chief Medical Officer; and Mike Halpin, Senior Vice President of Quality and Regulatory Affairs. In light of the NexoBrid transaction announced this morning, joining us on today’s call is Dr. Jeremy Goverman, Assistant Professor of Surgery at Harvard Medical School and a Burn surgeon at the Sumner Redstone Burn Center of Massachusetts General Hospital, who is one of the lead investigators and top enrollers in the pivotal U.S. Phase 3 clinical trial of NexoBrid. One logistical item to note before we begin, in addition to our quarterly results in NexoBrid transaction press release, we also have presentations available on the webcast and our website with highlights from this morning’s earnings call and the NexoBrid transaction.
I will now turn the call over to Nick.
Thank you, Gerard and good morning everyone. I will begin with a few comments on our first quarter results in the NexoBrid transaction before turning the call over to Dan and Gerard to discuss our first quarter performance in more detail. We reported solid first quarter financial results in what is our seasonally lowest revenue quarter for the year. We had record total revenues for the first quarter led by continued strong growth for MACI. The strong MACI growth was offset in part by a low recorder for Epicel which was within the range of variability that we have seen in prior quarters. Gross margins continue to expand. Adjusted EBITDA improved significantly compared to the first quarter of 2018 and we reported positive cash flow for the quarter. Most importantly, based on the strong underlying growth indicators that we are seeing for MACI, we have raised our full year 2019 MACI in Epicel revenue guidance to $114 million, up from our original guidance of $108 million to $112 million with MACI revenues of at least $90 million.
Turning to the license transaction with MediWound announced this morning, we are delighted to expand our burn care franchise with the addition of NexoBrid, a highly innovative biological organ product for debridement of thermal burns, which we believe represents a paradigm shift in the standard of care for hospitalized burn patients. There is a high value product in an area of significant unmet need with focused call point and a consultative sales model. NexoBrid is an excellent strategic fit with our advanced therapy portfolio. It’s also a de-risked asset with compelling clinical and pharmaco-economic data. NexoBrid is approved in the EU and other international markets and generated positive top line results in the pivotal U.S. Phase 3 DETECT study. Moreover, published European pharmacoeconomic study suggests that the use of NexoBrid can lead to significant potential cost savings.
NexoBrid also is highly synergistic with our existing commercial franchise and will significantly expand Vericel’s presence in the burn care market. Adding NexoBrid to our portfolio will support a broader commercial footprint that we believe will not only drive next NexoBrid uptake, but also will have a pull through effect to further increase Epicel penetration as we build the larger share voice in the burn care market. Importantly, NexoBrid significantly expands our burn care target addressable market or TAM given that we will be targeting significantly larger segment of hospitalized burn patients than with Epicel alone. Of the approximately 40,000 burn patients that are hospitalized in the U.S. each year, our current TAM for Epicel consists of approximately 600 patients that have greater than 40% total body surface area or TBSA burns, which is less than 2% of hospitalized burn patients. In contrast based on the anticipated label, the annual U.S. tam for NexoBrid consists of more than 30,000 hospitalized burn patients. We believe that this represented $200 million plus addressable market roughly tripling the size of our current burn care TAM.
Finally, in addition to the clear strategic fit, we believe this transaction is very attractive from a financial perspective. The performance based deal structure together with BARDA funding support for the development expenses to obtain U.S. marketing approval and for medical countermeasure procurement results in an attractive financial profile for NexoBrid in the near-term as well as the longer term as we expect NexoBrid generate margins consistent with expected margins for our current portfolio. We believe that this transaction will enable us to build the second significant commercial franchise with Epicel, with our cartilage repair franchise thereby significantly enhancing the long-term growth profile of the company.
I will now turn the call over to Dan and Gerard to review our first quarter 2019 results.
Thank you, Nick. MACI first quarter revenue increased 38% compared to first quarter 2018, not only are we pleased with our first quarter revenue performance, but strong biopsy and implant trends into the second quarter indicate that we are on track for full year growth above our initial guidance. One key driver fueling MACI’s continued growth is our sales force expansion. As of April 1, the MACI sales force has increased from 40 to 48 territories, which is more than double the size of the sales force prior to the launch of MACI. Note that even with the expansions, we are on track to see revenue per wrap increase for 2019 for the second year in row. This increase in productivity reflects the growing preference for MACI among physicians and patients, the quality of our sales representatives, and the efficiency of our payer and pharmacy approach.
With respect to Epicel, revenue decreased 12%. And as we have expressed many times on these calls, the episodic nature of severe burn injuries causes large quarterly fluctuations in Epicel performance. Although on an annual basis over the past several years, Epicel has delivered year-over-year growth in the high single to low double-digits. The results for Epicel this quarter are within the range of variability that we have seen in prior quarters. And at this point in the second quarter, the underlying metrics for Epicel are on par with where we were at this point just last year. In addition, Epicel’s clinical utility in the severe burn market was reinforced in the first quarter with the publication of the 25-year experience with Epicel and large burn wounds in the Journal of Burn Care and Research in February. The data from 127 U.S. hospitals included 954 patients treated with Epicel compared to more than 177,000 patients in the national burn registry over the same period. This data demonstrated that the average Epicel-treated patients had a 67% TBSA burn and Epicel showed a marked improvement in survival rates versus the comparative population. This publication is now in our representatives’ hands. And based on recent KOL feedback provides a compelling rationale for continued use of Epicel.
Now, later if you listen to Dr. Goverman’s perspective on the utility of NexoBrid, the excellent strategic fit for Vericel will become very apparent. NexoBrid has the potential to be used in the vast majority of admitted thermal burn patients in virtually every burn center in the country creating an opportunity to leverage and build upon our existing commercial infrastructure to drive NexoBrid uptake as well as to expand use of Epicel in centers that are not using the product today. To meet the combined opportunity for Epicel and NexoBrid, we are adding two new burn therapy specialists this year and intend to at least double to a fully integrated Epicel and NexoBrid burn care sales force as we prepare for the NexoBrid launch.
I will now turn the call over to Gerard to review our first quarter financial 2019 result.
Thanks Dan. We reported total net product revenues of $21.8 million for the first quarter of 2019, an increase of 21% over the first quarter of 2018. MACI revenue grew 38% to $16.6 million, up from $12.1 million in 2018. Epicel revenue decreased 12% to $5.2 million from $6 million in 2018. Gross margins for the first quarter of 2019 improved to 300 basis points to 60% versus 2018. Approximately, 75% of the revenue growth over the first quarter of 2018 dropped to the gross profit line. It is worth noting that excluding a $200,000 non-cash charge in the quarter from the acceleration of lease expensive under the new lease accounting standard and a $100,000 increase in other non-cash charge stock compensation or cost of goods line, the marginal contribution to gross margin would have been approximately 82% of incremental revenue for the quarter. These one-time changes to our fixed expenses will have less of an impact as we move into higher revenue quarters through the remainder of the year and we continue to expect that approximately 80% of incremental revenue for the full year will contribute to gross profit.
Due primarily to our increased share price over the past year, our stock-based compensation expense increased significantly compared to last year. In the first quarter, we incurred $2.6 million in stock-based compensation expense and we expect approximately $14 million in stock-based compensation expense for the full year, up from $7.2 million in 2018. Non-GAAP adjusted EBITDA loss was $400,000 for the first quarter compared to $2.6 million in 2018. That means we were able to convert approximately 60% of marginal revenue over 2018 to adjusted EBITDA which is a bit above the approximately 50% expected contribution. Adjusted EBITDA will continue to be an important metric to measure the underlying growth and profitability from operations, especially considering the deal announced this morning. For details reconciling non-GAAP measures, please see the table in this morning’s press release.
Vericel’s net loss for the quarter was $2.8 million or $0.07 per share based on an average of 43.7 million shares outstanding in the quarter compared to a loss of $7.7 million or $0.21 per share for the first quarter of 2018. To assist with modeling EPS going forward, I would note that our current share count is 43.8 million shares and we have 50 million shares on a fully diluted basis. We reported positive cash flow for the quarter. And as of March 31, 2019, the company had $84.1 million in cash and short-term investments compared to $82.9 million at December 31, 2018.
Turning to our full year revenue guidance, based on the strength that we are seeing in MACI growth, we are raising our guidance to $110 million to $114 million from our previous guidance of $108 million to $112 million, with MACI revenue of at least $90 million. We continue to expect seasonality in revenues similar to 2018 especially for MACI, where there is a stronger seasonality pattern. Last year, the quarterly share of MACI revenue was heavier in the second half of the year, but the first through fourth quarters accounting for 18%, 21%, 24% and 37% respectively, a full year net product revenue. That completes my financial review.
Now, I will turn the call over to Nick.
Thanks, Gerard. Turning to NexoBrid, as we have mentioned, approximately 40,000 patients are hospitalized in the U.S. each year, most of whom require debridement of burn eschar to facilitate healing and reduce the risk of infection. Surgical excision of eschar is currently the standard of care and is performed through repeated use of a large surgical blade to remove necrotic tissue into a bleeding healthy tissue is reached. NexoBrid is a topically administered biological product that informatically removes eschar in patients with deep partial and full thickness burns within 4 hours of application without harming viable tissue. In January, MediWound announced positive top line results from the pivotal Phase 3 DETECT study of NexoBrid in adult patients with deep, partial and full thickness thermal burns up to 30% of total body surface area. The study met its primary endpoint of complete eschar removal as well as all secondary endpoints, including shorter time to eschar removal, a lower incidence of surgical eschar removal and lower blood loss compared to standard of care. A key safety endpoint non-inferiority and time to complete wound closure compared to standard of care was also achieved.
I am pleased to have Dr. Goverman with us this morning to discuss his experience with NexoBrid and how NexoBrid can help burn patients, burn specialists provide improved outcomes for patients.
Thank you, Nick. I was really proud to know that MediWound had partnered with Vericel to bring NexoBrid to the U.S. market. Epicel and the team the support that have had a long and well respected role in the burn community and I am confident that with your team you will be able to support NexoBrid to their same excellent standard. I have been through NexoBrid from years, initially, I heard about the product from my burn colleagues in Israel and other regions around the globe and then reading the increasing number of NexoBrid publications. And now after having my own experience with the product with a PI in the pivotal Phase 3 DETECT trial, I have no doubt that this product works as it reported to work.
The positive events in the Phase 3 DETECT trial announced last January were likely not surprising to any investigator – any investigator involved in the trial, because NexoBrid efficacy is so clear. Hard, leathery, dead tissue is liquefied 4 hours and it can easily be wiped away with a tongue depressor. The intact skin remains completely unharmed and intact. It is important to note that the trial was rigorously controlled to manage. And I expected this trial when it’s published to become a landmark paper in my field. I am confident then approved the real world clinical results will be consistent with both the DETECT trial results in my own clinical experience. We have been into consistently and selectively to debris, burn, eschar in one 4-hour application. It’s a dramatic improvement over our current standard of care.
For the first time, we have the ability to completely remove all the eschar early after injury without the risk of collateral damage or injury to nearby vital tissues, blood vessels or nerves and all in 4 hours. There is no other enzymatic debridement product in the market that it brings as quickly as selectively as NexoBrid and it really puts us in a class of its own. There is no question that it will change the standard of care for burn injured patients in the U.S. In fact, every physician I know that has used it in Europe with already approved, believe it should be the standard of care for excision of burn eschar. European consensus guidelines on [indiscernible] eschar removal, has already been published. NexoBrid would definitely change my treatment algorithms as it is such an obvious and dramatic improvement on the antiquated techniques that we use today. Early eschar removal is a critical component to the initial care of the burn patient and a standard of care in developed countries. Burn eschar is essentially dead necrotic tissue, such as skin fat and muscle and eschar can serve as a source for bacteria and other microorganisms that can cause life threatening infections and as they released a number of circulating inflammatory mediators that have a number of well-known negative systemic effects. The number cause of death after burn injury is infection. And my first and primary goal of treating infection even before antibiotics is that of source control. In a burn patient, complete source control can only be achieved or obtained with removal of all necrotic, nonviable tissue eschar.
NexoBrid allows me to achieve super fast, less invasive source control. And again complete control is always the first and most important step in treating an infection – preventing infections. Furthermore, there are number of non-patient, non-injury related systems based barriers to our current statement of surgical excision, with the use of NexoBrid will largely eliminate. For example, surgical excision requires an operating room and an operating room staff, a surgical team, a scrub tech, an anesthesiologist, transporter, a recovery room in all of the associated staff with that recovery room and obtaining all of these components and even finding available operating room time is non-attributable, inexpensive matter.
While a math of burn is immediately life threatening and therefore every effort is made to provide rapid polar access, for a smaller burn, depending on many non-patient related factors, it can take up to 48 to 72 hours, which to get to the operating room which would prolongs the period of time that eschar is on the patient and that increases the amount of time the patient is at increased risk for infection. NexoBrid will dramatically facilitate my ability to initiate this critical first step in burn treatment, early eschar removal. It removes the need for an operating room in all of its required components. Just as importantly, NexoBrid will enable to the vast majority of patients to avoid the trauma associated with traditional surgical excision. However, the instruments used for surgical excision of burn or antiquated and inadequate, nothing newer in our adjustable guard on a long razor blade with the handle, skin is excised layer by layer conjunctionally until physician feels that the majority of this two dimensional plane of tissue is viable. Very often, we exercise all the dermis and a portion of the subcutaneous tissue of that to achieve this result.
And given our current tools, this is the best that we can do. There is no doubt that we excised some amount of healthy tissue in order to ensure that we have complete eschar removal and less complete source control. And sometimes, when a burn is not completely full thickness, a bit of a lower part the skin at deep dermis and it’s well-known that in the bench when we say the dermis, the skin graph overlying that – we are looking to heave much more like uninjured skin. The more dermis we can preserve, the better the outcome and this is where we got the saying epidermis is life, the dermis is quality of life. Unlike my mouth, NexoBrid beats selectively in three dimensions and thereby spares healthy dermis as well as more wear hair follicles, sweat glands and have Nexo’s structures in general. Dermal preservation improves the body’s innate human abilities likely through the preservation of a number of resident stem cell populations, for example, the [indiscernible] in the hair follicles.
In NexoBrid, debrided wound though is extremely weak and that much of that foundation on the dermis is still intact and alive much more than they initially thought was possible. Remember, the first time I took down the addressing after degree of NexoBrid and I saw the wound bed, I was stunned, I saw far more healthy dermis than I would have expected and far more than if I had excised the wound with a knife. The ability of NexoBrid to preserve more viable dermis should need to improve improvements in long term cosmetics and functional outcomes, in fact had been more and more reports of good long-term outcome presented by our peers in Europe than I have already been using NexoBrid for a few years. So, I’m sure, I’m expecting to put my knife down and we sort of comes to burn eschar removal. The knife is nonspecific and traumatic. It requires an OR and a staff. I will gladly, replaced the knife with NexoBrid and a ton depresser to work where the eschar runs liquefied. Eschar removal, the first major step in the treatment of burns can now be performed with much less risk, much less time, much less facility need, blood loss and the actual excision that is far superior in its preservation of viable tissue.
I would be effective and efficient. In anticipating better outcomes, NexoBrid should lead to operational and economic improvements as well, such as increased patient throughput, decreased surgical costs, reduce costs from transfusions and reduced length of stay. After using NexoBrid on many patients I expected to play an important role in our ability to manage mass casualty events. In fact, in the fall of 2015, more than 150 people suffered severe burns for the fire at a night club in Bucharest Romania, [indiscernible] I sent 2 burn surgeons at a supply a of NexoBrid to add local. NexoBrid was used to treat approximately 50 burn victims in 3 days. Without a product like NexoBrid, our ability to care for a large number of burn injured patients is seriously limited as the burn as eschar exesion, exesion will the first major bottleneck in patient treatment. Barda appropriately recognize this problem and that has been huge instrumental in funding the research for this product. A surgical excision of a 40% total body surface area burn probably takes about 4 hours of my time. And even the 20-hour day, and more than one OR, I can only excise 4 of such patients.
NexoBrid removes all the eschar in 4 hours, but it can also be performed on multiple patients in parallel. So, I can treat 4 or even 10 patients in about 6 hours, assuming I have a staggered start. And all of these, excisions will be done with more precision and with more staying of the viable tissue. This is a dramatic increase in the number of patients who can be treated versus standard of care, which would be one of the, time for me. In conclusion, if I had a burn or my family member had a burn, I would absolutely want NexoBrid as an option. And if excision was needed, I would want NexoBrid to be to be used instead of a knife, even with my knife with my hair and behind it.
Well, thank you, Dr. Government. We truly appreciate you joining us today to share your perspective on the clinical utility of NexoBrid. Throughout our diligence on this deal, we reached out to many burn surgeons both in the U.S. and Europe. Dr. Government comments regarding both the need for a better debridement option and for those with experience with NexoBrid, the utility of the product is consistent with what we heard in those conversations. I’ll now turn the call over to Gerard to review the financial aspects of the deal.
Thank you, Nick. Under the terms of the license agreement, Vericel will make an upfront payment to MediWound of $17.5 million with an additional $7.5 million payment contingent upon U.S. approval and up to $125 million contingent upon reading certain cells milestones. The first sales milestone of $7.5 million would be triggered when NexoBrid annual net sales in North America exceed $75 million. Vericel also to pay MediWound tiered royalties on commercial net sales ranging from single-digits to low double-digit percentages. We anticipate the first NexoBrid sales in the U.S. to come from purchases under existing BARDA contract, which included $16.5 million commitment for cerement of NexoBrid, contingent upon FDA eligibility for use in an emergency or FDA marketing approval.
Since MediWound holds the BARDA contracts, they will supply the product to BARDA. And we will participate via a proper channel formula, which you deal to Vericel approximately $6 million in revenue with no associated cost of goods. BARDA has not yet placed an order, and therefore, we are not including any procurement revenue in our 2019 revenue guidance. Once an order is placed, we would expect it to be filled over the course of 4to 6 quarters. We will update our 2019 revenue guidance as appropriate when we gain clarity on the timing of BARDA procurement orders. Longer term, BARDA has the option to make up to $50 million of additional NexoBrid purchases, which could yield up to $25 billion in profit sharing for Vericel over approximately 10 years. These amounts are not yet funded, and there is no guarantee that they will occur. The current plan is to submit the BLA based on the acute detects study results in the fourth quarter of 2019, which would result in a bit due to date sometime in the fourth quarter of 2020, assuming a standard review.
If the FDA requires the BLA submission to include the 12-month safety follow up data, we will be looking at more of the Q2 2020 BLA submission and the Q2 to 2021 approval, assuming a standard review. The pre-BLA meeting is planned for later this quarter, at which time we’ll have additional clarity on the BLA submission timelines. In order to support MediWound in obtaining the U.S. approval and in preparation for U.S. launch, we will see a modest increase to our expenses. However, the expected revenue from the committed part of purchases of NexoBrid should cover those expenses making it a relatively neutral impact to our profitability, over the next 2 years ahead of launch. And we expect that our current formula of 80% of marginal revenue going to gross profit and 50% to adjusted EBITDA to be maintained. The up front $17.5 million will fall to the P&L as an R&D expense in the second quarter. That concludes our prepared remarks.
Now, I would like the operator to open the call to your questions.
Thank you. [Operator Instructions] And our first question comes from the line of Ryan Zimmerman with BTI. Your line is open.
Good morning. Thanks for taking the questions. Congrats on the agreement this morning. So, I want to begin with Epicel results in the quarter if we could. You just talked about what you saw in burn. And was this the reflection of seasonality or the lack of patient to treat or do you think there is it’s becoming a more competitive environment that saw physicians maybe trial in new products and entrance in the market? And then I have a follow up. Thank you.
Thanks, Ryan, this is Nick. Yes, so as Dan mentioned during his prepared comments, to be at this point in the year, we’ve seen sort of the same underlying drivers for Epicel as we have in the past. So, in terms of biopsies coming in and so on, so to the top of the funnel, looks about the same and obviously, with these critically ill patients, whether those biopsies turn into treatment, it’s always variable. And this quarter’s performance is well within the variability that we’ve seen in previous quarters. And to the competitive nature, Ryan, so yes, there is your where resell has launched into the marketplace, we met with KOL group at the recent burn association meeting. And there is some use of resell, but it’s very investigational on their part at this point. And for the most part, they’ve had their success with the product in on-label resell patients, meaning lower TBSA. We are aware of a few patients that have been treated with Epicel and Vericel together, but that’s been kind of [indiscernible] between. And in our perspective the from what we see and the TBSA market for Vericel, as you know the average is about 60-some percent, we continue to get consistent, both biopsies and patient treatment for that population.
That’s helpful. And then my second question is around NexoBrid applicability, which does sound like it covers a much larger proportion of burn. And given Epicel’s label, which calls for 30% TBSA, or higher, I’m just wondering how you think about driving those synergies potentially in Epicel with the addition of NexoBrid. Thank you.
Sure. So, Ryan, our initial assessment of it is that not every burn center is really established to treat that the severely burned patient. As we look at the Epicel data, approximately 80 centers utilized Epicel over the last few years. However, there’s a number of burn centers obviously, there’s about 127, 130 burn centers that have potential to use Epicel. So what cause, as described by Doctor government, the utilization of NexoBrid is virtually any thermal burn patient in virtually every burn center in the country by having our representatives represent these 2 products as a burn care specialist, they’ll be able to extend their reach into hospitals and identify patients with severe burns, whether it be down to say, 30%, 50% or up to 60% in centers that are currently using Epicel. So, we think the initial gains for Epicel will really be matter out of reach as they’re able to call on these additional burn centers with both products.
Got it. Alright, thanks for taking the questions. Thank you.
Thank you. And our following question comes from the line of Danielle Antalffy with SVB Leerink. Your line is open.
Hi good morning guys. Thanks so much for taking the question. If I could just follow-up here on actually focusing on MACI, I mean clearly, it’s like the guidance raise is almost entirely driven by MACI. Could you confirm that first of all? And second of all, how much is the MACI guidance rate has to do with the incremental sales rep coming on? I believe they came on in April. And can talk about what you’re seeing? I know, it’s very early days, only a month in. But clearly, they’re giving you some confidence in their ability to ramp, maybe a little bit of color there.
Danielle, so the guidance raise is, yes, entirely due to MACI. And we see strong growth going forward, but it based on biopsies coming in the door. In terms of what’s driving. And I think it’s always difficult to disentangle the factors. Clearly, increased physician demand based on the product attributes. But yes, what rep productivity is clearly increasing, which is not what you always see when you’re expanding sales force. I think it’s a little soon to stay the new reps are looking at Dan [indiscernible], a little soon to say that they are contributing meaningfully at this point. But I do think we will continue to see rep productivity increase.
Yes, Danielle. The confidence we have is based on the last 2 expansions of new sales representative for MACI, and seeing how their contributions have added and the strength of the new physicians who’ve come into the fold and are now, not just biopseiing by doing implants, we had a strong performance of new physicians in the first quarter. Although in general, we still say that our growth is coming from about 50% from its historic user as well as 50% from new users. But given the strength in both new physicians implanting as well as the volume of biopsies, which as convert over several months, 6-month period, that gives us some insight to the strength of the second half of this year and the confidence to increase the guide.
That’s very helpful. And then just one backlog on the guidance and one more MACI-related question, is the guide reflecting any well we are Epicel failed, I mean we were clearly not modeling at, but just curious on how you were thinking about Q1 and what’s reflected in the guide for Epicel and then the follow up on the Epicel just ask it, now I know it’s early days, but you guys have initiated this direct-to-patient initiative around getting consent from the patient in an attempt to reach out to them and move the conversion rate higher, what are you seeing continued progress there. Thanks so much.
Danielle I wouldn’t say you mis-modeled Epicel because it’s so difficult to model. As we’ve talked about before, it’s very small and unfortunately, that in itself and in terms of the funnel is variable. And then unfortunately, many of these [indiscernible] patients pass away, which is tragic. And it’s a minor issue that we can’t model, but that does, leading relative to that fact, but that does lead to some difficulty. We’re very confident in our guidance on MACI. So, I can say that we’re firm about the balance who it’s difficult to say how much, how Epicel will perform for the year. I would note that in many years, we’ve had it a down quarter, and then we end up being up for the entire year, but we can’t guarantee that. So, I’ll just have to stick with the $90 million for MACI and say, we’re very confident with that. In terms of the conversion rate and the consents, I’ll turn it to Dan.
Yes. So, as we’ve shared recently, Danielle, we – for the first time, we’re able to demonstrate that we can improve the conversion ratio. So, last year, we saw some slight improvement in that. So, that gave us confidence to continue to invest there. Specifically, we are revamping all of the patient materials to better speak to them, specifically, around rehab. We’ve just interviewed this week a – in our launching, a Patient Ambassador Program, so that patients can speak to other patients, who have successfully rehabbed from MACI and basically have a coach, if you will, it’s not uncommon now that to be able to communicate online with others like that. So, we are launching a program here in the coming quarters and those folks will be sitting down to an interview with our spokesman, Dara Torres, so we’ll have more and more online access to inform patients as to what they’re facing to sign up for MACI and get successful rehab. And we believe that’s a key trigger in converting a patient from a patient perspective. On the payer perspective, that’s an important one for physicians and we continue to make progress there and we’ll highlight some of that maybe on a future call.
Thank you. Thanks.
Thank you. And our following question comes from the line of Kevin DeGeeter with Oppenheimer. Your line is open.
Hi, good morning, guys. Congratulations on all the progress in the interesting transaction today. I think maybe 2 questions for me, BARDA going to be at NexoBrid. First, with regard to the clinical profile, I guess, NexoBrid is described as being appropriate or indicated at least in Europe for deep partial-thickness and full-thickness. And I guess the question is, what sort of the profile of the partial-thickness burn that is really wouldn’t be appropriate here or should we think about all partial-thickness burns as potentially being candidates for NexoBrid? And then I guess, it’s sort of a follow-on clinical profile question. Is there any other data and/or any other data fields that you think would be important to capture in a post approval study in the U.S. that might help drive commercialization that were not incorporated into the DETECT study? And then I have a follow-up question.
Yes, this is Dr. Goverman here, I think I can answer that question. With respect to the partial-thickness burns, within that realm of partial-thickness, partial-thickness is basically second-degree. You have a different growing depth of second-degree depending on how much of the dermis is destroyed or necrotic. In the superficial second-degree, you have very little dermis that’s destroyed, you may just have an exposed dermis, in which case, NexoBrid wouldn’t be indicated.
So, essentially, anything with eschar or any burn with a very thin layer or any type of dead tissue over the top of it would be a candidate, any type of burn that does not have any overlying eschar or overlying necrotic or dead tissue would not be a candidate for NexoBrid. So, burns like – burns that are going to heal in the arm for sure, that don’t need that thin layer of tissue removed. Like if you have a sunburn, then a blister and that opens up, that’s a very superficial second-degree burn, it’s pink and that burn just needs a dressing and a little heal. The problem comes when some of that overlying tissue becomes an eschar, it’s dead and it stays on top of the wound, that could result in progression of the wound depth. So, if you have a second-degree burn and you can’t remove the eschar, it could help to propagate that burn depth to a third-degree burn. It can also be a [indiscernible] infection, which would also propagate the burn depth deeper, so, removal of any type of thin dead tissue over the top. If it’s a second-degree, deep second and you remove that thin tissue and you see dermis under there, then it has a chance of healing. So, any second-degree that’s not very superficial.
And I’ll pick up the second question there in terms of – is – are there any endpoints, let’s say, the WARRANT [ph] study and the DETECT study that maybe we want to do in a future trial. I think it’s important to first note that this trial and we were really impressed during our diligence was really well designed and hats off to both MediWound and the investigators, including Dr. Government in terms of design and the execution of the trial, but it’s included a number of things, a lot of pharmacoeconomic data is being collected, length of stay, blood loss, percentage of patients that need to go on to have the amount of autograft that’s required, I guess, this is autograft-sparing.
So, I think really everything we need to effectively commercialize this product was in that study. And of course, there will be additional trials. I’m sure, Dr. Goverman has a bunch of things. He’d like to look at as well in terms of a – yes, and there’s also 2-year data coming out as well, follow-up data that’s important, so, [indiscernible] as an example. I have no doubt that there are burn surgeons that will want to study alternative ways of using – treating the burn after NexoBrid, because NexoBrid does lead a much more healthy, I’ll use that word in quotes, wound that to work with. But again, the DETECT trial is outstanding. I don’t see a large financial requirement in terms of funding large trials post approval, but I do see small trials with investigators.
Got it. And then just one more sort of, I guess, general economic question. If I do my curve back of the envelope math, $200 million market, 30,000 patients, I would suggest somewhere in the ballpark of $65, $100 [ph], in sort of addressable revenue per patient, if I have that right? In terms of general metrics, should we think about pricing for the U.S. market, commercial market on a per patient basis being variable depending on coverage area kind of we can to Epicel or should we think about the pricing per patient is being a fixed metric?
No, I mean – for modeling purposes, it will be variable based on percentage TBSA burned, I guess, we’ll be pricing this thing on a unit basis. For modeling purposes, what we assume it’s something between – the average pricing have anywhere between 7% to 10% TBSA, now that’s – usually, it’s tons of patients well worth in that amount and then there is a small number of patients much larger than that, and if you kind of do the mean, you come to something between 7% to 10%, and that’s what we do we when we built our model. Your math is correct in terms of kind of what the pricing average comes out to, we do that math, but I’d stress that our pricing analysis is just starting at this point. I would stress that the pharmacoeconomic data that we’ve seen to-date published in Europe is compelling. I think the average patient, who gets multiple treatments with Santyl, which doesn’t – which is not terribly effective, I think it’s fair to say, and that comes probably out about 5 grand per patient and a premium over there would probably make some sense.
Great. Thank you for all that disclosure.
I just wanted to say just – further you have the – you got Santyl and just from a clinical standpoint as a clinician, you don’t need to use Santyl, just you cannot use Santyl for excision of eschar, you could use – you can use Santyl for excision, this is like a nice NexoBrid.
Thank you.
Thank you. And our following question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. Your line is open.
Hi there, guys. I wondered if you could provide a little bit more information on how you foresee the commercial force and the burn mark, you’re kind of playing out over the next couple of years, you talked about adding a couple of folks domestically in the shorter term, what should we expect as far as the size of that force and as far as total commercial for U.S.?
Yes, Jeff, this is Nick. So yes, we did mention that we would expect to add a couple more, so, burn therapy specialists this year and sort of ramp up as we get closer to the NexoBrid launch, at least doubling our current sales force of about 6 of burn therapy specialists. And that will be dictated as you’ve seen with as is the case with MACI depending on the uptake of the product and making sure we’re able to service our customers properly, that will dictate ultimately sort of the size of the sales force. So, I think that gives you a relative context for the near-term.
Okay. Got it. And then one follow-up on some previous question, so you talked about a number of biopsies up on MACI, so, are biopsies up? Can you talk a little bit about pull-through and the volumes in the throughput as the – our conversions are also up as well on a percentage basis, are you seeing kind of more coming in the door in the biopsy side that’s wider and larger yet conversions are approximately the same on a percentage basis or are you seeing an increase on that side as well?
Yes, Jeff, this is Dan. We – as I – we shared last year, conversions were up slightly over the historic Carticel, as well as early in MACI, as we continue to invest there, we hope to see that continue that trend. The confidence that we have and the reason that we are increasing guidance for MACI for this year is based on the two driving factors are increase in biopsies, as well as the mix of physicians meaning the contribution from new physicians as they have converted historic biopsies. So, those two are the main drivers. I would not say that the conversion ratio is a true main driver for increasing our guidance, however, it is something as we show, we’re investing in heavily and we can hope to see continued incremental improvement.
Okay, perfect. And one more if I may, to Dr. Jeremy, could you talk a little bit about current treatment paradigms for NexoBrid as far as cases that you’re doing, are you seeing cases that you think may benefit from Epicel in certain regions and NexoBrid in other regions, and is there any correlation between the two products, and also what might you’d be using after NexoBrid or if you’re finding that the – that results need further addressing or further work after NexoBrid meaning burns somewhere in the middle, let’ say.
Sure. Well, I think it’s important to get a good understanding of the differences between these 2. They’re very much unrelated, Epicel and NexoBrid. In term – with burns, we kind of think of two main areas, there is the excision of the burn wound and then those coverage of that burn wound. And excision of the burn wound can be enzymatically done, it can be surgically done or in some other ways. And so within that excision becomes NexoBrid, the enzymatic debrider.
And then as far as coverage goes, there are lots of coverage options, the standard of care would just be a split-thickness skin graft. And then beyond that, we have things like Epicel or now Recel, but they’re used to a coverage. And so really unrelated to whether you’re going to use one versus the other. I would say that – what was the other part of the question, I think that – really that’s the most important thing is that there really – it’s one versus the other. So, because I’m using NexoBrid, that doesn’t really change my usage of Epicel or influence my –
That’s as far as in the patient, who has excessive burns say 65% TBSA, that’s kind of the average for a Epicel patient, would you use NexoBrid in that kind of patient or would you typically use not?
Currently, there are limitations for – well, currently, I can’t use NexoBrid, because it’s not FDA approved yet. That’s the first and foremost. And I think we’ll – and we’ll use it within the trial and I know that we are moving forward in trying to get some continued access usage until that time in which it is FDA approved. So, we will be able to use it hopefully before that time, but there are still indications for us or limitations on size I think with respect to build used on label, which we do not have on label yet. But I can tell you that anecdotally this – the product has been used for larger burns typically only up to 30% of the time. So, if you have a 60% burn, you’d probably do a 30% application, 30% TBSA at one point and 30% TBSA of another point. I ‘ve seen actually 80% burns mix sized still with very little blood loss in their ICU bed.
I just want to – just talking about the rationale for the build here, the rationale is that we have a highly trained sales force, well respected in burn centers, but the use of Epicel is episodic. One of our cell therapy specialists will not know after getting on a plane to California, Oregon, Texas or whatever, and very episodic – and all they have access, there’s a lot of downtime for them, a lot of bolus time. With NexoBrid, we’re going to have access to all the burn centers with all the burn centers need to be trained. So, we can leverage our existing force build – and these cell therapy specialists know how to change standard of care, because that is required for – it is required for Epicel to train them. So, it’s a perfect fit for our skill sets and our existing infrastructure and it will benefit Epicel and that will have more coverage bit more regularly in those all burn centers.
Yes, I got it. It sounds like you were saying that it would be purely somewhat unrelated, but it’s possible down the road with the product here in the U.S. that there may be some opportunity for both products should be used in similar cases?
Yes, our case, yes.
Thank you.
And with respect to the – the reps that you have, these are reps for a product that’s used in special circumstances and it’s not like they’re coming into sell us their product, they’re coming into help us save a life. And the reps, I mean, your reps care, I mean, I’ve come very close with the reps that you have, so, we like them, we’re happy they’re going to be – given us another good quality product and we like in the good people, so that’s nice.
Great. Thanks for taking the questions.
Thank you. And our next question comes from Chad Messer with Needham and Company. Your line is open.
Great. Thanks. Good morning and thanks for taking my question. So, just on NexoBrid, which is a product I’ve actually known, done some work on, and I do think it’s a very exciting and innovative product. But it was launched in Europe in 2012, and I think the sales figures last year were something just north of $3 million, and even given the modest price you pay for it, I have to assume you guys assume you’re going to do substantially better across your first several years after launch, other than price, which I – would grant is likely, you’re going to do a lot better than, what other factors about the difference in market dynamic and/or just your own capabilities would you point to give us optimism that you can far exceed the product success here in the U.S. versus what it achieved in Europe in its initial years?
It’s – that was a key question, obviously, we’re doing our diligence, had to answer to ourselves and to the Board. The – Europe is a very, very different animal. I don’t need to go through the long list of products that have been successful in the U.S. and not so successful in Europe, but we all know that’s a common dynamic. The specifics in this case are varied. One has to do with the fact that there are only about right now 10 people at most that they’ve had detailing this product across all of Europe. And in Europe, it’s a very different situation than U.S. and Europe only about a third of burn patients are actually treated in specialized burn centers, so it’s a very diffuse market with most patients being treated in regular hospitals, whereas in the U.S. 100 and some odd, let’s call it, 120 some odd centers account for the vast majority of burn patients. Now, when you’re changing standard of care, it’s important that you can get in front of all the treating surgeons and train them and it’s easier when there’s kind of a homogeneous audience, you don’t have a homogeneous audience in Europe and you have a lot more call-points to have to cover. Another issue is that the label for the product itself in Europe says it needs to be used in specialized burn centers that of course dramatically limits the market immediately. The third thing is in Europe as is often the case, access is very difficult. For example, in France, they don’t even have pricing approval and in other markets, it’s all heterogenous, there’s not one in Europe as you well know. But you can generally say across the European markets, access has been difficult as they in certain markets decide how much money will they spend on a certain product, in this case, Italy recently put out – budgeted a reasonable amount of money just last year for this product and so we expect volumes to increase there. But again, it’s a light touch in terms of getting in front of what’s a very diffuse audience, a heterogeneous audience in terms of changing standard of care, difficulty with access, all roll into making it a very different commercial situation than we have here in the U.S.
Okay. And then maybe just a quick follow-up on sort of the math of these synergies with Epicel, you say you’ve got 80 centers using it, now 127, I believe has the potential. Just wondering what’s going on in those 40 dumping centers that aren’t using it, are these ones are not detailing at all or ones that you’ve kind of tried and not have luck, what’s the dynamic there at the current time?
No, so for the centers that haven’t used Epicel in the last 3 years that I said were about 40 centers or so, it’s not that they haven’t used Epicel ever, it’s just that they either – if they get a large severe burn, they don’t treat them, so some of them just send them to Centers of Excellence like Dr. Goverman, and that’s not uncommon especially in the larger metro areas. The second piece of that is that they just don’t have frequency, so if they’re not seeing large severe burns and any common persistence then they’re not going to use it, but they do come and go, I’ll say that. So, from time-to-time, we’ll get a call to even treat patients in those centers. But by being there, by being present on the front-end of that mission when patients are coming in to be debrided, our reps will be there to hopefully identify potential Epicel patients early in their treatment paradigm, which is actually consistent with the best outcome that Epicel provides.
Okay. So, your hope for the centers by being present would be to get doctors, who currently would refer a way to patients to keep them?
No, if they refer the patients, they would refer it, but there’s certainly some patients that we would need to be aware of that they are potentially trying to treat with successive autograft treatments and things like that, that you might be a 50% TBSA then we think we can better treat with Epicel and we’re not even aware of that patient wherein being there with at the front-end of admission with NexoBrid, we would be certainly aware of that, that patient was being admitted.
Alright, understood. Thank you.
Thank you. And I’m showing no further questions at this time. I would now like to turn the call back to Nick Colangelo, CEO, for closing remarks.
Okay, well, thank you all for your questions and continued interest in Vericel. As we’ve talked about today, we’ve had a solid first quarter and based on the underlying trends for MACI, we’re excited about the trajectory of the business for the remainder of the year as reflected in our updated full-year 2019 revenue guidance. Likewise, we’re very pleased to have the opportunity to bring an important new product like NexoBrid to the U.S. market and to build the second significant commercial franchise, which can further enhance the company’s growth file – profile. So, we look forward to reporting on our progress on our next call, and have a great day.
Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program, and you may all disconnect. Everyone, have a good day.