Vericel Corp

NASDAQ:VCEL

Earnings Call Analysis

Vericel's Strong Q2 Performance and Optimistic Outlook for 2024

In Q2 2024, Vericel achieved record revenue of $52.7 million, with MACI generating $44.1 million, up 21% year-over-year. The company’s gross margin also reached a record 70%. Due to strong first-half performance, Vericel reaffirmed its full-year revenue growth forecast of 20-23% and raised its profitability guidance, projecting a 71% gross margin and an adjusted EBITDA margin of 21%. The company remains optimistic about MACI's continued growth and the positive impact of upcoming product launches, including MACI Arthro. Vericel also expects increased adoption of NexoBrid with its anticipated pediatric approval.

Strong Financial Performance in Q2 2024

Vericel Corporation reported a record revenue of approximately $52.7 million in the second quarter of 2024, reflecting a significant 20% increase year-over-year. The company's two primary franchises, MACI (Matrix Autologous Cartilage Implant) and Burn Care, demonstrated robust growth, with MACI revenue soaring 21% to over $44 million and Burn Care revenue reaching $8.5 million. This performance underscores the effectiveness of their current product strategy and market positioning, enhancing investor confidence.

Significant Margin Expansion

Vericel achieved a gross margin of 70% in the second quarter, an impressive expansion of 430 basis points compared to the same period last year. Additionally, the company reported a 42% increase in adjusted EBITDA, growing to $6.3 million, representing 12% of net revenue. This improvement in profitability significantly outpaced revenue growth, indicating effective cost management and operational efficiency.

Guidance for Future Growth

Drawing from the robust performance in the first half of the year, Vericel reaffirmed its revenue guidance for the full year at $238 to $242 million, suggesting a growth of 20% to 23%. Additionally, the company has raised its profitability forecasts, now expecting a gross margin of 71% and an adjusted EBITDA margin of 21%, up from previous expectations of 70% and 20%, respectively. This upward revision reflects the company’s strong operational trajectory and commitment to sustaining profitability.

Momentum in MACI and Burn Care Franchises

The MACI franchise continues to be a pivotal growth driver, supported by an expanding customer base and increasing biopsy volumes. During Q2, Vericel recorded the second-highest number of MACI biopsies since the product's launch, indicating strong surgeon engagement. For the upcoming quarters, MACI revenue is anticipated to maintain momentum, with guidance suggesting approximately $44.5 million in Q3, aligning with previous quarter performances. In contrast, Burn Care is set to grow, with expectations for revenue to increase to about $10.5 million in Q3, further reflecting the company's balanced growth strategy.

Innovative Product Launches on the Horizon

Vericel is enthusiastic about the anticipated launch of MACI Arthro, aimed at widening their addressable market through arthroscopic procedures. This new addition targets smaller cartilage defects and is projected to potentially impact up to one third of a $3 billion addressable market. Additionally, FDA approval for pediatric use of NexoBrid is expected soon, which could significantly expand the customer base and increase adoption in pediatric burn centers, enhancing Vericel's strategic positioning.

Strategic Focus on Surgeon Engagement and Education

Vericel is actively expanding its surgeon education programs, with increased participation in peer-to-peer training sessions. This initiative not only boosts familiarity with MACI but also directly aligns with the company's strategy to increase biopsy conversion rates. The experience-level of surgeons correlates positively with their conversion rates, a trend Vericel is capitalizing on as it scales its marketing efforts to reach more surgeons in niche surgical segments.

Financial Resilience and Future Investment

At the end of Q2 2024, Vericel reported $154 million in cash and investments, emphasizing a strong liquidity position with no debt. This solid financial footing fosters confidence in their capacity for ongoing product development and strategic acquisitions. As Vericel continues to explore business development opportunities, the company remains focused on maintaining a high growth profile while ensuring any new investments are synergistic with their existing franchises.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to Vericel's Second Quarter 2024 Conference Call. [Operator Instructions] I would also like to remind you that this call is being recorded for replay.

I will now turn the conference call over to Eric Burns, Vericel's Vice President of Finance and Investor Relations.

[Eric Burns, executive]

Thank you, operator, and good morning, everyone. Joining me on today's call are Vericel's President and Chief Executive Officer, Nick Colangelo; and our Chief Financial Officer, Joe Mara.

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 from expectations and are described more fully in our filings with the SEC. 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 second quarter financial results press release and a short presentation with highlights from today's call are available in the Investor Relations section of our website.

I will now turn the call over to Nick.

[Dominick C. Colangelo, executive]

Thank you, Eric, and good morning, everyone. I'll begin today's call by discussing the company's financial and business highlights for the second quarter as well as our expectations for the remainder of the year. Joe will then provide a more detailed review of the company's second quarter financial results and guidance for 2024 before opening the call to Q&A.

The company had another strong quarter as we generated record second quarter revenue of nearly $53 million, highlighted by continued high growth for MACI and solid progression in demand for NexoBrid. We also delivered another quarter of significant margin expansion and profit growth with record second quarter gross margin of 70% and adjusted EBITDA growth of 42% compared to last year, as the company's profit growth continues to outpace our high revenue growth.

Through the first half of the year, the company generated 20% growth in total revenue, MACI revenue and Burn Care revenue, expanded gross margin by over 400 basis points and more than doubled adjusted EBITDA compared to the first half of last year. Based on the strength of our first half performance, we're reaffirming our revenue guidance of 20-plus percent growth for the full year and raising our profitability guidance for gross margin to 71% and adjusted EBITDA margin to 21% for the full year.

MACI had another excellent quarter with record second quarter revenue of more than $44 million, which increased 21% and exceeded our guidance for the quarter. MACI's second quarter performance was once again driven by strong underlying business fundamentals as we continue to expand the MACI surgeon customer base and drive growth in biopsies. We had the second highest number of MACI biopsies and surgeons taking biopsies in any quarter since launch, as well as the highest number of biopsies of any month since launch during the quarter.

The strength of these key MACI growth drivers, together with another quarter of significant increases in peer-to-peer programs and attendees at those programs demonstrates that surgeon interest in MACI remains high as we continue to build a strong foundation for sustained MACI growth over the long term. As our expanded surgeon base gains further experience with MACI, we also expect biopsies per surgeon and biopsy conversion rates to become more significant growth drivers. Notably, we saw a significant increase in biopsies per surgeon during the second quarter, which helped drive an acceleration in biopsy growth in the quarter.

We also saw an uptick in the conversion rate versus the prior year as there's a direct correlation between surgeon experience with MACI and higher conversion rates. Typically, once surgeons perform more than a few implants on average per year, their conversion rate tends to increase into the mid-40% range and even higher, at higher average implant volumes per year, which is significantly above our overall conversion rate and demonstrates the clear potential for conversion rate to become an important growth driver over time as MACI utilization increases across our surgeon customer base.

Turning to our MACI [ lifecycle ] management initiatives. We're excited about the potential launch of MACI Arthro later this quarter. Our custom MACI Arthro instruments have already been registered with the FDA and plans are in place for the commercial launch of this innovation -- innovative addition to our portfolio upon FDA approval to expand MACI's label to include arthroscopic delivery. As part of the planned launch, we're expanding our target surgeon base from 5,000 to 7,000 surgeons to include surgeons that perform high volumes of cartilage repair surgeries predominantly through arthroscopic procedures.

Given that the MACI Arthro instruments target smaller cartilage defects that comprise the largest segment of our addressable market, representing approximately 20,000 patients for a year or 1/3 of the $3 billion addressable market for MACI, we believe that MACI Arthro will have a meaningful impact on utilization and provides a significant potential upside growth opportunity for the brand and the company in the years ahead.

We also remain on track to initiate the MACI Ankle clinical study in 2025. Cartilage defects in the ankle represent the second largest market opportunity for MACI, we believe that a potential MACI Ankle indication with an estimated $1 billion addressable market could be another significant growth driver for MACI in the next decade and beyond.

Turning to our Burn Care franchise, NexoBrid launch momentum continued to build during the second quarter, as revenue nearly doubled and we made further progress with respect to our burn center key performance indicators. Through the end of the second quarter, approximately 70 burn centers had completed P&T committee submissions, more than 40 centers had gained P&T committee approval and nearly 40 centers had placed an initial product order.

There also was a meaningful increase in hospital orders and patients treated in the quarter as more burn centers incorporate NexoBrid into their regular clinical practices. We also expect FDA approval of a pediatric indication for the NexoBrid in the coming weeks, which would provide an important treatment option for pediatric patients with severe thermal burns. There are approximately 20 pediatric burn centers in the U.S. that will be added to our target customer base following the approval, which we believe will have a meaningful impact on overall NexoBrid uptake over time.

Turning to Epicel. While we had a similar number of biopsies in the second quarter as in the first quarter of this year and the second quarter of last year, which resulted in revenue in the $10 million range for both of those quarters, Epicel revenue in the second quarter of this year was closer to its quarterly run rate entering the year of approximately $8 million. After a strong start to the quarter in April, the number of patients treated with Epicel was lower in May and June due to a number of factors, including patient health issues and the timing of patient treatments.

While there can be variability in Epicel quarterly results given the relatively small patient population and the critical nature of their injuries, demand for Epicel remains strong. Over the first half of the year, the quarterly run rate for Epicel has increased as expected to more than $9 million per quarter, with double-digit growth for the first half of the year versus last year. We're also off to a very good start in the third quarter based on the strength in Epicel biopsies, patients treated and graft volumes to date in the quarter.

Overall, the company delivered another strong quarter in first half of the year with sustained high revenue and profitability growth, excellent MACI results, solid progression in NexoBrid demand and meaningful growth for Epicel in the first half of the year. Based on the strength of our core portfolio and expected contributions from new product launches, we believe that the company is very well positioned for continued high revenue and profit growth in 2024 and beyond.

I'll now turn the call over to Joe.

[Joseph Mara, executive]

Thanks, Nick, and good morning, everyone. Starting with our second quarter results. Total net revenue for the quarter was $52.7 million, with MACI revenue of $44.1 million and total Burn Care revenue of $8.5 million, which was made up of Epicel revenue of $7.8 million and NexoBrid revenue of $0.8 million. In the second quarter, MACI revenue grew 21% versus the prior year and 10% versus the prior quarter, while NexoBrid increased 76% versus the prior quarter. In addition, through the first half of the year, both of our franchises delivered 20% revenue growth versus the prior year.

Gross profit for the quarter was $36.6 million or 70% of net revenue, an increase of 430 basis points versus the prior year, which is the company's highest second quarter gross margin to date.

Total operating expenses for the quarter were $42.6 million compared to $35.9 million for the same period in 2023. The increase in operating expenses was primarily due to development and pre-launch activities for MACI Arthro, increased headcount and related employee expense and lease expense associated with the company's new facility that is under construction. Net loss for the quarter was $4.7 million or $0.10 per share compared to $5 million or $0.11 per share for the second quarter of 2023.

In addition, the company has now generated positive GAAP net income on a rolling 12-month basis, as we continue to enhance our strong profitability profile. Non-GAAP adjusted EBITDA for the quarter increased 42% to $6.3 million or 12% of net revenue compared to $4.4 million or 10% of net revenue in 2023, as adjusted EBITDA growth continued to significantly outpace our high revenue growth. For the first half of the year, adjusted EBITDA more than doubled to $13.5 million, and adjusted EBITDA margin increased approximately 600 basis points, demonstrating continued strong leverage across our P&L.

Finally, the company generated $18.5 million of operating cash flow in the quarter and ended the second quarter with $154 million in cash, restricted cash and investments and no debt.

Turning to our financial guidance. For the full year, after a very strong first half of the year, we are reaffirming our total company revenue guidance of $238 million to $242 million or 20% to 23% total revenue growth. Within our guidance framework based on the strong first half results for MACI and the continued strength in its key leading indicators, we have increased our expectations for MACI for the full year. We now expect MACI revenue growth of approximately 20% for the full year, an increase versus our prior expectation of high-teens growth to start the year with the balance of revenue coming from our Burn Care franchise.

In addition, based on the company's strong overall financial performance, we are increasing gross margin guidance to 71% and adjusted EBITDA margin guidance to 21% for the full year, compared to the previous guidance of 70% and 20%, respectively. Importantly, we also expect to be GAAP profitable in 2024 on a full year basis.

For the third quarter, we expect sequential growth in both MACI and Burn Care revenue with total company revenue of approximately $55 million, representing growth of more than 20% versus the prior year. For MACI, we expect another strong quarter with year-over-year growth in a similar range as the first 2 quarters of the year and revenue of approximately $44.5 million. For Burn Care, we also expect a strong third quarter with total Burn Care revenue of approximately $10.5 million. Finally, we expect gross and adjusted EBITDA margins in the third quarter to be similar to second quarter margins.

This concludes our prepared remarks. We will now open up the call to your questions.

[Operator]

[Operator Instructions] Our first question comes from Ryan Zimmerman from BTIG.

[Ryan Zimmerman, analyst]

I want to start first on MACI and then I have a Burn Care question, but a 2-part question on MACI. So, I appreciate the guidance, Joe, both for the year and quarterly. I just want to make sure people are clear about the pacing expectations and kind of the step-up implied in fourth quarter, coupled with the Arthro launch that may be happening over the back half of the year.

And then the second part of the question, a little different, but it's around your comments, Nick, on conversion, which is you're seeing more tenure in the user base of conversion, which, as you've noted, is going to increase conversion ratios. But at the same time, as you move to smaller cartilage defects, which in absolute value will increase, I would imagine that has some downward pressure on the conversion ratio just given that there may be less acute injuries and so maybe there's less likelihood to convert from biopsy to procedure there. And so how would you have us think about conversion against those 2 factors over time just given the nature of the injuries treated in the Arthro launch? And then I have 1 follow-up on Burn Care.

[Joseph Mara, executive]

Yes. So Ryan, I'll start on maybe the MACI cadence and then we'll address kind of your conversion question second. So from a MACI perspective, I'd say 2 strong quarters to start the year, as Nick said, extremely strong leading indicators. So we do have higher expectations on a full year basis. We've started in kind of the, call it, the mid- to high teens now around that 20% range. So certainly, increasing expectations on MACI as it continues to perform well.

In terms of the cadence for the rest of the year, so we did call out, to your point, a Q3 estimate of around $44.5 million on MACI. And that's pretty similar growth that we've seen over the first couple of quarters is probably about an average of the 2. And then as you think about kind of the seasonality and the step up for Q4, I would generally say, it follows our typical seasonal pattern. So whether we look at kind of the H1 to H2 growth, you kind of look at the step up to Q4, which is in that 50% range. You look at the, call it, H1, H2 mix which is around our 43% to 57% if you look at that guidance.

So I'd say it's very similar to what we've seen in the past. In terms of expectations and sort of assumptions around kind of MACI Arthro, I think we've consistently said, our expectation is that's more of a 2025 driver. It's really kind of the core performance of MACI that's continued to perform. And again, the seasonality and mix is very much in line within the guidance of what we've seen last year and what we typically see.

[Dominick C. Colangelo, executive]

And so Ryan, to your conversion rate, yes, as we've talked about for years now, as surgeons gain more experience in our higher-volume surgeons clearly have higher conversion rates. A lot of the dynamics that we point to are that we're adding a lot of new surgeons and we continue to do so, and that's what sort of balances out sort of those higher conversion rates because obviously, as they're getting up to speed, they have lower conversion rates. So it's remained relatively stable.

In terms of the size of the defect, I'll just tell you that a 2 to 4 square centimeter defect on the surface of your knee, that's a pretty big injury. And when we look at, for instance, we're targeting MACI Arthro for those 2 to 4 square centimeter femoral condyle defects. And we can see sort of how those defects are treated in the patella, which obviously MACI is a go-to product there. And it's a pretty significant piece of our business now. To the best of my knowledge, it's at least the average conversion rate, if not higher for patella cases. So I don't anticipate any impact on conversion rate from that size and location of the defect. They're getting treated somehow and we just think MACI will be able to have a greater penetration into those defects on the femoral condyle with the MACI Arthro instrument kit.

[Ryan Zimmerman, analyst]

Okay. Very helpful. Nick and Joe. And then just on Burn Care. The nature of the business is volatile. I've covered you guys loan enough to know that. I just want to make sure that there's no structural change in the burn market from what you saw? It sounds like you guided early May and then you saw some volatility in the patient population around Epicel in later May and June. But again, I just want to be clear that you're not seeing any structural change there with the episodic...

[Dominick C. Colangelo, executive]

Yes. Ryan, I appreciate the question, and it's a fair one, but our -- my point of -- we had similar biopsies, right? That's the top of the funnel. I mean if you saw some sort of structural change in the burn market, you would expect that, that's the place you see it. We also mentioned that we had a very strong start in April. And then we just had sort of the variability that you can see in certain months based on patient health issues and again, the critical nature of their injuries.

And right back to a strong start in July, highest biopsies of the year in the month of July. So we feel pretty good about Epicel and the continued growth first half of the year, up 12%. So I think we're again, feeling pretty good about that. We also have implemented kind of our sales force optimization plan, where we've added a few additional territories for the Burn Care sales force. So we're up to 17%. As of the third quarter, all reps will now be promoting both Epicel and NexoBrid. And we've seen a pretty strong pull-through for Epicel from the formerly dormant accounts that were being called on for NexoBrid. So we think we're set up nicely for strong Burn Care growth. And based on the guidance we've given, it's in the 30% range for the year. So pretty robust growth.

[Operator]

Our next question comes from Mike Kratky from Leerink Partners.

[Michael Kratky, analyst]

So it looks like MACI sales came in a bit higher than the Street during the quarter and you also started seeing the highest number of biopsies in any month since launch. So can you just confirm what month of the quarter that record number of biopsies came in? And to what extent is that tied to some of your ongoing pre-arthroscopic launch activities that you mentioned?

[Dominick C. Colangelo, executive]

Well, yes, I mean, just -- it was in May for what that's worth. I think the more important part is we're continuing to see very strong engagement with surgeons in terms of the number of surgeons taking biopsies, continuing to be at sort of very high levels obviously, that translates to more biopsies, particularly when you see an uptick in biopsies per surgeon, which is great. That's really independent of the arthroscopic prep. Obviously, the arthroscopic delivery is not approved yet. So it's really independent. It's just kind of the strength of the core MACI business that we've really been seeing for quite some time now.

[Michael Kratky, analyst]

Understood. And maybe just as a follow-up, can you give us a sense of, a, regarding the 2,000 new target surgeons that you cited, basically just how quickly you can start targeting those surgeons, reaching out to them? And at what point you'd really expect the sales force efficiency to start ticking up?

[Dominick C. Colangelo, executive]

Well, there's really -- I mean, obviously, we have the target list set and ready to go. So immediately upon FDA approval, sales reps can start calling on those surgeons. So there's really no limitation on that. So excited to have that. I'd say we probably feel like we'll see more immediate uptake potentially from MACI surgeons, who are obviously familiar with the product. They also do a lot of arthroscopic procedures as we always remind folks anytime they're doing chondroplasty, microfractures, both and the vast majority of cartilage repair procedures are done arthroscopically. So they're used to treating cartilage injuries that way.

So I think it's a pretty easy transition for patients with appropriate defects for experienced surgeons to kind of flip to me see arthroscopic delivery. Similarly, though, as you know, were -- those 2,000 surgeons will be adding who really do their card there's high volumes of cartilage repair predominantly through arthroscopic procedures. They too are used to treating cartilage injuries with arthroscopic instruments and doing things like microfracture augmentation, where they're also doing implants as part of that. So we think it's a pretty seamless transition that will continue -- it will occur over time and give us a pretty long runway, we think, for MACI growth as we move forward in the years ahead.

[Operator]

Our next question comes from Josh Jennings from TD Cowen.

[Joshua Jennings, analyst]

It's nice to see the MACI momentum here. Wanted to just follow up on the last question, just around, but in a different angle. Just thinking about the success you've had in terms of getting more surgeons in peer-to-peer events getting trained. I just wanted to hear from you, just what's driving that? I mean clearly, it's -- you're experiencing momentum, but you do have 10-year data out there earlier in the year. You have Arthro on [ TAP ]. And I guess for the gist of the question, just trying to figure out that leading indicator. Any just high-level comments on the first half, the drivers of that and whether this MACI Arthro approval is driving some of that increased interest this year?

[Dominick C. Colangelo, executive]

No, I'd say back to the prior response that we've just seen a lot of momentum in the core MACI business sort of as we exited sort of those -- those COVID impacted years. And since that time, I mean, we've seen MACI just in total, rebound to its prior high-growth profile as it becomes more and more the standard of care for cartilage repair based on, as you mentioned, not only sort of the 2-year data in the pivotal study, the 5-year data in the extension study, 10-year data that was published earlier this year, I just think you kind of see this broadening of the customer base that has just continued for a number of years now.

And then as we launched MACI Arthro, those new targets, again, they're doing high volumes of cartilage repair already. MACI will be a new option for them. But I'm pretty sure they're aware of sort of MACI and its profile from the clinical and efficacy perspective.

[Joshua Jennings, analyst]

Understood. And I also wanted to just get an update on business development initiatives. I think your team is out there on the hunt, the profitability profile inflecting. How would you have investors think about those efforts and M&A opportunities out there to bring even more portfolios into the -- under the Vericel roof?

[Dominick C. Colangelo, executive]

Yes. Our corporate development strategy has been quite consistent over the number of years. And obviously, we have a lot ahead of us with new product launches and continued high growth with our core business. But as you said, we have a dedicated effort on the business development front, always looking at opportunities in the sports medicine space that would be synergistic with MACI for our customer base in the Burn Care space and then probably relatively less so, but also given our expertise in advanced cell therapy development, manufacture and commercialization, a lot of folks come to us with different opportunities as well.

I'd say for us, the hurdles are relatively high. You all know have seen sort of BD deals sort of go awry even in our space. And so we're very focused on maintaining the innovation profile of our portfolio. I think we're in a relatively unique position where our products are the only approved products of their kind in our space. And so that's where it all starts. And then we also have a unique financial profile. And so we're very focused on making sure we maintain our high revenue growth rate, our profitability and so on.

So I always say that if something transaction should be pretty comfortable we probably looked at it, but we have a pretty high bar and we'll add products in portfolios as a big sense for us. But you're right, we certainly on the financial sort of firepower to be able to do that and it's all about just making sure it's a right fit for us.

[Operator]

Our next question comes from Jeffrey Cohen from Ladenburg Thalmann & Co.

[Jeffrey Cohen, analyst]

Couple questions from our end. So firstly, could you talk about NexoBrid and pediatric indication and how that may go on as far as we are trying to [indiscernible] in addition to the current [indiscernible] 17 commercial folks as well focus on that?

[Dominick C. Colangelo, executive]

Yes. I think I had a little bit of a hard time hearing you, Jeff, but I think I have the gist of the question. So yes, upon approval, obviously, we have the 17 territories that I mentioned as we've implemented kind of our sales force optimization for the Burn Care franchise. So on average, it's about 1 center per territory. And so it's certainly -- they're already in the target base for these reps. But until the approval comes, they're obviously not sort of in there promoting the use of NexoBrid.

We certainly have seen few centers using it, these pediatric burn centers. They're free to do that. We just can't promote it. But on day 1, we've got a playbook for the reps to go out and sort of promote NexoBrid. And it will be -- we'll have to go through the same process, right? P&T committee approval and establishing ordering protocols and patient protocols, et cetera. But we do think there'll be a pretty meaningful impact over time, roughly 25% to 30% of hospitalized burn patients are pediatric patients. And so as I mentioned on the call, we think this will certainly aid in NexoBrid uptake over time.

[Jeffrey Cohen, analyst]

Perfect. And then last is to be getting to follow up the brand franchise for Q3 on your guide of 10.5. Could you give us a proposition or some flavor to net [indiscernible]?

[Joseph Mara, executive]

Jeff, we're having a hard time. This is Joe. And are you asking about kind of Q3 revenue composition within the guidance?

[Jeffrey Cohen, analyst]

We did. Yes, thank you.

[Joseph Mara, executive]

Yes. So I'd say, if you kind of look at Burn Care and you kind of think about the framework there, Nick talked about this a bit, but in the first half of the year, Epicel obviously can vary a bit by quarter and we saw that. But pretty encouraging that it was kind of over the $9 million mark, grew in the double digits from a run rate perspective, also from a year-over-year perspective on total revenue for Epicel. So as we think about the back half, and I think Q3 is certainly part of that equation, we expect Epicel to kind of be at that higher run rate, call it in that $9 million to $10 million range. I don't know exactly what it's going to look like across quarters, but I think that's a reasonable assumption.

And then in terms of NexoBrid, I'd say, as we talked about in the prepared remarks, some strong progression from Q1 to Q2. As we think about the second half of the year and think about the third quarter, that should certainly continue that progression kind of throughout the year. So it's difficult to say exactly what the mix will be, but we certainly expect Epicel to kind of remain at these higher run rates and have a strong second half of the year. We're seeing strong indicators there and NexoBrid is moving in the right direction as well. So I'd say both of those are part of it and that's how we're thinking about Q3 and the back half.

[Operator]

Our next question comes from Swayampakula Ramakanth from HCW.

[Swayampakula Ramakanth, analyst]

A quick question on the burn franchise, if I heard everything correctly, when you're talking, Nick, about [ conversion rates ] you were saying something about Epicel biopsy and conversion there. Did some of that spill over into the third quarter because you are also talking about some timing. And I'm just trying to have an idea if any of the revenue that you had expected in the second quarter spilt over into the third?

[Dominick C. Colangelo, executive]

So yes, as I mentioned, just kind of the top of the funnel, again, was pretty consistent with prior quarters. And yes, I did mention that there's always going to be patient health variables that impact timing of treatments. And we certainly did see particularly late in the quarter, cases that were pushed into or rescheduled into Q3. Again, that happens because these patients have a lot of other injuries or infections that prevent surgeries from taking place. So the short answer is yes, but that is relatively common.

[Swayampakula Ramakanth, analyst]

Okay. And then a quick question on the pediatric indication of NexoBrid. You said that you have 70 centers, burn centers already under P&T and approval. If you get the periodic indication on board is how many of these centers also do pediatric and also would you add centers outside of the 70, which are just only for pediatric? I'm not very [Technical Difficulty]...

[Dominick C. Colangelo, executive]

So yes, so let me just kind of give a quick overview. So as in the launch, there's about 140 burn centers in the U.S. that are accredited by the ABA. We target -- we break them up into 3 tiers and we really focused on the 90 Tier 1 and Tier 2 centers with our initial launch. And that's kind of what we've been reporting on in terms of the 70 submissions, the 40 approvals, et cetera. There's about 20 pediatric burn centers that will now -- we will actively promote to.

So certainly, in some of our existing centers, pediatric patients can be treated. They don't all get treated at the pediatric centers. But again, we can't be in there promoting. So you'll have some that pediatric centers that used the product, a few, but many of them were sort of waiting for the pediatric indication. And so we think, as I mentioned on the call, that we have a meaningful impact on NexoBrid uptake as we get out there and get these centers through the process and they start treating this pediatric burn population.

[Swayampakula Ramakanth, analyst]

Looking forward to the exiting second half with this new introductions.

[Operator]

Thank you. I'm showing no further questions at this time. I would now like to turn it back to Nick Colangelo for closing remarks.

[Dominick C. Colangelo, executive]

Okay. Well, thank you, everyone, for your questions and continued interest in Vericel. As we mentioned, the company had a very strong first half of the year. We expect to continue to deliver sustained high revenue and profit growth for the remainder of the year and beyond and we look forward to providing further updates on our progress on our next call. So thanks again, and have a great day.

[Operator]

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.