# Vericel Corp: Form 10-Q for the period ended Jun 30, 2021

- Company: [Vericel Corp](/companies/vcel.md) (CIK 887359)
- Form: 10-Q
- Filed: 2021-08-04
- Accepted by EDGAR: Aug 4, 2021, 16:08 ET
- Period: 2021-06-30
- Accession: 0001628280-21-015540
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/887359/000162828021015540/vcel-20210630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/887359/000162828021015540/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2021-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2021-04-01 to 2021-06-30 | $38.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2021-01-01 to 2021-06-30 | $72.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2021-04-01 to 2021-06-30 | $12.6m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2021-01-01 to 2021-06-30 | $24.2m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2021-04-01 to 2021-06-30 | $26.9m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2021-01-01 to 2021-06-30 | $49.9m | us-gaap:GrossProfit |
| Research and development | 3 months, 2021-04-01 to 2021-06-30 | $4.4m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2021-01-01 to 2021-06-30 | $8.1m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2021-04-01 to 2021-06-30 | $26.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2021-01-01 to 2021-06-30 | $48.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2021-04-01 to 2021-06-30 | −$3.7m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2021-01-01 to 2021-06-30 | −$7.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2021-04-01 to 2021-06-30 | $1.0k | us-gaap:InterestExpense |
| Interest expense | 6 months, 2021-01-01 to 2021-06-30 | $2.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2021-04-01 to 2021-06-30 | $72.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2021-01-01 to 2021-06-30 | $215.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2021-04-01 to 2021-06-30 | −$3.8m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2021-01-01 to 2021-06-30 | −$7.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2021-04-01 to 2021-06-30 | −$0.08 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2021-01-01 to 2021-06-30 | −$0.15 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2021-04-01 to 2021-06-30 | −$0.08 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2021-01-01 to 2021-06-30 | −$0.15 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2021-04-01 to 2021-06-30 | 46,403,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2021-01-01 to 2021-06-30 | 46,195,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2021-01-01 to 2021-06-30 | $14.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2021-01-01 to 2021-06-30 | $4.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2021-06-30 | $51.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2021-06-30 | $138.5m | us-gaap:AssetsCurrent |
| Total assets | at 2021-06-30 | $221.9m | us-gaap:Assets |
| Current liabilities | at 2021-06-30 | $23.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2021-06-30 | $70.9m | us-gaap:Liabilities |
| Shareholders' equity | at 2021-06-30 | $151.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 35,114 characters.

### Overview

Vericel Corporation is a leader in advanced cell therapies and specialty biologics for the sports medicine and severe burn care markets. We currently market two U.S. Food and Drug Administration (FDA)-approved autologous cell therapy products in the United States. MACI® is an autologous cellularized scaffold product indicated for the repair of symptomatic, single or multiple full-thickness cartilage defects of the knee with or without bone involvement in adults. Epicel® is a permanent skin replacement Humanitarian Use Device (HUD) for the treatment of adult and pediatric patients with deep-dermal or full-thickness burns comprising greater than or equal to 30 percent of total body surface area (TBSA). We also hold an exclusive license from MediWound for North American rights to NexoBrid®, a registration-stage biological orphan product. In 2020, MediWound submitted to the FDA a biologics license application (BLA) seeking the approval of NexoBrid for eschar removal (debridement) in adults with deep partial-thickness and/or full-thickness thermal burns. The FDA subsequently accepted the BLA for filing and assigned a Prescription Drug User Fee Act (PDUFA) target date of June 29, 2021.

Subsequently, on June 29, 2021, we announced that MediWound received a complete response letter (CRL) from the FDA regarding the BLA for NexoBrid. The FDA communicated to MediWound that it had completed its review of the BLA, as amended, and had determined that it cannot approve the BLA in its present form. The FDA had identified issues related to the Chemistry, Manufacturing and Controls (CMC) section of the BLA and had requested that MediWound provide additional CMC information. The FDA stated that it had not reviewed several amendments submitted by MediWound in response to the CMC information requests related to the BLA. The FDA also stated that inspections of manufacturing facilities in Israel and Taiwan are required before the BLA can be approved, but that it was unable to conduct the required inspections during the original review cycle due to COVID-19-related travel restrictions. In addition, the CRL referenced observations that were made during good clinical practice (GCP) inspections related to the DETECT study and requested that MediWound address questions regarding the impact of the observations on the study’s efficacy findings. The FDA also requested that MediWound provide a safety update as part of its BLA resubmission. The Company announced further that it is committed to working with MediWound and the FDA on the next steps to address the issues identified in the CRL to seek the potential approval of NexoBrid.

See "Risk Factors - NexoBrid’s approval in the United States for the treatment of severe burns may be further delayed, and it may not be approved for use in the United States and other North American markets at all."

For patents related to MACI, we have one issued patent in the United States directed to a device related to MACI that is set to expire in November 2033, and one issued patent in the European Union set to expire in November 2034.

### COVID-19

The pandemic caused by the spread of a novel strain of coronavirus (COVID-19) has created significant disruptions to the U.S. and global economy and has contributed to significant volatility in financial markets. The global impact of the outbreak has fluctuated since early 2020. At times, many state, local and national governments – including those in Massachusetts and Michigan, where our operations are located – have responded by issuing, extending and supplementing orders requiring quarantines, restrictions on travel, and the mandatory closure of certain non-essential businesses, among other actions. In the U.S., the status and application of these orders have varied on a state-by-state basis since the early days of the pandemic. Many of the restrictions have been periodically updated as infection rates in the U.S. have risen and fallen, as new virus “variants” have emerged, as vaccines have been distributed and administered, and as world health leaders learn more about the virus, its transmission pathway and who is most at risk. Because Vericel is deemed an essential business, the Company has been exempted from government orders requiring the closure of workplaces and the cessation of business operations.

Notwithstanding being an essential business, the Company’s business and operations were, at times, adversely impacted by the effects of COVID-19 during 2020. As a result of periodic restrictions placed on the performance of elective surgical procedures, the Company experienced a significant increase in cancellations of scheduled MACI procedures as well as a slowdown in new MACI orders during March and April of 2020. The widespread suspension of surgical procedures impacted the Company’s business and operations during the first and second quarters of 2020. The level and degree of restriction on elective surgeries, on the ability of patients to seek treatment and on U.S. business operations generally fluctuated throughout 2020 as COVID-19 infection rates rose and fell during the summer months and into the autumn. By the first quarter of 2021, the pandemic’s effects on the Company’s MACI business had largely dissipated. Although hospitals are now better prepared for a subsequent surge in COVID-19 patients and COVID-19 vaccines have been approved and are being widely distributed in the

United States, the risk remains that regional or local restrictions could again be placed on the performance of elective surgical procedures if the number of COVID-19 infections in the United States were to rise again, or if new or existing COVID-19 variants render current vaccine treatments ineffective.

Because Epicel is used almost exclusively in an emergent setting by burn centers and surgeons throughout the country, Epicel revenue and procedure volumes have been less affected by the pandemic. Nevertheless, large burns and burn admissions can be affected by restrictions on human activity resulting from more severe government lockdown orders. Epicel procedure volumes did experience a slow-down during the second quarter of 2020, however, the reduction was less pronounced than that observed with MACI. Further reductions could be observed in the future, based on the degree of restrictions imposed.

At the outset of the pandemic, the Company put in place a comprehensive workplace protection plan, which instituted protective measures in response to COVID-19. The Company's workplace protection plan closely followed the guidance issued by the Centers for Disease Control and Prevention (CDC) and complied with applicable federal and state law. Because vaccines designed to protect against COVID-19 have become readily available and the rates of COVID-19 infections, hospitalizations and deaths in the majority of the U.S. have declined since the beginning of 2021, the CDC and the Occupational Safety and Health Administration (OSHA) have altered their guidance for Americans, and emergency orders and mandatory workplace protocols in Michigan and Massachusetts have either been rescinded or greatly reduced - to include the lifting of all capacity limitations on businesses in both states. Accordingly, Vericel is planning for a return to more normal workplace operations, but will continue to modify its workplace protection plan, and will reinstitute protective measures for its workforce as necessary. The Company is reviewing its policies and procedures regularly as the pandemic evolves and may take additional actions to the extent required.

We continue to manufacture MACI and Epicel and are maintaining a significant safety stock of all key raw materials. We do not expect current supply chain interruptions will impact our ongoing manufacturing operations. With respect to customer delivery, MACI final product has an established shelf life of six (6) days and established shipping shelf life of three (3) days. Currently, MACI is picked up by courier and shipped by commercial air or ground transportation to customer surgical sites. Epicel final product has an established shelf life of 48 hours and is hand carried to customer hospitals by courier. Transportation is primarily by commercial or charter airline. Although we have not experienced material shipping delays or materially increased costs to date, significant disruption of air travel could result in the inability to deliver MACI or Epicel final products to customer sites within appropriate timeframes, which could further adversely impact our business. At this time, there is no expected impact of COVID-19 on our distributors, operations or third-party service providers’ ability to manage patient cases.

We believe it is possible that we could experience variable impacts on our business, should there be a resurgence of COVID-19 in various areas of the United States. Measures taken to limit the impact of COVID-19 at the international, national and local levels, including the availability of COVID-19 vaccines, shelter-in-place orders, social distancing measures, travel bans and restrictions, and business and government shutdowns, may again create significant negative economic impacts on a global basis. Given that uncertainty, we cannot reliably estimate the extent to which the COVID-19 pandemic may continue to impact utilization and revenue of our products in 2021 and beyond.

For a discussion of additional risks associated with COVID-19, please see Item 1A. Risk Factors.

### Manufacturing

We have a cell-manufacturing facility in Cambridge, Massachusetts which is used for U.S. manufacturing and distribution of MACI and Epicel.

### Product Portfolio

Our marketed products include two FDA-approved autologous cell therapies. MACI, a third-generation autologous implant for the repair of symptomatic, full-thickness cartilage defects of the knee in adult patients and Epicel, a permanent skin replacement for adult and pediatric patients with deep dermal or full thickness burns greater than or equal to 30% of TBSA. Both products are currently marketed in the U.S. In addition, we have entered into exclusive license and supply agreements with MediWound to commercialize NexoBrid in North America, following regulatory approval. As previously mentioned, MediWound has submitted a BLA to the FDA seeking commercial approval of NexoBrid. On June 29, 2021, we announced that MediWound had received a CRL in response to the BLA and that the Company is committed to working with MediWound and the FDA to respond to the CRL to seek the potential approval of NexoBrid.

### MACI

MACI is a third-generation autologous chondrocyte implantation (ACI) product for the repair of symptomatic, single or multiple full-thickness cartilage defects of the knee with or without bone involvement in adults.

Our target audience of U.S. physicians is approximately 5,000 orthopedic surgeons and is divided into two segments - a group of orthopedic surgeons who self-identify and/or have a formal specialty as sports medicine physicians, and a sub-population of general orthopedic surgeons who perform a high volume of cartilage repair procedures. As of the date of this report, we currently have 76 MACI sales representatives to enable the sales force to reach our target audience. Most private payers have a medical policy that covers treatment with MACI with the top 30 largest commercial payers having a formal medical policy for MACI or ACI in general. Even for private payers that have not yet approved a medical policy for MACI, for medically appropriate cases, we often obtain approval on a case-by-case basis. For the three and six months ended, June 30, 2021, net revenue for MACI was $26.5 million and $50.3 million, respectively, and $15.1 million and $35.4 million, respectively, for the same periods in 2020.

### Epicel

Epicel is a permanent skin replacement for deep dermal or full-thickness burns greater than or equal to 30% of TBSA. Epicel is regulated by the Center for Biologics Evaluation and Research, or CBER of the U.S. Food and Drug Administration under medical device authorities, and is the only FDA-approved cultured epidermal autograft product available for large total surface area burns. Epicel was designated as a HUD in 1998 and a Humanitarian Device Exception (HDE) application for the product was submitted in 1999. HUDs are devices that are intended for diseases or conditions that affect fewer than 8,000 individuals annually in the U.S. Under an HDE approval, a HUD cannot be sold for an amount that exceeds the cost of research and development, fabrication and distribution unless certain conditions are met. A HUD is eligible to be sold for profit after receiving HDE approval if the device meets certain eligibility criteria, including where the device is intended for the treatment of a disease or condition that occurs in pediatric patients and such device is labeled for use in pediatric patients. If the FDA determines that a HUD meets the eligibility criteria, the HUD is permitted to be sold for profit so long as the number of devices distributed in any calendar year does not exceed the Annual Distribution Number (ADN). The ADN is defined as the number of devices reasonably needed to treat a population of 8,000 individuals per year in the U.S.

On February 18, 2016, the FDA approved our HDE supplement to revise the labeled indications of use for Epicel to specifically include pediatric patients. The revised product label also now specifies that the probable benefit of Epicel, mainly related to survival, was demonstrated in two Epicel clinical experience databases and a physician-sponsored study comparing outcomes in patients with massive burns treated with Epicel relative to standard care. Because of the change in the label to specifically include use in pediatric patients, Epicel is no longer subject to the HDE profit restrictions. In conjunction with adding the pediatric labeling and meeting the pediatric eligibility criteria, the FDA has determined the ADN number for Epicel is 360,400 which is approximately 45 times larger than the volume of grafts sold in 2019. We currently have a thirteen-person field force comprised of seven (7) account managers and six (6) burn clinical specialists, led by a regional and a national sales director. For the three and six months ended June 30, 2021, net revenue for Epicel was $12.2 million and $22.0 million, respectively, and $4.9 million and $11.3 million, respectively, for the same periods in 2020.

### NexoBrid

Our portfolio also includes NexoBrid, a registration-stage, topically-administered biological product that enzymatically removes nonviable burn tissue, or eschar, in patients with deep partial and full-thickness thermal burns. On June 30, 2020, we announced MediWound's submission of a BLA to the FDA seeking the approval of NexoBrid. On June 29, 2021, the Company announced that MediWound received a CRL from the FDA regarding the BLA, through which the FDA communicated to MediWound that it had completed its review of the BLA, as amended, and had determined that it cannot approve the BLA in its present form. The Company announced further that it is committed to working with MediWound and the FDA on the next steps to address the issues identified in the CRL to seek the potential approval of NexoBrid. See "Risk Factors - NexoBrid’s approval in the United States for the treatment of severe burns may be further delayed, and it may not be approved for use in the United States and other North American markets at all."

NexoBrid is approved in the European Union and other international markets and has been designated as an orphan biologic in the United States, European Union and other international markets. Pursuant to the terms of our existing license agreement, if the BLA is approved, MediWound will transfer the BLA to Vericel and Vericel will market NexoBrid in the U.S. Both MediWound and Vericel, under the supervision of a Central Steering Committee comprised of members of both companies will continue to guide development of NexoBrid in North America. Under our license agreement with MediWound, NexoBrid is being manufactured for BARDA prior to approval by the FDA under an emergency use authorization. For the three and six months ended June 30, 2021, $0.8 million and $1.8 million, respectively, of net revenue associated with delivery of NexoBrid to BARDA was recorded. No revenue related to the procurement by BARDA was recognized in the comparable periods of 2020.

### Results of Operations

#### Net Loss

Our net loss for the three and six months ended June 30, 2021 totaled $3.8 million and $7.1 million, respectively, and $8.3 million and $13.0 million, respectively, for the same periods in 2020.

*(In thousands)*

|  | Three Months Ended June 30, 2021 | 2020 | Six Months Ended June 30, 2021 | 2020 |
| --- | ---: | ---: | ---: | ---: |
| Net revenue | $39,519 | $20,014 | $74,087 | $46,692 |
| Cost of product sales | 12,609 | 8,660 | 24,192 | 18,582 |
| Gross profit | 26,910 | 11,354 | 49,895 | 28,110 |
| Total operating expenses | 30,639 | 19,712 | 56,929 | 41,544 |
| Loss from operations | (3,729) | (8,358) | (7,034) | (13,434) |
| Other income | 15 | 89 | 174 | 460 |
| Tax provision | (72) | — | (215) | — |
| Net loss | $(3,786) | $(8,269) | $(7,075) | $(12,974) |

#### Net Revenue

Net revenue increased for the three and six months ended June 30, 2021 compared to the same periods in 2020, driven by volume growth for both MACI and Epicel. Additionally, for the three and six months ended June 30, 2021, we recorded $0.8 million and $1.8 million, respectively, of revenue associated with delivery of NexoBrid to BARDA for emergency response preparedness.

Net revenue by product for the three and six months ended June 30, 2021 and 2020 are shown below.

| Revenue by product (In thousands) | Three Months Ended June 30, 2021 | 2020 | Six Months Ended June 30, 2021 | 2020 |
| --- | ---: | ---: | ---: | ---: |
| MACI | $26,526 | $15,104 | $50,322 | $35,391 |
| Epicel | 12,154 | 4,910 | 21,985 | 11,301 |
| NexoBrid | 839 | — | 1,780 | — |
| Total Revenue | $39,519 | $20,014 | $74,087 | $46,692 |

*Seasonality.* The effects of the COVID-19 pandemic disrupted the normal seasonality of our MACI business at times over the past sixteen months. These effects included, among others, the temporary limitation of elective surgical procedures throughout the country, the inability of our Clinical Account Specialists to call on surgeon customers and, we believe, a reduction in the number of patients seeking treatment for cartilage damage. In the four years preceding 2020, ACI sales volumes from the first through the fourth quarter on average represented 19% (16%-24% range), 23% (21%-25% range), 22% (20%-23% range) and 36% (32%-38% range) respectively, of total annual volumes. MACI orders are consistently stronger in the fourth quarter due to several factors including insurance deductible limits and the time of year patients prefer to start rehabilitation. Due to COVID-19, the seasonality in 2020 did not follow our historical patterns, and seasonality in 2021 could be impacted by COVID-19 related factors, as well. Due to the low incidence and variable occurrence of severe burns, Epicel revenue has inherent variability from quarter-to-quarter and does not exhibit significant seasonality. Over the past four years, Epicel revenue in a single quarter has ranged from as high as 38% to as low as 18% of annual revenue.

#### Gross Profit and Gross Profit Ratio

*(In thousands)*

|  | Three Months Ended June 30, 2021 | 2020 | Six Months Ended June 30, 2021 | 2020 |
| --- | ---: | ---: | ---: | ---: |
| Gross profit | $26,910 | $11,354 | $49,895 | $28,110 |
| Gross profit % | 68% | 57% | 67% | 60% |

Gross profit increased for the three and six months ended June 30, 2021 compared to the same periods in 2020 primarily due to continued growth of both products, the impacts of the COVID-19 pandemic in the prior year, and other revenue related to NexoBrid.

#### Research and Development Costs

*(In thousands)*

|  | Three Months Ended June 30, 2021 | 2020 | Six Months Ended June 30, 2021 | 2020 |
| --- | ---: | ---: | ---: | ---: |
| Research and development costs | $4,449 | $3,226 | $8,079 | $6,989 |

The following table summarizes research and development expenses which include license fees, materials, professional fees and the approximate allocation of employee-related salary and fringe benefit costs for our research and development projects:

*(In thousands)*

|  | Three Months Ended June 30, 2021 | 2020 | Six Months Ended June 30, 2021 | 2020 |
| --- | ---: | ---: | ---: | ---: |
| ACI | $2,533 | $1,664 | $4,421 | $3,769 |
| Epicel | 1,231 | 686 | 2,165 | 1,713 |
| NexoBrid | 685 | 876 | 1,493 | 1,507 |
| Total research and development costs | $4,449 | $3,226 | $8,079 | $6,989 |

Research and development expenses for the three months ended June 30, 2021 were $4.4 million, compared to $3.2 million for the same period in 2020. Research and development costs continue to be centered around process development and regulatory and medical affairs for MACI and Epicel. The increase is primarily due to an increase of $0.7 million in stock-based compensation expense compared to the same period a year ago.

Research and development expenses for the six months ended June 30, 2021 were $8.1 million, compared to $7.0 million for the same period in 2020. The increase is primarily due to an increase of $1.1 million in stock-based compensation expense compared to the same period a year ago.

#### Selling, General and Administrative Costs

*(In thousands)*

|  | Three Months Ended June 30, 2021 | 2020 | Six Months Ended June 30, 2021 | 2020 |
| --- | ---: | ---: | ---: | ---: |
| Selling, general and administrative costs | $26,190 | $16,486 | $48,850 | $34,555 |

Selling, general and administrative expenses for the three months ended June 30, 2021 were $26.2 million compared to $16.5 million for the same period in 2020. The increase in selling, general and administrative expenses during the three months ended June 30, 2021, compared to the same period in 2020, is primarily due to a $5.0 million increase in stock-based compensation expenses, a $0.8 million increase in sales force travel and conference spend, a $0.7 million increase in patient reimbursement support services as a result of higher MACI volumes, and a recovery of marketing activities that were partially reduced during 2020, because of COVID-19.

Selling, general and administrative expenses for the six months ended June 30, 2021 were $48.9 million, compared to $34.6 million for the same period in 2020. The increase in selling, general and administrative expenses during the six months ended June 30, 2021, compared to the same period in 2020, is primarily due to a $7.5 million increase in stock-based compensation expenses, a $1.6 million increase in MACI expenses as a result of the sales force expansion in 2020, a $0.9 million increase in patient reimbursement support services as a result of higher MACI volume, and a recovery of marketing activities that were partially reduced during 2020, because of COVID-19.

#### Other Income (Expense)

*(In thousands)*

|  | Three Months Ended June 30, 2021 | 2020 | Six Months Ended June 30, 2021 | 2020 |
| --- | ---: | ---: | ---: | ---: |
| Net interest income | $42 | $146 | $117 | $450 |
| Other income (expense) | (27) | (57) | 57 | 10 |
| Total other income | $15 | $89 | $174 | $460 |

The decrease in other income for the three and six months ended June 30, 2021, compared to the same periods in 2020 is due primarily to the decreasing rates of return on our investments in various marketable debt securities compared to the prior period.

#### Stock Compensation

Non-cash stock-based compensation expense included in cost of product sales, research and development expenses and selling, general and administrative expenses is summarized in the following table:

*(In thousands)*

|  | Three Months Ended June 30, 2021 | 2020 | Six Months Ended June 30, 2021 | 2020 |
| --- | ---: | ---: | ---: | ---: |
| Cost of product sales | $1,287 | $568 | $2,199 | $997 |
| Research and development | 1,234 | 484 | 2,096 | 1,060 |
| Selling, general and administrative | 8,345 | 3,325 | 13,590 | 6,087 |
| Total non-cash stock-based compensation expense | $10,866 | $4,377 | $17,885 | $8,144 |

The increase in stock-based compensation expense for the three and six months ended June 30, 2021 compared to the same periods in 2020, is due primarily to increases in stock prices which impact the fair value of the options and restricted stock units awarded and the expense recognized in the period.

As of June 30, 2021, there was approximately $45.8 million of total unrecognized compensation cost related to non-vested service-based stock options granted under the 2019 Plan and the Prior Plans, compared to $13.1 million as of December 31, 2020. That cost is expected to be recognized over a weighted-average period of 3.3 years.

As of June 30, 2021, there was approximately $11.6 million of total unrecognized compensation cost related to non-vested restricted stock units granted under the 2019 Plan and Prior Plans, compared to $2.1 million as of December 31, 2020. That cost is expected to be recognized over a weighted-average period of 3.2 years. The estimated unrecognized compensation cost is not reduced by expected forfeitures.

### Liquidity and Capital Resources

Since our acquisition of MACI and Epicel in 2014, our primary focus has been to invest in our existing commercial business with the goal of growing revenue. We have raised significant funds in order to complete our product development programs and to market and commercialize our products, and product candidates. To date, we have financed our operations primarily through cash received through Epicel and MACI sales, debt and public and private sales of our equity securities. We generated $14.9 million in operating cash flows during the six months ended June 30, 2021, and we may continue to finance our operations through the sales of equity securities.

*(In thousands)*

|  | Six Months Ended June 30, 2021 | 2020 |
| --- | ---: | ---: |
| Cash provided by operating activities | $14,855 | $1,665 |
| Cash provided by (used for) investing activities | (2,757) | 25,954 |
| Cash provided by financing activities | 6,043 | 1,196 |
| Net increase in cash, cash equivalents and restricted cash | $18,141 | $28,815 |

Our cash and cash equivalents totaled $51.8 million, short-term investments totaled $39.2 million and long-term investments totaled $24.8 million as of June 30, 2021. The $14.9 million of cash provided by operations during the six months ended June 30, 2021 was the result of cash collections, a decrease in accounts receivable of $2.8 million, an increase in inventory of $3.6 million primarily to meet increased production needs and safety stock goals, and an increase in operating lease liabilities of $1.6 million. This includes non-cash charges of $17.9 million related to stock compensation expense, $2.3 million of operating lease amortization and $1.5 million in depreciation and amortization expense and a $7.1 million net loss.

Our cash and cash equivalents totaled $55.7 million and short-term investments totaled $25.1 million as of June 30, 2020. The $1.7 million of cash provided by operations during the six months ended June 30, 2020 was the result of cash collections and a decrease in accounts receivable of $8.5 million from a decrease in sales volume from the prior quarter and collections on prior period sales, including non-cash charges of $8.1 million in stock compensation expense and $1.1 million in depreciation and amortization expense offset by a $13.0 million net loss.

The change in cash provided by investing activities during the six months ended June 30, 2021 was the result of $32.7 million of investment sales and maturities offset by $31.0 million in investment purchases and property plant and equipment purchases of $4.5 million primarily for manufacturing upgrades through June 30, 2021. The cash provided by investing activities for the six months ended June 30, 2020 was the result of $32.8 million of investment sales and maturities offset by $5.7 million in short term investment purchases, and property plant and equipment purchases of $1.2 million primarily for manufacturing upgrades and leasehold improvements.

The change in cash provided by financing activities was the result of net proceeds from the exercise of stock options of $7.6 million, partially offset by the payment of employee withholding taxes related to the vesting of restricted stock units of $1.6 million during the six months ended June 30, 2021. The change in cash provided from financing activities during the six months ended June 30, 2020 was the result of proceeds from the exercise of stock options of $1.4 million, slightly offset by the payment of employee withholding taxes related to the vesting of restricted stock units of $0.2 million.

We believe that our current cash on hand, cash equivalents and investments will be sufficient to support our current operations through at least 12 months from the issuance of these Condensed Consolidated Financial Statements. However, the continuing effects of the COVID-19 pandemic continue to evolve and may result in irrecoverable losses from customers.

If revenue declines for a sustained period, we may need to access additional capital; however, we may not be able to obtain financing on acceptable terms or at all. Market volatility could also adversely impact our ability to access financing when needed. The terms of any financing may adversely affect the holdings or the rights of our shareholders. Actual cash requirements may differ from projections and will depend on many factors, including any future impacts of the COVID-19 pandemic, the level of future research and development, the scope and results of ongoing and potential clinical trials, the costs involved in filing, prosecuting and enforcing patents, the need for additional manufacturing capacity, competing technological and market developments, costs of possible acquisition or development of complementary business activities, and the cost to market our products.

### Off-Balance Sheet Arrangements

At June 30, 2021, we were not party to any off-balance sheet arrangements.

### Critical Accounting Policies

Our Condensed Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these Condensed Consolidated Financial Statements requires the application of appropriate technical accounting rules and guidance, as well as the use of estimates. The application of these policies necessarily involves judgments regarding future events. These estimates and judgments, in and of themselves, could materially impact the Condensed Consolidated Financial Statements and disclosures based on varying assumptions. The accounting policies discussed in our Annual Report are considered by management to be the most important to an understanding of the consolidated financial statements because of their significance to the portrayal of our financial condition and results of operations. There have been no material changes to that information disclosed in our Annual Report during the six months ended June 30, 2021.

### Cautionary Note Regarding Forward-Looking Statements

This report, including the documents incorporated by reference herein, contain certain statements that describe our management’s beliefs concerning future business conditions, plans and prospects, growth opportunities and the outlook for our business based upon information currently available. Such statements are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act). Wherever possible, we have identified these forward-looking statements by words such as “will,” “may,” “anticipates,” “believes,” “intends,” “estimates,” “expects,” “plans,” “projects,” “trends,” “opportunity,” “current,” “intention,” “position,” “assume,” “potential,” “outlook,” “remain,” “continue,” “maintain,” “sustain,” “seek,” “target,” “achieve,” “continuing,” “ongoing,” and similar words or phrases, or future or conditional verbs such as “would,” “should,” “could,” “may,” or similar expressions. These forward-looking statements are based upon assumptions our management believes are reasonable. Such forward-looking statements are subject to risks and uncertainties which could cause our actual results, performance and achievements to differ materially from those expressed in, or implied by, these statements, including, among others, the risks and uncertainties listed in our Annual Report under “Part I, Item 1A Risk Factors.”

Because our forward-looking statements are based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control or are subject to change, actual results could be materially different and any or all of our forward-looking statements may turn out to be wrong. Forward-looking statements speak only as of the date made and can be affected by assumptions we might make or by known or unknown risks and uncertainties. Many factors mentioned in our discussion in our Annual Report will be important in determining future results. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. Consequently, we cannot assure you that our expectations or forecasts expressed in such forward-looking statements will be achieved. Except as required by law, we undertake no obligation to publicly update any of our forward-looking or other statements, whether as a result of new information, future events, or otherwise. These forward-looking statements include statements regarding:

- manufacturing and facility capabilities;
- potential strategic collaborations with others;
- future capital needs and financing sources;
- adequacy of existing capital to support operations for a specified time;
- reimbursement for our products;
- the timing of a response to the FDA’s CRL regarding the NexoBrid BLA;
- the timing of the FDA’s review of any resubmission of the NexoBrid BLA;
- expectations regarding approval by the FDA of the NexoBrid BLA;
- product development and marketing plans;
- features and successes of our therapies;
- clinical trial plans, including publication thereof;
- the effects of the COVID-19 pandemic on our business, including economic slowdowns or recessions, impact to our operations or to the healthcare industry generally, which could reduce demand for our products;
- anticipation of future losses;
- replacement of manufacturing sources;
- commercialization plans; or
- revenue expectations and operating results.

## Market risk

As filed, 1,563 characters.

As of June 30, 2021, we held marketable debt securities, which are classified as available-for-sale and carried at fair value in the accompanying Condensed Consolidated Balance Sheet included in this Form 10-Q. The fair value of our cash equivalents and marketable securities is subject to changes in market interest rates. Our earnings and cash flows are subject to fluctuations due to changes in interest rates, principally in connection with our investments in marketable debt securities. We do not believe we are materially exposed to changes in interest rates related to our investments, and we do not currently use interest rate derivative instruments or hedging transactions to manage exposure to interest rate changes of our investments. We estimate that a 100 basis point, or 1%, unfavorable change in interest rates would have resulted in approximately a $0.4 million and $0.5 million decrease in the fair value of our investment portfolio as of June 30, 2021 and December 31, 2020, respectively.

We have evaluated the potential credit risk exposure for our accounts receivable and available-for sale investment securities in accordance with *ASC 326, Financial Instruments - Credit Losses.* See note 4 and note 8, for further discussion.

We operate in the United States only. We are primarily exposed to foreign exchange risk with respect to recognized assets and liabilities due to vendors in countries outside the United States, which are typically paid in Euro. We do not enter into hedging transactions and do not purchase derivative instruments.

## Controls and procedures

As filed, 1,350 characters.

### Evaluation of Disclosure Controls and Procedures

Management of the Company, with the participation of its Chief Executive Officer and Chief Financial Officer (its Certifying Officers), evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the evaluation as of June 30, 2021, the Company’s Certifying Officers concluded that the Company’s disclosure controls and procedures were effective.

The Company has established disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities and Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to management of the Company, with the participation of its Certifying Officers, as appropriate, to allow timely decisions regarding required disclosure.

### Changes in Internal Control over Financial Reporting

During the three months ended June 30, 2021, there were no material changes made in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act).

## Risk factors

As filed, 23,916 characters.

Certain risks described below update the risk factors discussed in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as well as the Risk Factors discussed in Part II, Item 1A, “Risk Factors,” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, and expound upon and amend the specific risks resulting from the COVID-19 pandemic, as well as the specific risks related to the U.S. Food & Drug Administration’s review of any resubmission of the NexoBrid BLA for the approval of NexoBrid in the United States. Each of these risks, as well as those discussed in our previous filings could materially affect our business, financial condition, results of operations, or cash flows. The risks described below and in our previous filings are not the only risks we face. Additional risks and uncertainties not currently known or currently deemed to be immaterial also may materially and adversely affect our business, financial condition, results of operations or cash flows.

***The current and ongoing pandemic of COVID-19 and the future outbreak of other highly infectious or contagious diseases, could seriously harm our research, development and commercialization efforts, increase our costs and expenses and have a material adverse effect on our business, financial condition and results of operations.***

Broad-based business or economic disruptions could adversely affect our ongoing or planned research, development and commercialization activities. For example, the COVID-19 pandemic has created significant disruptions to the U.S. and global economy and has contributed, at times, to significant volatility in financial markets. The global impact of the outbreak has fluctuated since early 2020. At times, many state, local and national governments – including those in Massachusetts and Michigan, where the Company’s operations are located – have responded by issuing, extending and supplementing orders requiring quarantines, restrictions on travel, and the mandatory closure of certain non-essential businesses, among other actions. In the U.S., the status and application of these orders have varied on a state-by-state basis since the early days of the pandemic. Many of the restrictions have been periodically updated as infection rates in the U.S. have risen and fallen, as new virus variants have emerged, as vaccines have been distributed and administered, and as world health leaders learn more about the virus, its transmission pathway and who is most at risk. Because Vericel is deemed an essential business, the Company has been exempted from government orders requiring the closure of workplaces and the cessation of business operations as they have existed from time-to-time during the pandemic.

Even though widespread distribution of vaccines designed to protect against COVID-19 infection began in the United States and other countries throughout the world in early 2021, the pandemic remains unpredictable and the number of COVID-19 infections has fluctuated significantly in various geographies during 2020 and throughout 2021 and could continue to do so, particularly in light of emerging variant strains. As such, some state and local governments have re-instituted restrictions on businesses, travel, and personal activities from time-to-time and additional such measures may occur in the future as the pandemic evolves.

At the outset of the pandemic, the Company put in place a comprehensive workplace protection plan, which instituted protective measures in response to COVID-19. The Company’s workplace protection plan closely followed guidance issued by the CDC and complied with applicable federal and state law. Because vaccines designed to protect against COVID-19 have become readily available in the United States and the rates of COVID-19 infections, hospitalizations and deaths in the majority of the U.S. have declined since the beginning of 2021, the CDC and the OSHA have altered their guidance for Americans, and emergency orders and mandatory workplace protocols in Michigan and Massachusetts have either been rescinded or greatly reduced – to include the lifting of all capacity limitations on businesses in both states. Accordingly, Vericel is planning for a return to more normal workplace operations, but will continue to modify its workplace protection plan and will reinstitute protective measures for its workforce as necessary. The Company is reviewing its policies and procedures regularly as the pandemic evolves and may take additional actions to the extent required. Both these and any future actions we take may result in disruption to our business.

The extent to which the COVID-19 pandemic, or the future outbreak of any other highly infectious or contagious disease, impacts our preclinical studies, clinical trial operations and current or future commercialization efforts will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of such pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. The rapid development and uncertainty of this situation precludes any prediction as to the full adverse impact of the COVID-19 pandemic. Nevertheless, the COVID-19 pandemic has and could continue to adversely affect our business, financial condition and results of operations, and it may have the effect of heightening many of the risks described herein, including the below.

- Hospitals, health systems and surgeons minimized, postponed, or canceled electively scheduled surgeries during the initial wave of the pandemic in the spring of 2020. These actions were followed by numerous state-level executive orders either restricting or partially restricting elective surgeries. Because MACI is an elective surgical procedure, as a result of these restrictions the Company experienced a significant increase in cancellations of scheduled MACI procedures as well as a slowdown in new MACI orders during March and April of 2020, which negatively impacted the Company’s business and results of operations during the first and second quarters of 2020. The level and degree of restriction on elective surgeries, on the ability of patients to seek treatment and on U.S. business operations generally fluctuated throughout 2020 as COVID-19 infection rates rose and fell during the summer months and into the autumn. By the first quarter of 2021, the pandemic’s effects on the Company’s MACI business had largely dissipated. Although hospitals are now better prepared for a subsequent surge in COVID-19 patients and COVID-19 vaccines have been made available and are being widely distributed in the United States, the risk remains that regional or local restrictions could again be placed on the performance of elective surgical procedures if the number of COVID-19 infections in the United States were to rise again, or if new or existing COVID-19 variants render current vaccine treatments ineffective. We believe our MACI business will be negatively impacted if elective surgical procedures are again restricted. Further, renewed and material disruption to the operations of our employees, distributors, suppliers or customers will impact our sales and operating results and could lead to potential impairments to inventory and accounts receivable. Although Epicel has been less directly impacted by the pandemic given the critical nature of severe burn injuries, it is difficult to ascertain the current or future impact of COVID-19 on the treatment of severe burns.
- We are currently conducting the PEAK (A Study of MACI in Patients Aged 10 to 17 Years with Symptomatic Chondral or Osteochondral Defects of the Knee) Study at ten (10) sites throughout the United States. Two (2) such sites have currently paused enrollment of new PEAK patients as a result of the effects of the pandemic, and the PEAK Study experienced a slow-down in its traditional rate of patient enrollment during 2020 and throughout 2021. Furthermore, the PEAK Study or another of our clinical trials may in the future experience difficulties associated with patient visits and study monitoring, which may be paused or delayed due to changes in policies at various clinical sites, federal, state, local or foreign laws, rules and regulations, including closure of site access to outside medical monitors, quarantines or other travel restrictions, prioritization of healthcare resources toward pandemic efforts, including diminished attention of physicians serving as our clinical trial investigators and reduced availability of site staff supporting the conduct of our clinical trials, interruption or delays in the operations of the FDA, heightened exposure of patients, principal investigators and site staff to COVID-19 if an outbreak occurs in their geography, or other reasons related to the COVID-19 pandemic. Further, patients who are already recruited into our clinical trials may be unable or unwilling to attend follow-up visits within the timelines specified in our trial protocols, potentially impacting our ability to meet our clinical trial endpoints. A future outbreak may also affect employees of third-party contract research organizations located in affected geographies that we rely upon to carry out our clinical trials.
- We continue to manufacture MACI and Epicel and we maintain a significant safety back-up of all key raw materials. We do not currently expect that supply chain interruptions will impact our ongoing manufacturing operations. However, we currently rely on both domestic and international third parties to, among other things, manufacture and supply raw materials, which are used to produce our products, and supply other goods and services to run our business. If any such third parties in our supply chain are adversely impacted by current or future restrictions or executive orders resulting from the COVID-19 pandemic for an extended period of time, including staffing shortages, production slowdowns, disruptions in delivery systems, or federal, state or foreign orders requiring the diversion of key supplies for use in the production or manufacturing of vaccines designed to inoculate individuals against COVID-19, our supply chain may be disrupted, limiting our ability to manufacture our products and product candidates and conduct our research and development operations, or commercially launch any of our product candidates, if approved. With respect to customer delivery, MACI final product has an established shelf life of six (6) days and established shipping shelf life of three (3) days. Currently, MACI is picked-up by courier and shipped by commercial air or ground transportation to our customers’ locations. Epicel final product has an established shelf life of 24 hours and is hand carried to customer hospital sites by courier. Transportation is primarily by commercial or charter airline. Although we have not experienced material shipping delays or increased costs to date, significant disruption of air travel in the future could result in the inability to deliver MACI or Epicel final products to customer sites within appropriate timeframes, which would have a material adverse effect on our business and results of operations.
- Throughout much of the pandemic, we generally restricted on-site staff in our facilities to only those personnel and contractors who are required to perform essential activities related to the manufacture, production and delivery of our products. We encouraged the majority of our remaining employees to work remotely. Since early 2021, vaccines designed to protect against COVID-19 infection have become readily available in the United States and the rates of COVID-19 infections, hospitalizations and deaths in the U.S. have generally declined. The CDC and OSHA have altered their guidance for Americans, and emergency orders and mandatory workplace protocols in Michigan and Massachusetts have either been rescinded or greatly reduced – to include the lifting of all capacity limitations on businesses in both states. Accordingly, Vericel is planning for a return to more normal workplace operations but will continue to modify its workplace protection plan and will reinstitute protective measures for its workforce as necessary. We expect that some of our employees will continue to work remotely from time to time. A resurgence of COVID-19, COVID-19 variants, or similar infectious diseases in the U.S., however, may lead to future government-imposed quarantines and restrictions, which may result in the closure of our administrative offices, with our employees working outside of our offices for an extended period of time. These actions may also result in the disruption of our manufacturing operations, which are currently accomplished within our administrative offices. Additionally, such quarantines and restrictions may adversely affect our ability to conduct certain product enhancement and business development activities.
- Our reliance on certain personnel working from home may also increase our cyber security risk, create data accessibility concerns, and make us more susceptible to communication disruptions, any of which could adversely impact our business operations or delay necessary interactions with local and federal regulators, institutional review boards and ethics committees, third-party contractors and suppliers, clinical trial sites and other important agencies and contractors. Our business operations may be further disrupted if any of our employees, officers or directors contract an illness related to COVID-19 and are unable to perform their duties. For example, COVID-19 illness could impact members of management or our board of directors resulting in absenteeism from management meetings or meetings of the directors or committees of directors, and making it more difficult for management to effectively oversee our daily operations, or to convene the quorums of the full board of directors or its committees needed to conduct meetings for the management of our affairs. A resurgence of COVID-19 or COVID-19 variants may cause our employees, and employees of third-party contractors and licensees, including MediWound, responsible for conducting research and development activities to be unable to access laboratories and places of business for an extended period of time as a result of the temporary closure of such workspaces. As a result, this could delay timely completion of ongoing clinical trials or preclinical activities, and our ability to select future development candidates.
- NexoBrid is currently a pre-commercial product in North America. On June 29, 2021, we announced that MediWound had received a CRL regarding the BLA and that the FDA communicated to MediWound that it had completed its review of the BLA, as amended, and had determined that it cannot approve the BLA in its present form. We announced further that we are working with MediWound and the FDA to address the issues identified in the CRL to seek potential approval of NexoBrid. Health regulatory agencies, including the FDA, have experienced and may continue to experience disruptions in their operations as a result of the continued spread or resurgence of the COVID-19 pandemic. For instance, the COVID-19 pandemic may impact the FDA’s response times to regulatory submissions, like a BLA resubmission in response to the CRL, and its ability to monitor our clinical trials. Additionally, in many instances across the industry, the FDA has postponed, or has been unable to conduct certain inspections of domestic and international manufacturing facilities in connection with its regulatory review of product applications as a result of travel and other restrictions caused by the pandemic. As part of its review of the BLA, and any BLA resubmission, the FDA has communicated to MediWound that physical Current Good Manufacturing Practice (cGMP) inspections of manufacturing facilities in Israel and Taiwan are required before the BLA can be approved, as the FDA must assess the ability of those facilities to conduct certain manufacturing operations in compliance with cGMP. The FDA indicated that because of restrictions on travel caused by the COVID-19 pandemic, the agency was unable to conduct the required inspections of those facilities during the original BLA review cycle. Should continued restrictions prevent or delay the FDA in conducting necessary reviews or physical inspections of the manufacturing facilities involved in the production of NexoBrid, or should other events impact the FDA’s response times, the timeline for approval of NexoBrid could be materially and further delayed, which could materially affect the development, study and ultimate commercialization of the product.
- The trading prices of our common stock and that of other biopharmaceutical companies have been highly volatile during the COVID-19 pandemic. As a result, we may face difficulties raising capital through sales of our common stock or such sales may be on unfavorable terms. In addition, a recession, depression or other sustained adverse market event resulting from the continued spread or a resurgence of the COVID-19 pandemic could materially and adversely affect our business and the value of our common stock.
- The negative economic effects of the pandemic have, at times, caused increased unemployment in the U.S. resulting in many individuals losing their employer-based insurance coverage. Although the economy has begun to recover from the pandemic’s initial effects, the continued or future unemployment of our potential patients may adversely affect our ability to commercialize our products. In addition, market disruption or rising unemployment caused by a resurgence of the COVID-19 pandemic or a variant strain thereof may lead to delays in obtaining insurance coverage and reimbursement of newly approved products as well as an increase in the numbers of uninsured patients and patients who may no longer be able to afford their co-insurance or co-pay obligations. These factors may lead to decreased utilization of our products, which could reduce revenue. The continued outbreak or a worsening of COVID-19 may also negatively impact our commercialization strategy for our products and product candidates, if approved. At times during the pandemic, hospitals and other medical institutions have reduced and diverted staffing, diverted resources to patients suffering from COVID-19 and limited hospital access for non-patients, which has included our sales personnel. Hospitals may continue or increase these and similar measures in the future should the COVID-19 virus continue to spread or surge in certain areas. In addition, COVID-19 levels in the United States and/or specific regions of the United States may cause customers or patients to postpone or cancel previously scheduled surgeries or to decline to schedule surgeries utilizing our products, which would negatively impact our operations and financial results. Although many face-to-face interactions are again resuming, our sales personnel, at times, have conducted, and may continue to have to conduct, many of their interactions with physicians and patients through the use of webinars, telemedicine, direct-to-consumer advertising and social media. These circumstances may adversely affect the ability of our sales professionals to effectively market our products to physicians in the future, which may have a negative impact on our potential sales and our market penetration.

If any of these risks related to the impact of the COVID-19 pandemic were to occur, our preclinical activities, clinical development progress, data and timelines, commercialization efforts including any potential revenue from sales, supply chain continuity, and general business operations could be delayed and/or materially harmed and our business, prospects, financial condition, and results of operations would suffer as a result. The extent to which the current pandemic, or a future pandemic, impacts our business and operations will depend on future developments, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and governmental actions to contain the outbreak or treat its impact, which are highly uncertain and cannot be predicted with confidence.

***NexoBrid’s approval in the United States for the treatment of severe burns may be further delayed, or it may not be approved for use in the United States and other North American markets at all.***

On September 16, 2020, we announced that the FDA had accepted for review MediWound’s BLA seeking marketing approval for NexoBrid in the United States for the treatment of severe burns, and had assigned a PDUFA target date for the product of June 29, 2021. The BLA submission is based in large part on data derived from a U.S. Phase 3 pivotal study. MediWound is conducting twelve and twenty-four month safety follow-ups for cosmesis, function, quality of life and other safety measurements. Data from MediWound’s twelve-month follow-up has been compiled and is being evaluated by the FDA, while data from the twenty-four month follow-up will be submitted to the agency as a safety update - either in connection with a BLA resubmission or as part of a post-approval commitment, if the BLA is approved. While this and previous studies evaluating NexoBrid have met their primary endpoints, we cannot predict the outcome of the planned safety follow-ups or whether the FDA will approve the BLA based on the available preclinical and clinical data and the submitted manufacturing processes, and the cGMP data.

Subsequently, on June 29, 2021, we announced that MediWound received a CRL from the FDA regarding the BLA for NexoBrid. The FDA communicated to MediWound that it had completed its review of the BLA, as amended, and had determined that it cannot approve the BLA in its present form. The FDA identified issues related to the CMC section of the BLA and had requested that MediWound provide additional CMC information. The FDA stated that it had not reviewed several amendments submitted by MediWound in response to the CMC information requests related to the BLA. The FDA also stated that inspections of manufacturing facilities in Israel and Taiwan are required before the BLA can be approved, but that it was unable to conduct the required inspections during the original review cycle due to COVID-19-related travel restrictions. In addition, the CRL referenced observations that were made during GCP inspections related to the DETECT study and requested that MediWound address questions regarding the impact of the observations on the study’s efficacy findings. The FDA also requested that MediWound provide a safety update as part of a BLA resubmission.

While we intend to work with MediWound and the FDA to address the issues identified in the CRL to seek the potential approval of NexoBrid, we cannot predict how long it will take for MediWound and/or the Company to respond to the CRL. We also cannot predict whether the FDA will accept any such resubmission for review, and, if such resubmission is accepted for review, the length of time of any subsequent FDA review. We also cannot predict whether FDA will ultimately approve the

NexoBrid BLA. In addition, if approval to market NexoBrid is sought in Mexico or Canada, we cannot predict how long regulatory authorities in those countries will take to provide NexoBrid with marketing authorization in their jurisdictions or whether such authorizations will be granted at all. A significant delay or a failure to receive regulatory approval for NexoBrid in the United States may have a material adverse impact on our business prospects.

Filed Aug 4, 2021.
Source: SEC EDGAR, the filing index for accession 0001628280-21-015540. Last ingested by Listed: Nov 13, 2026, 17:29 ET. No prices; not investment advice.