# Vericel Corp: Form 10-Q for the period ended Sep 30, 2022

- Company: [Vericel Corp](/companies/vcel.md) (CIK 887359)
- Form: 10-Q
- Filed: 2022-11-09
- Accepted by EDGAR: Nov 9, 2022, 08:52 ET
- Period: 2022-09-30
- Accession: 0001628280-22-029082
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/887359/000162828022029082/vcel-20220930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/887359/000162828022029082/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-01 to 2022-09-30 | $38.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-01-01 to 2022-09-30 | $111.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-07-01 to 2022-09-30 | $13.3m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2022-01-01 to 2022-09-30 | $40.1m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2022-07-01 to 2022-09-30 | $25.2m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2022-01-01 to 2022-09-30 | $71.5m | us-gaap:GrossProfit |
| Research and development | 3 months, 2022-07-01 to 2022-09-30 | $5.0m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2022-01-01 to 2022-09-30 | $14.7m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2022-07-01 to 2022-09-30 | $27.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2022-01-01 to 2022-09-30 | $80.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2022-07-01 to 2022-09-30 | −$6.8m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-01-01 to 2022-09-30 | −$23.1m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-07-01 to 2022-09-30 | $105.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2022-01-01 to 2022-09-30 | $143.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2022-07-01 to 2022-09-30 | $21.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-01-01 to 2022-09-30 | $21.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | −$6.6m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-01-01 to 2022-09-30 | −$22.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.14 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-01-01 to 2022-09-30 | −$0.48 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.14 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-01-01 to 2022-09-30 | −$0.48 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-07-01 to 2022-09-30 | 47,182,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-01-01 to 2022-09-30 | 47,096,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-01-01 to 2022-09-30 | $10.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-01-01 to 2022-09-30 | $6.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2022-09-30 | $65.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-09-30 | $166.4m | us-gaap:AssetsCurrent |
| Total assets | at 2022-09-30 | $248.0m | us-gaap:Assets |
| Current liabilities | at 2022-09-30 | $27.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-09-30 | $70.2m | us-gaap:Liabilities |
| Shareholders' equity | at 2022-09-30 | $177.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 33,407 characters.

### Overview

Vericel Corporation is a fully-integrated, commercial-stage biopharmaceutical company and a leader in advanced therapies 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 U.S. 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 designed for eschar removal or debridement of severe thermal burns. In 2020, MediWound submitted to the FDA a biologics license application (“BLA”) seeking the approval of NexoBrid for the treatment of adult patients suffering from deep partial-thickness and/or full-thickness thermal burns. The FDA accepted the BLA for filing and assigned a Prescription Drug User Fee Act (“PDUFA”) target date of June 29, 2021. Thereafter, on June 29, 2021, MediWound received a complete response letter (“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 could not approve the BLA in its then form. We have continued to work with MediWound, BARDA and the FDA to address the issues identified in the CRL. On July 1, 2022, Vericel and MediWound submitted a BLA resubmission to the FDA seeking the potential approval of NexoBrid. Subsequently, the FDA informed us that it has accepted the resubmission for review and has established a PDUFA date for completing that review of January 1, 2023.

### COVID-19

In March 2020, the World Health Organization declared the spread of a novel strain of coronavirus (“COVID-19”) to be a pandemic. This pandemic has contributed to an economic downturn on a global scale, as well as significant volatility in the financial markets. Since the pandemic’s inception, there has been significant volatility in our results of operations on a quarterly basis due to the widespread and periodic cancellation or delay of elective MACI surgical procedures throughout the U.S., staffing shortages and our ability to access customers.

At the outset of the pandemic, we put in place a comprehensive workplace protection plan, which instituted protective measures in response to the spread of the COVID-19 virus. Our workplace protection plan has closely followed guidance issued by the Centers for Disease Control and Prevention (“CDC”) and has complied with applicable federal and state law. To date, we have been successful in sustaining our operations and providing MACI and Epicel to patients in need. We continue to review our policies and procedures regularly, including our workplace protection plan, as the pandemic evolves and we 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 that current global supply chain interruptions will impact our ongoing manufacturing operations. Additionally, although we have not experienced material shipping delays, 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 adversely impact our business. Currently, we are not aware of COVID-19 related impacts on our distributors, operations or third-party service providers’ ability to manage patient cases.

We believe that a resurgence of COVID-19 because of emerging variants or other factors could result in additional disruptions that could impact our business and operations in the future, including intermittent restrictions on the ability of our personnel to travel and access customers for selling, marketing, training, case support and product development feedback, delays in approvals by regulatory bodies, delays in product development efforts, and additional government requirements or other incremental mitigation efforts that may further impact our capacity to manufacture, sell and support the use of our products.

### The War in Ukraine

The ongoing war between Russia and Ukraine and the related sanctions and other penalties imposed by countries across the globe against Russia are continuing to create substantial uncertainty in the global economy and have resulted in heightened inflation and supply chain disruptions. While we do not have operations in Russia or Ukraine and do not have exposure to distributors, or third-party service providers in Russia or Ukraine, we are unable to predict the ultimate impact that these actions will have on the global economy or on our financial condition, results of operations, and cash flows as of the date of these unaudited condensed consolidated financial statements.

### 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 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; and Epicel, a permanent skin replacement for the treatment of adult and pediatric patients with deep-dermal or full-thickness burns comprising greater than or equal to 30 percent 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, if approved by the FDA.

### MACI

MACI is a third-generation autologous chondrocyte implantation (“ACI”) product indicated 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 subpopulation of general orthopedic surgeons who perform a high volume of cartilage repair procedures. As of the date of this report, we have 75 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 30 largest commercial payers having a formal medical policy for MACI or ACI in general. With respect to private commercial payers that have not yet approved a medical policy for MACI, we often obtain approval on a case-by-case basis.

### Epicel

Epicel is a permanent skin replacement for deep-dermal or full-thickness burns comprising greater than or equal to 30 percent of TBSA. Epicel is regulated by the Center for Biologics Evaluation and Research (“CBER”) of the FDA 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 an 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 large 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 to be 360,400 which is approximately 30 times larger than the volume of grafts sold in 2021. We currently have a fifteen person burn field force comprised of seven account managers and eight burn clinical specialists, led by two regional directors, a national account development director and one national sales director.

### NexoBrid

Our development portfolio 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. We have entered into exclusive license and supply agreements with MediWound to commercialize NexoBrid and any improvements to the product in North America, if approved. On June 29, 2021, the Company announced that MediWound had received a CRL from the FDA with respect to the BLA, which MediWound had previously submitted to the FDA seeking marketing approval for the product in the U.S. As part of the CRL, the FDA communicated to MediWound that it had completed its review of the BLA, as amended, and had determined that it could not approve the BLA in its then form. We have continued to work with MediWound, BARDA and the FDA to address the issues identified in the CRL. On July 1, 2022, Vericel and MediWound submitted a BLA resubmission to the FDA to address and respond to the issues identified by the FDA in the CRL. Subsequently, the FDA informed us that is has accepted the resubmission for review and has established a Prescription Drug User Fee Act (“PDUFA”) date for completing that review of January 1, 2023.

NexoBrid is approved in the European Union (“EU”) and other international markets and has been designated as an orphan biologic in the U.S., EU and other international markets. Pursuant to the terms of our existing license agreement, if the BLA is approved, MediWound will transfer the BLA to us and we 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, since 2020 NexoBrid has been manufactured for BARDA prior to approval by the FDA under an emergency use authorization. Additional quantities of NexoBrid may be manufactured for BARDA in the future pursuant to the terms of its agreement with MediWound.

### Results of Operations

The following is a summary of our condensed consolidated results of operations:

*(In thousands)*

|  | Three Months Ended September 30, 2022 | 2021 | Change $ | Change % | Nine Months Ended September 30, 2022 | 2021 | Change $ | Change % |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Total revenue | $38,551 | $34,506 | $4,045 | 11.7% | $111,671 | $108,593 | $3,078 | 2.8% |
| Cost of product sales | 13,318 | 12,408 | 910 | 7.3% | 40,132 | 36,600 | 3,532 | 9.7% |
| Gross profit | 25,233 | 22,098 | 3,135 | 14.2% | 71,539 | 71,993 | (454) | (0.6)% |
| Research and development | 5,046 | 4,284 | 762 | 17.8% | 14,698 | 12,363 | 2,335 | 18.9% |
| Selling, general and administrative | 26,975 | 22,775 | 4,200 | 18.4% | 79,984 | 71,625 | 8,359 | 11.7% |
| Total operating expenses | 32,021 | 27,059 | 4,962 | 18.3% | 94,682 | 83,988 | 10,694 | 12.7% |
| Loss from operations | (6,788) | (4,961) | (1,827) | 36.8% | (23,143) | (11,995) | (11,148) | 92.9% |
| Total other income | 232 | 30 | 202 | 673.3% | 533 | 204 | 329 | 161.3% |
| Income tax expense | 21 | — | 21 | 100.0% | 21 | 215 | (194) | (90.2)% |
| Net loss | $(6,577) | $(4,931) | $(1,646) | 33.4% | $(22,631) | $(12,006) | $(10,625) | 88.5% |

### Comparison of the Periods Ended September 30, 2022 and 2021

#### Total Revenue

Revenue by product for the three and nine months ended September 30, 2022 and 2021 are as follows:

| Revenue by product (In thousands) | Three Months Ended September 30, 2022 | 2021 | Change $ | Change % | Nine Months Ended September 30, 2022 | 2021 | Change $ | Change % |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| MACI | $31,009 | $23,881 | $7,128 | 29.8% | $85,617 | $74,203 | $11,414 | 15.4% |
| Epicel | 7,317 | 9,837 | (2,520) | (25.6)% | 25,387 | 31,822 | (6,435) | (20.2)% |
| NexoBrid | 225 | 788 | (563) | (71.4)% | 667 | 2,568 | (1,901) | (74.0)% |
| Total Revenue | $38,551 | $34,506 | $4,045 | 11.7% | $111,671 | $108,593 | $3,078 | 2.8% |

Total revenue increase for the three and nine months ended September 30, 2022 compared to the same periods in 2021, was driven by MACI volume and price growth, offset primarily by lower Epicel volume and lower revenue associated with the delivery of NexoBrid to BARDA for emergency response preparedness.

*Seasonality.* The effects of the ongoing COVID-19 pandemic have disrupted the normal seasonality of our MACI business at times over the past thirty-one months. These effects have included, among others, periodic restrictions on the performance of elective surgical procedures throughout the country, the unavailability of physicians and/or changes to their treatment prioritizations, reductions in the levels of healthcare facility staffing and, in certain instances, the willingness or ability of patients to seek treatment and the inability of our clinical account specialists to call on surgeon customers. Over the last five years, ACI (MACI and Carticel prior to replacement) sales volumes from the first through the fourth quarter on average represented 19% (16%-21% range), 22% (16%-25% range), 23% (21%-26% range) and 36% (33%-38% range) respectively, of total annual volumes. MACI orders are normally stronger in the fourth quarter due to several factors including the satisfaction by patients of insurance deductible limits and the time of year patients prefer to start rehabilitation. Because of the effects of the COVID-19 pandemic, the MACI business seasonality in 2021 and 2020 did not follow our historical patterns, and while 2022 thus far has seen a return to more normal MACI ordering patterns, seasonality in 2022 could again be impacted by COVID-19 related factors. 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.

#### Gross Profit

Gross profit increased for the three months ended September 30, 2022 compared to the same period in 2021, driven by higher MACI volume and price growth, offset by lower Epicel labor utilization, raw material price increases and higher external storage and manufacturing facility costs.

Gross profit was similar for the nine months ended September 30, 2022 compared to the same period in 2021, as lower Epicel labor utilization, raw material price increases and higher external storage and manufacturing facility costs offset higher MACI volume.

#### Research and Development Expenses

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

*(In thousands)*

|  | Three Months Ended September 30, 2022 | 2021 | Change $ | Change % | Nine Months Ended September 30, 2022 | 2021 | Change $ | Change % |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| MACI | $3,000 | $2,572 | $428 | 16.6% | $8,961 | $6,993 | $1,968 | 28.1% |
| Epicel | 1,166 | 992 | 174 | 17.5% | 3,624 | 3,157 | 467 | 14.8% |
| NexoBrid | 880 | 720 | 160 | 22.2% | 2,113 | 2,213 | (100) | (4.5)% |
| Total research and development expenses | $5,046 | $4,284 | $762 | 17.8% | $14,698 | $12,363 | $2,335 | 18.9% |

Research and development expenses for the three months ended September 30, 2022 were $5.0 million, compared to $4.3 million for the same period in 2021. 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 increased headcount and stock-based compensation expense.

Research and development expenses for the nine months ended September 30, 2022 were $14.7 million, compared to $12.4 million for the same period in 2021. The increase is primarily due to an increase of $0.9 million in stock-based compensation expense, additional spend on the design of instruments to be used in connection with the potential arthroscopic delivery of MACI to the knee, if approved by the FDA, and increased headcount, partially offset by reimbursement of expenses related to the BLA resubmission.

#### Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended September 30, 2022 were $27.0 million compared to $22.8 million for the same period in 2021. The increase in selling, general and administrative expenses was primarily due to an increase of $0.6 million in stock-based compensation expenses, increased headcount, an increase in travel and in-person events including more physician engagement and educational programs in addition to higher depreciation related to the new

office space in Cambridge, Massachusetts.

Selling, general and administrative expenses for the nine months ended September 30, 2022 were $80.0 million compared to $71.6 million for the same period in 2021. The increase in selling, general and administrative expenses was primarily due to an increase of $2.4 million in stock-based compensation expenses, increased headcount, an increase in travel and in-person events including more physician engagement and educational programs in addition to higher depreciation related to the new office space in Cambridge, Massachusetts.

#### Total Other Income (Expense)

The change in other income (expense) for the three and nine months ended September 30, 2022, compared to the same periods in 2021 was due primarily to fluctuations in the rates of return on our investments in various marketable debt securities and interest expense related to our Revolving Credit Agreement.

#### Income Tax Expense

For the three months ended September 30, 2022, less than $0.02 million income tax expense was recorded and no expense for income taxes was recognized for the same period in 2021. Less than $0.02 million income tax expense was recorded for the nine months ended September 30, 2022, compared to $0.2 million recorded for the nine months ended September 30, 2021, respectively.

#### Stock-Based Compensation Expense

Non-cash stock-based compensation expense is summarized in the following table:

*(In thousands)*

|  | Three Months Ended September 30, 2022 | 2021 | Change $ | Change % | Nine Months Ended September 30, 2022 | 2021 | Change $ | Change % |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Cost of product sales | $840 | $1,114 | $(274) | (24.6)% | $2,992 | $3,313 | $(321) | (9.7)% |
| Research and development | 1,273 | 1,126 | 147 | 13.1% | 4,143 | 3,222 | 921 | 28.6% |
| Selling, general and administrative | 6,991 | 6,356 | 635 | 10.0% | 22,308 | 19,946 | 2,362 | 11.8% |
| Total non-cash stock-based compensation expense | $9,104 | $8,596 | $508 | 5.9% | $29,443 | $26,481 | $2,962 | 11.2% |

The increase in stock-based compensation expense for the three and nine months ended September 30, 2022 compared to the same periods in 2021, was due primarily to fluctuations in stock prices which impact the fair value of the options and restricted stock units awarded and the expense recognized in the period.

### Liquidity and Capital Resources

### Cash Flows

The following table summarizes our sources and uses of cash for each of the periods presented:

*(In thousands)*

|  | Nine Months Ended September 30, 2022 | 2021 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $10,712 | $18,489 |
| Net cash used in investing activities | (14,477) | (5,386) |
| Net cash provided by financing activities | 440 | 7,830 |
| Net (decrease) increase in cash, cash equivalents, and restricted cash | $(3,325) | $20,933 |

#### Net Cash Provided by Operating Activities

Our cash and cash equivalents totaled $65.2 million, short-term investments totaled $45.7 million and long-term investments totaled $21.7 million as of September 30, 2022. The $10.7 million of cash provided by operations during the nine months ended September 30, 2022 was primarily the result of non-cash charges of $29.4 million related to stock-based compensation expense, $3.1 million of operating lease amortization and $2.9 million in depreciation and amortization expense, offset by a net loss of $22.6 million and a net decrease of $2.5 million related to movements in our working capital accounts. The overall decrease in cash from our working capital accounts was primarily driven by an increase in inventory due to increased production needs and payments on operating leases offset by a decrease in accounts receivable due to cash collections.

Our cash, cash equivalents and restricted cash totaled $54.8 million, short-term investments totaled $43.7 million and long-term investments totaled $20.2 million as of September 30, 2021. The $18.5 million of cash provided by operations during the nine months ended September 30, 2021, was primarily the result of non-cash charges of $26.5 million related to stock compensation expense, $3.4 million of operating lease amortization, and $2.2 million in depreciation and amortization expense, offset by a net loss of $12.0 million, and a net decrease of $2.3 million related to movement in our working capital accounts. The overall decrease in cash from our working capital accounts was primarily driven by a decrease in accounts receivable due to cash collections, an increase in inventory due to increased production needs, and payments on operating leases.

#### Net Cash Used In Investing Activities

Net cash used in investing activities during the nine months ended September 30, 2022 was the result of $44.0 million in investment purchases and $6.5 million of property and equipment purchases primarily for manufacturing upgrades and leasehold improvements, offset by $35.9 million of investment sales and maturities.

Net cash used in investing activities during the nine months ended September 30, 2021 was the result of $49.4 million in investments purchases and equipment purchases of $6.9 million, primarily for manufacturing upgrades and leasehold improvements, offset by $50.9 million of investment sales and maturities.

#### Net Cash Provided by Financing Activities

Net cash provided by financing activities during the nine months ended September 30, 2022 was the result of net proceeds from the exercise of stock options and the employee stock purchase plan of $3.0 million, offset by payments of employee withholding taxes related to the vesting of restricted stock units of $1.5 million and payments of debt issuance costs of $1.1 million.

Net cash provided by financing activities during the nine months ended September 30, 2021 was primarily the result of net proceeds from the exercise of stock options of $9.7 million, partially offset by the payment of employee withholding taxes related to the vesting of restricted stock units of $1.6 million.

### Liquidity

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, including NexoBrid. 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 $10.7 million in operating cash flows during the nine months ended September 30, 2022, and we may finance our operations through the sales of equity securities, revolver borrowings or other debt financings.

We believe that our current cash on hand, cash equivalents, investments, and available borrowing capacity 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 ongoing COVID-19 pandemic continue to evolve and may adversely impact our business and operations. Our actual cash requirements may differ from projections and will depend on many factors, including any future impacts of the COVID-19 pandemic, the level and pace of future research and development efforts, 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 associated with possible acquisitions or development of complementary business activities, and the cost to market our products.

As of September 30, 2022, we were not party to any off-balance sheet arrangements.

### Sources of Capital

On August 27, 2021, we entered into a Sales Agreement with SVB Leerink LLC, as sales agent (“SVB Leerink”), pursuant to which we may offer and sell up to $200.0 million of shares of our common stock, no par value per share (“ATM Shares”). The ATM Shares to be offered and sold under the Sales Agreement will be issued and sold pursuant to an automatically effective shelf registration statement on Form S-3ASR (File No. 333-259119) filed by us on August 27, 2021, which expires three years from the filing date. We also filed a prospectus supplement relating to the offering and sale of the ATM Shares on August 27, 2021. We are not obligated to make any sales of ATM Shares, and SVB Leerink is not required to sell any specific number or dollar amount of the ATM Shares under the Sales Agreement. As of September 30, 2022, we have sold no shares pursuant to the Sales Agreement.

On July 29, 2022, we entered into a $150.0 million five-year senior secured revolving credit agreement by and among the Company, the other loan parties thereto, the lenders party thereto, and JPMorgan Chase Bank, N.A., as the administrative agent

(the “Revolving Credit Agreement”). We have no immediate plans to borrow under the Revolving Credit Agreement, but we may use the facility for working capital needs and other general corporate purposes. As of September 30, 2022, there are no outstanding borrowings under the Revolving Credit Agreement, and we are in compliance with all applicable covenant requirements. See Note 9, “Revolving Credit Agreement” in the accompanying condensed consolidated financial statements for further details.

### Contractual Obligations and Commitments

The disclosure of our contractual obligations and commitments is set forth in the heading “Management’s Discussion and Analysis of Financial Conditions and Results of Operations - Contractual Obligations” in our Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes, outside of the ordinary course of business, to our contractual obligations and commitments since December 31, 2021, except as discussed in Note 5, “Leases” and Note 9, “Revolving Credit Agreement” in the accompanying condensed consolidated financial statements.

### Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, expenses, and related disclosures. Actual results may differ materially from these estimates under different assumptions and conditions.

There have been no material changes to our critical accounting policies and estimates in the nine months ended September 30, 2022. For further information, refer to our summary of significant accounting policies and estimates in our Annual Report on Form 10-K filed for the year ended December 31, 2021.

### Cautionary Note Regarding Forward-Looking Statements

This report, including the documents incorporated by reference herein, contains 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;
- our liquidity and our ability to satisfy obligations of our Revolving Credit Agreement as they become due;
- our ability to comply with the financial and other covenants in our Revolving Credit Agreement;
- our exposure to risk as a result of potential changes in interest rates;
- reimbursement for our products;
- the timing of the FDA’s review of the NexoBrid BLA resubmission;
- expectations regarding approval by the FDA of the NexoBrid BLA resubmission;
- product development and marketing plans;
- features and successes of our therapies;
- clinical trial plans, including publication thereof;
- the effects of the ongoing COVID-19 pandemic on our business, including economic slowdowns or recessions, impacts to our operations or to the healthcare industry generally, which could reduce demand for our products;
- anticipated inflationary pressures and our responses thereto as well as other unfavorable global and regional economic conditions, geopolitical events, and military conflicts, such as repercussions from the ongoing war in Ukraine;
- anticipation of future losses;
- replacement of manufacturing sources;
- commercialization plans; or
- revenue expectations and operating results.

## Market risk

As filed, 831 characters.

For quantitative and qualitative disclosures about market risk, see Part II, Item 7A. “Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the year ended December 31, 2021. Our exposures to market risk have not changed materially since December 31, 2021, except as discussed below.

### Interest Rate Risk

#### Revolving Credit Agreement

We are subject to interest rate risks in connection with our Revolving Credit Agreement, which is variable rate indebtedness. As of September 30, 2022, there were no borrowings outstanding under the Revolving Credit Agreement. To the extent that we have outstanding borrowings under the Revolving Credit Agreement, we may increase our exposure to risk from interest rate fluctuations which may have a negative impact on our earnings and cash flows.

## Controls and procedures

As filed, 1,360 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 September 30, 2022, 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 September 30, 2022, 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, 8,062 characters.

Factors that could cause the Company’s actual results to differ materially from those in this Quarterly Report are any of the risks described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on February 24, 2022. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Quarterly Report on Form 10-Q, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, except as follows.

***Our Revolving Credit Agreement contains covenant restrictions that may limit our ability to operate our business.***

The terms of our Revolving Credit Agreement, contain, and any of our other future debt agreements may contain, covenant restrictions that limit our ability to: (i) incur additional indebtedness (ii) create liens; (iii) consolidate, merge, sell or otherwise dispose of all, or substantially all, of our assets; (iv) sell certain assets; (v) pay dividends on, repurchase or make distributions in respect of capital stock or make other restricted payments; (vi) make certain investments; (vii) repay subordinated indebtedness prior to stated maturity; and (viii) enter into certain transactions with our affiliates. As a result of these covenants, our ability to respond to changes in business and economic conditions and engage in beneficial transactions, including to obtain additional financing as needed, may be restricted. Furthermore, our failure to comply with our debt covenants could result in a default under our Revolving Credit Agreement, which could permit the holders to accelerate our obligation to repay any borrowings.

### We may incur substantial indebtedness.

On July 29, 2022, we entered into a $150.0 million five-year senior secured Revolving Credit Agreement. As of September 30, 2022, we had no outstanding borrowings under the Revolving Credit Agreement. We may be exposed to the impact of interest rate changes primarily through our borrowing activities. Subject to the limits contained in the Revolving Credit Agreement, we may incur substantial additional debt from time-to-time for general corporate purposes, including, without limitation, acquisitions and capital expenditures, and such other uses as permitted under the Revolving Credit Agreement. If we do so, the risks related to our debt could intensify. Specifically, our debt could have important consequences to our investors, including the following:

- making it more difficult for us to satisfy our obligations under the Revolving Credit Agreement; and if we fail to comply with these requirements, an event of default could result;
- limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions, or other general corporate requirements;
- requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes;
- increasing our vulnerability to general adverse economic and industry conditions;
- exposing us to the risk of increased interest rates as borrowings under our Revolving Credit Agreement are subject to floating interest rates based on SOFR, which could increase the cost of servicing our financial instruments and could materially reduce our profitability and cash flows;
- limiting our flexibility in planning for and reacting to changes in the industry in which we compete;
- placing us at a disadvantage compared to other, less leveraged competitors; and
- increasing our cost of borrowing.

***We are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability, an ongoing war between Russia and Ukraine, and record inflation. Our business, financial condition and results of operations could be materially adversely affected by any negative impact on the global economy and capital markets resulting from the war in Ukraine, geopolitical tensions, or record inflation.***

U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between Russia and Ukraine. In February 2022, a full-scale military invasion of Ukraine by Russian troops began. Although the length and impact of the ongoing military conflict is highly unpredictable, the war in Ukraine has led to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions, which has contributed to record inflation globally. We are continuing to monitor inflation, the situation in Ukraine and global capital markets and assessing the potential impact on our business.

Although, to date, our business has not been materially impacted by the ongoing military conflict between Russian and Ukraine, geopolitical tensions, or record inflation, it is impossible to predict the extent to which our operations will be impacted in the short and long term, or the ways in which such matters may impact our business. The extent and duration of the war in Ukraine, geopolitical tensions, record inflation and resulting market disruptions are impossible to predict but could be substantial. Any such disruptions may also magnify the impact of other risks described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

***NexoBrid’s approval in the U.S. for the treatment of severe burns may be further delayed, or it may not be approved by the FDA for use in the U.S. at all.***

On June 29, 2021, we announced that MediWound had received a CRL from the FDA with respect to a BLA that MediWound had previously submitted to the FDA seeking marketing approval for NexoBrid in the U.S. As part of the CRL, the FDA communicated to MediWound that it had completed its review of the BLA, as amended, and had determined that it could not approve the BLA in its then form. The FDA identified issues related to the chemistry, manufacturing and controls, or CMC section of the BLA and had requested that MediWound provide additional CMC information. 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 Phase 3 pivotal 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.

We have continued to work with MediWound, BARDA and the FDA to address the issues identified in the CRL, and on July 1, 2022, Vericel and MediWound submitted a BLA resubmission to the FDA to address and respond to the issues identified by the FDA in the CRL. Subsequently, the FDA informed us that it has accepted the resubmission for review and has established a PDUFA date for completing that review of January 1, 2023. We cannot predict the likelihood that the 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 U.S. may have a material adverse impact on our business prospects.

Filed Nov 9, 2022.
Source: SEC EDGAR, the filing index for accession 0001628280-22-029082. Last ingested by Listed: Oct 24, 2026, 14:59 ET. No prices; not investment advice.