Revenue

6 Months Ended

Jun. 30, 2019

Revenue from Contract with Customer [Abstract]

Revenue Recognition and Net Product Sales

The Company recognizes product revenue from sales of MACI kits, MACI implants and Epicel grafts following the five step model in Accounting Standards Codification 606 Revenue Recognition (ASC 606).

MACI Kits

MACI kits are sold directly to hospitals based on contracted rates in the approved contract or sales order. The Company recognizes MACI kit revenue upon delivery of the biopsy kit at which time the customer (the doctor) is in control of the kit. The kit provides the doctor the ability to biopsy a sampling of cells to provide to the Company that can be used later to manufacture the implant. The ordering of the kit does not obligate the Company to manufacture an implant nor does the receipt of the cell tissue. The customer’s order of an implant is separate from the process of ordering the kit. Therefore, the sale of the kit and any subsequent sale of an implant are distinct contracts and are accounted for separately.

MACI Implants

The Company recognizes product revenues from sales of MACI implants upon delivery at which time the customer is in control of the implant and the claim is billable. Prior authorization or confirmation of coverage level by the patient’s private insurance plan, hospital or government payer is a prerequisite to the shipment of product to a patient. Depending upon the type of contract and payer for the MACI implant, the Company's net product revenues are either based on contracted rates or estimated based on expected payments from the insurance provider, hospital or patient. The estimates of such payment amounts vary by customer and payer and are based on either contracted rates, publicly available rates or past payer precedents. Changes in estimates are recorded through revenue in the period such change occurs. Net product revenues from sales to distributors may include a prompt pay discount.

On July 25, 2018 and August 10, 2018, the Company entered into amendments to its distribution agreement with Orsini Pharmaceutical Services, Inc. (Orsini). The amendments modified certain payment terms for surgeries after June 15, 2018. In addition, under the revised agreement, the parties agreed to limit Orsini's right to serve as the Company's exclusive distributor for MACI to a specified set of payers as the Company moved to a limited expanded network of distributors. The agreement with Orsini includes a provision whereby the Company retains the credit and collection risk from the end customer on implants after June 15, 2018. Orsini performs the collection activities. The net product revenues for these cases are based on expected payments from the insurance provider, hospital or patient. The estimates of such payment amounts vary by customer and payer and are based on either contracted rates, publicly available rates or past payer precedents. Changes in estimates are recorded through revenue in the period in which such change occurs.

On April 18, 2019, the Company entered into an amendment with Orsini that extended the term of the agreement until May 2022, modified the per case dispensing fee, and eliminated Orsini’s exclusivity for all payers.

On July 26, 2018, the Company entered into a Dispensing Agreement (Dispensing Agreement) with AllCare Plus Pharmacy, Inc. (AllCare). Pursuant to the Dispensing Agreement, the Company appoints AllCare as a non-exclusive specialty pharmacy provider of MACI. The Company pays AllCare a fee for each patient to whom MACI is dispensed. Under the Dispensing Agreement, the Company retains the credit and collection risk from the end customer on all implants. Depending upon the type of contract and payer for the MACI implant, the Company's net product revenues are based on contracted rates or estimated based on expected payments from the insurance provider, hospital or patient. The estimates of such payment amounts vary by customer and payer and are based on either contracted rates, publicly available rates or past payer precedents. Changes in estimates are recorded through revenue in the period such change occurs. On May 1, 2019, the Company entered into an amendment with AllCare that extended the term of the Dispensing Agreement until May 2022 and modified the per case dispensing fee.

Epicel

The Company sells Epicel directly to hospitals based on contracted rates stated in the approved contract or purchase order. Similar to MACI, there is no obligation to manufacture skin grafts upon receipt of a skin biopsy, and Vericel has no contractual right to receive payment until the product is delivered to the hospital. The Company recognizes product revenues from sales of Epicel upon delivery to the hospital at which time the customer is in control of the skin grafts and the claim is billable to the hospital.

Revenue by Product and Customer

The following table and description below reflect the products from which the Company generated its revenue:



	Three Months Ended June 30,					Six Months Ended June 30,
Revenue by product (in thousands)	2019		2018			2019		2018
MACI implants and kits
Implants based on contracted rate sold through a specialty pharmacy ^(a)	$	12,989	$	7,363		$	22,776	$	15,155
Implants subject to third-party reimbursement sold through a specialty pharmacy ^(b)	3,459		2,639			6,202		3,647
Implants sold direct based on contracted rates ^(c)	3,450		3,409			6,676		6,083
Implants sold direct subject to third-party reimbursement ^(d)	281		297			603		580
Biopsy kits - direct bill	557		468			1,099		904
Change in estimates related to prior periods	87		(51		)	50		(189		)
Epicel
Direct bill (hospital)	5,328		4,886			10,555		10,858
Total revenue	$	26,151	$	19,011		$	47,961	$	37,038

(a) Represents implants sold through Orsini or AllCare in which such specialty pharmacy has entered into a direct contract with the underlying insurance provider. The amount of reimbursement is known at the time of sale supported by the pharmacy's direct contract.

(b) Represents implants sold through Orsini or AllCare in which such specialty pharmacy does not have a direct contract with the underlying payer. The amount of reimbursement is established based on a payer or state fee schedule and/or payer history.

(c) Represents implants sold directly from the Company to the facility based on a contract and known price agreed upon prior to the surgery date.

(d) Represents implants sold directly from the Company to the facility based on a contract and known price agreed upon prior to the surgery date. The payment terms are subject to third-party reimbursement from an underlying insurance provider.

Concentration of Credit Risk

On May 15, 2017, the Company entered into a distribution agreement with Orsini Pharmaceutical Services, Inc. as a specialty pharmacy distributor of MACI and has engaged a third-party services provider to provide the patient support program to manage patient cases for MACI. The Company’s receivables risk and credit risk became more concentrated from June 30, 2017 through June 15, 2018 due to the shift to Orsini. Beginning June 16, 2018, the concentration of risk decreased because the Company retains the credit and collection risk from the end customer on implants after June 15, 2018. The Company sells Epicel directly to hospitals and not through a distributor.

The Company's total revenue and accounts receivable balances were comprised of the following concentrations from its largest customers of MACI and Epicel, as follows:



	Revenue Concentration								Accounts Receivable Concentration
	Three Months Ended June 30,				Six Months Ended June 30,				June 30,		December 31,
	2019		2018		2019		2018		2019		2018
MACI	7	%	39	%	7	%	41	%	7	%	8	%
Epicel	6	%	9	%	8	%	12	%	3	%	4	%