Organization

3 Months Ended

Mar. 31, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization

Organization

Vericel Corporation, a Michigan corporation (together with its consolidated subsidiaries referred to herein as the Company, Vericel, we, us or our), was incorporated in March 1989 and began employee-based operations in 1991. The Company is a fully-integrated, commercial-stage biopharmaceutical company and is a leader in advanced cell therapies for the sports medicine and severe burn care markets. Vericel currently markets two cell therapy products, MACI^® and Epicel^®, in the United States. Vericel obtained both products in May 2014, as part of the acquisition of certain assets and the assumption of certain liabilities from Sanofi, a French société anonyme (Sanofi).

MACI^® (autologous cultured chondrocytes on porcine collagen membrane) 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. The Company also markets Epicel^® (cultured epidermal autografts), 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). The Company operates its business primarily in the U.S. in one reportable segment — the research, product development, manufacture and distribution of biopharmaceuticals for use in the treatment of specific diseases.

COVID-19

The novel coronavirus (COVID-19) outbreak was first reported by China in late December 2019 and rapidly spread globally. The World Health Organization (WHO) declared the outbreak a pandemic on March 11, 2020 and the President of the United States declared a national health emergency two days later. Subsequently most states' governments, including those in Massachusetts and Michigan where the Company's operations are located, issued, and have subsequently extended orders requiring businesses that do not conduct essential services to temporarily close their physical workplaces to employees and customers. Vericel is currently deemed an essential business and, as a result, is exempt from these state orders in their current form.

Notwithstanding being an essential business, the Company’s business and operations have been, and are expected to continue to be, adversely impacted by the effects of COVID-19 as a result of various factors including, without limitation, the imposition of a widespread moratorium on the conduct of elective surgical procedures in the United States, the recent economic downturn due to the pandemic, the imposition of related public health measures and travel and business restrictions and disruptions to the ability of the Company’s employees to perform their jobs.

The implantation of MACI is an elective surgical procedure. On March 13, 2020 and March 14, 2020, the American College of Surgeons and United States Surgeon General, respectively, recommended that each hospital, health system, and surgeon minimize, postpone, or cancel electively scheduled surgeries, which has resulted in a reduction in MACI sales. The stated purpose for these recommendations was that every elective surgery could spread COVID-19 within a facility, use up personal protective equipment (PPE) which may be needed by healthcare workers treating COVID-19 patients, and burden hospital workforce who may be needed to respond to COVID-19. These recommendations were followed by numerous state level executive orders either banning or partially banning elective surgeries. By April 3, 2020, 31 U.S. states had issued executive mandates calling for the suspension of elective or non-essential surgeries. These 31 states represent an estimated 69% of total U.S. surgical capacity. In addition, 14 states had either announced recommendations by state health agencies or voluntary initiatives by hospitals in these states to suspend elective surgeries. These 14 states represent an estimated 28% of total U.S. surgical capacity. In total by early April 45 states, representing over 95% of total U.S. surgical capacity had issued either mandates or recommendations and guidelines suspending elective procedures.

As a result of these restrictions, beginning in mid-March 2020, the Company started to experience a significant increase in cancellations of scheduled MACI procedures as well as a slowdown in new MACI orders. The cancellations negatively impacted the Company’s results of operations for the quarter ended March 31, 2020. The Company’s MACI business will continue to be negatively impacted so long as multiple state orders remain in effect restricting elective surgical procedures. Epicel may be less directly impacted by the pandemic given the critical nature of severe burn injuries, however trauma injury admissions have also been reported to be reduced due to the various COVID-19 related restrictions. Given the rare nature of the severe burns Epicel treats, it is difficult to ascertain whether a similar decline is occurring with severe burns. In addition, any prolonged disruption of the Company’s employees, distributors, suppliers or customers will impact its sales and operating results that could lead to potential impairments to inventory and accounts receivable.

Going Concern

The accompanying consolidated financial statements have been prepared on a basis which assumes that the Company will continue as a going concern and contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.  As of March 31, 2020, the Company has an accumulated deficit of $383.4 million and had a net loss of $4.7 million for the three months ended March 31, 2020.  The Company had cash and cash equivalents of $45.7 million and investments of $37.7 million as of March 31, 2020. The Company expects that existing cash, cash equivalents and investments will be sufficient to support the Company’s current operations through at least 12 months from the issuance of these financial statements. However, the continuing effects of the COVID-19 pandemic may require the Company to engage in layoffs, furloughs and/or reductions in salary, all of which may result in irrecoverable losses of customers and significantly impact long-term liquidity. If current elective surgery restrictions persist for 12 months or longer, the Company may need to access additional capital; however, the Company may not be able to obtain financing on acceptable terms or at all, particularly in light of the impact of COVID-19 on the global economy and financial markets. The terms of any financing may adversely affect the holdings or the rights of the Company’s shareholders.