Organization

9 Months Ended

Sep. 30, 2021

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, or Vericel), 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 therapies for the sports medicine and severe burn care markets. Vericel currently markets two cell therapy products in the United States, MACI® (autologous cultured chondrocytes on porcine collagen membrane) and Epicel® (cultured epidermal autografts).

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 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 also holds an exclusive license from MediWound Ltd. (MediWound) for North American rights to NexoBrid® (concentrate of proteolytic enzymes enriched in bromelain), a registration-stage biological orphan product for the debridement of severe thermal burns. The Company operates its business primarily in the U.S. in one reportable segment — the research, product development, manufacture and distribution of cellular therapies for use in the treatment of specific diseases.

COVID-19

The pandemic caused by the spread of a novel strain of coronavirus (COVID-19) began directly affecting the United States in March of 2020 and has continued since that point. The 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.

Notwithstanding being an essential business, the Company’s business and operations at time have been adversely impacted by the effects of COVID-19. For example, 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. During the summer of 2021, however, the pandemic’s direct and ancillary effects again began to cause some disruption to the Company’s MACI business. For example, following the cessation of COVID-19-related travel restrictions in many parts of the United States and the availability of vaccinations in May and June 2021 some MACI patients postponed or delayed treatment – opting instead to take vacation and/or travel. Further, a surge of new COVID-19 cases during the summer of 2021 caused by the spread of the “Delta” variant again caused disruptions to health care networks, the scheduling of elective surgeries and overall patient behavior. These effects were compounded by staffing shortages at many healthcare facilities across the United States during the same period. Consequently, and notwithstanding the widespread distribution of vaccines in the United States, these factors contributed to a slowdown of MACI procedures during the third quarter of 2021. Although hospitals are now better prepared for subsequent surges in COVID-19 patients, 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 continue to rise, or if new or existing COVID-19 variants render current vaccine treatments ineffective. Because Epicel is used almost exclusively in the emergent setting by burn centers and surgeons throughout the country, Epicel revenue and procedure volumes have been less affected by the pandemic.

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 has closely followed guidance issued by the Centers for Disease Control and Prevention (CDC) and has 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 generally declined since their height at 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 has begun 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 continues to review its policies and procedures regularly, including the Company’s workplace protection plan, as the pandemic evolves and may take additional actions to the extent required.

At-the-Market Offering

On August 27, 2021, the Company entered into a Sales Agreement with SVB Leerink LLC, as sales agent (SVB Leerink), pursuant to which it may offer and sell up to $200.0 million of shares of the Company’s 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 the Company on August 27, 2021, which expires three years from the filing date. The Company also filed a prospectus supplement relating to the offering and sale of the ATM Shares on August 27, 2021. The Company is 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. The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process stock financings as deferred offering costs until such financings are consummated. As of September 30, 2021, the Company has sold no shares pursuant to the Sales Agreement.

Going Concern

The accompanying Condensed 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 September 30, 2021, the Company had an accumulated deficit of $387.8 million, and had a net loss of $4.9 million and $12.0 million, respectively, during the three and nine months ended September 30, 2021. The Company had cash and cash equivalents of $54.6 million and investments of $64.0 million as of September 30, 2021. The Company expects that cash from the sales of its products and 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 Condensed Consolidated Financial Statements. To the extent the United States experiences a resurgence in COVID-19 infections and elective surgery restrictions are reinstated on a widespread basis and significantly impact the Company’s business, 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.