Thank you for joining us for the Vericel Corporation Second Quarter 2020 Earnings Call. All participants are currently in a listen-only mode. After the presentation, we will open the floor for questions. Now, I would like to turn the call over to our speaker today, Gerard Michel, Vericel's Chief Financial Officer. Please proceed.

Thank you, operator, and good morning everyone. Welcome to Vericel's second quarter 2020 conference call to discuss our financial results. Before we begin, let me remind you that on today's call, we will be making forward-looking statements covered under the Private Securities Litigation Reform Act of 1995, and all of our projections and forward-looking statements represent our judgment as of today. These statements may involve risks and uncertainties that could cause actual results to differ from expectations and are described more fully in our filings with the SEC, which are also available on our website. In addition, all forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. Please note that a copy of our second quarter financial results press release is available in the Investor Relations section of our website. We also have a short presentation with highlights from today’s call that can be viewed directly on the webcast or accessed on our website. I will now turn the call over to Vericel’s President and Chief Executive Officer, Nick Colangelo.

Thanks Gerard, and good morning everyone. In light of the ongoing COVID-19 pandemic, we're very pleased with our second quarter results, which exceeded our base case scenario from April across several measures including revenue, profitability, and cash utilization. Total net product revenues for the second quarter were $20 million including approximately $15 million of MACI net revenue and $5 million of Epicel net revenue. As we'll discuss in more detail, we saw a very strong recovery as the quarter progressed, and COVID-19 restrictions on elective surgeries were lifted across the country. Total revenues, which decreased 23% for the quarter, declined approximately 78% in April and 32% in May, compared to the same periods in 2019, and increased approximately 29% in June compared to June of 2019. Beginning in March, we implemented several measures to ensure that we maintained our near and long-term growth opportunities and that we were in a strong position when we emerged from the initial COVID-19 restrictions. In addition to continuing to manufacture MACI and Epicel and provide case support to surgeons and patients, we also implemented appropriate reductions in discretionary spending across the organization and deferred non-essential capital expenditures. These actions allowed us to partially offset the decrease in revenue, thereby minimizing the impact on profitability, and importantly allowed us to keep our talented workforce intact to ensure that we maintain operational readiness for what turned out to be a more rapid recovery in elective surgeries than originally anticipated. The reductions in expenditures together with a significant accounts receivable balance entering the quarter allowed us to minimize cash utilization. We ended the second quarter with approximately $81 million in cash and investments and no debt, compared to $79 million at the end of 2019. So all in all, we were able to deliver a solid financial performance for the second quarter in the midst of a very challenging environment. In terms of product performance, MACI had a strong recovery in the quarter in terms of both implants and importantly, biopsies, a leading indicator of future growth. We estimate that only about 10% of elective surgical capacity was available in April, with approximately 60% available in May, and 80% available in June. MACI implant biopsy volumes generally followed the available surgical capacity in April and May, but we saw a strong rebound in implants and biopsies in June. MACI implants, which declined approximately 84% in April and 37% in May, compared to the same periods in 2019, increased approximately 21% in June. Based on our historical biopsy conversion rates, we estimate that about a third of MACI volume in June was catch-up of deferred cases, while two-thirds of the business was from normal patient flow. Overall, we estimate that nearly 50% of national surgical capacity was offline in the second quarter and 25% was offline in the first half of the year. Yet, MACI revenue declined only 27% in the second quarter and 5% in the first half of the year. Likewise, while MACI biopsies declined approximately 79% in April, and 22% in May, compared to the same periods in 2019, biopsies increased approximately 23% in June. And the growth in biopsies that we saw in June continued through July. We believe that this strong recovery for MACI and outperformance versus available surgical capacity demonstrates not only the strong underlying demand for MACI, but that for a number of reasons, MACI is well positioned to resume its growth trajectory despite the current COVID-19 headwinds. First, MACI procedures are performed on an outpatient basis over 95% of the time in either a hospital outpatient surgery center or an ambulatory surgical center. So we don't expect MACI to be significantly impacted by restrictions focused on procedures that utilized inpatient hospital beds. MACI patients are typically young, active, and otherwise healthy individuals who are less likely to have risk factors associated with COVID-19. And given the symptomatic nature of their injuries including chronic pain and loss of function, we believe that they are far less likely to defer treatment compared to patients for other orthopedic procedures. MACI also has a favorable reimbursement profile for both surgeons and facilities. And finally, despite any restrictions on procedures, our case management team is generally able to maintain normal functionality and work with surgeon offices and patients to move cases through the pipeline and schedule or reschedule cases in a timely manner. In terms of refilling the pipeline, the recovery in biopsies also demonstrates the strong underlying demand for MACI. Importantly, we continue to receive biopsies from new surgeons in the second quarter. While the absolute number of biopsy surgeons declined in line with biopsy volume, the proportion of biopsies received from new surgeons remained relatively steady. And as I mentioned earlier, the growth in biopsies that we saw in June continued through July. We also saw a strong recovery for Epicel in the back half of the second quarter. Epicel graph volume, which declined to 70% in April, increased approximately 20% in May through June, compared to the same period in 2019. And Epicel biopsies increased approximately 6% in the second quarter compared to the second quarter of 2019. Overall, Epicel revenue declined 7% for the quarter, but remains up 8% year-to-date. Finally, we announced on June 30, that the Biologics License Application for NexoBrid for the treatment of severe thermal burns was submitted to the FDA. Assuming a standard review cycle, we'd expect marketing approval for NexoBrid in June 2021. We're excited for the opportunity to bring NexoBrid to the U.S. market, as we believe that it will change the standard of care for patients with severe burns and will significantly expand the addressable market for our burn care franchise. I'd like to take a moment now to thank all of our employees for their dedication and efforts in serving our patients and delivering a strong commercial and operational performance in the second quarter, and for achieving the NexoBrid BLA submission ahead of our internal timeline in the midst of very difficult circumstances. Looking ahead, while the ongoing uncertainties related to COVID-19 preclude us from providing full-year guidance, we're confident in the fundamental prospects of our business. And I'll now share some perspective on our expectations for the third quarter, and Gerard will provide additional details in a moment. First, we expect MACI revenue growth in the third quarter of this year over the third quarter of 2019. Despite renewed restrictions on elective surgeries being implemented in certain states and regions of the country, to date, we've not seen a decline in biopsy or implant activity that would suggest any significant postponement of surgeries in those areas. Many of these restrictions pertain only to inpatient procedures that would utilize hospital beds overnight, and therefore generally do not apply to patients treated with MACI. For the reasons that I mentioned earlier, we believe that MACI is well positioned and that MACI patients will be able to receive treatment even in areas with COVID-19 outbreaks. We also expect Epicel revenue in the third quarter to increase sequentially over the second quarter of 2020 and to return to recent historical quarterly revenue levels seen prior to the COVID-19 disruptions in the second quarter. COVID-19 has created certain challenges in terms of sales force access to burn centers, while representatives can gain access to support cases, there are restrictions on in-person sales calls to high-risk patient populations at those centers. These restrictions obviously could create some headwinds for near-term growth as our ability to work through the sales process with new centers may be more limited. However, the team's doing a great job working through this challenge as demonstrated by the results in May and June and our stated expectations for the third quarter. Finally, we expect to recognize revenue in the third quarter in connection with MediWound’s first delivery of NexoBrid under the BARDA procurement contract, which is scheduled to take place later this quarter. I'll now turn the call over to Gerard to provide more detail on our second quarter financial results and additional details on our expectations moving into the third quarter.

Thanks, Nick. Starting with the second quarter results, total net product revenues for the quarter ended June 30, 2020, decreased 23% to $20 million compared to $26.2 million in the second quarter of 2019. Total net product revenues for the quarter included $15.1 million of MACI net revenue and $4.9 million of Epicel net revenue compared to $20.8 million of MACI net revenue and $5.3 million of Epicel net revenue respectively, in the second quarter of 2019. Gross profit for the quarter ended June 30, 2020, was $11.4 million, or 57% of net revenues, compared to $17.1 million or 66% of net revenues for the second quarter of 2019. Total operating expenses for the quarter were $19.7 million, compared to $37.3 million for the same period in 2019, which included $17.5 million upfront license payments to MediWound for North American license of NexoBrid. Excluding the $17.5 million license payment, operating expenses remained essentially flat as reductions to discretionary spend and variable cost reductions offset the cost increases associated with the MACI salesforce expansion earlier this year. Vericel’s net loss for the quarter ended June 30, 2020, was $8.3 million or $0.18 per share, compared to $19.8 million or $0.45 per share for the second quarter in 2019, inclusive of the $17.5 million license payment for NexoBrid. Non-GAAP adjusted EBITDA loss was $3.5 million for the quarter compared to positive adjusted EBITDA of $1.8 million in the second quarter of 2019. Turning to the third quarter, we have based our guidance on our standard biopsy conversion model, which projects implants based on biopsies received and historical conversion rates, and then adjusts this output to take into account key COVID-19-related factors. While biopsies were down 25% in the second quarter, June biopsies were up 23%, a robust trend closer to the underlying organic growth we expected prior to COVID-19, which as Nick mentioned, continued into July. Although there are fewer biopsies in the second quarter to convert into third quarter implants, we expect this will be partially offset by the backlog of biopsies that normally would have converted to implants in the first half of the year, but didn't due to COVID-19 restrictions and will instead convert in the third quarter. Overall, we expect 80% of our Q3 volume will come from normal patient flow, and approximately 20% of our volume will be from catch-up from the first half of 2020. A second factor impacting our model is the impact of elective surgery restrictions on overall surgical capacity. As Nick mentioned, recent restrictions are more targeted and thus have had less of an impact on MACI relative to earlier restrictions. We assume that for the balance of the year, there will be an evolving set of regions and hospital systems which have targeted restrictions in place, but these restrictions will have only a limited impact on elective surgery capacity, including MACI procedures. With these assumptions in mind, we expect MACI growth to improve from the 23% decline in the second quarter to at least mid-single-digit growth in the third quarter. We expect at least a $1 million sequential step up from the second quarter in Epicel revenue, which represents a return to its average level we saw in Q4 2019 and Q1 2020 prior to COVID-19 disruptions in the second quarter. We also expect to recognize approximately $1 million in revenue in connection with the first delivery by MediWound under the existing BARDA procurement contract, which is scheduled to take place later this quarter, with another purchase in the fourth quarter at that same level, and the remaining purchases spread across 2021. Gross margins in the quarter are expected to be at least equivalent to Q1 of this year or approximately 63%. Operating expenses will absorb a full quarter of the larger MACI salesforce and with higher revenue we will also see proportional increases in our variable selling, general, and administrative expenses, leading to an approximate $2 million increase in Q3 relative to Q2. As of June 30, we had approximately $81 million of cash and investments, which is down slightly from the end of the first quarter, but still up $2 million from the end of 2019. Looking ahead, we expect net cash flows to remain relatively neutral for the second half of the year under most scenarios. That completes my financial review. I'll now turn the call back over to Nick.

Thanks, Gerard. As I mentioned earlier, we're pleased with the second quarter results in light of the current environment, and while uncertainties remain, we expect our business to further strengthen in the third quarter. We're also looking forward to working with the FDA during the NexoBrid BLA filing and review process as we seek marketing approval for NexoBrid BLA in the U.S. in 2021. That concludes our prepared remarks. As a reminder, the presentation available on our website provides highlights of today's call. And now I'd like to turn the operator to open the call to your questions.

Your first question is from Ryan Zimmerman with BTIG.

So I wanted to just follow-up on the commentary about the third quarter and the patient flow that you expect into the third quarter. I think Gerard, you said about 80% will be normal patient flow and 20% is catch-up, and I'm just curious if you could elaborate a little bit on those metrics. And how you came to that? Only because I guess the question that people may have is, are those 80% in any way being made up from patients that just didn't show up necessarily in the second quarter. And so, to parse out some of those dynamics in the third quarter in terms of biopsies that we know we're lost versus new patients, and those patients that are being made up. I'll stop there, and let you elaborate?

Sure. So we have, as you know, a bit of visibility into the back end of our pipeline because of the biopsies that come in. And if we look at the biopsies that came in hands okay, that we know we have sitting in liquid nitrogen at the moment, we can predict how much should have converted in the very end of the first quarter and throughout the second quarter. We know those that didn't convert, and we don't know exactly which ones should have converted, but it’s a large number of those that did not convert, we view that as our catch-up pool that we know about. All right. And we're predicting that about 20% of the third quarter numbers will come from that catch-up flow, and that will almost fully exhaust, not quite properly fully - some close to fully exhausting that catch-up pool. Going forward after that, we think the normal biopsy flow and conversion flow is going to normalize. And therefore looking into the fourth quarter, for example, we think we'll probably under this normal placement flow at about the same growth we're expecting in the third quarter, just to give you a little bit of light as to what's going to happen a little later in the year based on the model. Now we're not assuming this as a dramatic increase in biopsy catch-up; we're not looking for a big tidal wave of biopsies to catch-up that might happen. We're not taking that into our forecast. We don't think that's prudent. We think things are going to just kind of get back to normal; we'll get a catch-up out of the biopsies that have recurred. And then things are going to kind of get more steady state thereafter. Nick, I don't know if you want to add anything or.

Yes, no, I think you covered it well, thank you.

And just lastly, you talked about surgical capacity, and I think it was around 10% in April, 60% in May, 80% in June. What are you estimating for capacity into July?

It’s a good question. We see numbers all over the place. 90% Nick, would you say is where we are roughly?

Yes, I think that's fair. I mean, I think, obviously, the practices are up and running, whether they're seeing as many patients as they normally would. I think the commentary would suggest maybe not quite as many. On the other hand, the patients they're seeing are the symptomatic patients that for instance, in our case, are more likely to end up moving on to surgery. So it's a bit of a moving fluid situation, but I think that sort of accurately captures it.

Your next question is from the line of Danielle Antalffy with SVB Leerink.

Thanks so much for taking the question. And congrats on delivering a pretty good quarter, all things considered. Gerard, when we had spoken after the pre-announcement, you sort of cited two things that make Vericel unique in this recovery, one of which was the patients are actually younger, so you don't have as much of the dynamic of patients fearing coming to the hospital because of COVID. But the other thing was that you have access to these patients from a consent perspective, you can track them through the system. And I was just wondering how many patients you have consent from at this point in order to follow up with them and help move them through from biopsy to procedure. That's my first question?

Okay. So there are like two components there. One is when a patient gets a biopsy if they do consent for us to contact them before there is any communication from the physician's office of intent to treat, those we can reach out and contact and check in on how they are doing, do they still have pain, remind them that we have their biopsy, tell them a little bit about MACI. That's one set. There is another set of patients where the physician's office actually indicated that there was an intent to treat and those we can very much shepherd through the system. And those are the ones that we weren't very rapidly able to catch up. And as we said, we'll probably get to them 70% or so of those by the end of this quarter. And then the consent from that's less of an ability to shepherd them through, but more an ability to remind them that we have their biopsy or if they're not doing very well, the reps know how many biopsies came from particular doctors, so they can also follow-up directly under HIPAA compliant matter, of course. But I think that the patients that were activated that there were some indication, hey, we'd like to look into reimbursement, et cetera. Those are the ones that we can really get rescheduled very quickly, and I think we've done a - frankly, the team's done a great job.

And then my second question is around NexoBrid. And now that that's becoming closer to a reality, sort of how you guys are thinking about it from a revenue contribution perspective? Because I will say, I was thinking more about it leveraging NexoBrid to get Epicel into more centers, but it sounds like NexoBrid itself might be a pretty meaningful product. So can you talk a little bit about the launch strategy of NexoBrid and also how it will be a complimentary, I guess I would say, and potentially drive sales synergies of Epicel? If that's the right way to think about it. Thank you so much.

Yes, thanks, Danielle. Well, just to clarify, so there are two components to the revenue from NexoBrid. The first one, Gerard mentioned that the procurement under the BARDA contract, we expect to recognize revenue starting this third quarter with another order in the fourth quarter and the remainder in 2021. So that's one source of NexoBrid revenue, and in total, that would be about $1 million this quarter next, and then the remaining $3.8 million or $9 million next year. So that's one component. In terms of the commercial revenue contribution from NexoBrid. Obviously, we wouldn't have done the deal if we didn't think it could be a substantial contributor to our burn care franchise. As you know, I think you've seen in our corporate presentation, we believe the addressable market for Epicel is about $100 plus million and the addressable market for NexoBrid is $200 plus million based on the number of hospitalized patients in the U.S. each year, which is about 40,000. We believe we haven't obviously issued any forecasts or guidance around the product, but we certainly believe it could be and will be a meaningful revenue contributor to the company.

Your next question is from the line of Chad Messer with Needham and Company.

Thanks for taking my questions. Historically, sort of pre-COVID, what's the lead time from a mean, you know, average, I know it's going to vary, but mean lead time from biopsy to implant in the cases where you get conversion?

It actually compressed for about a year and a half ago till you know recently, but it's about four - it's about four months. And I don't know if it's meaningfully changed post COVID, but four months is the median.

And then on your OpEx guidance for going up $2 million obviously, you have some sort of discretionary things you're able to pull back on and as sales go up, you'll put those in place. Would you characterize that guidance for up $2 million in 3Q as a return to a normal run rate? Are there other things that maybe held back on and or perhaps other things that you're playing catch-up with?

I think for the foreseeable future for the next few quarters, I would say that is probably a normal run rate. There's not a lot of dramatic things to catch-up on.

And just on Epicel I'm trying to understand here I know you referred to an inability of the salesforce to, for example, access the sites during the COVID lockdown. But it seems from an end-user demand level, that severe burns are the kind of thing that would just be less impacted by COVID. I mean a patient that has a very severe burn and needs to be treated for it. You can't put that off. So maybe try to help me understand, is this something to do with the way sales are recognized? Is this a product that's kept on the shelf and they had to restock? Or how could it be so cyclical when I don't know, maybe people just gotten less accidents during the lockdown? But how could it be so cyclical when this wouldn't be the kind of procedure that could be restricted?

Yes, so Chad I'll take that one. Number one, our strategy for Epicel is of 120-ish burn centers in the U.S., we're pretty active, and then typically around 40 a year. So part of our strategy for Epicel is obviously to broaden and deepen the penetration in the burn centers across the country. And just to clarify, my comment was, there could be some headwinds around access in centers where we're not that active now. Just because sales calls are relatively restricted from a case support standpoint, there's essentially unfettered access, we're at, you know, we could be at the biopsies, but obviously, certainly at the surgeries. Our clinical support team is there and then during the takedown procedures and so on. So when it comes to patients where we have a biopsy and they are moving on to surgery, access is not an issue at all. What I was referring to is the aspect of our growth strategy in terms of penetration at centers where Epicel had not typically been used. And in those cases, it's a little harder to do sort of just cold sales calls in this kind of environment. So that was it, but obviously, we saw great strength from Epicel in May and June. There is no backlog of patients with Epicel for the reasons you stated that these are critically ill patients. And so, we saw good growth in Q1 up 22%. We saw good growth in May and June. So, we still expect Epicel to do well going forward.

Yes, I appreciate that clarification. I was just wondering if you had any reason why there would have been a drop-off in April. For example, were there just fewer burn patients or were fewer burn patients being treated? It would seem like if you had a severe burn in April, we have to treat it?

Yes, Chad you're absolutely right. If it's a severe burn, they have to be treated. There are two components or three things going on here. One is there's so much normal variability, small numbers - it's really hard for us to be definitive about when there's a big spike up or down, what the driver was. The second thing is, we did hear from some reps that yes, there are fewer industrial accidents. We also heard from other reps, it doesn't seem like they are seeing much difference. It was hard for us to be definitive as to whether that was a driver. Now we certainly couldn't get reps into facilities as freely as we otherwise could. And the reps are very, very important in helping to identify Epicel-type of patients, which patients would most benefit from Epicel. So that, it's unlikely that didn't have an impact for lack of access. Whether or not a drop in industrial accidents was also a big factor or not, it's certainly feasible but clearly can't be shared for sure, because we didn't get consistent feedback from reps or surgeons we talked to.

Okay, yes I understood. I get it, small enough number is probably difficult to pin down.

Right, well said.

Your next question is from the line of Kevin DeGeeter with Oppenheimer.

Nick and Gerard thanks for the comments with regard to surgical capacity utilization. I guess on an unrelated question are you seeing similar types of seasonal slowdown here in July into August that we typically associate with summer travel and vacation for many surgeons? In short, are surgeons going away and kind of similar rates and does that have any impact on how we should think about your seasonality in the second half of the year?

I think it's really tough to use past seasonality patterns this year, as everything is kind of out the window. What we're seeing, we've baked into the guidance that we've shared.

Obviously to make that point, Kevin, that obviously we said we expect revenue to increase this third quarter versus last year, third quarter and I think that captures all the dynamics that we normally take into account.

And the follow-up on the questions with regard to your commercial channel for burn centers. Can you just walk us through how you're thinking about the timing of prelaunch activities for NexoBrid? Will those begin in earnest, really in the new year, or should we think about some of those in the second half? And as you think about a product like NexoBrid, that does have a different kind of selling profile than Epicel? In a world where we're perhaps, you know, COVID remains a real issue for particularly the burn center setting. Yes, how are you thinking about strategies, perhaps where there's a need to use more remote and perhaps even digital sales and marketing and the impact that could have on a go-to-market strategy for NexoBrid?

Yes, so I'll just start with sort of the commercial activities, the cadence is pretty standard in terms of there's payer development activities, brand development activities, disease state awareness, et cetera. And we've already rolled out the first parts of that which is around disease state of awareness. Interestingly, at the ABA Meeting this year, we ended up doing it digitally and actually, there was a top five abstract NexoBrid was one of those. And that was delivered virtually by Dr. Hickerson. So things are happening just been in a more virtual world. So our cadence, we've already begun disease state awareness, the brand activities, pricing studies, payer access development, et cetera will all be happening in the fall this year and through launches would typically be the case. So that's pretty standard. In terms of, yes, it's a different product, but again, these are hospitalized severe burn patients. So, clearly in our wheelhouse, there'll be a different sort of distribution model where likely to be hospital pharmacy dispensed versus manufactured here and shipped to the burn centers, but these are centers that we're in typically anyway. And I don't think there's sort of a big hill to climb in terms of our ability to effectively commercialize the product in what's a pretty concentrated set of burn centers. Gerard I don’t know if there is anything you want to add to that.

Your next question is from the line of Jeffrey Cohen with Ladenburg Thalmann.

So just three that I wanted to touch upon. So firstly, could you talk about the margins a little bit? I think you did about a million better than what we thought for Q2, and I guess talk about your previous normalized rate, which is probably 10 points away from Q2, and step back or just set a kind of linearly increase over Q3 and Q4 in '21?

Yes, so I think we're going to get back - I think the margin is really, obviously are heavily driven by volume. We gave guidance that we thought on an operating margin basis that we would see things flex such that there is kind of a 25% change on the marginal revenue dollar downwards as volume declined, and we're going to see roughly the same thing going forward on the other direction. We've got it that we should expect to see margins around 63% in this coming quarter, and I think that will continue to increase, really if you look at past years and look at whatever volume revenue number you saw the past years, you can probably use that to pick up what margin do you expect to see going forward on the gross profit line. On the operating expense side, operating margin you have to throw in an extra about $2 million a quarter now with this full sales force. But if you kind of plug that in, you again can look at past years to estimate what our operating margin should be.

Second question, as far as BARDA goes, it sounds like the contracts coming earlier than your commentary last month, I just wanted to kind of check that or more in line with probably…

What we said last month earlier in the year was that we were hopeful that things will come in this year, but we asked investors and analysts not to bake it into their model because we're not a direct party to that contract and we don't want to put out statements, to put things and models and we don't have direct control. I think that won’t only just benefit normal job managing the relationship with BARDA. BARDA had to postpone the procurement for obvious reasons; their hands were rather full with other matters as we all know. And I think MediWound has managed to get a firm schedule in place with BARDA, and we're confident they'll execute on that.

And then lastly for me for some of Ryan's questions, I want to just circle around you talk about Q3 MACI or Q3 as a whole mid-single digits that call it $10 million or $11 million bump in there on the MACI side a percent a year. You think it comes from the catch-up pool and the percent that's coming in and more of a normalized fashion. That theoretically catches up with you in Q3 or some in Q4 as well?

Yes. At least, you know, mid-single-digit growth that we expect to see in MACI over the same period of the prior year, we saw that 80% of that we think is going to be from normal patient flow. And then 20% of that will be basically patients that were delayed from the second quarter that otherwise should have come in.

And just on the sort of magnitude or absolute dollar value of that. I mean Q3 MACI revenue was, I believe around $20.6 million or something like that. And so obviously that's the starting point from last year upon which to bake the increase for Q3 this year.

But I guess the question is rather the 20 from the pool, how much of the pool based on historic do you think that it's…

I think by the end of the third quarter, most of that catch-up pool will have been depleted.

Right. That was Gerard's point that we expect just based upon sort of biopsies to date through July plus what we expect going forward for Q3 in the remainder of the year, that we would see sort of a similar level of growth that we're projecting for the third quarter in the fourth quarter, and you know, by definition that essentially means that the pool is essentially exhausted.

And we're basically back to that, back to more organic growth from normal patient flow.

Your next question is from the line of Swayampakula Ramakanth with H.C. Wainwright.

Thank you, good morning, Nick and Gerard. Most of my questions have been answered, but I have a couple of them. On the Epicel growth for the third quarter that you're stating about $1 million or so increase. What, I'm just trying to understand the confidence behind it - behind that Epicel growth?

Yes, there has been a $1 million increase compared to Q2 of this year. We recognize that Epicel's variability makes it challenging for modeling. Our focus is on the current orders and available biopsies, while also making certain assumptions. One difficult variable to predict is how many patients may not survive before treatment, so we generally use an average figure for that. We also consider a mid-range estimate for the latter part of the quarter, as there is limited visibility until the end. Therefore, we are basing our approach on the available facts and applying average rates for the latter part of the quarter.

Okay.

To do that.

No, that's helpful. Talking about conversion rate, could you give us the percentage change in biopsy conversion for MACI that you saw in the second quarter versus the first quarter?

It's a very good question. And it's a difficult question to answer because conversion rates really are - we don't know what the conversion rate is for any particular quarter two or about two years past it because the cohorts have to age over time. Now when we look at the model, what happened is conversion rates for all the different quarters in the back - in the past, they all dropped somewhat because the implants weren't occurring. When catch-up occurs they pop up a bit. Now for any specific cohort, it might be a few percentage points down and a few percentage points up. Overall, putting aside this COVID world they haven't moved very much in the last couple of years. But yes, they've dropped maybe three or four percentage points in the quarter. And then popping right back up for the recovery, but that'll be a temporary dynamic that I think, again, by the time we get to the fourth quarter will work its way through.

So the last question from me is a general question. You seem to have almost three quarters behind you by the way in the sense that you have an idea what the third quarter is looking. So what's the hesitancy, and I am talking for the year itself?

Well, that’s simple. None of us know what the future holds. And I think, from October, could we find out that we're right back close to where we were in April? I don't think so, but it's certainly not outside the realm of possibility. So we don't want to put forward a degree of confidence in the future that I don't think anybody should have at this point. We think we're very confident in the fundamentals of our business. We can control the overall environment out there. And as we all know, that can kind of change in a dime. And that's pretty much it.

There are no further questions. I will turn the call back over to the speakers for any closing remarks.

Great, well thanks again. I just want to thank everybody for joining us this morning, for your questions and for your continued interest in supporting the company. So stay safe and have a great day. Thanks.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.