Vericel Corp Q1 FY2024 Earnings Call

Thank you for joining us. Welcome to Vericel's First Quarter 2024 Conference Call. Please note that this call is being recorded for replay. I will now hand over the call to Eric Burns, Vericel's Vice President of Finance and Investor Relations.

Thank you, operator. Good morning, everyone. Joining me on today's call are Vericel's President and Chief Executive Officer, Nick Colangelo; and our Chief Financial Officer, Joe Mara. 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. These statements may involve risks and uncertainties that could cause actual results to differ materially from expectations and are described more fully in our filings with the SEC. 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 first quarter financial results press release and a short presentation with highlights from today's call are available in the Investor Relations section of our website. I will now turn the call over to Nick.

Thank you, Eric, and good morning, everyone. I'll begin today's call by discussing our financial and business highlights for the first quarter, as well as our expectations for the remainder of the year. Joe will then provide a more detailed review of our first quarter financial results and guidance for 2024 before opening the call to Q&A. We entered the year with a great deal of momentum after an outstanding close to 2023, and that momentum continued through the first quarter as we delivered another quarter of top-tier revenue growth, including record first quarter total revenue and significant growth in profitability. Total revenue for the quarter increased 25% to more than $51 million, which was above the top end of our guidance range, with record first quarter MACI revenue and more than 60% growth in Burn Care revenue. This strong top-line growth translated into significant margin expansion and profit growth as we generated record first quarter gross margin, which increased more than 400 basis points compared to last year, and adjusted EBITDA growth of more than 300%, as the company's profit growth continues to outpace our high revenue growth. Based on the strong start to the year, we're increasing our full year revenue guidance to $238 million to $242 million. MACI had another excellent quarter with revenue growing 18% to more than $40 million, which was above the top end of our guidance range for the quarter. MACI's first quarter performance was driven by strong underlying business fundamentals as we continue to expand the MACI surgeon customer base and drive growth in biopsies. While the first quarter typically is the seasonally lowest quarter of the year, we had the second highest number of MACI biopsies and surgeons taking biopsies in any quarter since the launch, behind only the fourth quarter of last year, making the last two quarters the highest quarters ever on both of those metrics, as our sales and marketing teams continue to execute at a very high level in building a strong foundation for continued growth. To that end, surgeon interest and engagement with MACI remains high as the number of peer-to-peer programs and training labs for MACI more than doubled, and overall program attendance more than tripled in the first quarter compared with last year. The high level of surgeon interest is driven by the strength of MACI's long-term clinical outcomes, which were highlighted in a study published in the American Journal of Sports Medicine in the first quarter. This prospective study showed excellent long-term results for MACI patients treated for both patellofemoral defects, where we currently have our highest penetration rates, as well as femoral condyle defects, which is the focus of MACI arthro program. Prelaunched commercial activities for MACI arthro continue to progress in advance of our anticipated launch in the third quarter of this year. In connection with the launch, we're expanding our target surgeon base from 5,000 to 7,000 surgeons to include surgeons that perform high volumes of cartilage repair predominantly through arthroscopic procedures. Based on our experience to date, we expect to achieve more than 50% penetration of this larger target surgeon base over time, meaning that surgeon adoption and biopsy growth will continue to be important growth drivers for MACI in the years ahead. In addition, MACI arthro instruments target smaller cartilage defects that comprise the largest segment of our addressable market, representing approximately 20,000 patients per year or one third of the $3 billion addressable market for MACI. We believe that MACI arthro will take a greater share of these procedures and provide significant upside growth opportunity for the company. We also continue to advance the MACI development program to treat cartilage defects in the ankle and remain on track to initiate the MACI Ankle clinical study in 2025. Cartilage defects in the ankle represent the second largest market opportunity for MACI. We believe that a potential ankle indication with an estimated $1 billion addressable market could be another significant growth driver for MACI in the next decade and beyond. Turning to our Burn Care franchise: first quarter revenue increased more than 60% to over $11 million as we delivered another quarter of high revenue growth, with total Burn Care revenue above the high end of our guidance range. Epicel revenue grew 56% to over $10.5 million in the first quarter, representing the second highest quarterly revenue ever for Epicel. Epicel continues to benefit from our expanded sales force and a higher share of voice in the Burn Care market, as there was a meaningful contribution to Epicel revenue in the quarter from new or dormant accounts. NexoBrid launch momentum continued during the quarter as we made significant progress with respect to burn center key performance indicators and growth in underlying NexoBrid demand metrics. Through the end of the first quarter, more than 60 burn centers have completed P&T Committee submissions, approximately 40 centers have gained P&T Committee approval, and more than 30 centers had placed an initial product order. In addition, there was a significant increase in the number of patients treated with NexoBrid in the first quarter and significant growth in the number of burn center orders and NexoBrid units ordered by hospitals versus the prior quarter. We remain very pleased with the strong surgeon interest in NexoBrid, as demonstrated by the high level of attendance and engagement at NexoBrid events at the recent American Burn Association Annual Meeting. The progress in onboarding burn centers, the excellent clinical outcomes and positive feedback from surgeons treating patients, as well as the clear impact that our broader Burn Care portfolio and expanded sales teams are having on Epicel's performance. We believe these factors will enable the company to build a strong foundation for NexoBrid in 2024, and the company is now very well positioned to deliver sustained growth in the second high-growth franchise in place. Overall, the company delivered another strong quarter, and based on the strength of our core portfolio and the expected contributions from our new product launches, we believe the company is very well positioned for continued high revenue and profit growth in 2024 and beyond. I'll now turn the call over to Joe.

Thank you, Nick, and good morning, everyone. Starting with our first quarter results, total net revenue for the quarter was $51.3 million, marking a 25% increase over the previous year, exceeding the upper limit of our guidance range. MACI revenue rose 18% to $40.2 million, while total Burn Care revenue surged 63% to $11.1 million, both surpassing our quarterly expectations. Epicel revenue reached $10.7 million, reflecting a 56% year-over-year increase, representing Epicel's second highest quarterly revenue to date. NexoBrid revenue totaled $0.4 million, consistent with our expectations and similar to fourth quarter revenue. Although hospital orders and units grew significantly compared to the prior quarter, variability in specialty distributor and hospital ordering patterns as well as inventory factors can influence quarterly revenue outcomes. Gross profit for the quarter was $35.4 million, or 69% of net revenue, up more than 400 basis points from the previous year, achieving the company's highest first-quarter gross margin ever. The transfer of incremental revenue to gross profit also remained robust in the first quarter at over 85%. Total operating expenses reached $40.8 million, compared to $34.7 million in the same period in 2023. This increase was primarily driven by development activities for MACI arthroscopic instruments, a rise in headcount and associated employee expenses, and lease expenses for the company's new facility currently under construction. The net loss for the quarter was $3.9 million, or $0.08 per share, compared to a loss of $7.5 million, or $0.16 per share, for the first quarter of 2023. Non-GAAP adjusted EBITDA for the quarter rose 325% to $7.2 million, or 14% of net revenue, compared to $1.7 million, or 4% of net revenue in 2023. This growth in adjusted EBITDA significantly outstripped our revenue growth. The increase in adjusted EBITDA margin of about 1,000 basis points during our seasonally lowest quarter indicates strong P&L leverage and superior profitability for the company. Finally, we generated $7.2 million in operating cash flow during the quarter and concluded the first quarter with $148 million in cash, restricted cash, and investments, with no debt. Turning to our financial guidance, following a strong start to the year, we are raising our total revenue guidance for the full year to $238 million to $242 million, reflecting a total revenue growth of 20% to 23%. For the upcoming quarter, we anticipate MACI revenue to be around $42.5 million. We expect Burn Care revenue for the second quarter to reach approximately $10 million alongside another strong Epicel quarter surpassing our 2023 quarterly run rate and a sequential increase in NexoBrid revenue. In accordance with our second quarter guidance, the trailing 12-month revenue growth will exceed 20% for MACI, Burn Care, and total company revenue as we maintain significant top-line growth across both franchises. For the full year, we still anticipate a gross margin of about 70%, an adjusted EBITDA margin of around 20%, and operating expenses to total approximately $165 million. For the second quarter, we expect gross and adjusted EBITDA margins to be comparable to those in the first quarter. The company has experienced a very strong beginning to the year, achieving 25% top-line growth in the first quarter along with notable profitability growth and margin expansion. Additionally, on a trailing 12-month basis, the company has shown 23% total revenue growth and 74% adjusted EBITDA growth, highlighting continued substantial growth in both top-line and bottom-line metrics as we enhance the overall financial profile. Overall, we believe the company is positioned strongly for another successful year in 2024 and has a solid foundation for ongoing substantial growth in the future. This concludes our prepared remarks, and we will now open the call for questions.

First question comes from Ryan Zimmerman with BTIG.

Congratulations on a strong start. I have a couple of questions. First, regarding guidance, I want to clarify two things. Do you still expect NexoBrid sales to be within the range you previously mentioned, around $7 million to $8 million or $8 million to $9 million? And could you confirm if you still anticipate that level of sales this year? Additionally, you exceeded expectations by about $2 million. If we consider that across both franchises, the guidance appears to be increasing by about $1 million. Can you explain where you think there might be some caution between MACI and Epicel in your guidance for the year? I have a second question as well.

All right. Well, I'll start with those, and thanks for the question. So I may start on the total guidance and then talk a little bit about how we're thinking about the Burn Care on a full year basis. So in terms of the total guide, we had a very strong start to the year in Q1. We're raising our guidance to $238 million to $242 million. So if you look at the midpoint there, which is where our focus is, we're up $1 million, so $239 million was our midpoint coming into the quarter. We've increased that to $240 million. In terms of kind of the mix on franchises to start, I would assume the $1 million increase is on MACI's side, and that kind of flows through to MACI. Given MACI, it was roughly $1 million ahead in Q1 in terms of our expectations and guidance. Our metrics are very strong into Q2. I think relative to the estimate we gave last quarter, which, again, there's multiple scenarios. But the framework we gave, which the starting point for MACI was in the high teens, and I had referenced $194 million. I think you can assume that comes up in our base case, if you will, to $195 million, and the range picks up as well, call it, $193 million to $197 million if you think about kind of the high-teens range. The remaining $45 million would stay on Burn Care, and that gets you to the $240 million in total. A couple of things kind of around your question. So one, we don't typically adjust our Burn Care guidance, particularly after the first quarter. We don't adjust it rather after the first quarter of the year. We had a very similar situation last year where we had a run rate expectation going into the first quarter. We were ahead of that. We did not adjust, and then if you just think about kind of our Burn Care portfolio where Epicel is still very, although clearly, it's doing quite well and benefiting from the higher share of voice. It can vary on a quarterly basis. And I would say it's still difficult to predict exactly what the shape of the NexoBrid launch uptake curve looks like. So it's still early in the year there. So kind of holding guidance there. It is important to recognize that in the Burn Care total, this is still kind of well above at $45 million, well above the company growth at nearly 40% on a full-year basis. So we still have high expectations on the Burn Care side for both franchises. And of course, we had a very strong start from a profitability perspective in the first quarter as well. In terms of your question on the mix, if you will, for the balance of the year, I would say, obviously, Epicel had a great start to the year with its second highest quarter to date and nearly $11 million on its own. And so as we think about Burn Care, I think there's a number of scenarios. To your point, what I referenced last quarter where numbers kind of in the $38 million range and $7 million-ish range that got you to $45 million in total on Burn Care. If, for example, we maintained a higher run rate in Epicel than we called for the start of the year throughout the balance of the year, that probably gets us closer to $40 million on Epicel, and the balance would be, call it, $5 million on NexoBrid. Again, I think it's still early in the year. I think both products could shift a little bit. But I think there's multiple scenarios to get us to 45%. So at this point, it's still difficult to predict exactly what it looks like, but we expect both products to contribute, but NexoBrid is in a build year. And clearly, Epicel is operating at a higher run rate.

Yes, that's very helpful, Joe. I appreciate all the information. For my second question, and not to undermine profitability, it's nice to see. Regarding MACI, I want to ask about the launch of MACI arthro. As you consider the wider range of doctors you can target, are you thinking about expanding your sales force? Should we consider that from an operating expense perspective? Also, you mentioned achieving 50% penetration over time, and by my estimates, you currently have about 2,400 doctors. So that would mean reaching around 7,000 doctors, which is 1,000 more. Why aim for 50%? Why not target a higher percentage, such as 75%? I'm curious about what informs that decision.

Ryan, this is Nick. First, regarding our sales force expansion, we have previously mentioned that the launch of MACI arthro, which will introduce a couple of thousand targets across 76 territories, is something we believe we can manage without needing to realign territories, as such realignment can be disruptive. As volumes grow, we plan to reintroduce some territory development managers from last year in high-volume areas, along with arthroscopic specialists to support surgeons who are new to MACI arthro or MACI in general. We are considering adding around six to twelve people. While this is not a major expansion, we believe it will facilitate the adoption of MACI arthro. Regarding the 50% penetration we often reference, historically, when we launched MACI with 3,000 targets, we reached approximately 50% penetration, significantly increasing from 2018 to 2019, with the number of biopsies and surgeons rising by 25%, totaling about 1,400 for the year, though it was higher cumulatively. Following that, we expanded our sales force but never achieved a maximum penetration rate within the initial target universe. We later increased our targets to 5,000, and we continue to see robust growth as we approach 50% penetration, with plans for further expansion. While we haven't reached an ultimate penetration rate, we believe this will foster ongoing surgeon adoption and growth. Ultimately, there’s no reason we can't exceed 50%, though we never fully matured enough before identifying additional business expansion opportunities.

The next question comes from Sam Brodovsky with Truist Securities.

Congrats on the solid start and great profit number. I did want to dig into that profit side, I think a little bit, Joe, did I hear you right you said 2Q margins, we should expect them to be similar to 1Q?

Yes.

Considering the gross margin guidance for the year is around 70%, with the lowest quarter expected to be 69%, what are your thoughts on that? What factors could provide you with the confidence to possibly increase your forecast for gross margin or EBITDA?

Yes. No, I certainly appreciate the question. I mean, obviously, kind of a great start from a profitability perspective. As we've been talking about quite a bit, in particular over the last few quarters, our focus is driving the top line growth, but also kind of margin expansion and our profitability metrics. So I think to your point, in Q1, obviously, really strong kind of both from an adjusted EBITDA margin perspective, being the mid-teens gross margin in the high 60s. That was a bit ahead of kind of trends and expectations, if you will. I would say, as we think about the balance of the year, I mean that can certainly still ebb and flow a little bit. And I think the right baseline is obviously Q1 is up to a very strong start. You can look at the prior year, kind of mid- to high 60s, and we would expect on a full-year basis, gross margin to expand from 6% to 8.5%, if you were last year to that 70% range. So again, it can ebb and flow a little bit throughout the year. But I think to the kind of a key part of your question, which is, I think based on that strong start, we certainly have the potential, and I think we're in a good position to potentially be higher than initial guidance, but given we're just kind of one quarter in, and these are kind of approximate numbers, we haven't updated them yet, but they continue to be a focus, and these are kind of both numbers in the bottom line and the gross margin that we want to continue to improve. And the other piece on the gross margin side that we look at is kind of the pull-through, which was very strong in the quarter, kind of the incremental revenue pull-through well above 80%, I think over 85%. So a good start and expect strong quarters throughout the year, and we'll kind of monitor that. But I think we're in a good position to be kind of on the higher side, if you will, particularly on the gross margin side.

Great. That's super helpful. And then shifting to NexoBrid. I wanted to ask a bit of a higher-level question there, obviously, without providing guidance. But just as we think about where the company is going to be positioned heading into 2025, you already have almost half of centers in the funnel to a certain extent. Should we think about most, if not a good portion of the target centers being fully onboarded and ready to go in '24? And then how do we think about the sales strategy changing in 2025 as can you fully shift to just driving surgeon utilization?

Sam, this is Nick. I'll take that one. So for NexoBrid, again, I think anyone who's done market checks or for instance, participated or attended the American Burn Association meeting, you need to see sort of the super high interest in the product from the burn care community. Obviously, as you alluded to, sort of performing well on sort of the burn center KPIs in terms of P&T submissions, approvals, initial orders, and most importantly, excellent surgeon feedback on patient outcomes for those who have started using the product. So we think as we've been kind of beating the drum on, this is a build year as you get through the processes. I think it's pretty well understood in the industry. We think we'll be in a good place by the end of the year where yes, we would expect the vast majority of P&T submissions to have been completed and hopefully approved or in the process of being approved. And as we alluded to, once you get through the P&T committee process, there are still other procedures and processes that hospitals need to get through to be able to order the product and then start utilizing it. So we're hyper-focused on that, as you might imagine, and at the level of sort of KPIs and getting the centers up and running, we're pretty pleased with that performance.

Our next question comes from George Sellers with Stephens, Inc.

Congrats on the quarter. Maybe on Epicel. I'm just curious if you could give some additional color on what drove the beat in the quarter? Maybe how the underlying market performed? What firm sizes look like, things like that? And also your perspective on the impact, some sort of halo effect potentially from NexoBrid, if that was a significant driver as well.

George, it's Nick. So just starting with the burn care market. As we've talked about, we do have access to market data around large 30%-plus body surface area burns. And I would say the market was kind of normal to be down a little bit. So that certainly wasn't driving Epicel performance. It really was just, as we've talked about before, we do have a larger footprint now. We're in more burn centers than we used to be, as I alluded to in my comments. We certainly saw a significant contribution to Epicel revenue from formerly dormant or newer accounts that we're calling on for NexoBrid, so that is a halo effect that we expect an additional pull-through on Epicel. And I think we're seeing that as we kind of move through the initial launch phase for NexoBrid.

Okay. That's really helpful. And then maybe on NexoBrid, I'm just curious if you could give us some additional detail on some of the inventory and specialty distributor impacts, how we should really think about those 30 centers that are starting to see orders, how that will flow through the P&L, and then maybe the cadence as we think about the rest of this year, where inventory levels are now and how that compares to what you're seeing in terms of actual utilization.

Yes. So George, this is Joe. I'll take that one. So if you could think about NexoBrid revenue during the quarter, and we talked about this on the last call, we expect kind of a similar revenue range. We ended up about $400,000, kind of similar to last quarter, about $500,000. I think it's important, as kind of Nick talked about in his prepared remarks, the strength in the center level KPIs continue to be very strong as part of your question there. I think importantly, we saw increases in the number of ordering centers, a significant increase from hospital orders to our specialty distributors, and also significantly more patients treated in the quarter. So I think as kind of in addition to that, as we think about kind of our revenue trends, particularly early on, I think this is as much kind of an early launch dynamic. If you think back, the first quarter in the market, Q3 of last year, we had some destocking. The second quarter in the market in Q4, I'd say there was a fair amount of hospital stocking, where they were starting to order product and kind of get it on their shelves, particularly the early adopters. And then just as a reminder, again, we recognize revenue when our specialty distributors order, and this can vary each quarter depending on ordering patterns, their inventory levels, etc. And really what happened again during the first quarter, the hospital orders to the SDs went up, but our orders from our specialty distributors to our 3PL, where we recognize our revenue came down. And essentially, what that means is the specialty distributors managed to a lower inventory level. And you do often see as kind of launches progress, the distributors will get to different inventory levels. So I think as anticipated, a little bit choppy out of the gates. But I think as we continue to progress throughout the launch, it's really going to be about continuing to add centers, treat additional patients, see those metrics come up, and also really that additional utilization as centers become more comfortable. So there's certainly going to be an element of inventory dynamics as we go through this. But generally, I think as we move forward, particularly in the back half and into next year, it's really going to be driven by patient utilization and hospital ordering, and this should be kind of a lower component on the revenue side.

The next question comes from Swayampakula with H.C. Wainwright.

This is RK from H.C. Wainwright. A couple of quick questions. So, Nick, as your team continues to increase the targeted surgeons, right, from 5,000 to 7,000. And also in anticipation of the MACI arthro, I'm just trying to understand what sort of relative benefit could we start seeing from this increase in the cartilage repair business as some of the surgeons or most of the surgeons work on both types of injuries, the cartilage and arthro.

Yes. MACI arthro will address cartilage defects similar to the current MACI product. The instruments are designed for smaller defects on the femoral condyle, which represents the largest segment of the market with around 20,000 patients annually. While MACI is effective for patellofemoral defects and larger condyle defects, this approach provides a better method for treating the smaller defects on the femoral condyle. We believe this will enhance our ability to penetrate this key market segment, leading to an anticipated increase in procedures as we introduce an arthroscopic delivery option.

Perfect. I'm trying to understand the process for commercializing NexoBrid. Once the centers receive P&T approval, what is the time gap before they can place an initial order? I know some additional steps are required before that can happen, and while it may be early to identify a trend, what does the current timeline look like between approval and the first order?

Yes, the timeline varies by hospital. Some facilities can integrate the Epic system quickly, while others may take weeks or even months to set it up for ordering products in the pharmacy. Before a product is available in that system, it can sometimes take quite a while. We are focused on assisting centers with this process if they encounter challenges. Overall, it can take anywhere from days to weeks, or even months in certain situations. These timelines reflect the different processes that hospitals must navigate before they can start ordering products and treating patients.

So, I have one final question. With regards to the burns franchise, historically we've seen how Epicel operates, and I recall that you've mentioned in public comments that you can't reliably predict how Epicel's business will grow from quarter to quarter and year to year. Will we observe a similar trend with NexoBrid, or do you anticipate that NexoBrid's growth will be significantly smaller than what we experienced with Epicel?

Well, I would say that the way we've always positioned it, RK, is that with Epicel, if you think about the 40,000 hospitalized burn patients each year, is really only call it, 600 to 800 surviving patients each year. So very small numbers, and that's what leads to the variability you see in Epicel. With NexoBrid, obviously, once you get through these initial quarters where you've got, again, centers coming on board at different paces, you've got inventory and ordering pattern dynamics going on because in our view, 30,000 patients a year are eligible for NexoBrid treatment that over time as it ramps up and becomes more kind of consistent basis, the overall franchise should have less variability.

Yes. Joe, I would like to add a few comments as we consider the year ahead, particularly in the near term. We understand that Epicel can fluctuate, but we've observed consistent strength over several quarters. We entered this year expecting growth compared to last year's performance, viewing Epicel as a baseline for quarterly metrics. Our exit rate was in the low to mid-range, and we've exceeded that in the first quarter. While it's difficult to make definitive plans, we do expect to maintain these higher rates. We anticipated revenues of $9 million plus or mid-9s for the year. In the second quarter, we achieved around $10 million, and we expect Epicel to remain in the $9 million plus range, possibly within that $10 million. There may be some variability, but this is a reasonable expectation. We envision a similar outlook for the remainder of the year for Epicel. Variability is certainly possible. I also agree with Nick that we expect NexoBrid to grow and build sequentially over time, which is our expectation as we finish this year and move into the next.

The next question is from Mike Kratky with Leerink Partners.

This is Brett on for Mike. Congrats on another great quarter. You guys saw a strong pull-through in Q1 '24, obviously. How should we think about the durability of this operating leverage into the second half of '24 and '25 while you drive penetration in both the existing market and the new arthroscopic market once approved? And then obviously, you have the ankle improvements or investments in 2025. So how is that going to impact the durability of the operating leverage?

Yes, I believe you're asking about Q1 '24, not Q1 '23. We had a strong first quarter from a profit and loss standpoint, with significant margin expansion and high pull-through rates. Our long-term expectation for gross margin has been to exceed 70%, and our guidance for this year is set at 70%. While margins may fluctuate throughout the year, we're on track to meet our targets on an annual basis. We're also focusing on identifying efficiencies in our processes and expenditures, which will be crucial as we prepare to move into a new facility in the next few years. Regarding operating expenses, we will need to make certain investments, including for arthro MACI and developments in the ankle area, which will affect our profit and loss statement in the coming years. However, this does not alter our goal of reaching a 30% adjusted EBITDA target, which we have been aiming for. Our approach begins with driving top-line growth while effectively managing the rest of our financials, demonstrating operating leverage as we scale. Q1 was a successful quarter and a positive start to the year, and we expect to maintain that focus on leveraging our operations into 2024, 2025, and beyond.

Got it. That's helpful. And then 1 more. I guess I want to go back to arthro. You mentioned 6 to 12 new reps likely. How should we be thinking about the difference in outreach for those reps versus existing MACI when they target those new surgeons? And then obviously, the shape of that penetration curve may be different versus what we've seen with legacy MACI. How should we be thinking about the steepness of that curve and if there's any differences to call out for the next couple of years?

Yes. So as I mentioned, we will be adding, I guess, a couple of different profiles. So number one is kind of territory development managers who can kind of be at biopsies at surgeries, etc. And then there's arthroscopic specialists who are really kind of training and spreading best practices for the arthro delivery of MACI. So they're really in support functions, as I alluded to on the call. When you think about an extra couple of thousand targets over 76 territories, you're talking a dozen or two new targets per territory. Those could easily be targeted by existing sales reps. In terms of uptake, I think you can think about a couple of different surgeon segments. So there's current MACI users. We'd like to a lot of their procedures in certain parts of the need. They can expand towards if they focus on the patella with MACI, and now they have a less invasive option for treating femoral condyle defects, that certainly can be an instance where you've taken an experienced MACI user, and they start using more broadly, so that can have a very quick uptick as you might imagine. We also have new surgeons who, because you take a biopsy, and then the median time from biopsy to implant is roughly four months. There's always a time lag there. So there'll be kind of having a prospective impact on the business there. So it will differ by segment. But again, you're taking a well-known product with great clinical outcomes and offering surgeons an option where MACI can be administered less invasively in an area of the need, with the largest number of defects. And so you could have a very pretty quick uptake for those who are interested in using MACI arthro.

This concludes the question-and-answer session. I would now like to turn it back to Nick Colangelo for closing remarks.

Okay. Well, thanks, and thanks, everyone, for your questions and continued interest in Vericel. Obviously, the company had a great start to the year, and we expect to deliver another full year of strong financial and operating results in 2024. So we look forward to providing further updates on our next call, and have a great day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.