Vericel Corp Q2 FY2025 Earnings Call

Good day, and welcome to the Vericel Corporation Second Quarter 2025 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Eric Burns, Vericel's Vice President of Finance and Investor Relations. Please go ahead.

Thank you, operator, and 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 second 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. Company delivered solid financial and business results in the second quarter with significant revenue growth, margin expansion, and substantially higher profitability growth. Total revenue increased 20% in the quarter, while gross margin expanded more than 400 basis points to 74% and adjusted EBITDA increased 112% versus the prior year to over $13 million. We also saw continued strength in the MACI growth drivers and key performance indicators for the MACI Arthro launch and significantly better performance for the Burn Care franchise. Importantly, we've had a very good start to the third quarter for MACI and the Burn Care products, and the company remains well positioned for a strong second half of the year. MACI generated record second quarter revenue of nearly $54 million, representing 21% growth versus the prior year and 15% sequential growth versus the prior quarter. MACI's performance was driven by strong underlying business fundamentals as we continue to expand the MACI surgeon base and drive growth in biopsies with the launch of MACI Arthro. In the second quarter, we generated the second highest number of MACI biopsies in the quarter since launch, essentially matching our highest biopsy quarter-to-date in the seasonally high fourth quarter of last year. MACI Arthro surgeon training, a key priority for our commercial team in 2025, continues to outpace our initial expectations in the original MACI launch as we've now trained approximately 600 surgeons through the end of July. Both the biopsy and implant growth rates for MACI Arthro trained surgeons continue to be significantly higher than the growth rates for surgeons that have not yet been trained. Given the substantial increase in the number of MACI Arthro trained surgeons, overall MACI biopsy growth outpaced implant growth through the first half of the year. Based on historical performance, we expect the implant growth rate to converge with the biopsy growth rate as we move into the second half of the year and beyond, which we believe will sustain strong MACI revenue growth in the quarters ahead. To that end, MACI is off to a strong start to the third quarter with both biopsy and implant volume growth in July accelerating versus the first half of the year. While the treatment of patella defects remains the key driver for overall MACI growth, the treatment of small femoral condyle defects, which are the defects that MACI Arthro instruments are designed to treat, increased 40% in the second quarter over the prior year. This is a strong indicator that this segment, which represents approximately 1/3 of the over $3 billion addressable market for MACI, has the potential to become MACI's highest volume growth segment over time with the MACI Arthro delivery option. In addition, as we discussed on our last call, MACI Arthro is being used to treat a meaningful number of patients with trochlea defects, and this segment has now accounted for nearly 20% of MACI Arthro implants to date. The trochlea defect segment is similar in size to the patella segment with approximately 10,000 patients per year and has the potential to become a significant source of business and a meaningful driver of upside MACI growth beyond the treatment of condyle defects. Finally, we've generated over 100 biopsies from our new arthroscopic-only surgeon segment, another positive indicator that an arthroscopic delivery option for MACI can drive additional utilization from surgeons that previously did not use the product. Based on the strong MACI Arthro launch indicators to date and our expectation for significant MACI implant volume growth in the second half of this year and into 2026, we're implementing our full MACI sales force expansion this year. We'll be increasing our MACI sales force from 76 territories to approximately 100 territories with our new sales reps supporting current territories during our seasonally highest fourth quarter this year and then moving into their new territories at the start of next year. We believe that having the entire expanded sales force in place this year will help support our significant fourth quarter volume and position MACI for continued strong performance for the full year in 2026 and then beyond. Turning to Burn Care. As expected, Epicel performance rebounded in the second quarter with a substantial increase in biopsies, grafts, and revenue, which was more in line with its run rate coming into the year. Biopsies in the second quarter were the highest in any quarter since 2023, with an increase of nearly 40% over last year, and we ended the quarter with the highest monthly biopsies on record in June. Given the strength of second quarter biopsies, Epicel is also off to a strong start in the third quarter with July graft volume higher than any other month to date this year, positioning Epicel for another solid quarter. NexoBrid also had a strong close to the quarter with the highest number of ordering centers and hospital units ordered in any month since launch. This momentum has carried into the third quarter as July hospital orders exceeded the record number of units ordered in June. Of note, the Category III temporary CPT code for NexoBrid also went into effect as of July 1, which we believe can help drive increased utilization and further enhance NexoBrid uptake over the long term. Overall, the company delivered significantly stronger revenue and profitability results in the second quarter. We have started the third quarter with a great deal of momentum for both MACI and the Burn Care products. In terms of our longer-term growth initiatives, we received FDA clearance of the IND for the Phase III MACI ankle clinical study in the second quarter and remain on track to initiate the study in the second half of this year. A potential MACI ankle indication represents a substantial longer-term growth driver for MACI and would enable the company to potentially expand into other orthopedic markets. Finally, we also remain on track to initiate commercial manufacturing for MACI in our new facility next year.

Thanks, Nick, and good morning, everyone. Starting with our Q2 results. As Nick noted, we had a very strong revenue and profitability growth in the second quarter. The company achieved record total net revenue for the quarter of $63.2 million, with $53.5 million of MACI revenue, $8.6 million of Epicel revenue and $1.2 million of NexoBrid revenue. MACI had a strong second quarter with 21% revenue growth over the prior year and 15% sequential growth versus the first quarter as growth accelerated in the second quarter. MACI also had another quarter of strong double-digit biopsy growth, which outpaced implant growth. And as Nick mentioned, implant and biopsy growth accelerated in July, and we expect that implant growth will converge with biopsy growth over the coming quarters. Burn Care also had a much stronger second quarter with revenue of $9.8 million, relatively in line with the lower end of our guidance range for the quarter. Epicel, in particular, had a much stronger second quarter with $8.6 million of revenue, representing 11% growth versus the prior year. The underlying metrics on Epicel were also very strong with Q2 biopsy growth of nearly 40% versus the prior year. This also included our highest Epicel biopsy month to date in June. Although Epicel revenue increased significantly during the second quarter, we continue to see a somewhat higher ratio of canceled cases due to patient health-related issues, which impacted our revenue for the quarter. NexoBrid revenue of $1.2 million represented 52% growth versus the prior year with solid growth in both hospital unit orders and ordering centers. Although the underlying NexoBrid fundamentals continue to progress in Q2, orders placed by specialty distributors were slightly lower than the prior quarter, which impacts the revenue comparison to the first quarter. As Nick mentioned, we ended Q2 in June with our highest month-to-date for NexoBrid hospital orders and then surpassed these June orders in July. The company's substantial revenue growth translated into significant margin expansion with gross profit of $46.6 million or 74% of revenue, an increase of more than 400 basis points compared to 2024. This also represents a record quarterly gross margin outside of our seasonally highest fourth quarter. Total operating expenses for the quarter were $48.6 million compared to $42.6 million for the same period in 2024. The increase in operating expenses was primarily due to increased headcount and related employee expenses and additional costs related to the company's new facility, including depreciation and MACI tech transfer-related activities. Moving forward, we expect relatively similar quarterly operating expenses for the balance of the year. Net loss for the quarter narrowed to $0.6 million or $0.01 per share compared to $4.7 million or $0.10 per share in the prior year, which was an improvement of more than $4 million versus 2024. Adjusted EBITDA more than doubled during the quarter with an increase of 112% to $13.4 million or 21% of revenue, an increase of more than 900 basis points versus the prior year as we continue to drive very strong bottom line growth. Finally, the company generated $8.2 million of operating cash flow and ended the second quarter with approximately $164 million in cash and investments and no debt. With the investment for the company's new facility completed in the second quarter, we expect cash generation to inflect moving forward, further enhancing the company's strong balance sheet and financial profile. Turning to our financial guidance. We are maintaining our MACI revenue guidance and expect MACI full year revenue growth in the low 20% range with third quarter revenue growth in the low 20% range as well or approximately $54 million to $55 million for the quarter. For Burn Care, while we are very encouraged by Epicel's improved performance in the second quarter and the meaningful increase in biopsies in the first half of the year, we are updating our second half quarterly Burn Care revenue guidance to be more in line with recent run rates of approximately $10 million per quarter, consistent with our second quarter revenue and our average quarterly run rate in 2024. Importantly, our internal expectations for Burn Care performance remain higher, and we believe there are still multiple scenarios to achieve our initial guidance range. However, we believe that updating our guidance framework and resetting external expectations for Burn Care revenue in the second half is appropriate at this point in the year, given the difficulty in accurately predicting Epicel quarterly revenue, recognizing that if our team continues to execute well and maintains the current momentum, there remains an opportunity to significantly outperform this updated guidance. I would also note at this point, we are not assuming any additional NexoBrid revenue related to the BARDA RFP process that was recently initiated, although there is potential for incremental NexoBrid BARDA revenue in the fourth quarter of this year. In terms of profitability metrics, we expect another quarter of strong financial results in the third quarter with both gross margin and adjusted EBITDA margin in a similar range as the second quarter. For the full year, we have reaffirmed profitability guidance of gross margin of 74% and adjusted EBITDA margin of 26%. Note that this profitability guidance includes the operating expenses in 2025 related to the acceleration of our MACI sales force expansion.

We are very pleased with the progress of MACI Arthro surgeon training and the resulting strength in both the MACI Arthro leading indicators and the overall MACI business fundamentals, which lay a strong foundation for MACI implant growth in the future. The significantly enhanced trends for Epicel and NexoBrid also position the Burn Care franchise for stronger performance. Therefore, we believe that the company is well positioned to continue delivering a unique combination of sustained high revenue and profitability growth in the second half of this year and in the coming years. With that, we will open the conference call for questions.

Thank you. We will take our first question from Ryan Zimmerman with BTIG.

I want to start with MACI. I appreciate many of the metrics that you provided that point to an uptick in the second half. But if we could unpack the second quarter a little bit. I mean, if I think about the guidance, Joe, 53.8% to 54.6%, that didn't happen. So what do you think is happening here that's impacting that growth, at least right now? And again, I appreciate the confidence, but if you could speak to certainly the uptick in the fourth quarter, especially and the conversion ratio that you're expecting to allow you to either beat or meet that guidance for MACI.

Yes, thank you for the question. Regarding MACI, in the second quarter, we generated $53.5 million, which was slightly below our expected range of around $54 million. However, the underlying indicators remain strong. We saw significant growth in biopsies during the second quarter, and there's been an acceleration in both biopsy and implant growth as we moved into late June and July, which is encouraging. There may have been a few delays in implant timing, where some were postponed from June to July relative to our initial assumptions, but this was not material. Overall, the second quarter was in line with our expectations, showing a substantial increase from the first quarter and solid year-over-year growth. Looking ahead, we remain within the $240 million range we mentioned last quarter. The revenue mix from the first half is expected to be similar in the second half. There may be some variability in Q3 and Q4 due to factors like vacations, which can make forecasting challenging in August and September. Nevertheless, strong metrics, particularly among trained surgeons, are encouraging. We feel confident in our progress and outlook for MACI as we head into the rest of the year.

And just to be clear, Joe, or Nick, if you want to answer this, and then I have a follow-up on Epicel. But the 100 Arthro biopsies that you did so far year-to-date, can you comment and obviously give us specifics if you're comfortable, how much of those have converted to MACI at this point?

Yes. We don't discuss the specifics of how those biopsies have converted. There hasn't been any noticeable difference in the conversion rates of the Arthro segments compared to normal rates. It's primarily a timing issue regarding when those biopsies convert. As we mentioned, whether regarding MACI Arthro opening up different surgeon segments or various locations in the knee, all trends align with our expectations. The dynamic that Joe referenced, where we observed an initial increase in biopsies after MACI's launch and implants gradually catching up, is unfolding as we anticipated, consistent with our previous conference call discussions.

Yes. And Ryan, just one thing to add to the 100 biopsies, that was just one data point from our kind of new Arthro-only segment. It wasn't meant to represent all of Arthro, just to make sure that was clear in our prepared remarks.

I appreciate the clarification, Joe. Now, regarding Epicel, it seems that biopsies increased by 38% in the first half. There's a positive impact from pricing as well. You mentioned that patients are facing health challenges, possibly due to expiration or other factors. However, I’m trying to understand how this lower guidance on the burn business can be reconciled with the biopsy trends, which appear to be stable despite any potential setbacks from health issues. What is the new reality you’re considering in your guidance related to patient expirations among severely burned patients for the latter half of the year? Thank you for addressing my question.

Yes, Ryan, I'll start and then Joe can add in. During the call, we mentioned that biopsies increased by 38% in the second quarter, and for the first half of the year, they were up 20% compared to last year. This suggests we may see some growth in grafts as well, despite the usual health issues faced by patients. Our analytics indicated the increase we had been guiding to earlier this year. Notably, June marked our highest month ever for Epicel biopsies. Although these did not fully convert into revenue in the second quarter, this supports our positive outlook for the third quarter with Epicel. The health challenges we mentioned affected our outcomes, especially as we saw less productivity in the biopsies that impacted the first quarter. We believe these factors will normalize over time, and we don’t see any significant changes in the underlying dynamics. We monitor all relevant metrics, including the total body surface area of biopsies received and the total body surface area of treated patients, and we have not observed any changes in patient demographics. Therefore, we feel confident that things will return to normal as they typically do.

Yes. I'd like to discuss Epicel and our new approach to Burn Care, which I believe is significant. As mentioned, we had a strong second quarter with approximately $10 million in revenue, driven by robust biopsies for Epicel. Both brands have had an excellent start to the third quarter, and our metrics indicate a promising Q3. However, we're altering our strategy for the latter half of the year. Accurately forecasting Epicel remains challenging due to unpredictable patient health dynamics. Over the past few quarters, despite positive underlying trends leading into the quarter, we’ve seen a higher rate of canceled patients, causing our actual results to fall below our forecasted range for Epicel. This is not the guidance we aim for. The first half of the year saw solid biopsy production that hasn’t yet translated into the anticipated revenue. Moving forward, we are shifting towards a run rate approach for our guidance. Last year, the average quarterly revenue was $10 million, which is the basis for our guidance for Q3 and Q4. While the start of Q3 has been strong, we don't want to set our forecast for Burn Care too high. Although our expectations and commercial goals are elevated, we see this as an opportunity to exceed our guidance. Given that just a few patients can significantly impact quarterly revenue, we believe it’s prudent to adopt a more conservative guidance approach as we conclude the year with Epicel and Burn Care.

We'll go next to Richard Newitter with Truist Securities.

I have a couple of questions. I apologize for jumping around during the calls. It seems like you are reiterating MACI, although the second quarter didn't quite meet the guidance, just slightly below it. It also appears there's a small reduction in expectations for Epicel for the entire year, but you hope to surpass that. Is that a correct summary?

Yes, I think that's fair. Exactly.

I have two quick follow-up questions. First, regarding MACI, do you feel confident about the timeline for your conversion rates? Specifically, do you think it will be a matter of 6 months, 3 months, or could it extend further? MACI Arthro is somewhat uncharted for you, so even though the biopsy trends are looking better, is there anything different in the conversion rates or the timeline for MACI Arthro compared to traditional MACI that might affect how it performs? I have one more follow-up.

Yes, Rich, this is Nick. We have not observed any differences in conversion rates between MACI Arthro cases and MACI open cases. When we launched MACI in 2017, there was a significant rise in biopsies followed by an increase in implant growth, which unfolded during the latter half of 2017. As we noted in our last call, biopsy growth was over 40 percent in that same period, increasing to 54 percent implant growth in 2018. This process is not confined to a single quarter but extends across multiple quarters. We typically see biopsy growth outpace implant growth, and it tends to balance out over time. There's no reason to believe that won't apply here as well. In our prepared remarks, we highlighted that while biopsies outpaced implants in the first half of the year, both biopsy and implant growth are accelerating now. We've established the foundation for this dynamic earlier this year, and those are the trends we are currently observing.

We'll move next to Mike Kratky with Leerink Partners.

This is Sam on for Mike. Thanks for taking our questions. You mentioned biopsy growth outpaced implant growth in the first half of the year. Are you just seeing a deceleration in biopsy conversion rates around this time of year? And what's ultimately the underlying cause of this? And then kind of appreciate that you saw an acceleration in July, but what really gives you confidence that these biopsy and implant rates can converge in the second half of the year? And then I have a follow-up.

Yes, as Nick mentioned, we've experienced similar dynamics during the MACI launch, which is important to consider. There are times when biopsy growth can outpace implant growth. Generally, when we look at conversion rates, biopsy growth and implants typically move together when there's stability in conversion, which has been the case in recent years. However, there can be periods when one may move at a different rate than the other. It's not unusual for them not to be perfectly in sync at all times. What’s encouraging is that we've observed strong biopsy growth in the first half of the year, which positions us well for the second half of '25 and into next year. It’s normal for these rates to vary slightly, and we anticipated this with the ARSPA launch.

Got it. That's helpful. And then as a second question, can you just kind of comment on to what degree MACI Arthro surgeons that have been trained to date are surgeons from your existing MACI customer base? Or have you kind of begun to get more meaningful penetration in the incremental 2,000 arthroscopic surgeons that you flagged as being part of your TAM expansion?

Yes, that's a great question. Obviously, as we mentioned, we're really pleased to kind of be at 600 trained surgeons through the end of July. And as we talked about sort of the surgeon segments on the last call, you had about 2,500 existing MACI users prior to launch, and those were broken out into surgeons who had typically done patella-only implants previously. And then the other half of those users would do patella and typically smaller or larger, I'm sorry, condyle defects. So we'd say about 1/3 of our 600 trained surgeons come out of each of those 2 buckets, the existing MACI users. And then the other 1/3 comes out of either the former MACI open targets who had not engaged yet or the new arthro-only surgeons that we added when we launched MACI. So really encouraged to see the trained surgeons, the third coming out of those prior nonusers. And as we mentioned on the call, we've now had 100 biopsies or more than 100 biopsies out of the kind of arthro-only segment as well. So exactly what we would want to see for the prior users who were patella only. They are obviously now are increasing both biopsy and implants in terms of their growth rates and expanding into condyle defects. And then what you see out of the prior kind of combo patella and larger femoral condyle defect users, they're migrating down into the smaller MACI Arthro defects. So it's exactly the dynamic that you would want to see in these early launch indicators.

We go next to the line of Joshua Jennings with TD Cowen.

Hi, this is Eric on for Josh. Thank you guys for taking the questions. On MACI Ankle, congrats on receiving the IND there. It sounds like the clinical study is going to be kicking off in the back half of the year. Are you able to share any detail on what the trial design looks like there? Any thought on patient enrollment and what the timing could be for complete enrollment?

Yes. So obviously, very pleased that we received FDA IND clearance for the MACI ankle study. As I mentioned on the call, it's about $1 billion addressable market for us. So we think it could be a substantial longer-term growth driver for the business over time. It's just not to get into too much detail as it's listed on clinicaltrials.gov, but it is a prospective open-label randomized controlled Phase III study, 2-year endpoint, just like the SUMMIT study for MACI in the knee will be approximately 300 patients that 2:1 ratio between MACI and bone marrow stimulation or microfracture, which is the active comparator. And then it will focus on patients with lesions that are greater than 1.2 square centimeters. So pretty straightforward and then the endpoints are much like the endpoints were in the SUMMIT study, where you're looking at pain and function improvements at 2 years.

Thank you for your insights. I would like to inquire about the midterm profitability targets for gross margin and adjusted EBITDA margin set for 2029. Are the targets of high 70% for gross margin and high 30% for adjusted EBITDA margin still in place?

Yes. From a profitability perspective, the company had a strong second quarter. Our gross margin was around the mid-70% range, which aligns with our reaffirmed full-year guidance. Adjusted EBITDA was also solid, sitting in the low 20s for the second quarter, which is impressive for this time of year, and we have reaffirmed our full-year expectations. As we look towards the end of the decade, we aim to increase gross margin from the mid-70s to the high 70s. Our outlook on both gross margin and adjusted EBITDA remains unchanged. We need to continue strong revenue growth and manage our expenses effectively. From an adjusted EBITDA standpoint, we remain on track as well, with no changes to our midterm profitability targets.

And we'll move next to Caitlin Cronin with Canaccord Genuity.

Hi, thanks so much for taking the questions. I guess just to start off with the Arthro biopsies, you mentioned 100 Arthro naive surgeons with the biopsies. I mean how many total biopsies to date are you seeing across all the surgeon cohorts? And then how many of those have converted already into implants?

Yes. It's not entirely feasible to determine the nature of a defect solely based on its size and location, as this may indicate whether it should be addressed arthroscopically, but it ultimately varies depending on the specific details. Generally speaking, biopsies have shown a notable increase of over ten percent in the first half of the year, a trend that's expected to continue accelerating into the latter half. Currently, we have reached 600 MACI Arthro trained surgeons, with their rates of implant and biopsy growth being significantly above the overall averages. As we train more surgeons who perform an increasing number of biopsies, this contributes to the rapid growth in biopsies. Furthermore, we noted that the small femoral condyle defects saw a 40% increase in the second quarter compared to last year, which signals the potential impact of MACI Arthro. This segment represents the largest portion of our target market, so when such growth rates are strong, they can greatly influence our business in the long run.

Got it. Okay. And then just any more color on the MACI sales force expansion and how many have been hired already? And then just the timeline to just add the further members this year?

Yes, the positions were posted last night. We haven't hired anyone yet, but I expect that will happen soon. As we mentioned, we anticipate significant volumes in the fourth quarter, and since we are already at the beginning of August, we expect to hire representatives towards the end of August into September. A meaningful number of reps should be in the field supporting our current reps in their existing territories by early October. This will give them a good chance to support a high-volume quarter, and we will realign territories with all representatives starting in their new territories on January 1. We believe this is crucial. As Joe mentioned in our last call, things don't change just because the calendar flips to January 1. We want to capitalize on the momentum we are seeing in the second half of the year right from day one in 2026. This is why we are accelerating our growth based on the leading indicators we observe from MACI Arthro and our expectations for implant growth in the latter part of the year.

That's great. And then just one more quick one. Any update on if you're continuing to see this kind of dynamic of dormant Epicel accounts becoming active given the NexoBrid engagement in those accounts?

Yes, we've definitely continued this year. We're I'll just roughly say, a handful of centers that hadn't used Epicel recently are sending in biopsies. And so we think as we continue to have a greater presence in a larger number of burn centers, that dynamic will continue.

We go next to the line of Mason Carrico with Stephens.

I'll ask my 2 upfront, if that's all right. You've called out MACI ASP increasing mid- to high single digits annually. I think approval rates have stayed north of 90%. Can you just confirm or speak to your confidence in sustaining that price momentum moving forward without triggering some form of access pushback? And then second, could you just update us on the international expansion opportunity? What are your latest thoughts there on the timeline, specific geographies you may plan on targeting?

Yes. Regarding pricing, we conduct extensive research on MACI and all our products to optimize pricing in line with what payers, surgeons, and patients view as highly innovative. We carefully consider how we implement price increases. As mentioned, MACI is a biologic product, and payers and hospital administrators generally expect mid- to high single-digit annual price increases, which we have consistently delivered. Our approval rate for MACI cases remains in the mid-90% range, with no significant changes over the years as we continue to increase prices. This is a unique position for us in the med tech space. For our international strategy, we are making progress with our global consulting group and expect to have a road map for opportunities outside the U.S. by the end of the year. Our intent is to expand into select international markets in the coming years, prioritizing Europe first. There are promising pathways for rapid entry, and we are currently aiming for launches in certain countries around 2027 or 2028.

We turn next to Jay Collin with Ladenburg Thalmann.

Could you discuss the second half SG&A guidance and elaborate on sales expansion and possibly the geographies involved?

Yes, I would say that from an operating expense perspective, we've been around $49 million in total in the last couple of quarters. There might be a slight shift as we wrap up the year and begin hiring on the sales side. As I mentioned in the prepared remarks, we are reaffirming our overall guidance regarding profitability for both gross margin and adjusted EBITDA. We expect OpEx to remain relatively flat over the next few quarters. As we discussed, hiring will take some time to complete, which may have an impact in the fourth quarter. However, the significant effect of adding approximately 25 additional sales representatives will be more evident in 2026 due to the expansion of our sales force.

Okay. Got it. That's helpful. And then secondly, for us, could you talk about the BARDA RFP as far as the time frame or duration and size of the RFP that's out there?

The RFP is publicly available, allowing anyone interested to review it in detail. Proposals are due in late August, with a decision expected shortly after. The RFP involves procuring a stockpile for preparedness, specifically 2,750 units, with management funding included. There’s also a second phase of procurement planned. The initial procurement is expected to occur between October of this year and the end of September next year, followed by ramp-up procurements the following year. Additionally, the RFP outlines several items related to managing a VMI inventory for BARDA, alongside development projects for room temperature formulations and other indications. There are multiple funding opportunities available under this RFP. However, discussions regarding timing and negotiation haven't taken place yet, so we cannot confirm specifics. Nonetheless, BARDA’s usual process suggests that if they fund a program with the intention to stockpile, NexoBrid could have a substantial opportunity. The precise timing and amounts for funding will be determined post-selection.

And we go to our next question from Swayampakula Ramakanth with H.C. Wainwright.

A couple of quick questions. So in your prepared remarks, Joe, you were talking about there's a potential for the burn franchise to outperform your $10 million per quarter guidance. So what are the pushes and pulls for that to happen?

Yes, I wanted to clarify our external guidance, which is set at $10 million per quarter. This is more of a run rate concept. Internally, we have seen a strong start to July for both products. Our guidance is not our forecast, but if NexoBrid can maintain the strong run rate we observed in June and July, it could contribute to growth. Right now, Epicel is more significant due to the scale of the two products. We are particularly interested in how the strong biopsies from the second quarter convert. July has started off well, but we need to monitor how this progresses into August and September. Our metrics indicate a strong beginning, suggesting it should be a strong quarter, but we need to be cautious as we can't predict exactly how the rest of August and September will unfold, especially with potential cancellations. The goal remains to achieve a higher conversion rate while minimizing cancellations due to patient health, which adds some variability as we consider the quarter. Overall, we are optimistic about the strong start.

And I would just add that, as Joe mentioned in his prepared remarks, at this point, we're not including any potential BARDA revenue that could come in the fourth quarter in our guidance. So there's a commercial piece that could allow us to outperform. And then there's some potential BARDA revenue as well. Again, timing and amount can't determine at this point. But there's multiple paths to kind of exceed the guidance that Joe provided.

Nick, you kind of stole my question, but on that BARDA revenue from the fourth quarter potential, in general, is there a range you folks are thinking about on the dollar amount if it happens?

That's what I said earlier. I mean the RFP clearly states forth or sets forth the sort of procurements that BARDA is interested in. So the 2,750 units from October of this year through September of next and then up to 5,000 in the following year. Obviously, without knowing sort of the pricing on that, you can't really estimate the revenue. And then, of course, there's management contracts to manage that VMI inventory and other things that are stated there. I think they'd like to have access to some commercial inventory and there's funding for that, that would be involved. So there's a lot of pieces, and it's just impossible at this point to kind of quantify from a revenue perspective what that would be or the timing thereof. But one would expect that if BARDA is interested in having an available stockpile through a VMI kind of procedure that they'd want to have it sooner than later. So anyway, more to come on that.

And then on the Arthro product, you stated that there are 600 trained at this point. In general, once a surgeon gets trained, how long does it take for them to kind of become comfortable enough to start taking biopsies and start sending them over to you folks?

Yes, it often happens in reverse, where surgeons take biopsies and then get trained when they're ready to proceed with the procedure. There’s no time at all to get comfortable taking a biopsy. They perform arthroscopic chondroplasties frequently, and that's when they typically take a biopsy. So there’s no impact there at all.

There are no further questions. I'd like to turn the floor back to Nick Colangelo for any additional or closing remarks.

Okay. Well, we just wanted to say thank you to everyone for your questions and continued interest in Vericel, and we look forward to providing further updates on our progress on our next call. So thanks again, and have a great day.

This concludes today's conference. We thank you for your participation. You may disconnect at this time.