Vericel Corp Q3 FY2025 Earnings Call

Good day, and welcome to the Vericel Corporation Third Quarter 2025 Earnings Call. Today's conference is being recorded. At this time, I would 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 third 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. The company delivered outstanding financial and business results in the third quarter with strong top line revenue growth and even higher profit growth, a significant inflection in operating cash flow, and continued progress across a number of key business initiatives. The company generated record third quarter total revenue, which exceeded our guidance for the quarter, record third quarter MACI revenue, which increased 25% over last year and the highest quarterly burn care revenue of the year as Epicel had one of its highest revenue quarters to date and NexoBrid had its highest quarterly revenue since launch. The strong revenue performance translated into significant profit growth and cash generation as the company delivered GAAP net income of more than $5 million and adjusted EBITDA margin of 25% for the quarter as well as record third quarter operating cash flow of more than $22 million. MACI's third quarter 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. As anticipated, the strong MACI biopsy growth in the first half of the year, which outpaced implant growth to that point, drove an acceleration of implant and revenue growth in the third quarter. MACI also had another quarter of double-digit biopsy growth with record third quarter highs in both MACI biopsies and the number of surgeons taking biopsies. This momentum continued into the fourth quarter as we had the highest number of MACI biopsies and surgeons taking biopsies in any month since launch in October. In addition to the strength of the core MACI fundamentals, the early launch indicators remain very strong for MACI Arthro, which clearly is contributing to MACI's overall biopsy and implant growth. We now have more than 800 MACI Arthro trained surgeons through the end of October, and the biopsy and implant growth rates continue to increase substantially for trained surgeons and remain significantly higher than the growth rates for surgeons that have not yet been trained. In addition, early data indicates that the cohort of surgeons that have completed a MACI Arthro case to date have a markedly higher implant growth rate than biopsy growth rate, suggesting a higher overall conversion rate for MACI Arthro implanting surgeons. We believe that this dynamic may be driven by the fact that MACI Arthro is a less invasive procedure with the potential for improved patient outcomes. To that end, we remain focused on generating clinical data to demonstrate these potential patient benefits, including a shorter rehab period with MACI Arthro administration. Early data from ongoing investigator case series suggests a significant reduction in postsurgical pain, improved range of motion and a meaningful acceleration in the timeline to achieving full weight bearing, following MACI Arthro treatment. These initial results suggest very positive outcomes, which could also lead to a shorter overall recovery timeline for patients. We expect to see these cases presented at industry meetings in early 2026 as well as in future publications, and we continue to work with additional surgeons as they complete MACI Arthro cases to collect prospective outcomes data in our MACI clinical registry. Finally, the MACI sales force expansion is on track to be completed in the fourth quarter, with the new reps supporting current territories this year and moving into their new territories at the start of next year, which will support our significant fourth quarter volume growth and position MACI for a continued strong performance for the full year in 2026. In terms of our longer-term MACI growth initiatives, we remain on track to initiate the Phase III MACI Ankle clinical study this quarter, which represents a substantial growth opportunity for MACI and would enable the company to expand into other orthopedic markets. We also remain on track to initiate commercial manufacturing for MACI in our new facility next year, which is designed to meet both U.S. and global manufacturing requirements and will allow the company to potentially commercialize MACI outside the United States. To that end, we're initiating a staged approach to our MACI OUS expansion with the first phase targeting a planned MACI launch in the U.K. This is an ideal first step for OUS expansion in that the U.K. has an international mutual recognition procedure that allows for accelerated approval and market access. There's a high level of awareness and surgeon advocacy for MACI given that the product was previously marketed in the U.K. There's an established reimbursement pathway for this technology given a prior positive NICE opinion for MACI, and there are concentrated points of care with a dozen or so centers of excellence for the treatment of cartilage injuries in the U.K. We'd expect to submit a marketing application in the middle of next year and potentially launch MACI in the U.K. in the first half of 2027 as we seek to expand the long-term growth and value creation opportunities for the company. In summary, MACI remains the clear market leader for knee cartilage repair with a significant competitive moat. Based on the strength of its underlying business fundamentals, we believe that MACI is very well positioned for a strong close to 2025 and continued strong growth in 2026 and beyond. The early launch indicators for MACI Arthro remain very strong and clearly are contributing to the overall biopsy and implant growth for MACI. As we move into 2026, we expect to capitalize on having a full year to engage with the current MACI Arthro trained surgeons and to continue to meaningfully expand the number of trained surgeons next year. In addition to increasing the MACI sales force to drive further growth, we're also supporting the expanded MACI sales team with additional investments across our sales operations, marketing and medical functions to enhance our operational excellence and commercial execution and create additional opportunities for surgeons to engage with Vericel. We believe that all of these initiatives will reinforce MACI's leadership position and drive continued strong revenue and profit growth in 2026 and the years ahead. I'll now turn the call over to Joe.

Thanks, Nick, and good morning, everyone. The company delivered very strong financial results in the third quarter with record total revenue of $67.5 million. MACI had a strong quarter with revenue growing 25% to $55.7 million, which was above the high end of our guidance range for the quarter. Importantly, year-to-date MACI revenue growth is over 20% with its growth rate having increased each quarter during the year. Burn Care also had a strong third quarter with revenue of $11.8 million, which increased 21% sequentially over the second quarter. Epicel revenue of $10.4 million was the highest quarter of the year and one of its highest quarters to date, while NexoBrid revenue of $1.5 million represented its highest quarterly revenue since launch, growing 38% versus the prior year and 26% versus the prior quarter. The company's substantial revenue growth translated into significant margin expansion with gross profit of nearly $50 million or 73.5% of revenue. The company also delivered GAAP net income of $5.1 million and adjusted EBITDA increased nearly 70% to $17 million or 25% of revenue, an increase of nearly 800 basis points versus the prior year as the company's profit growth continues to outpace our strong revenue growth. Finally, the company generated record third quarter operating cash flow of $22.1 million, nearly matching the fourth quarter of last year. And with just $2.6 million of CapEx during the quarter, the company achieved record free cash flow of nearly $20 million, ending the quarter with $185 million in cash and investments as the expected inflection of our cash generation following the completion of our new manufacturing facility is now being realized. Turning to our financial guidance. We expect full year total revenue of approximately $272 million to $276 million. For MACI, we are maintaining our revenue guidance expectations of low 20% growth for the full year and expect full year MACI revenue of approximately $237.5 million to $239.5 million and fourth quarter revenue of approximately $82 million to $84 million. Given MACI's strong third quarter results and expectations for its continued strong performance in Q4, MACI remains on track for a significant acceleration in revenue growth from 18% in the first half of the year to approximately 23% in the second half of the year. For Burn Care, we expect full year revenue of approximately $34.5 million to $36.5 million, with fourth quarter revenue of approximately $6.5 million to $8.5 million as Epicel trends to date in the fourth quarter are similar to Q4 of last year. I would also note that we are not assuming any additional NexoBrid revenue related to the BARDA RFP process initiated in August, although there is potential for incremental NexoBrid BARDA revenue in the fourth quarter. From a profitability perspective, we have reaffirmed our full year profitability guidance of gross margin of 74% and adjusted EBITDA margin of 26%. For the fourth quarter, we expect gross margin of approximately 77%, approximately $50 million of total operating expenses, which includes the investments related to our recent sales force expansion and adjusted EBITDA margin of approximately 40%. Overall, 2025 is set up to be another positive year for the company with strong top line growth as well as significant margin expansion and profit growth. As we look ahead to next year and beyond, we believe that the durable growth of our portfolio positions the company to sustain strong top line growth in the years ahead and supports our midterm profitability targets that we announced earlier this year of gross margin in the high 70% range and adjusted EBITDA margin in the high 30% range by 2029. This now concludes our prepared remarks. We will now open the call to your questions.

We will now move to our first question.

This is Josh Jennings from TD Cowen. Can you hear me okay?

We can hear you fine.

I'm sorry, I didn't hear my name called. I appreciate your comments and congratulations on the strong third quarter results. Joe, your earlier comments about continued momentum into 2026 are noted. I apologize for asking a typical question so close to the guidance for 2026, but regarding the MACI franchise, I'm curious about the contributions from MACI Arthro in 2026 and whether they will be additive or cannibalistic to standard MACI. How should we be thinking about MACI growth as we approach the coming quarters next year? I have one follow-up.

Yes, thank you for the question. We haven't provided specific guidance for 2026 yet, but I'm happy to share some initial thoughts. We'll likely offer more formal guidance as we approach next year. Overall, our expectations for next year are quite high due to several impactful initiatives, especially for MACI. However, we plan to be cautious as we begin the year with our guidance. Regarding Burn Care, we discussed the run rate concept last quarter, which we'll adjust quarterly as necessary. Historically, our run rate has been in the $9 million to $10 million range, so we believe starting next year in this range and aiming for the high 30s for the full year is reasonable. We anticipate continued growth for NexoBrid and the possibility of BARDA-related revenue, but due to the variability with Epicel, we'll approach this with caution. For MACI, most analysts forecast around 20% growth for the full year, which aligns with our prior performance. Given that MACI's growth was 20% last year and is around that mark this year, we're not planning to set guidance above this trend at the start of the year. Looking at incremental revenue year-over-year, we see potential in the $40 million plus range, but we will not overestimate. Regarding the arthro question, we are not viewing MACI growth in terms of arthro versus non-arthro but rather as a total MACI perspective. We’re observing the progression we anticipated throughout the year. We have engaged 800 trained surgeons, many of whom are new to MACI or focused on smaller defects, which is encouraging. We're also seeing increased biopsy and implant growth after training, which is a positive indicator of future impact. Furthermore, our data suggests a higher conversion rate among surgeons performing arthro implants, which is another promising sign. We’ll remain cautious in our planning and guidance for next year to set ourselves up for successful growth throughout the year.

Thank you. It’s encouraging to observe the increasing conversion rate for MACI Arthro. We’ve heard from some surgeons that there is a rise in patient demand for MACI Arthro. More patients are looking for orthopedic surgeons who perform this procedure or are specifically requesting it. I am curious if this trend we are noticing is influencing surgeon adoption rates, as in, are surgeons responding to the interest from patients and becoming more engaged, which in turn may be driving volumes? Any insights on this situation would be appreciated.

Yes, as we've consistently discussed, we've received anecdotal feedback about MACI Arthro from the very beginning. There's been significant social media activity among leading MACI Arthro implanters, which likely contributes to patients becoming more aware of the MACI Arthro option. This aligns well with our expectations. Additionally, the positive anecdotal feedback we've gathered supports our anticipated trends, and everything is progressing as we've projected throughout the year. We are pleased with these trends and understand why patients would be attracted to a less invasive procedure that offers potential advantages like quicker recovery and shorter rehab timelines. Furthermore, we are ahead of our expectations regarding the number of trained surgeons this year, and the awareness and engagement from surgeons have been very encouraging as well.

We'll move to our next question from Richard Newitter with Truist Securities.

Congrats on the quarter. I just wanted to get a better understanding of where you're potentially seeing MACI Arthro actually potentially getting used where the traditional MACI was not? Just the cannibalization versus market expansion, anything anecdotal that you can give us there? And then I have a follow-up.

Rich, it's Nick. I believe we're seeing a continuation of the trends we've discussed in previous quarters. We don't view this as cannibalization. Instead, we're focused on increasing MACI utilization, regardless of whether a surgeon implants MACI using a mini arthrotomy, a small open incision, or arthroscopically. All these methods contribute to the strong growth of MACI we're experiencing. As we previously mentioned, and as Joe pointed out, from a surgeon's perspective, the trained surgeons, along with those performing biopsies and implants, include current MACI users and new users who were previously open targets or new arthroscopic-only targets we've introduced. The training distribution is roughly one-third coming from former MACI users who primarily treated condyle cases, one-third from those who treated both condyle and femoral condyles, and one-third from new users, whether they are open targets or the new targets. This creates a good mix of surgeons who are taking biopsies and performing implants. From a defect location or patient perspective, we have observed use not only in the femoral condyles but also in other areas of the knee such as the trochlea and tibia, and occasionally in patella cases. I believe this trend will continue as we focus on further innovation with the MACI Arthro instruments. We plan to collaborate with surgeons to design the next version of MACI instruments that will enhance access to various parts of the knee. Overall, it is a broad-based approach that supports the growth we've seen in this third quarter.

It's really encouraging to hear that. I'm curious about your new product launch. As we look ahead to next year, I understand you might not want to provide official guidance for 2026, but is there anything we should be aware of regarding the revenue cadence or the P&L? It has been a bit counterintuitive over the last two years, and I want to avoid any surprises as we update our models for next year.

Thanks for the question, Rich. This is Joe. As we enter any year, there will always be some seasonality from a MACI perspective, which can fluctuate on a quarterly basis. Over the last few years, we've seen the first quarter usually experience a lower growth rate coming off Q4. This trend has been consistent, so I wanted to highlight it. Generally, there is a recognizable pattern, and while individual quarters may vary, halves tend to be similar. On the burn care side, while I’m not necessarily addressing that, there is some variability. We’ll adhere to our run rate approach and will make adjustments as necessary, as we did in the fourth quarter based on what we're observing. We want to ensure we maintain a careful approach in any quarter regarding burn care. Regarding profitability for next year, there’s nothing specific to highlight on a quarterly basis. However, as you consider the upcoming year, it’s worth noting that in Q3, we were net income positive at a $5 million level, which is significant. We also achieved a 25% adjusted EBITDA margin in Q3. In terms of cash flow, whether you're looking at free cash flow or operating cash flow, we're around $20 million for the quarter. We've mentioned a few years back about a P&L inflection, and we're starting to see a transition toward stronger cash generation. For the fourth quarter, we anticipate it to be robust, as I've mentioned before. Looking ahead to next year, we expect margins to continue improving for both gross margin and adjusted EBITDA. It’s wise to approach the start of the year with some caution since the past 2 or 3 years have exceeded our expectations regarding the speed of margin improvement. I believe an increase of about 1 point in gross margin and perhaps 1 to 2 points in adjusted EBITDA is a feasible starting point. We will need to consider investments in the sales force and the scale-up of the Ankle trial, and our cost of goods sold will include factors from our new facilities. Broadly speaking, if we examine the financial trajectory and P&L metrics of the company, we’re experiencing considerable growth. Last year, we had $50 million in adjusted EBITDA, and this year, our guidance suggests $70 million. We’re moving towards that $100 million adjusted EBITDA range. If we maintain similar revenue growth over the next few years with adjusted EBITDA in the high 30%, reaching close to $200 million EBITDA by 2029 is a reasonable expectation. We’re excited about everything happening within MACI and the business as a whole, but we’re also focused on our financial trajectory through 2026 and the subsequent years, which we believe could be substantial. This distinct aspect makes our company unique for its size and scale.

Can you hear me okay? It was a nice quarter. Considering the early biopsy trends this year and the results from this quarter, the MACI guidance has been tightened. I'm curious why the fourth quarter wouldn't improve compared to your previous guidance, given what you're observing and your comments about biopsies in the third and into the fourth quarter.

Yes. So thanks for the question, Ryan. So I'll take that. I mean I think, clearly, a very strong third quarter, as we referenced, the biopsies at the start of the year led to that higher implanted revenue growth, which is great to see. To your point, the leading indicators have been strong. I'd say particularly the biopsies, which is, of course, a key leading indicator for us. I think in terms of the guidance, I would say another dimension there is, with that strong third quarter, it really derisks where we need to be in the fourth quarter to achieve our full year guidance. So, to your point, we're essentially maintaining the full year guide at the same level. It kind of points to about $82 million to $84 million in the fourth quarter, which is right in line with kind of where estimates and consensus are. But I'd also say this kind of points to a pretty strong acceleration still from an H1 to H2 perspective, depending on where you're in the range, it's 18% to call it 22% to 23%. So a pretty significant step-up in the second half. It also gives us, I'd say, a pretty achievable step-up Q3 to Q4. And I'd just say broadly, we just want to be prudent here on Q4. We recognize there certainly remains a wider range given some of the leading indicators. We've got a great foundation of biopsies in place, but Q4 is our largest quarter. December is our highest month because there always can be some variability at quarter end, particularly with the year-end holidays. So we think this is appropriate. It's an achievable step-up. And I would say just we do not want to get ahead of ourselves as we close out the year.

Yes, I understand. You mentioned earlier, Nick, that there is an increase in adoption of MACI Arthro. However, I'm unclear about the specifics. Can you share how much MACI Arthro sales were in the third quarter? Additionally, what are your expectations compared to legacy MACI as we transition into the fourth quarter and into 2026? Do you anticipate a complete conversion this next quarter, or will it happen gradually throughout 2026? I'm interested in how you view the growth of MACI Arthro in relation to the decrease of legacy MACI.

We do not view the decline of legacy MACI as a concern. Legacy MACI primarily focused on patella defects and larger defects in the knee, with patella defects being a significant growth driver for core MACI, a trend that continues. There won't be a complete shift to MACI Arthro because its instruments are intended for smaller defects. If a defect exceeds 4 square centimeters, an open procedure is necessary, and typically, patella cases are also handled with an open procedure. The smaller defects represent a smaller segment, and we have seen lower penetration in that area, which is why we launched the MACI Arthro instruments. As we've observed an increase in biopsies and implants on smaller condyle defects, these cases are attributable to MACI Arthro. We don't think of it solely as a shift from core to arthro. Often, procedures intended as arthro can switch to open if a biopsy reveals a larger defect. This creates a halo effect on the brand overall. Our perspective is that the trends among trained surgeons reflect positively and support the brand’s overall growth.

Okay. That's very helpful. And if I could sneak one last one in, and I'll hop back in queue. If you go back, some of the insurance carriers and their policies don't restrict lesion size. Some do. Have you had to work through that? And is there any impact or any gating factor there in terms of lesion size as you launch MACI Arthro?

Yes. The short answer is not at all. Some plans do not have size restrictions or parameters, while others require defects to be 1, 1.5, or 2 square centimeters or larger. The MACI Arthro instruments are specifically designed for defects of 2, 3, or 4 square centimeters. This has not been an issue. Additionally, every major medical plan has a policy for MACI, and our prior approval rates are in the mid-90% range. Therefore, for the appropriate patients, MACI gets approved.

We'll take our next question from Caitlin Roberts with Canaccord Genuity.

Congrats on the quarter. Just to start with Burn Care, can you just walk us through the puts and takes here? You said Epicel you expect similar Q4 dynamics this quarter and last year. And then the BARDA contract, any more color on that and why there could be some BARDA upside to NexoBrid? And also has the new Category III code for NexoBrid helped uptake there?

Caitlin, this is Nick. Regarding the Epicel trends as we entered the quarter, what we mentioned was that early in the quarter, and since we're only about one-third of the way through, the trends we've seen align more with what we experienced in Q4 of last year. This is the guidance we're currently offering. We still have a significant portion of the quarter ahead of us, and the biopsies for patients we plan to treat in December have not yet arrived, so we lack visibility in that regard. As Joe pointed out, we need to be cautious and avoid overestimating our guidance for Epicel due to its unpredictability. Concerning the BARDA opportunity, the RFP is publicly available and was set to commence on October 1st. However, we are aware of the government shutdown, which has stalled progress. We remain optimistic that once the government reopens, we can advance on the RFP and the procurement related to the development of NexoBrid. More updates will follow, but until then, we can't provide additional details. Regarding the CPT code, we've seen a substantial number of P&T committee approvals for NexoBrid, around 70, across more than 60 ordering centers. Overall, we feel confident about the CPT landscape and expect to pursue a permanent code next year, which would be effective in 2027. That is our current plan, and we will provide further updates as we move into next year.

That's great. And then just maybe touching on the MACI sales force hiring. Where are you now? And you noted you're on track to be completed in Q4. Any changes to the amount that you noted last quarter that you would hire into the year?

Yes, we mentioned plans to add 25 new territories and 3 new regions, and we're virtually complete with that, with just a few remaining additions. We're extremely pleased with the quality of talent we've recruited. For those in the sports medicine field, this is a great opportunity with MACI. We have no issues attracting top talent, and we're excited about our expanded team as we support our Q4 volumes and prepare for the upcoming year. This excitement is just one aspect of our overall investment and enthusiasm around MACI, including the expansion of our sales force. We're proud to have transformed this franchise from a $30 million product a decade ago to nearly $250 million today. Our focus is on the people, resources, and processes needed to grow it from $250 million to $500 million in the coming years. The sales force expansion is just one part of our strategy. As I mentioned earlier, we're also committed to enhancing our marketing, sales operations, and investments in medical affairs and key customer engagement to ensure we meet the opportunities ahead of us in the coming years.

We'll take our next question from Mike Kratky with Leerink Partners.

Congrats on a nice quarter. You've continued to show great progress on some of the leading indicators like biopsies and surgeons taking biopsies. Can you just clarify how much of your 3Q growth for MACI is being driven by implant volume versus pricing? Have you seen some of these really positive leading indicators start to materialize in your MACI volume growth? And how has that tracked relative to your expectations?

Yes, Mike, thank you for the question. I would say that the acceleration we experienced in the third quarter is primarily driven by volume. Earlier this year, we noted strong growth in biopsies, while implant growth was not on the same trajectory. In the third quarter, as we expected, implant volumes increased significantly. Looking ahead, one of the key indicators we focus on is still biopsy growth, which remains strong, and as Nick mentioned, October was exceptionally good, possibly our best month ever. This growth in biopsies has been a crucial factor in our third-quarter performance and will continue to support our volumes as we move into the fourth quarter.

We'll take our next question from Mason Carrico with Stephens.

This is Ben on for Mason. In terms of the MACI Arthro trained surgeons, you called out that 1/3 split between surgeon types. Could you compare and contrast arthro biopsy growth and maybe arthro procedures across these different groups?

Yes, to clarify, we mentioned that about half of our former MACI users were condyle-only surgeons, while the other half performed both femoral condyle and patella cases. Then we also have new users. The distribution is roughly one-third for each segment. We've observed biopsy growth across all groups, and there aren't any specific segments that are significantly outperforming others. Smaller users who increase their activity show a high growth rate, as do new users. The rates are fairly consistent across these segments. As Joe mentioned, it's encouraging to see that one-third of the new users are being trained from patella-only backgrounds, suggesting that a large percentage of these trained surgeons may not have previously considered MACI for smaller condyle defects. This aligns perfectly with our expectations this early in the launch.

Great. And then you've historically called out mid to high single-digit pricing for MACI. Could you speak to the durability of that pricing moving forward or just the durability of that in light of the current reimbursement environment?

Yes, to clarify, MACI is reimbursed through a medical benefit, which means it requires prior approval from each plan before proceeding with a case. The plans know the pricing for MACI when they include it in their medical benefits, and they ensure that the right patients are approved in advance. This process contributes to the consistently high prior approval rates in the mid-90% range that we have maintained for the past decade since the launch of MACI. Additionally, we don’t have a significant Medicare business, so much of the broader macroeconomic factors do not significantly affect MACI. Regarding the typical mid to high single-digit price increases we've implemented, we conduct extensive pricing research with health plans and hospital administrators. MACI is perceived as a high-tech product, similar to biologics in the pharmaceutical industry, where mid to high single-digit increases are standard practice. Therefore, we are confident in our pricing strategies and methods.

We'll move to our next question from Jeffrey Cohen with Ladenburg Thalmann.

Congrats on the quarter. Two specifically. Firstly, Joe, perhaps you could talk about R&D a bit and anticipation for Q4 full year and general commentary there?

Yes. From a spending perspective, we usually don't provide detailed breakdowns. However, for Q4, we anticipate about $50 million in total operating expenses, which aligns with the annual figures we've discussed throughout the year. Looking at R&D moving forward, there are two key areas of increased spending in operating expenses: the expansion of our sales force, which Nick mentioned includes several related investments, and the upcoming Ankle trial, which will become more operational next year with more sites and potentially more patients involved. I expect our expenses to rise next year, possibly at a rate similar to this year, maybe slightly higher due to these investments. For clarity, we specifically mentioned $50 million for Q4 in our expectations.

Okay. Understood. Can you provide more details about postsurgical pain, specifically regarding any observations you've made on medical treatments, weight bearing, the timelines, and the medications you've come across so far?

Yes. This began in the first quarter when we noted that surgeons performing the initial MACI Arthro procedures shared positive feedback on social media about immediate benefits, such as reduced postsurgical pain, improved range of motion, and quicker return to full weight bearing. These are key early indicators. As anticipated by us and surgeons, our market research showed that less invasive surgery leads to reduced arthrofibrosis, resulting in less swelling in the knee and enhanced range of motion. This promotes a potentially faster healing process. We worked diligently to get MACI Arthro instruments to market quickly through the human factor study pathway, which did not require a clinical study. While we lacked clinical data affirming quicker postsurgical recovery, this has been our focus. In my earlier comments, I mentioned that we have been collecting data through case series and the MACI clinical outcomes registry. We expect this data to be presented at industry conferences in early 2026 and eventually published. The progression of MACI Arthro involves increasing awareness and training, which we've accomplished, followed by surgical technique demonstrations, like those seen at the recent International Cartilage Repair Society meeting in Boston. These presentations are a crucial step before highlighting the clinical benefits for patients. This progression aligns with what we are currently observing and reflects our comments during the prepared remarks.

Nick and Joe, can you hear me? This is Arthur on behalf of RK. I have a quick question regarding MACI. For MACI Arthro, could you provide more details about the timing from when the surgeon completes their training to when they perform their first biopsy? How does this compare to the initial MACI launch? You mentioned a high conversion rate for Arthro, but what is the average time for conversion compared to open surgery?

Yes. To begin with the training, it closely resembles the core MACI launch, where training is not a hindrance. Training can be conducted online, and there are cadaver labs available. Surgeons can practice on MACI Arthro synthetic knees. In the initial cases performed, biopsies were already collected, after which the surgeons trained and executed the MACI Arthro procedure. Therefore, there is no barrier regarding training. Typically, if a surgeon plans to perform a surgery arthroscopically, that training takes place beforehand. Hence, there is no direct link between whether a biopsy is taken first, followed by training, or vice versa. Regardless of the scenario, MACI Arthro training offers various methodologies for surgeons, allowing them to choose what they are most at ease with. Regarding the conversion rate, we noted in our last call that there have been no significant differences in the MACI Arthro conversion timelines compared to the standard approach. It’s still early to draw conclusions, but the timelines seem comparable at this stage.

And last one, could you discuss the timing and scale of the MACI Ankle phase? How should we think about the data read out there?

We are set to begin the study in the fourth quarter of this year. We have established a timeline similar to the pivotal study for the knee indication, which took two years for enrollment and two years for follow-up, plus around 18 months for the regulatory process. We have indicated this is a 2030-plus opportunity, which is a vital component of our long-term strategy for MACI. Our core business continues to gain momentum with MACI Arthro, and there are also expansion opportunities for MACI OUS followed by MACI Ankle. There is a significant potential for growth for MACI, especially with no competition anticipated on the horizon. I believe that concludes the questions, so thank you all for joining us this morning. We had an excellent third quarter and are very well positioned for a strong end to the year. We aim to maintain a unique blend of sustained high revenue growth and profitability through 2026 and beyond. We look forward to sharing further updates on our progress in our next call. Thank you once again, and have a great day.

This concludes today's call. Thank you again for your participation. You may now disconnect and have a great day.