UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORMForm 10-Q
(Mark One)
 
x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED: September 30, 2017March 31, 2023
or
OR
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file numberFile Number 001-35280
 
VERICEL CORPORATION
(Exact name of registrant as specified in its charter)
Michigan
94-3096597
Michigan94-3096597
(State or other jurisdiction of(I.R.S. employer
incorporation or organization)identification no.(I.R.S. Employer Identification No.)
64 Sidney Street
Cambridge, MA 02139
(Address of principal executive offices, including zip code)
 
64 Sidney Street
Cambridge, MA 02139
(Address of principal executive offices, including zip code) 

Registrant’s telephone number, including area code) (800) 556-0311code: (617) 588-5555

(Former name, former address and former fiscal year, if changed since last report)
 Securities registered pursuant to Section 12(b) of the Act:
Title of ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common Stock (No par value)VCELNASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes - x No - o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes - x No - o


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer - o
☒
Accelerated filer - x
☐
Non-accelerated filer - o
☐
Smaller reporting company - o
☐
(Do not check if a smaller reporting company)
Emerging growth company - o
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes - o☐ No - x

Indicate the number
As of April 30, 2023, 47,564,919 shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.Common Stock, no par value per share, were outstanding. 


COMMON STOCK, NO PAR VALUE34,907,789
(Class)Outstanding at November 3, 2017

1
Table of Contents


VERICEL CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
 
Page
PART I —- FINANCIAL INFORMATION
Item 1.
Financial Statements (Unaudited):
3
3
4
5
6
57
69
Item 2.
1525
Item 3.
2131
Item 4.
2131
PART II — OTHER INFORMATION
Item 1.
2231
Item 1A.
2231
Item 1B.2.
22
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
2232
Item 6.3.
2232
Item 4.
32
Item 5.
32
Item 6.
33
2333
2534
2
i


Table of Contents



PART I - FINANCIAL INFORMATION
 

Item 1.Financial Statements (Unaudited)

VERICEL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, amounts in thousands)

 March 31,December 31,
 20232022
ASSETS  
Current assets:  
Cash and cash equivalents$61,834 $51,067 
Short-term investments57,442 68,471 
Accounts receivable (net of allowance for doubtful accounts of $47 and $47, respectively)38,359 46,539 
Inventory15,370 15,986 
Other current assets4,540 4,803 
Total current assets177,545 186,866 
Property and equipment, net18,197 15,837 
Intangible assets, net7,344 7,500 
Right-of-use assets40,851 41,535 
Long-term investments19,910 19,962 
Other long-term assets1,249 1,303 
Total assets$265,096 $273,003 
LIABILITIES AND SHAREHOLDERS’ EQUITY  
Current liabilities:  
Accounts payable$11,125 $16,930 
Accrued expenses13,111 16,190 
Current portion of operating lease liabilities4,497 4,302 
Other current liabilities20 41 
Total current liabilities28,753 37,463 
Operating lease liabilities42,365 43,268 
Total liabilities71,118 80,731 
COMMITMENTS AND CONTINGENCIES (Note 12)
Shareholders’ equity:  
Common stock, no par value; shares authorized — 75,000; shares issued and outstanding 47,507 and 47,253, respectively602,104 593,245 
Accumulated other comprehensive loss(636)(978)
Accumulated deficit(407,490)(399,995)
Total shareholders’ equity193,978 192,272 
Total liabilities and shareholders’ equity$265,096 $273,003 
  September 30, December 31,
  2017 2016
ASSETS  
  
Current assets:  
  
Cash $15,466
 $22,978
Accounts receivable (net of allowance for doubtful accounts of $226 and $225, respectively) 15,430
 17,093
Inventory 4,049
 3,488
Other current assets 1,366
 1,164
Total current assets 36,311
 44,723
Property and equipment, net 3,967
 3,875
Total assets $40,278
 $48,598
LIABILITIES AND SHAREHOLDERS’ EQUITY  
  
Current liabilities:  
  
Accounts payable $5,972
 $6,535
Accrued expenses 4,514
 4,523
Current portion of term loan credit agreement (net of deferred costs of $110) 2,557
 779
Warrant liabilities 1,269
 757
Other 216
 259
Total current liabilities 14,528
 12,853
Revolving and term loan credit agreement (net of deferred costs of $211 and $293, respectively) 7,400
 9,318
Long term deferred rent 1,613
 1,687
Other long term debt —
 32
Total liabilities 23,541
 23,890
COMMITMENTS AND CONTINGENCIES (Note 13) 

 

Shareholders’ equity:  
  
Series B-2 voting convertible preferred stock, no par value: shares authorized and reserved — 39, shares issued and outstanding — 0 and 12, respectively —
 38,389
Common stock, no par value; shares authorized — 75,000; shares issued and outstanding — 34,852 and 31,595, respectively 377,711
 329,720
Warrants 190
 190
Accumulated deficit (361,164) (343,591)
Total shareholders’ equity 16,737
 24,708
Total liabilities and shareholders’ equity $40,278
 $48,598

The accompanying Notesnotes to Condensed Consolidated Financial Statementscondensed consolidated financial statements are an integral part of these statements.




3

VERICEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, amounts in thousands, except per share amounts)
 
 Three Months Ended March 31,
 20232022
Product sales, net$41,017 $35,852 
Other revenue— 222 
Total revenue41,017 36,074 
Cost of product sales14,497 12,622 
Gross profit26,520 23,452 
Research and development5,212 4,860 
Selling, general and administrative29,485 25,865 
Total operating expenses34,697 30,725 
Loss from operations(8,177)(7,273)
Other income (expense):  
Interest income839 88 
Interest expense(145)(18)
Other (expense) income(12)112 
Total other income682 182 
Net loss$(7,495)$(7,091)
Net loss per common share:
Basic and diluted$(0.16)$(0.15)
Weighted-average common shares outstanding:
Basic and diluted47,387 46,985 
  Three Months Ended September 30, Nine Months Ended September 30,
  2017 2016 2017 2016
Product sales, net $14,260
 $10,929
 $40,574
 $37,860
Cost of product sales 7,186
 6,856
 21,965
 20,716
Gross profit 7,074
 4,073
 18,609
 17,144
Research and development 2,919
 3,443
 9,357
 11,037
Selling, general and administrative 8,186
 7,010
 25,427
 19,463
Total operating expenses 11,105
 10,453
 34,784
 30,500
Loss from operations (4,031) (6,380) (16,175) (13,356)
Other income (expense):  
  
 0
  
(Increase) decrease in fair value of warrants (1,060) (203) (512) 99
Foreign currency translation loss (6) (6) (20) (17)
Interest income 2
 —
 6
 7
Interest expense (317) (86) (878) (92)
Other income (expense) 5
 —
 6
 (10)
Total other income (expense) (1,376) (295) (1,398) (13)
Net loss $(5,407) $(6,675) $(17,573) $(13,369)
         
Net loss per share attributable to common shareholders (Basic and Diluted) (see note 12) $(0.16) $(0.38) $(0.54) $(0.84)
Weighted average number of common shares outstanding (Basic and Diluted) 33,667
 22,744
 32,783
 22,678

The accompanying Notesnotes to Condensed Consolidated Financial Statementscondensed consolidated financial statements are an integral part of these statements.




4

VERICEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited, amounts in thousands)

 Three Months Ended March 31,
 20232022
Net loss$(7,495)$(7,091)
Other comprehensive loss:
Unrealized gain (loss) on investments342 (459)
Comprehensive loss$(7,153)$(7,550)

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

5
VERICEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited, amounts in thousands)

Common StockAccumulated Other Comprehensive Gain (Loss)Accumulated DeficitTotal Shareholders’ Equity
SharesAmount
BALANCE, DECEMBER 31, 202247,253 $593,245 $(978)$(399,995)$192,272 
Net loss— — — (7,495)(7,495)
Stock-based compensation expense— 8,731 — — 8,731 
Stock option exercises132 2,009 — — 2,009 
Shares issued under the Employee Stock Purchase Plan11 216 — — 216 
Issuance of stock for restricted stock unit vesting183 — — — — 
Restricted stock withheld for employee tax remittance(72)(2,097)— — (2,097)
Unrealized gain on investments— — 342 — 342 
BALANCE, MARCH 31, 202347,507 $602,104 $(636)$(407,490)$193,978 


Common StockAccumulated Other Comprehensive LossAccumulated DeficitTotal Shareholders’ Equity
SharesAmount
BALANCE, DECEMBER 31, 202146,880 $553,902 $(154)$(383,286)$170,462 
Net loss— — — (7,091)(7,091)
Stock-based compensation expense— 9,531 — — 9,531 
Stock option exercises125 1,155 — — 1,155 
Shares issued under the Employee Stock Purchase Plan9 310 — — 310 
Issuance of stock for restricted stock unit vesting108 — — — — 
Restricted stock withheld for employee tax remittance(41)(1,423)— — (1,423)
Unrealized loss on investments— — (459)— (459)
BALANCE, MARCH 31, 202247,081 $563,475 $(613)$(390,377)$172,485 

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.


6

VERICEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, amounts in thousands)

 Three months ended March 31,
 20232022
Operating activities:  
Net loss$(7,495)$(7,091)
Adjustments to reconcile net loss to net cash flows from operating activities:  
Depreciation and amortization expense1,158 873 
Stock-based compensation expense8,731 9,531 
Amortization of premiums and discounts on marketable securities(290)194 
Amortization of debt issuance costs54 — 
Non-cash lease costs1,112 1,076 
Other12 4 
Changes in operating assets and liabilities:  
Inventory616 (1,004)
Accounts receivable8,180 5,582 
Other current assets263 (847)
Accounts payable(274)(219)
Accrued expenses(3,079)(3,734)
Operating lease liabilities(1,128)(897)
Net cash provided by operating activities7,860 3,468 
Investing activities:  
Purchases of investments(9,787)(12,629)
Sales and maturities of investments21,500 5,041 
Expenditures for property and equipment(1,413)(3,081)
Purchases of intangible assets(7,500)— 
Net cash provided by (used in) investing activities2,800 (10,669)
Financing activities:  
Net proceeds from common stock issuance2,225 1,465 
Payments on employee’s behalf for taxes related to vesting of restricted stock unit awards(2,097)(943)
Other(21)(19)
Net cash provided by financing activities107 503 
Net increase (decrease) in cash, cash equivalents, and restricted cash10,767 (6,698)
Cash, cash equivalents, and restricted cash at beginning of period51,067 68,541 
Cash, cash equivalents, and restricted cash at end of period$61,834 $61,843 

7
  Nine Months Ended September 30,
  2017 2016
Operating activities:  
  
Net loss $(17,573) (13,369)
Adjustments to reconcile net loss to net cash used for operating activities:  
  
Depreciation and amortization 1,186
 1,393
Stock compensation expense 2,053
 1,973
Change in fair value of warrants 512
 (99)
Inventory provision 232
 98
Foreign currency translation loss 20
 17
Changes in operating assets and liabilities:  
  
Inventory (793) (2,325)
Accounts receivable 1,663
 3,048
Other current assets (202) (278)
Accounts payable (1,068) (2,173)
Accrued expenses (9) (205)
Tenant improvement reimbursement 89
 898
Deferred rent expense 2
 438
Other assets and liabilities, net (129) —
Net cash used for operating activities (14,017) (10,584)
Investing activities:  
  
Expenditures for property, plant and equipment (792) (1,314)
Net cash used in investing activities (792) (1,314)
Financing activities:  
  
Net proceeds from issuance of common stock 7,549
 469
Deferred financing costs —
 (244)
Borrowings under revolving credit agreement and term loan —
 8,400
Repayments of short-term debt —
 (2,400)
Payments on long-term debt (252) (28)
Net cash provided by financing activities 7,297
 6,197
Net decrease in cash (7,512) (5,701)
Cash at beginning of period 22,978
 14,581
Cash at end of period $15,466
 $8,880
     
Supplemental cash flow information (non-cash):  
  
Additions to equipment in process included in accounts payable $486
 $36
Conversion of preferred stock into common stock
 $38,389
 —
Warrants issued in connection with debt arrangement $—
 $190
Supplementary cash flows information:    
Interest paid, net of interest capitalized $691
 $73
VERICEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited, amounts in thousands)


Three months ended March 31,
20232022
Supplemental disclosure of cash flow information:
Non-cash information:
Right-of-use asset and lease liability recognized$419 $— 
Additions to property and equipment included in accounts payable2,282 317 
Restricted stock held for employee tax remittance included in accounts payable— 480 

Three months ended March 31,
20232022
Reconciliation of amounts within the condensed consolidated balance sheets:
Cash and cash equivalents$61,834 $55,659 
Restricted cash— 6,184 
Total cash, cash equivalents, and restricted cash at end of period$61,834 $61,843 


The accompanying Notesnotes to Condensed Consolidated Financial Statementscondensed consolidated financial statements are an integral part of these statements.

8


VERICEL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED SEPTEMBER 30, 2017 (UNAUDITED)
1.1. Organization

Vericel Corporation, a Michigan corporation (the(together with its consolidated subsidiaries referred to herein as the Company, Vericel, we, us or our)Vericel), was incorporated in March 1989 and began employee-based operations in 1991. On May 30, 2014, Vericel completed the acquisition of certain assets and assumed certain liabilities of Sanofi, a French société anonyme (Sanofi), including all of the outstanding equity interests of Genzyme Biosurgery ApS (Genzyme Denmark or the Danish subsidiary) (now known as Vericel Denmark ApS), a wholly-owned subsidiary of Sanofi, and over 250 patent applications of Sanofi and certain of its subsidiaries for purposes of acquiring the portion of the cell therapy and regenerative medicine business (the CTRM Business), which researches, develops, manufactures, markets and sells the Carticel®, MACI®, and Epicel® products. The Company is a fully integrated,fully-integrated, commercial-stage biopharmaceutical company dedicated to the identification, development and commercialization of innovative therapies that enable the body to repair and regenerate damaged tissues and organs to restore normal structure and function. Vericel has marketed products and developmental stage product candidates, and the Company’s goal is to become thea leader in cell therapy and regenerative medicine by developing, manufacturing and marketing best-in-classadvanced therapies for the sports medicine and severe burn care markets. Vericel currently markets three commercial-stage products in the U.S., MACI®, Epicel® and NexoBrid®.

MACI (autologous cultured chondrocytes on porcine collagen membrane) is an autologous cellularized scaffold product indicated for the repair of symptomatic, single or multiple full-thickness cartilage defects of the knee with or without bone involvement in adults. Epicel (cultured epidermal autografts) is a permanent skin replacement for the treatment of adult and pediatric patients with significant unmet medical needs.

deep-dermal or full-thickness burns comprising greater than or equal to 30 percent of total body surface area (“TBSA”). The Company also holds an exclusive license from MediWound Ltd. (“MediWound”) to commercialize NexoBrid (anacaulase-bcdb) in North America. On December 28, 2022, the U.S. Food and Drug Administration (“FDA”) approved a Biologics License Application (“BLA”) for NexoBrid, granting a license for commercial use in the U.S. NexoBrid is a topically-administered biological product containing proteolytic enzymes and is indicated for the removal of eschar in adults with deep partial-thickness and/or full thickness thermal burns. The Company operates its business primarily in the U.S. in one reportable segment —- the research, product development, manufacture and distribution of patient-specific, expanded cellular therapies and specialty biologics for use in the treatment of specific diseases.

The Company is subject to risks common to companies in the life sciences industry including, but not limited to, development by the Company or its competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, commercialization of existing and new products, and compliance with FDA regulations and approval requirements, as well as the ability to grow the Company’s business through appropriate commercial strategies.

COVID-19

In March 2020, the World Health Organization declared the spread of a novel strain of coronavirus (“COVID-19”) to be a pandemic, which contributed to an economic downturn on a global scale, as well as significant volatility in the financial markets. At the time of the pandemic’s inception, and at times throughout its duration, there was significant volatility in the Company’s results of operations on a quarterly basis due to the widespread and periodic cancellation or delay of elective MACI surgical procedures throughout the U.S., staffing shortages and the Company’s ability to access customers. Based on declining COVID-related statistics, the U.S. Department of Health and Human Services has announced that the federal Public Health Emergency for COVID-19 is set to expire at the end of the day on May 11, 2023. Although at this juncture the pandemic’s effects on the Company’s business and results of operations have moderated, should a resurgence of COVID-19 occur it could result in additional disruptions that could impact the Company’s business and operations in the future, including intermittent restrictions on the ability of Company personnel to travel and access customers for selling, marketing, training, case support and product development feedback, delays in approvals by regulatory bodies, delays in product development efforts, and additional government requirements or other incremental mitigation efforts that may further impact its capacity to manufacture, sell and support the use of its products.

The War in Ukraine

The ongoing war between Russia and Ukraine and the related sanctions and other penalties imposed by countries across the globe against Russia are continuing to create substantial uncertainty in the global economy and have contributed to heightened inflation and supply chain disruptions. While the Company does not have operations in Russia or Ukraine and does not have exposure to distributors, or third-party service providers in Russia or Ukraine, it is unable to predict the ultimate impact that these actions will have on the global economy or on its financial condition, results of operations, and cash flows as of the date of these condensed consolidated financial statements.

9
Liquidity

The accompanying condensed consolidated financial statements have been prepared on a basis which assumes that the Company will continue as a going concern and contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. As of September 30, 2017,March 31, 2023, the Company hashad an accumulated deficit of $361.2$407.5 million and had a net loss of $5.4$7.5 million during the quarterthree months ended September 30, 2017. March 31, 2023. The Company had cash and cash equivalents of $15.5$61.8 million and investments of $77.4 million as of September 30, 2017.March 31, 2023. The Company expects that cash from the sales of its products and existing cash, together with its term loancash equivalents, investments, and revolving line of credit agreement with Silicon Valley Bank (SVB) and MidCap Financial Services (MidCap) (the SVB-MidCap facility),available borrowing capacity will be sufficient to support the Company's Company’s current operations through at least twelve12 months followingfrom the filingissuance of this Form 10-Q.  In connection with the SVB-MidCap facility, these condensed consolidated financial statements. If revenues decline for a sustained period, the Company must remain in compliance with minimum monthly net revenue covenants (determined in accordance with U.S. GAAP), measured on a trailing twelve month basis. SVB and MidCap also have the abilitymay need to call debt based on material adverse change clauses which are subjectively determinable and result in a subjective acceleration clause. If the Company's cash requirements exceed its current expectations, or if it is not in compliance with the monthly net revenue covenants or the subjective acceleration clauses are triggered under the SVB-MidCap facility, then SVB may call the debt resulting in the Company immediately needingaccess additional funds.  As of September 30, 2017, the Company was in compliance with the minimum revenue covenant set forth in the Second Loan Modification Agreement between the Company, SVB and MidCap. The Company may seek additional funding through debt or equity financings including the at-the-market sales agreement in place with Cowen and Company, LLC.  However,capital; however, the Company may not be able to obtain additional financing on acceptable terms or at all. The terms of any additional financing may adversely affect the holdings or the rights of the Company'sCompany’s shareholders.  If

Concentration of Credit Risk

Financial instruments that potentially subject the Company needs additional fundsto significant concentration of credit risk consist primarily of cash, cash equivalents and is unable to obtain funding on a timely basis, theinvestments in marketable debt securities. The Company may need to significantly curtail its operations including its research and development programsmaintain deposits in an effort to provide sufficient funds to continue its operations,financial institutions in excess of the insurance coverage offered by the Federal Deposit Insurance Corporation (“FDIC”), the loss of which could adverselyhave a negative effect on our operations and liquidity. The Company is closely monitoring ongoing events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or other companies in the financial services industry or the financial services industry generally. The Company believes that it is not exposed to significant credit risk as its business prospects.deposits, including cash and cash equivalents, are held at multiple high credit quality financial institutions. The Company has not experienced any losses on these deposits; however no assurances can be provided that there will not be losses experienced in the future. The Company believes that the market risk arising from its holdings of these financial instruments is mitigated based on the fact that many of these securities are either government-backed or of high credit rating.


2.Basis of Presentation
2. Basis of Presentation

The accompanying condensed consolidated financial statements included hereinof Vericel are unaudited and have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (SEC)(“SEC”). The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles in the United States of America (U.S. GAAP)(“U.S. GAAP”) requires management to make estimates, judgments, and assumptions that may affect the reported amounts of assets, liabilities, equity, revenuesrevenue and expenses. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to such rules and regulations.

The financial statements reflect, in the opinion of management, all adjustments (consisting only of normal, recurring adjustments) necessary to state fairly the financial position and results of operations as of and for the periods indicated. The Company bases its estimates on historical experience and on various other assumptions that it believes are reasonable, the results of operationswhich form the basis for making judgments about the threecarrying values of assets, liabilities and nine months ended September 30, 2017, are not necessarily indicativeequity and the amount of the results to be expected for the full year or for any other period. revenue and expenses.

The September 30, 2017 condensed consolidated balance sheet data wasas of December 31, 2022 has been derived from the Company’s audited consolidated financial statements at that date, but does not include all disclosuresthe information and notes required by U.S. GAAP.
GAAP for complete financial statements. These condensedcondensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in ourthe Company’s Annual Report on Form 10-K for the year ended December 31, 2016,2022, as filed with the SEC on February 23, 2023 (“Annual Report”).

Recent Accounting Pronouncements

No new accounting standards were adopted during the three months ended March 13, 2017 (Annual Report).


3.Recent Accounting Pronouncements
Revenue Recognition

In May 2014,31, 2023. The Company considers the applicability and impact of any recent Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (FASB) issued authoritative guidance requiring entities to apply a new model for recognizing revenue from contracts with customers. The guidance will supersede the current revenue recognition guidance and require entities to evaluate their revenue recognition arrangements using a five step model to determine when a customer obtains control of a transferred good or service. The guidance is currently effective for annual reporting periods beginning after December 15, 2017 and may be adopted using a full or modified retrospective application. The Company does not expect a material impact to its consolidated financial statements following its initial evaluation of its revenue arrangements under the issued guidance. The Company will implement the guidance under the modified retrospective approach.

Accounting for Leases

The FASB issued guidance to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities(“FASB”). Based on the balance sheet and disclosing key information about leasing arrangements. In accordance withassessment, the updated guidance, lesseesASUs were determined to be either not applicable or are requiredexpected to recognize the assets and liabilities arising from operating leases on the balance sheet. The guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within 2018. The Company is currently reviewing the potential impact of adopting the new guidance.

Share-based Payment Accounting

The FASB issued guidance to simplify the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The new standard became effective and was implemented for the Company beginning January 1, 2017. Consistent with prior periods, the Company will continue to estimate forfeitures and therefore, the guidance did not have anminimal impact on the Company'sCompany’s condensed consolidated financial statements.


4.
10
3. Revenue

Revenue Recognition and Net Product Sales, Net


The Company sellsrecognizes product revenue from sales of MACI biopsy kits, MACI implants, Epicel grafts and surgicalNexoBrid following the five-step model in Accounting Standards Codification 606, Revenue Recognition.

MACI Biopsy Kits

MACI biopsy kits are sold directly to the customerhospitals and ambulatory surgical centers based on contracted amounts. Revenue fromrates in an approved contract or sales order. The Company recognizes MACI kit revenue upon delivery of the biopsy kit, at which time the customer (the facility) is in control of the kit. The kit is used by the doctor to provide a sample of cartilage tissue to the customers is recognized in accordance with ASC 605, Revenue Recognition and SAB Topic 104, Revenue Recognition, when (i) persuasive evidenceCompany, which can later be used to manufacture a MACI implant. The ordering of an arrangement exists, (ii) the goods are shipped or delivered and implanted, depending on shipping terms, (iii) title and risk of loss pass to the customer and (iv) collectability is reasonably assured. Shipping and handling costs are included as a component of revenue.
 Prior to July 1, 2016,kit does not obligate the Company sold Carticel to a distributor and followed ASC 605, Revenue Recognition and SAB Topic 104 Revenue Recognition to record revenue. This distributor purchased and took title to Carticel upon shipmentmanufacture an implant nor does the receipt of the product and assumed credit and collection risk related to the end customers. The distributor worked with the payers on behalf of patients and surgeons to ensure medical coverage and to obtain reimbursement for Carticel implantation procedures. The Company retained responsibility for shipment of the product to the surgical suite. Revenue was recorded for Carticel upon occurrence of the surgery, net of provisions for rebates and cash discounts. Such rebates and discounts were $0.5 million for the nine months ended September 30, 2016. There were no rebates or cash discounts for the three months ended September 30, 2016. These rebates and prompt payment cash discounts were establishedcartilage tissue by the Company atfrom the timecustomer following biopsy. The customer’s order of an implant is separate from the process of ordering the biopsy kit. Therefore, the sale based on actual experience adjustedof the biopsy kit and any subsequent sale of an implant are distinct contracts and are accounted for separately.

MACI Implants

The Company contracts with two specialty pharmacies, Orsini Pharmaceutical Services, Inc. (“Orsini”) and AllCare Plus Pharmacy, Inc. (“AllCare”) to reflect known changesdistribute MACI in the factors that impact such reserves. Adjustments to these reserves have historically not been significant.
On June 30, 2016,a manner in which the Company reducedretains the scope of the agreement with its exclusive distributor by terminating their services for a significant portion of its Carticel sales. On July 1, 2016, the Company transitioned to a direct sales model for Carticel and MACI after launch whereby the Company retained credit and collection risk from the patient as the end customer. The Company utilizedpays both specialty pharmacies a new provider, Dohmen Life Science Services, LLC (DLSS),fee for each patient to whom MACI is dispensed. Both Orsini and AllCare perform collection activities to collect payment from customers. The Company engages a third party to provide services in connection with a patient support services but this provider did not purchaseprogram to manage patient cases and take title to Carticel or MACI. On May 15, 2017,ensure complete and correct billing information is provided to the Companyinsurers and DLSS mutually terminated the agreement effective June 30, 2017.hospitals. In addition, the Company utilized Vital Carealso sells MACI directly to DMS Pharmaceutical Group, Inc. and its franchisees as(“DMS”) for patients treated at military treatment facilities. The sales directly to DMS are made at a second provider to expand the available network of contracted third-party payers for Carticel and MACI. Under this direct sales model, the patient bears the ultimate financial responsibility for the purchase of Carticel or MACI and as such the Company recognized revenue in accordance with ASC 954-605, Health Care Entities - Revenue Recognition. The third party payer (insurance company, government, etc.) pays all or some of the product price on the patient’s behalf.rate.




Under the direct sales model, the Company recognized product revenues from sales of Carticel and MACI upon implantation at which time the claim is billable to patient’s insurance provider on behalf of the patient and is billed by either DLSS or Vital Care. The Company assumed counterparty risk for the third party reimbursement payment from the payer and from the patient co-pay. Prior authorization orand confirmation of coverage level by the patient’s private insurance plan, hospital or government payer is a prerequisite to the shipment of product to a patient. The Company'sCompany recognizes product revenue from sales of all MACI implants upon delivery at which time the customer obtains control of the implant and the claim is billable. The total consideration that the Company expects to collect in exchange for MACI implants (the “Transaction Price”) may be fixed or variable. Direct sales to hospitals or distributors are recorded at a contracted price, and there are typically no forms of variable consideration.

When the Company sells MACI the patient is responsible for payment; however, the Company is typically reimbursed by a third-party insurer or government payer, subject to a patient co-pay amount. Reimbursements from third-party insurers and government payers vary by patient and payer and are based on either contracted rates, publicly available rates, fee schedules or past payer precedents. Net product revenue is recognized net product revenues are calculated by estimatingof estimated contractual allowances, which considers historical collection experience from both the payer and patient, denial rates and the terms of the Company’s contractual arrangements. The Company estimates expected paymentscollections for insurance, hospital or patient paymentsthese transactions using the portfolio approach. The Company records a reduction to revenue at the time it invoicesof sale for its estimate of the amount of consideration that will not be collected. In addition, potential credit risk exposure has been evaluated for the Company’s accounts receivable in accordance with ASC 326, Financial Instruments - Credit Losses. The Company assesses risk and determines a loss percentage by pooling accounts receivable based on similar risk characteristics. The loss percentage is calculated through the use of forecasts that are based on current and historical economic and financial information. This loss percentage was applied to the accounts receivables as of March 31, 2023. The total allowance for uncollectible consideration as of March 31, 2023 and December 31, 2022 was $7.1 million and $6.1 million, respectively. Changes to the estimate of the amount of consideration that will not be collected could have a material impact on the revenue recognized. A 50 basis points change to the estimated uncollectible percentage could result in an approximately $0.3 million decrease or increase in the revenue recognized for the three months ended March 31, 2023.

Changes in estimates of the Transaction Price are recorded through revenue in the period in which such change occurs. Changes in estimates related to prior periods are shown in the Revenue by Product and Customer table below and relate primarily to changes in the initial expected reimbursement or collection expectation upon completion of the billing claims process for MACI implants that occurred in a prior year.


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Epicel

The Company sells Epicel directly to hospitals and burn centers based on contracted rates stated in an approved contract or purchase order. Similar to MACI, there is no obligation to manufacture Epicel grafts upon receipt of a skin biopsy, and Vericel has no contractual right to receive payment until the product is delivered to the hospital. The Company recognizes revenue.To support this directproduct revenue from sales model,of Epicel upon delivery to the hospital, at which time the customer is in control of the Epicel grafts and the claim is billable to the hospital.

NexoBrid

The Company entered into exclusive license and supply agreements with MediWound in May 2019, pursuant to which MediWound will manufacture and supply NexoBrid on a unit price basis, which may be increased pursuant to the terms of the agreements. Additionally, beginning in 2020 the U.S. Biomedical Advanced Research and Development Authority (“BARDA”) procured quantities of NexoBrid from MediWound, for use as a medical countermeasure in the event of a mass casualty emergency in the U.S. involving thermal burns. The initial, quarterly, procurement of NexoBrid by BARDA under its agreement with MediWound completed during the third quarter of 2022. The Company recognized revenue based on a percentage of gross profits for sales of NexoBrid to BARDA upon delivery, at which time BARDA was in control of the product. As of March 31, 2023, the Company utilized DLSSdid not hold a direct contract or distribution agreement with BARDA, or take title to provide administrative servicesthe product procured by BARDA.

On May 9, 2023, MediWound announced BARDA’s award of additional funding under the parties’ existing agreement, $3 million of which will support the replacement of NexoBrid, previously procured for emergency response preparedness, which has since expired. Pursuant to the terms of the Company’s license agreement with MediWound, the Company would recognize revenue based on a percentage of gross profits, minus a percentage of net sales, on any sales of NexoBrid directly to BARDA upon delivery, pursuant to this additional award.

Additionally, on December 28, 2022, the FDA approved a BLA for NexoBrid, granting a license for commercial use in the U.S. NexoBrid is a topically-administered biological product containing proteolytic enzymes and is indicated for the removal of eschar in adults with deep partial-thickness and/or full thickness thermal burns.


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Revenue by Product and Customer

The following table and descriptions below show the products from which the Company generated its revenue for the periods indicated:
 Three Months Ended March 31,
Revenue by product (in thousands)20232022
MACI implants and kits
Implants based on contracted rate sold through a specialty pharmacy (a)
$22,698 $15,190 
Implants subject to third party reimbursement sold through a specialty pharmacy (b)
3,485 3,369 
Implants sold direct based on contracted rates (c)
6,919 5,634 
Implants sold direct subject to third-party reimbursement (d)
501 861 
Biopsy kits - direct bill535 522 
Change in estimates related to prior periods (e)
52 419 
Total MACI implants and kits34,190 25,995 
Epicel
Direct bill (hospital)6,827 9,857 
NexoBrid revenue (f)
— 222 
Total revenue$41,017 $36,074 
(a) Represents implants sold through Orsini and AllCare whereby such specialty pharmacies have a direct contract with the underlying insurance provider. The amount of reimbursement is based on contracted rates at the time of sale supported by the pharmacy’s direct contracts.
(b) Represents implants sold through Orsini and AllCare whereby such specialty pharmacy does not have a direct contract with the underlying payer, and are subject to third-party reimbursement. The amount of reimbursement is established based on publicly available rates, fee schedules or past payer precedents.
(c) Represents implants sold directly from the Company to the facility based on a contract and known price agreed upon prior to the surgery date. Also represents direct sales under a contract to specialty distributor DMS.
(d) Represents implants sold directly from the Company to the facility based on a contract and known price agreed upon prior to the surgery date. The payment terms are subject to third-party reimbursement from an underlying insurance provider.
(e) Primarily represents changes in estimates related to implants sold through Orsini or AllCare and relate to changes to the initial expected reimbursement or collection expectations upon completion of the billing claims process. The change in estimates is a result of additional information, changes in collection expectations or actual cash collections received in the current period.
(f) Represents revenue based on a percentage of gross profits for sales of NexoBrid to BARDA, pursuant to the license agreement between the Company and MediWound (see Note 11).

4. Selected Balance Sheet Components

Inventory

Inventory consisted of the following:

(In thousands)March 31, 2023December 31, 2022
Raw materials$14,264 $15,101 
Work-in-process1,043 832 
Finished goods63 53 
Total inventory$15,370 $15,986 


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Property and Equipment

Property and Equipment, net consisted of the following:

(In thousands)March 31, 2023December 31, 2022
Machinery and equipment$5,212 $5,041 
Furniture, fixtures and office equipment1,710 1,710 
Computer equipment and software8,208 8,224 
Leasehold improvements14,120 13,689 
Construction in process8,121 5,438 
Financing right-of-use lease28 37 
Total property and equipment, gross37,399 34,139 
Less accumulated depreciation(19,202)(18,302)
Total property and equipment, net$18,197 $15,837 

Depreciation expense for the three months ended March 31, 2023 and 2022 was $1.0 million and $0.9 million, respectively.

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Intangible Assets

Intangible assets, net consisted of the following:

March 31, 2023December 31, 2022
(In thousands)Useful Live (in years)Amortization MethodCostAccumulated AmortizationNetCostAccumulated AmortizationNet
NexoBrid license12Straight-line$7,500 $(156)$7,344 $7,500 $— $7,500 

Amortization expense for the three months ended March 31, 2023 was $0.2 million.

Future amortization expense of intangible assets as of March 31, 2023 is estimated to be as follows:

(In thousands)Amount
Remainder of 2023$469 
2024625 
2025625 
2026625 
2027625 
Thereafter4,375 
Total$7,344 

Accrued Expenses

Accrued Expenses consisted of the following:

(In thousands)March 31, 2023December 31, 2022
Bonus related compensation$3,588 $7,132 
Employee related accruals2,739 3,101 
Insurance reimbursement-related liabilities5,769 5,030 
Other accrued expenses1,015 927 
Total accrued expenses$13,111 $16,190 


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5. Leases

The Company leases facilities in Ann Arbor, Michigan and Cambridge, Massachusetts. The Ann Arbor facility includes office space, and the Cambridge facilities include clean rooms, laboratories for MACI and Epicel manufacturing, and office space. The Company also leases offsite warehouse space, and other computer-related equipment.

With respect to the Ann Arbor facility, in March 2023, the Company entered into an amendment to that lease extending its term until April 30, 2025. Monthly contractual payments are expected to range from $17,000 to $18,000.

On January 28, 2022, the Company entered into a lease agreement (the “Burlington Lease”) to lease approximately 126,000 square feet of to-be-constructed manufacturing, laboratory and office space in Burlington, Massachusetts (the “Premises”). Once constructed, the Premises will serve as the Company’s new corporate headquarters and primary manufacturing facility.

The term of the Burlington Lease is currently expected to begin mid-year 2023 (the “Commencement Date”). The Company’s obligation to pay rent for the Premises will begin on the earlier of: 13 months from the Commencement Date; or the date on which the Company first occupies the Premises to conduct operations (the “Rent Commencement Date”). The initial term of the Lease is 144 months following the Rent Commencement Date. The Company has a one-time option to extend the term of the Lease for an additional 10 years, exercisable under certain conditions and at a market rate determined in accordance with the Burlington Lease.

The annual base rent of the Burlington Lease is initially $57 per square foot per year, subject to annual increases of 2.5%. Monthly contractual payments are expected to range from $0.6 million to $0.8 million. Additionally, the Company is responsible for reimbursing the landlord for the Company’s share of the Premises’ property taxes and certain other operating expenses. The Burlington Lease also provides for a tenant improvement allowance from the landlord in an amount equal to $200 per square foot of the Premises, or approximately $24.4 million in total, following certain reductions to the tenant improvement allowance to account for the costs associated with case managementchanges to the landlord’s work on the Premises, as requested by the Company. The tenant improvement allowance will be used towards the design and reimbursement support andconstruction of certain tenant improvements made to provide billing and collection services. the Premises, subject to the terms set forth in the Burlington Lease.

The Company utilized Vital Careis not involved in the initial construction of the core and shell of the building and will record the lease liability and right-of-use asset on its condensed consolidated balance sheet when the construction is substantially completed and it obtains control of the Premises, which is currently expected to provide similar billing and collection services for a subsetbe on or around the Commencement Date.


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In April 2017,January 2022, in connection with the execution of the Burlington Lease, the Company issued a letter of credit collateralized by cash deposits of approximately $6.0 million. Subsequent to the execution of the Revolving Credit Agreement on July 29, 2022 (see Note 8, “Revolving Credit Agreement” for further details), the letter of credit is issued under the sub-facility limit of the Revolving Credit Agreement. Such letter of credit shall be reduced to approximately $4.2 million and $1.8 million at the conclusion of the third and sixth lease years, respectively, provided certain conditions set forth in the Burlington Lease are satisfied.

For the three months ended March 31, 2023 and 2022, lease expense of less than $0.1 million was notifiedrecorded related to short-term leases. For the three months endedMarch 31, 2023 and 2022, the Company recognized $1.7 million of operating lease expense. For the three months endedMarch 31, 2023 and 2022, the Company recognized less than $0.1 million of financing lease expense.


Operating and finance lease assets and liabilities are as follows:

(In thousands)ClassificationMarch 31, 2023December 31, 2022
Assets
OperatingRight-of-use assets$40,851 $41,535 
FinanceProperty and equipment, net28 37 
Total leased assets$40,879 $41,572 
Liabilities
Current
OperatingCurrent portion of operating lease liabilities$4,497 $4,302 
FinanceOther current liabilities20 41 
Non-current
OperatingOperating lease liabilities$42,365 $43,268 
Total leased liabilities$46,882 $47,611 


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6. Investments

Marketable debt securities held by the Company are classified as available-for-sale pursuant to ASC 320, Investments – Debt and Equity Securities, and carried at fair value in the accompanying condensed consolidated balance sheets on a settlement date basis. The following tables summarize the gross unrealized gains and losses of the Company’s marketable securities:

March 31, 2023
Gross UnrealizedEstimated Fair Value
(In thousands)Amortized CostGainsLossesCredit Losses
Commercial paper$14,306 $— $(48)$— $14,258 
Corporate notes43,157 — (559)— 42,598 
U.S. government securities4,920 5 — — 4,925 
U.S. government agency bonds15,600 — (29)— 15,571 
$77,983 $5 $(636)$— $77,352 
Classified as:
Short-term investments$57,442 
Long-term investments19,910 
$77,352 
December 31, 2022
Gross UnrealizedEstimated Fair Value
(In thousands)Amortized CostGainsLossesCredit Losses
Commercial paper$15,707 $— $(101)$— $15,606 
Corporate notes52,159 — (831)— 51,328 
U.S. government agency bonds21,545 — (46)— 21,499 
$89,411 $— $(978)$— $88,433 
Classified as:
Short-term investments$68,471 
Long-term investments19,962 
$88,433 

As of March 31, 2023 and December 31, 2022, all marketable securities held by the Company had remaining contractual dispute between Vital Carematurities of three years or less. There have been no impairments of the Company’s assets measured and a third-party payer and as a result,carried at fair value during the three months ended March 31, 2017, the Company increased its estimated revenue allowances, reducing revenue by $2.1 million related to 2016 sales2023 and $0.7 million related to 2017 sales to reflect the lower reimbursement that would be obtained if the claims are ultimately required to be treated as out-of-network. During the three months ended June 30, 2017, the dispute was resolved and the negotiated reimbursement resulted in the Company’s ability to reduce its estimated sales allowances by $1.4 million which resulted in additional revenue in the second quarter related to sales which originated primarily in 2016. As a result2022.


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On May 15, 2017, the Company entered into a distribution agreement with Orsini Pharmaceutical Services, Inc. (Orsini) to appoint Orsini as a specialty pharmacy distributor of MACI to patients' physicians and other healthcare providers. The initial term of the distribution agreement will end on May 15, 2019 with the option of two additional two-year terms. The Company ships the product directly to the surgical suite. Orsini purchases and takes title to MACI upon shipment of the product at which point the Company recognizes revenue. Orsini assumes credit and collection risk related to the end customers. In 2017, there are no material chargebacks, rebates or other types of sales incentives that would impact revenue under the agreement with Orsini. The Company and Orsini amended their agreement in August 2017, and further amended the agreement in October 2017 to provide Orsini with a prompt pay discount beginning on January 1, 2018. Under the Orsini arrangement, Orsini is the customer and the Company is recognizing revenue in accordance with ASC 605 and SAB 104.

Concentration of Credit Risk

On May 15, 2017, the Company and DLSS mutually terminated their agreement effective June 30, 2017. On May 15, 2017, the Company entered into a distribution agreement with Orsini as a specialty pharmacy distributor of MACI and has engaged a third party services provider to provide the patient support program previously provided by DLSS and to manage patient cases for MACI. The Company’s receivables risk is now more concentrated, and the concentration of credit risk also shifted for the Company.

Revenue from one customer, the MACI distributor in the U.S., represented approximately 55% and 25% during the three and nine months ended September 30, 2017, respectively.  Accounts receivable from the same customer accounted for 48% of the outstanding accounts receivable as of September 30, 2017. For the three and nine months ended September 30, 2016, the Company's largest customer represented 67% and 46% of total revenue, respectively. The next largest customer represented approximately 10% and 13% of revenue for the three and nine ended September 30, 2017, respectively, and 8% and 13% of total revenue during the three and nine months ended September 30, 2016, respectively. No other customer accounted for more than 10% of revenue or accounts receivable in 2017 or as of December 31, 2016.

5.Selected Balance Sheet Components
Inventory as of September 30, 2017 and December 31, 2016:
(In thousands)September 30, 2017 December 31, 2016
Raw materials$3,727
 $3,214
Work-in-process279
 257
Finished goods43
 17
Inventory$4,049
 $3,488
7. Fair Value Measurements



Property and equipment, net as of September 30, 2017 and December 31, 2016: 
(In thousands) September 30, 2017 December 31, 2016
Machinery and equipment$3,264
 $3,150
Furniture, fixtures and office equipment981
 931
Computer equipment and software3,485
 3,147
Leasehold improvements3,908
 3,332
Construction in process608
 408
Total property and equipment, gross12,246
 10,968
Less: Accumulated depreciation(8,279) (7,093)
 $3,967
 $3,875
Depreciation expense for both the three months ended September 30, 2017 and September 30, 2016 was $0.4 million and depreciation expense for both the nine months ended September 30, 2017 and September 30, 2016 was $1.2 million.

Accrued expenses as of September 30, 2017 and December 31, 2016:
(In thousands)September 30, 2017 December 31, 2016
Bonus related compensation$1,608
 $2,433
Employee related accruals2,021
 1,668
Clinical trial related accruals379
 422
Other506
 —
 $4,514
 $4,523
6.Stock Purchase Warrants
The Company has historically issued warrants to purchase shares of the Company’s common stock in connection with certain of its common stock offerings and in September 2016 the Company issued warrants in connection with the updated debt agreement (September 2016 Warrants) discussed in note 7.  The warrants issued in August 2013 (August 2013 Warrants) include anti-dilution price protection provisions that could require cash settlement of the warrants and accordingly require the warrants to be recorded as liabilities of the Company at the estimated fair value at the date of issuance, with changes in estimated fair value recorded as income or expense (non-cash) in the Company’s statement of operations in each subsequent period. The September 2016 Warrants meet the requirements for equity classification. The following table describes the outstanding warrants:
  August 2013
Warrants		 September 2016 Warrants
Exercise price $4.80 $2.48
Expiration date August 16, 2018 September 9, 2022
Total shares issuable on exercise 724,950 117,074

On September 9, 2016, the Company issued 117,074 warrants to two holders in conjunction with the loan agreement described in note 7. The initial valuation of the September 2016 Warrants was recorded as debt issuance costs and is being amortized over the remaining life of the loan agreement to interest expense. The September 2016 Warrants are treated as equity instruments recorded at fair value with no subsequent remeasurement. Pursuant to the warrants, the holders may exercise their warrants for an aggregate of 117,074 shares of the Company’s common stock.

The fair value of the warrants described in the table above is measured using the Black-Scholes valuation model.  Inherent in the Black-Scholes valuation model are assumptions related to expected stock-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its common stock based on historical volatility that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates to remain at zero. See further detail in note 9 of the condensed consolidated financial statements.


The assumptions used by the Company are summarized in the following tables:
August 2013 Warrants September 30, 2017 December 31, 2016
Closing stock price $6.00
 $3.00
Expected dividend rate —% —%
Expected stock price volatility 50.6% 97.9%
Risk-free interest rate 1.3% 1.0%
Expected life (years) 0.88
 1.62

September 2016 Warrants September 9, 2016
Closing stock price $2.20
Expected dividend rate —%
Expected stock price volatility 89.8%
Risk-free interest rate 1.4%
Expected life (years) 6.00
7.Debt
On March 8, 2016, the Company entered into a $15.0 million debt financing with SVB which on September 9, 2016, was replaced by an expanded term loan and revolving line of credit agreement with SVB and MidCap, which together initially provided access to up to $20 million. The updated debt financing consists of a $4.0 million term loan which was drawn at the closing, a $4.0 million term loan which was drawn upon in November 2016, a $2.0 million term loan which is no longer available as it was not drawn upon by April 12, 2017 and up to $10.0 million of a revolving line of credit. The term loans are interest only (indexed to Wall Street Journal (WSJ) Prime plus 5.00%) until September 1, 2017 followed by 36 equal monthly payments of principal plus interest maturing September 9, 2020. The revolving line of credit is limited to a borrowing base calculated using eligible accounts receivable and maturing September 9, 2020 with an interest rate indexed to WSJ Prime plus 1.25%. The Company is subject to various financial and nonfinancial covenants including but not limited to monthly minimum net revenue covenants (determined in accordance with U.S. GAAP), measured on a trailing twelve month basis. SVB and MidCap have the ability to call debt based on material adverse change clauses which are subjectively determinable and result in a subjective acceleration clause. The Company has not been informed of any material adverse changes that have occurred. SVB and MidCap have a shared first priority perfected security interest in all assets of the Company other than intellectual property. As of September 30, 2017, there was an outstanding balance of $7.8 million under the term loan and $2.5 million under the revolving line of credit (net of total deferred costs of $0.3 million). The weighted average interest rate on the outstanding term and revolving credit loans as of September 30, 2017 was 7.8%. On December 30, 2016, the Company entered into an amendment to the SVB-MidCap facility to amend certain financial covenants and to modify the final payment of the term loan advance. The Company further amended the SVB-MidCap facility on May 9, 2017 to update the monthly net revenue requirement covenants, measured on a trailing twelve month basis. The amendment decreased the monthly 12 month trailing minimum revenue covenant and revised the December 31, 2017 minimum revenue covenant to $51.7 million. As of September 30, 2017, the Company was in compliance with the minimum revenue covenant. As of September 30, 2017, there was $3.3 millionremaining capacity under the revolving line of credit.

8.Stock-based Compensation
Stock Option and Equity Incentive Plans

The Company can issue nonqualified and incentive stock options as well as other equity awards pursuant to its Second Amended and Restated 2009 Omnibus Incentive Plan (Option Plan).  Such awards pursuant to the Option Plan may be granted by the Company’s Board of Directors to certain of the Company’s employees, directors and consultants.
During the three and nine months ended September 30, 2017, the Company granted 127,200 and 1,677,760, respectively, service-based options to purchase common stock.  The options were granted with exercise prices equal to the fair market value of the Company’s stock at the grant date, and other than those granted to non-employee directors, vest over four years, under a graded-vesting methodology, following the date of grant, and expire after ten years. The Company issues new shares upon the exercise of stock options. The weighted average grant-date fair value of service-based options granted under the Option Plan during the three and nine month periods ended September 30, 2017 was $2.53 and $1.99, respectively and, $1.77 and $2.15, respectively for the same periods in 2016.


Non-cash stock-based compensation expense included in cost of goods sold, research and development expenses and selling, general and administrative expenses is summarized in the following table: 
  Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2017 2016 2017 2016
Cost of goods sold $119
 $117
 $316
 $330
Research and development 177
 133
 $391
 $392
Selling, general and administrative 459
 404
 1,346
 1,251
Total non-cash stock-based compensation expense $755
 $654
 $2,053
 $1,973

The fair value of each service-based stock option grant for the reported periods is estimated on the date of the grant using the Black-Scholes option-pricing model using the weighted average assumptions noted in the following table.
  Nine Months Ended September 30,
Service-Based Stock Options 2017 2016
Expected dividend rate —% —%
Expected stock price volatility 80.1 – 88.2%
 78.7 – 92.2%
Risk-free interest rate 1.8 – 2.3%
 1.1 – 1.8%
Expected life (years) 5.5 – 6.3
 5.5 – 6.3

The following table summarizes the activity for service-based stock options for the indicated periods:
Service-Based Stock Options Options 
Weighted
Average
Exercise Price
 
Weighted Average
Remaining
Contractual Term
(Years)
 
Aggregate
Intrinsic Value
Outstanding at December 31, 2016 3,355,692
 $4.66
 8.2 $610
Granted 1,677,760
 $2.82
    
Exercised (165,678) $3.12
   $362
Expired (100,131) $16.31
    
Forfeited (190,766) $3.35
    
Outstanding at September 30, 2017 4,576,877
 $3.84
 8.2 $13,336
Exercisable at September 30, 2017 1,870,011
 $5.18
 7.5 $4,988
As of September 30, 2017 there was approximately $3.4 million of total unrecognized compensation cost related to non-vested service-based stock options granted under the Option Plan.  That cost is expected to be recognized over a weighted-average period of 3.0 years.
The total fair value of options vested during the three and nine months ended September 30, 2017 was $0.6 million and $1.8 million, respectively, and $0.6 million and $1.6 million, respectively, for the same periods in 2016.

Employee Stock Purchase Plan

Employees are able to purchase stock under the Vericel Corporation Employee Stock Purchase Plan (ESPP), which was implemented effective October 1, 2015. Participation in this plan is available to substantially all employees. Compensation expense is recorded based on the fair market value of the purchase options at the grant date, which corresponds to the first day of each purchase period and is amortized over the purchase period. On October 2, 2017, employees purchased 40,683 shares resulting in proceeds from the sale of common stock of $0.1 million under the ESPP. The total share-based compensation expense for the ESPP for the nine months ended September 30, 2017 was approximately $0.1 million.

9.Fair Value Measurements

The Company’s fair value measurements are classified and disclosed in one of the following three categories:




•Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
•Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
•Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).


Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The commercial paper, corporate notes, U.S. government securities, and U.S. government agency bonds are classified as Level 2 as they were valued based upon quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. There waswere no movement between level 1transfers into or out of Level 3 from December 31, 2022 to level 2 or between level 2 to level 3. March 31, 2023.

The following table summarizes the valuation of the Company’s financial instruments that are measured at fair value on a recurring basis:


 March 31, 2023December 31, 2022
  Fair value measurement category Fair value measurement category
(In thousands)TotalLevel 1Level 2Level 3TotalLevel 1Level 2Level 3
Assets:
Money market funds$39,906 $39,906 $— $— $1,262 $1,262 $— $— 
Commercial paper14,258 — 14,258 — 15,606 — 15,606 — 
Corporate notes42,598 — 42,598 — 51,328 — 51,328 — 
U.S. government securities4,925 — 4,925 — — — — — 
U.S. government agency bonds (a)
15,571 — 15,571 — 27,976 — 27,976 — 
$117,258 $39,906 $77,352 $— $96,172 $1,262 $94,910 $— 
  September 30, 2017 December 31, 2016
    Fair value measurement category   Fair value measurement category
(In thousands) Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3
Liabilities:  
  
  
  
  
  
  
  
Warrant liabilities $1,269
 $—
 $1,269
 $—
 $757
 $—
 $757
 $—


(a) Approximately $6.5 million of U.S. government agency bonds had an original maturity of 90 days or less and were recorded as a cash equivalent as of December 31, 2022.

The following table summarizesfair values of the changecash equivalents and marketable securities are based on observable market prices. The Company’s accounts receivables, accounts payable and accrued expenses are valued at cost which approximates fair value.

8. Revolving Credit Agreement

On July 29, 2022, the Company, as borrower, entered into a $150.0 million five-year senior secured revolving credit agreement by and among the Company, the other loan parties thereto, the lenders party thereto, and JPMorgan Chase Bank, N.A., as the administrative agent (the “Revolving Credit Agreement”). The Revolving Credit Agreement includes a $15.0 million sub-facility for the issuance of letters of credit, of which the Company is utilizing approximately $6.2 million. Amounts available under the Revolving Credit Agreement are for the working capital needs and other general corporate purposes of the Company. The Company incurred and capitalized approximately $1.1 million of debt issuance costs related to the Revolving Credit Agreement.

Outstanding borrowings under the Revolving Credit Agreement bear interest, with pricing based from time to time at the Company’s election at (i) the Secured Overnight Financing Rate (“SOFR”) plus 0.10% plus a spread ranging from 1.25% to 2.50% as determined by the Company’s Total Net Leverage Ratio (as defined in the estimatedRevolving Credit Agreement) or (ii) the alternative base rate (as defined in the Revolving Credit Agreement) plus a spread ranging from 0.25% to 1.50% as determined by the Company’s Total Net Leverage Ratio. The Revolving Credit Agreement also includes a commitment fee, which ranges from 0.20% to 0.25% as determined by the Company’s Total Net Leverage Ratio.

The Company is permitted to voluntarily prepay borrowings under the Revolving Credit Agreement, in whole or in part, without premium or penalty. On any business day on which the total amount of outstanding Revolving Loans (as defined in the Revolving Credit Agreement) and letters of credit exceeds the total Revolving Commitments (as defined in the Revolving Credit
19
Agreement), the Company must prepay the Revolving Loans in an amount equal to such excess. As of March 31, 2023, there are no outstanding borrowings under the Revolving Credit Agreement.

The Revolving Credit Agreement contains a number of affirmative, negative, reporting and financial covenants, in each case subject to certain exceptions and materiality thresholds. The Revolving Credit Agreement requires the Company to be in quarterly compliance, measured on a trailing four quarter basis, with a financial covenant. The maximum Total Net Leverage Ratio (as defined in the Revolving Credit Agreement is 3.50 to 1.00. The Company may elect to increase the maximum Total Net Leverage Ratio to 4.00 to 1.00 for a period of four consecutive quarters in connection with a Permitted Acquisition (as defined in the Revolving Credit Agreement).

The Revolving Credit Agreement contains usual and customary restrictions on the ability of the Company and its subsidiaries to: (i) incur additional indebtedness (ii) create liens; (iii) consolidate, merge, sell or otherwise dispose of all, or substantially all, of its assets; (iv) sell certain assets; (v) pay dividends on, repurchase or make distributions in respect of capital stock or make other restricted payments; (vi) make certain investments; (vii) repay subordinated indebtedness prior to stated maturity; and (viii) enter into certain transactions with its affiliates.

Obligations under the Revolving Credit Agreement are secured by first priority liens over substantially all of the assets of Vericel Corporation, excluding certain subsidiaries (subject to customary exclusions set forth in the Revolving Credit Agreement and the other transaction documents).

9. Stock-Based Compensation

The Vericel Corporation 2022 Omnibus Incentive Plan (“2022 Plan”) was approved on April 27, 2022, and provides incentives through the grant of stock options, stock appreciation rights, restricted stock awards and restricted stock units. The exercise price of stock options granted under the 2022 Plan shall not be less than the fair market value of the Company’s warrant liabilities: common stock on the date of grant. The 2022 Plan replaced the 1992 Stock Option Plan, the 2001 Stock Option Plan, the Amended and Restated 2004 Equity Incentive Plan, the 2009 Second Amended and Restated Omnibus Incentive Plan, the 2017 Omnibus Incentive Plan, and the Amended and Restated 2019 Omnibus Incentive Plan (“Prior Plans”), and no new grants have been granted under the Prior Plans after approval of the 2022 Plan. However, the expiration or forfeiture of options previously granted under the Prior Plans will increase the number of shares available for issuance under the 2022 Plan.

Warrant Liabilities (In thousands) 
Balance at December 31, 2016$757
Increase in fair value512
Balance at September 30, 2017$1,269
Stock Compensation Expense

RevolvingNon-cash stock-based compensation expense (service-based stock options, restricted stock units and Term Loan Credit Agreementsemployee stock purchase plan) is summarized in the following table:
At September 30, 2017
 Three Months Ended March 31,
(in thousands)20232022
Cost of product sales$885 $1,118 
Research and development977 1,350 
Selling, general and administrative6,869 7,063 
Total non-cash stock-based compensation expense$8,731 $9,531 

Service-Based Stock Options

During the three months ended March 31, 2023 and December 31, 2016, we had a total2022, the Company granted service-based options to purchase common stock of $10.0 million467,957 and $10.1 million, respectively, outstanding under our revolving and term loan credit agreements, which are variable rate loans.993,589, respectively. The weighted-average grant-date fair value of these loans approximates bookservice-based options granted during the three months ended March 31, 2023 and 2022 was $18.00 and $20.99 per option, respectively.

Restricted Stock Units

During the three months ended March 31, 2023 and 2022, the Company granted 496,505 and 343,022 restricted stock units, respectively. The weighted-average grant-date fair value based onof restricted stock units granted during the borrowing rates currently available for variable rate loans obtained from third party lending institutions. These fair values represent Level 2 under the three-tier hierarchy described above.three months ended March 31, 2023 and 2022 was $29.82 and $34.97 per unit, respectively.


10.Shareholders' Equity
At-the-Market Sales Agreement
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10. Net Loss Per Common Share

A summary of net loss per common share is presented below:
 Three Months Ended March 31,
(Amounts in thousands, except per share amounts)20232022
Net loss$(7,495)$(7,091)
  
Basic weighted-average common shares outstanding47,387 46,985 
Effect of dilutive stock options and restricted stock units— — 
Diluted weighted-average common shares outstanding47,387 46,985 
Basic loss per common share$(0.16)$(0.15)
Diluted loss per common share$(0.16)$(0.15)
Anti-dilutive shares excluded from diluted net loss per common share:
Stock options6,918 6,479 
Restricted stock units954 625 

11. NexoBrid License and Supply Agreements

On October 10, 2016,May 6, 2019, the Company entered into our at-the-market salesexclusive license and supply agreements with MediWound to commercialize NexoBrid in North America. NexoBrid is a topically-administered biological product, which was approved by the FDA on December 28, 2022 for commercial use in the U.S. NexoBrid contains proteolytic enzymes and is indicated for the removal of eschar in adults with deep partial-thickness and/or full thickness thermal burns.

Pursuant to the terms of the license agreement, with Cowen (ATM Agreement)following the FDA approval of NexoBrid, MediWound transferred the BLA to Vericel effective February 20, 2023. Both MediWound and Vericel, under the supervision of a Central Steering Committee comprised of members of both companies will continue to guide the development of NexoBrid in North America (the “Central Steering Committee”). NexoBrid is approved in the European Union (“EU”) and other international markets and has been designated as an orphan biologic in the U.S., pursuant to whichEU and other international markets.

In May 2019, the Company maypaid MediWound $17.5 million in consideration for the license, which was recorded as research and development expense during 2019. Pursuant to the terms of the license agreement, in February 2023, the Company tendered to MediWound a $7.5 million regulatory milestone payment following the FDA’s BLA approval of NexoBrid on December 28, 2022. The Company recorded the $7.5 million milestone payment for the licensing rights to commercially sell shares of our common stock through Cowen,NexoBrid in the U.S., as sales agent, in registered transactions from our shelf registration statement filed in June 2015,an intangible asset (see Note 4, “Selected Balance Sheet Components” for aggregate proceeds offurther details).

The Company is additionally obligated to pay MediWound up to $25.0$125.0 million, which is contingent upon meeting certain sales milestones. The first sales milestone payment of $7.5 million would be triggered when annual net sales of NexoBrid or improvements to it in North America exceed $75.0 million. SharesAs of common stock sold underMarch 31, 2023, the ATMsales milestone payments are to be sold at market prices.not yet probable and therefore, not recorded as a liability. The Company also will pay upMediWound tiered royalties on net sales ranging from mid-high single-digit to 3% ofmid-teen percentages, subject to customary reductions. Pursuant to the gross proceeds to Cowen as a commission. A total of 2,222,240 shares of common stock have been sold under the ATM Agreement of which 1,864,384 were sold in 2017 for proceeds of $6.7 million (net of $0.3 million in commission and issuance costs) and as of September 30, 2017 had remaining capacity of approximately $17.2 million. We currently intend to use the net proceeds for research, development, manufacturing, and general and administrative expenses, and for other general corporate purposes.

11.Preferred Stock
Series B Convertible Preferred Stock

On February 10, 2017, the Company sent notice to Eastern Capital Limited (Eastern), an existing holder of sharesterms of the Company’s Series B-1 Non-Voting Convertible Preferred Stock or Series B-2 Voting Convertible Preferred Stock (Preferred Stock), informing Eastern ofsupply agreement with MediWound, MediWound will manufacture NexoBrid for the Company's election to convert all 12,308 of the outstanding shares of Preferred Stock held by Eastern, plus 9,570 shares of Preferred Stock in accumulated but undeclared dividends thereon, into 1,093,892 shares of the Company's common stockCompany on a unit price basis, which may be increased pursuant to the terms of the Amended and Restated Certificate of Designations, Preferences and Rights of Series B-1 Non-Voting Preferred Stock and Series B-2 Voting Preferred Stocksupply agreement. MediWound is obligated to supply the Company with NexoBrid for sale in North America on an exclusive basis for the first five years of the term of the supply agreement. Under the supply agreement, the Company (Mandatory Conversion).possesses the option to extend the initial term of the agreement by an additional 24 months, which it did in May 2022. After the Mandatory Conversion on March 9, 2017, no shares of Preferred Stock ofexclusivity period or upon supply failure, the Company remain outstandingwill be permitted to establish an alternate source of supply.


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Additionally, beginning in 2020 BARDA procured quantities of NexoBrid from MediWound for use as a medical countermeasure in the event of September 30, 2017.a mass casualty emergency in the U.S. involving thermal burns. The initial, quarterly, procurement of NexoBrid by BARDA under its agreement with MediWound completed during the third quarter of 2022. As a part of BARDA’s commitment to procure NexoBrid, the Company has received a percentage of gross profit for sales directly to BARDA. As of March 31, 2023, the Company did not hold a direct contract or distribution agreement with BARDA, or take title to the product procured by BARDA.





12.Net Loss Per Common Share
Basic earnings (loss) per share is calculated usingOn May 9, 2023, MediWound announced BARDA’s award of additional funding under the two-class method,parties’ existing agreement, $3 million of which is an earnings allocation formula that determines earnings (loss) per sharewill support the replacement of NexoBrid, previously procured for emergency response preparedness, which has since expired. Pursuant to the holdersterms of the Company’s common shares and holders of the Series B Preferred Stock.  The Series B Preferred Stock shares contain participation rights in undistributed earnings, but do not share in the losses of the Company.  The dividends on the Series B Preferred Stock were treated as a reduction of earnings attributable to common shareholders.

The following reflects the net loss attributable to common shareholders and share data used in the basic and diluted earnings per share computations using the two class method: 
  Three months ended September 30, Nine months ended September 30,
(Amounts in thousands except per share amounts) 2017 2016 2017 2016
Numerator:  
  
  
  
Net loss $(5,407) $(6,675) $(17,573) $(13,369)
Dividends accumulated on convertible preferred stock —
 (1,931) —
 (5,591)
Net loss attributable to common shareholders $(5,407) $(8,606) $(17,573) $(18,960)
Denominator:  
  
  
  
Denominator for basic and diluted EPS:  
  
  
  
Weighted-average common shares outstanding 33,667
 22,744
 32,783
 22,678
Net loss per share attributable to common shareholders (basic and diluted) $(0.16) $(0.38) $(0.54) $(0.84)
Common equivalent shares are not included in the diluted per share calculation where the effect of their inclusion would be anti-dilutive.  The aggregate number of common equivalent shares (related to options, warrants and preferred stock) that have been excluded from the computations of diluted net loss per common share at September 30, 2017 and 2016 were 5.4 million and 6.5 million, respectively.
13. Commitments and Contingencies
The Company leases facilities in Ann Arbor, Michigan and Cambridge, Massachusetts. In March 2016,license agreement with MediWound, the Company amended its current lease in Cambridge to, among other provisions, extend the terms until February 2022. Under the amendment, the landlord will contribute approximately $2.0 million toward the costwould recognize revenue based on a percentage of tenant improvements. The contribution toward the cost of tenant improvements is recorded as deferred rent on the Company's consolidated balance sheet and is amortized to our consolidated statement of operations as reductions to rent expense over the lease term. As of September 30, 2017, the Company has recorded $1.0 million of leasehold improvements funded by the tenant improvement allowance.

In addition to the property leases, the Company also leases an offsite warehouse, various vehicles and computer equipment. The Company's purchase commitments consist of minimum purchase amounts of material in manufacturing.
As of September 30, 2017, future minimum payments related to leases and other contractual obligations are as follows: 
(In thousands) Total 2017 2018 2019 2020 2021 More than 5 Years
Operating leases $20,378
 $1,317
 $4,806
 $4,473
 $4,475
 $4,546
 $761
Purchase commitments 2,940
 45
 681
 576
 546
 546
 546
Capital leases 43
 11
 32
 

 

 

 

Total $23,361
 $1,373
 $5,519
 $5,049
 $5,021
 $5,092
 $1,307
Rent expense for the three and nine months ended September 30, 2017 was $1.5 million and $4.1 million, respectively, and $1.2 million and $3.6 million, respectively, for the three and nine months ended September 30, 2016.
License Agreement

On May 10, 2017, the Company announced that it has entered into a License Agreement (License Agreement) with Innovative Cellular Therapeutics Co. Ltd, (ICT), a leading cell therapy company and developer of CAR-T cell therapy for cancer treatment,


for the development and distribution of the Vericel product portfolio in Greater China, South Korea, Singapore, and other countries in Asia. ICT will acquire an exclusive license to certain patent rights, know-how and intellectual property relating to Carticel, MACI, ixmyelocel-T, and Epicel as well as enter into a warrant purchase agreement. As part of the license and warrant purchase agreements, the Company will receive an upfront payment of $6.0 million, less any applicable taxes, within 60 days of the effective date of the License Agreement. The initiation of the technology transfer, the license grants in the License Agreement and the warrant purchase are contingent upon Vericel’s receipt of the upfront payment. Vericel is eligible to receive approximately $8.0 million in development and commercial milestones. ICT has also agreed to pay tiered royalties to Vericel equal togross profits, minus a percentage of net sales, on any sales of each Licensed ProductNexoBrid directly to BARDA, upon delivery, pursuant to this additional award.

12. Commitments and Contingencies

From time to time, the Company could be a party to various legal proceedings arising in the low double digits forordinary course of business. The costs and outcome of litigation, regulatory, investigatory or other proceedings cannot be predicted with certainty, and some lawsuits, claims, actions or proceedings may be disposed of unfavorably to the commercial lifeCompany and could have a material adverse effect on the Company’s results of operations or financial condition. In addition, intellectual property disputes often have a risk of injunctive relief which, if imposed against the applicable Licensed Product. ICT will be responsible for funding the developmentCompany, could materially and adversely affect its financial condition or results of the programs and manufacturing of the products for commercializationoperations. If a matter is both probable to result in Chinamaterial liability and the restamount of loss can be reasonably estimated, the territory. The funding transferCompany estimates and discloses the possible material loss or range of loss. If such loss is subject to approval by the State Administration of Foreign Exchange of the People's Republic of China and has not occurred as of issuance date of theprobable or cannot be reasonably estimated, a liability is not recorded in its condensed consolidated financial statements.

As of March 31, 2023, the Company has no material ongoing litigation in which the Company was a result,party or any material ongoing regulatory or other proceedings and had no knowledge of any investigations by government or regulatory authorities in which the partiesCompany is a target that could have amendeda material adverse effect on its current business.

13. Subsequent Events

In April 2023, in connection with the Burlington Lease, the Company entered into a construction escrow agreement monthly(the “Construction Escrow Agreement”) with the facility’s landlord and an escrow agent. Pursuant to provide additional time for ICT to pay and reset certainthe terms of the warrant.Construction Escrow Agreement, in April 2023, the Company began funding into an escrow account maintained by the escrow agent a portion of its share of tenant improvement construction costs at the facility, which will be designated as restricted cash. At the same time, the facility’s landlord began funding a portion of its tenant improvement allowance through a separate escrow account. To date, the Company has transferred into its escrow account 50% of its required cost amount, or approximately $28.3 million. The initiationCompany anticipates funding the remaining 50% of its required cost amount in late 2023 or early 2024. Additionally, and in order to support the expansion of the technology transfer,Company’s autologous cell manufacturing operations at the license grantsnew facility in Burlington, the Company plans to invest in the License Agreementacquisition and the warrant purchase have not occurred. As partial consideration for an amount included in the upfront payment Vericel will issue to ICT a warrant, exercisable for the numberinstallation of sharescertain specialized manufacturing and laboratory equipment.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Vericel Corporation is a leading developer of patient-specific expanded cellfully-integrated, commercial-stage biopharmaceutical company and a leader in advanced therapies for use in the treatment of patients withsports medicine and severe diseases and conditions.burn care markets. We currently havemarket two U.S. Food and Drug Administration (FDA) marketed(“FDA”) approved autologous cell therapy products and one FDA-approved specialty biologic product in the United States. MACI® (autologous cultured chondrocytes on porcine collagen membrane),U.S. MACI® is an autologous cellularized scaffold product indicated for the repair of symptomatic, single or multiple full-thickness cartilage defects of the knee with or without bone involvement in adults that was approved by the FDA on December 13, 2016. The first shipment and implantation of MACI occurred on January 31, 2017. At the end of the second quarter, MACI replaced Carticel® (autologous cultured chondrocytes), an autologous chondrocyte implant indicated for the repair of symptomatic cartilage defects of the femoral condyle (medial, lateral or trochlea), caused by acute or repetitive trauma, in patients who have had an inadequate response to a prior arthroscopic or other surgical repair procedure (e.g., debridement, microfracture, drilling/abrasion arthroplasty, or osteochondral allograft/autograft.We also market Epicel® (cultured epidermal autografts),adults. Epicel® is a permanent skin replacement Humanitarian Use Device (HUD)(“HUD”) for the treatment of adult and pediatric patients with deep-dermal or full-thickness burns comprising greater than or equal to 30 percent of total body surface area (TBSA)(“TBSA”). Our development stage portfolio includes ixmyelocel-T,We also hold an exclusive license from MediWound Ltd. (“MediWound”) for North American rights to NexoBrid (anacaulase-bcdb). On December 28, 2022, the FDA approved a patient-specific multicellular therapyBiologics License Application (“BLA”) for NexoBrid, granting a license for commercial use in the U.S. NexoBrid is a topically-administered biological product containing proteolytic enzymes and is indicated for the treatmentremoval of advanced heart failureeschar in adults with deep partial-thickness and/or full thickness thermal burns. Following NexoBrid’s approval, we have begun cross-functional commercial launch activities for the product, including education, training and engagement activities and the deployment of additional NexoBrid account managers. The ultimate timing of the availability of commercial NexoBrid in the United States is dependent, in part, on MediWound’s completion of certain manufacturing updates required by the FDA in connection with the NexoBrid BLA approval. Based on MediWound’s current timeline to complete these activities, we now expect to receive U.S. commercial NexoBrid from MediWound and begin commercial sales during the third quarter of 2023.

COVID-19

In March 2020, the World Health Organization declared the spread of a novel strain of coronavirus (“COVID-19”) to be a pandemic, which contributed to an economic downturn on a global scale, as well as significant volatility in the financial markets. At the time of the pandemic’s inception, and at times throughout its duration, there was significant volatility in our results of operations on a quarterly basis due to ischemic dilated cardiomyopathy (DCM).the widespread and periodic cancellation or delay of elective MACI surgical procedures throughout the U.S., staffing shortages and our ability to access customers. Based on declining COVID-related statistics, the U.S. Department of Health and Human Services has announced that the federal Public Health Emergency for COVID-19 is set to expire at the end of the day on May 11, 2023. Although at this juncture the pandemic’s effects on our business and results of operations have moderated, should a resurgence of COVID-19 occur it could result in additional disruptions that could impact our business and operations in the future, including intermittent restrictions on the ability of our personnel to travel and access customers for selling, marketing, training, case support and product development feedback, delays in approvals by regulatory bodies, delays in product development efforts, and additional government requirements or other incremental mitigation efforts that may further impact our capacity to manufacture, sell and support the use of our products.

The War in Ukraine

The ongoing war between Russia and Ukraine and the related sanctions and other penalties imposed by countries across the globe against Russia are continuing to create substantial uncertainty in the global economy and have contributed to heightened inflation and supply chain disruptions. While we do not have operations in Russia or Ukraine and do not have exposure to distributors, or third-party service providers in Russia or Ukraine, we are unable to predict the ultimate impact that these actions will have on the global economy or on our financial condition, results of operations, and cash flows as of the date of these condensed consolidated financial statements.

Manufacturing

We have a cell-manufacturingcell manufacturing facility in Cambridge, Massachusetts, which is used for U.S. manufacturing and distribution of MACI and Epicel, and also was usedEpicel. The manufacturing process for NexoBrid is conducted by MediWound, primarily at manufacturing of MACI forlocations in Israel. Certain raw materials utilized in NexoBrid’s manufacture, including the SUMMIT study conducted for approval in Europe and the U.S. Throughout 2016, we also operated a centralized cell manufacturing facility in Ann Arbor, Michigan. The Ann Arbor facility supported the open label extension portionsupply of the ixCELL-DCM clinical trial conducted in the United States and Canada.active ingredient bromelain, are obtained from Taiwan.


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Product Portfolio

Our approved and marketed products include two approvedFDA-approved autologous cell therapy products:therapies: MACI, (autologous cultured chondrocytes on a porcine collagen membrane), a third generationthird-generation autologous implant for the repair of symptomatic, full-thickness cartilage defects of the knee in adult patients and Epicel (cultured epidermal autografts), a permanent skin replacement for full thickness burns in adults and pediatrics with greater than or equal to 30% of total body surface area (TBSA) also currently marketed in the U.S. We also own Carticel (autologous cultured chondrocytes), a first-generationcellularized scaffold product for autologous chondrocyte implantation (ACI) which is no longer marketed in the U.S. Our product candidate portfolio included ixmyelocel-T, a patient-specific multicellular therapy for the treatment of advanced heart failure due to DCM. On September 29, 2017, the FDA indicated we would be required to conduct an additional clinical study to support a Biologics License Application (BLA) for ixmyelocel-T.  We have decided we will not conduct any additional clinical studies for ixmyelocel-T unless fully funded by a partner. 

Carticel and MACI
Carticel, a first-generation ACI product for the treatment and repair of cartilage defects in the knee, was the first FDA-approved autologous cartilage repair product.  Carticel is indicated for the repair of symptomatic cartilage defects of the femoral condyle (medial, lateral or trochlea) caused by acute or repetitive trauma, in patients who have had an inadequate response to a prior arthroscopic or other surgical repair procedure such as debridement, microfracture, drilling/abrasion arthroplasty, or osteochondral allograft/autograft.  Carticel received a BLA approval in 1997 and is no longer marketed in the U.S.  It was generally used on patients with larger lesions (greater than 3 cm2). Carticel was replaced at the end of the second quarter of 2017 by MACI, which was approved on December 13, 2016 by the FDA. MACI is a third generation autologous implant for the repair of symptomatic, single or multiple full-thickness cartilage defects of the knee with or without bone involvement in adults.adults; and Epicel, a permanent skin replacement for the treatment of adult and pediatric patients with deep-dermal or full-thickness burns comprising greater than or equal to 30 percent TBSA. Both autologous cell therapy products are currently manufactured and marketed in the U.S. Our product portfolio also includes a FDA-approved specialty biologic, NexoBrid, which is a topically-administered biological orphan product containing proteolytic enzymes that is indicated for eschar removal in adults with deep partial-thickness and/or full-thickness burns. We have entered into exclusive license and supply agreements with MediWound to commercialize NexoBrid in North America. On December 28, 2022, the FDA approved a BLA for NexoBrid, granting a license for commercial use in the U.S. Following NexoBrid’s approval, we have begun cross-functional commercial launch activities for the product, including education, training and engagement activities and the deployment of additional NexoBrid account managers. The first shipment and implantation of MACI occurred on January 31, 2017, and we stopped manufacturing and marketing Carticel at the endultimate timing of the secondavailability of commercial NexoBrid in the United States is dependent, in part, on MediWound’s completion of certain manufacturing updates required by the FDA in connection with the NexoBrid BLA approval. Based on MediWound’s current timeline to complete these activities, we now expect to receive U.S. commercial NexoBrid from MediWound and begin commercial sales during the third quarter of 2023.

MACI

MACI is a third-generation autologous chondrocyte implantation (“ACI”) product indicated for the repair of symptomatic, single or multiple full-thickness cartilage defects of the knee with or without bone involvement in 2017.adults.

In the U.S., the orthopedic physician target audience is very concentrated, with two thirds of our 2016 Carticel business originating from approximately 150 physicians. Our target Carticel and MACI audience is a group of physiciansaudiences are orthopedic surgeons who self-identify as and/or have thea formal specialty ofas sports medicine physicians. We believephysicians, and a subpopulation of general orthopedic surgeons who perform a high volume of cartilage repair procedures. As of the date of this report, we employ approximately 75 MACI sales representatives to enable the sales force to reach our target audienceaudience. The team is approximately 500 physicians. At the enddivided into geographic regions, each managed by a Regional Manager and led by a Vice President of 2016 we expanded our field force from 21 to 28 representatives.National MACI Sales. Most private payers have a medical policy that allowscovers treatment with Carticel and we are actively workingMACI with payers to ensure reimbursement for MACI. 28 of the top 30 largest commercial payers for Carticel havehaving a formal medical policy for MACI or ACI in general. For thoseWith respect to private commercial payers whichthat have not yet approved a medical policy for MACI, for medically appropriate cases we can often obtain approval on a case by casecase-by-case basis.For

MACI is currently implanted into the nine months ended September 30, 2017, net revenues were $27.8 millionpatient’s cartilage defect through an open surgical procedure. We are currently evaluating the potential for Carticelthe arthroscopic delivery of MACI to the cartilage defect – a procedure in which a surgeon can evaluate, prepare and MACI.treat the cartilage defect under direct vision using specialized instruments delivered through a number of smaller incisions or portals. The arthroscopic delivery of MACI could increase the ease of MACI’s use for physicians and reduce both the length of the procedure and a patient’s post-operative pain and recovery. We have designed and are currently developing novel and specialized instruments to be used in and help facilitate such a procedure. We have recently discussed with the FDA a non-clinical regulatory strategy to support the potential inclusion of arthroscopic delivery in MACI’s approved labeling. Specifically, following a Type C meeting with the FDA, we submitted a protocol for a MACI arthroscopic delivery human factors validation study and plan to initiate the study in the third quarter of 2023.


We also are evaluating the feasibility and potential market opportunity involved in delivering MACI treatment to patients suffering from cartilage damage in the ankle. We believe that this potential lifecycle enhancement and indication expansion for MACI will require conducting an additional randomized clinical trial concerning the product’s use in the ankle. Earlier this year, we conducted pre-IND interactions with the FDA concerning our clinical development program for MACI to treat cartilage injuries in the ankle, and based on feedback from the FDA, our team is actively working to finalize our non-clinical testing and propose a clinical development plan/protocol to FDA for review.


Epicel

Epicel (cultured epidermal autografts) is a permanent skin replacement for full thicknessdeep-dermal or full-thickness burns comprising greater than or equal to 30% of30 percent TBSA. Epicel is regulated by the CBERCenter for Biologics Evaluation and Research (“CBER”) of the FDA under medical device authorities, and is the only FDA-approved autologouscultured epidermal autograft product available for large total surface area burns.burns in both adult and pediatric patients. Epicel was designated as a HUD in 1998 and an HDEa Humanitarian Device Exemption (“HDE”) application for the product was submitted in 1999. HUDs are devices that are intended for diseases or conditions that affect fewer than 4,0008,000 individuals annually in the United States.U.S. Under an HDE approval, a HUD cannot be sold for an amount that exceeds the cost of research and development, fabrication and distribution unless certain conditions are met. Currently, fewer than 100 patients are treated with Epicel in the U.S. each year. For the nine months ended September 30, 2017, net revenues were $12.8 million for Epicel.
A HUD is eligible to be sold for profit after receiving HDE approval if the device meets certain eligibility criteria, including where the device is intended for the treatment of a disease or condition that occurs in pediatric patients and such device is labeled for use in pediatric patients. If the FDA determines that a HUD meets the eligibility criteria, the HUD is permitted to be sold for profit as so
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long as the number of devices distributed in any calendar year does not exceed the annual distribution number (ADN)Annual Distribution Number (“ADN”). The ADN is defined as the number of devices reasonably needed to treat a population of 4,0008,000 individuals per year in the United States.U.S.


On February 18, 2016, the FDA approved our HDE supplement to revise the labeled indications of use for Epicel to specifically include pediatric patients and to add pediatric labeling.patients. The revised product label also now specifies that the probable benefit of Epicel, mainly related to survival, was demonstrated in two Epicel clinical experience databases and a physician-sponsored study comparing outcomes in patients with massivelarge burns treated with Epicel relative to standard care. Due toBecause of the change in the label to specifically include use in pediatric patients, Epicel is no longer subject to the HDE profit restrictions. In conjunction with adding the pediatric labeling and meeting the pediatric eligibility criteria, the FDA has determined the ADN number for Epicel isto be 360,400 which is approximately 5040 times larger than the volume of grafts sold in 2016. We currently have2022. As of March 31, 2023, our burn care field force was recently expanded to approximately 20 individuals to prepare for the launch of NexoBrid. The team is divided into geographic regions, each managed by a 5-person field force.Regional Manager and led by a Vice President of National Burn Care Sales.


Ixmyelocel-TNexoBrid


Our preapproval stage portfolio of commercial-stage products now includes ixmyelocel-T,NexoBrid (anacaulase-bcdb), a unique patient-specific multicellular therapy derived from an adult patient’s own bone marrow which utilizes our proprietary, highly automatedtopically-administered biological product containing proteolytic enzymes. The FDA approved NexoBrid on December 28, 2022, and scalable manufacturing system. The patient-specific multicellular therapy was developedthe product is indicated for the treatmentremoval of advanced heart failure dueeschar in adults with deep partial-thickness and/or full thickness thermal burns. We have entered into exclusive license and supply agreements with MediWound to DCM.commercialize NexoBrid in North America.


Ixmyelocel-TNexoBrid is approved in the European Union (“EU”) and other international markets and has been granteddesignated as an orphan biologic in the U.S., EU and other international markets. NexoBrid has the potential to change the standard of care for eschar removal with respect to hospitalized burn patients and treat a significant addressable market in the U.S. Orphan Drug designation byWith respect to NexoBrid, of the approximately 40,000 burn patients that are hospitalized in the U.S. each year, the majority, over 30,000, have thermal burns and will likely require some level of eschar removal. NexoBrid’s FDA approval expands our burn care franchise’s total addressable market, which will permit us to treat a significantly larger segment of hospitalized burn patients than with Epicel alone. The expansion of our target addressable market supports a broader commercial footprint, and we believe that this may help drive both increased NexoBrid use as well as increased Epicel awareness throughout the burn care space. With NexoBrid’s approval, our cross-functional commercial launch activities for the treatmentproduct are underway, including education, training and engagement activities and the deployment of DCM.additional NexoBrid account managers.

The manufacturing process for NexoBrid is conducted by MediWound, primarily at manufacturing locations in Israel. Certain raw materials utilized in NexoBrid’s manufacture, including the supply of the active ingredient bromelain are obtained from Taiwan. We completed enrollingexpect to receive U.S. commercial product from MediWound and treating patients in our completed Phase 2b ixCELL-DCM study in February, 2015. Patients were followed for 12 months for the primary efficacy endpointbegin commercial sales of major cardiac adverse events, or MACE. On March 10, 2016, we announced the trial had met its primary endpoint of reduction in clinical cardiac events and that the incidence of adverse events, including serious adverse events, in patients treated with ixmyelocel-T was comparable to patientsNexoBrid in the placebo group.  Patients were then followed for an additional 12 months for safety. BecauseU.S. during the trial met the primary endpoint, patients who received placebo or were randomized to ixmyelocel-T in the double-blind portionthird quarter of the trial but did not receive ixmyelocel-T have been offered the option to receive ixmyelocel-T. We successfully treated the last patients in February, 2017, and the last follow-up visit will occur approximately one year later. In addition, we have conducted clinical studies for the treatment of critical limb ischemia, and an ixmyelocel-T investigator-initiated clinical study was conducted for the treatment of craniofacial reconstruction.2023.


On September 29, 2017, the FDA indicated we would be required to conduct an additional clinical study to support a BLA for ixmyelocel-T.  Given the expense required to conduct further development and our focus on growing our existing commercial products and becoming profitable, at this time we have no current plans to initiate or fund a Phase 3 trial on our own but instead are seeking a partner to fund further development.

Results of Operations

Net LossThe following is a summary of our condensed consolidated results of operations:
 Three Months Ended March 31,
(In thousands)20232022Change $Change %
Total revenue$41,017 $36,074 $4,943 13.7 %
Cost of product sales14,497 12,622 1,875 14.9 %
Gross profit26,520 23,452 3,068 13.1 %
Research and development5,212 4,860 352 7.2 %
Selling, general and administrative29,485 25,865 3,620 14.0 %
Total operating expenses34,697 30,725 3,972 12.9 %
Loss from operations(8,177)(7,273)(904)12.4 %
Total other income682 182 500 274.7 %
Net loss$(7,495)$(7,091)$(404)5.7 %
Our net loss for the three and nine months ended September 30, 2017 totaled $5.4 million and $17.6 million, respectively. Our net loss for the three and nine months ended September 30, 2016 totaled $6.7 million and $13.4 million, respectively.



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  Three Months Ended September 30, Nine Months Ended September 30,
 (In thousands) 2017 2016 2017 2016
Total revenues $14,260
 $10,929
 $40,574
 $37,860
Cost of product sales 7,186
 6,856
 21,965
 20,716
Gross profit 7,074
 4,073
 18,609
 17,144
Total operating expenses 11,105
 10,453
 34,784
 30,500
Loss from operations (4,031) (6,380) (16,175) (13,356)
Other income (expense) (1,376) (295) (1,398) (13)
Net loss $(5,407) $(6,675) $(17,573) $(13,369)

Comparison of the Periods Ended March 31, 2023 and 2022
Net Revenues
Total Revenue
 Net revenues increased
Revenue by product is as follows:

 Three Months Ended March 31,
(In thousands)20232022Change $Change %
MACI$34,190 $25,995 $8,195 31.5 %
Epicel6,827 9,857 (3,030)(30.7)%
NexoBrid— 222 (222)(100.0)%
Total revenue$41,017 $36,074 $4,943 13.7 %

Total revenue increase for the three months ended September 30, 2017March 31, 2023 compared to the same period in 2022, was driven primarily by MACI volume and price growth, which more than offset lower Epicel volume and lower revenue associated with the delivery of NexoBrid to BARDA for emergency response preparedness.

Seasonality. Since March 2020, the effects of the COVID-19 pandemic have, at times, disrupted the normal seasonality of our MACI business. These previous year due primarilyeffects have included periodic restrictions on the performance of elective surgical procedures throughout the country, the unavailability of physicians and/or changes to an increasetheir treatment prioritizations, reductions in MACIthe levels of healthcare facility staffing and, Epicel sales units and an increase in average sales price per unit.

Net revenues increased forcertain instances, the nine months ended September 30, 2017 primarily duewillingness or ability of patients to higher Carticel, MACI and Epicel sales units and higher average price per unit. In April 2017, we were informed of a contractual dispute between Vital Care, Inc. (Vital Care)seek treatment and the third-party payer relatedinability of our sales representatives to certain insurance reimbursement claims associated with Carticelcall on surgeon customers. As a result of these effects, the MACI business seasonality in 2021 and 2020 did not follow our historic patterns. At this juncture the pandemic’s effects on our business and results of operations have moderated, although there continues to be a level of uncertainty whether MACI surgeries performed in 2016seasonality will return to pre-pandemic patterns. In the last five years through 2022, MACI sales volumes from the first through the fourth quarter on average represented 20% (18%-21% range), 21% (16%-24% range), 24% (21%-26% range) and 2017. This contractual dispute between Vital Care and the third-party payer was resolved. The negotiated reimbursement and related change in estimate, for sales that were originally recorded in 2016, resulted in a decrease35% (33%-38% range) respectively, of $0.6 million to revenue for the nine months ended September 30, 2017.

  Three Months Ended September 30, Nine Months Ended September 30,
Revenue by product (in thousands) 2017 2016 2017 2016
Carticel and MACI $9,909
 $8,319
 $27,821
 $26,117
Epicel 4,351
 2,610
 12,753
 11,743
  $14,260
 $10,929
 $40,574
 $37,860
Seasonality. Carticel revenue was subject to seasonal fluctuations withtotal annual volumes. MACI orders are normally stronger sales occurring in the fourth quarter and second quarter due to a number ofseveral factors including the satisfaction by patients of insurance copaydeductible limits and the time of year patients prefer to start rehabilitation,rehabilitation. Due to the low incidence and MACI revenue is expected to be subject to these seasonal fluctuations as well. Over the last five years, the percentagevariable occurrence of annual sales by quarter has ranged as follows: first quarter, 20% to 24%; second quarter, 24% to 26%; third quarter, 20% to 23%; and fourth quarter, 28% to 33%. During 2016, the percentage of annual sales by quarter was as follows: 24% in the first quarter; 24% in the second quarter; 20% in the third quarter; and 32% in the fourth quarter.severe burns, Epicel revenue is also subject to seasonal fluctuations mostly associated with the use of heating elements during the colder months, with stronger sales occurring in the winter months of the firsthas inherent variability from quarter-to-quarter and fourth quarters, and weaker sales occurring in the hot summer months of the third quarter. However, in any single year, this trend can be absent due to the extreme variability inherent with Epicel’s low patient volume of fewer than 100 patients per year. Over the last five years, the percentage of annual sales by quarter has ranged as follows: first quarter, 22% to 35%; second quarter, 22% to 28%; third quarter, 17% to 24%; and fourth quarter, 23% to 30%. The variability between the same quarters in consecutive years has been as high as 11% of the annual volume. While the number of patients treated per year remains low, we expect these large swings in revenue in some quarters to continue. These seasonal trends have caused and will likely continue to cause, fluctuations in our quarterly results, including fluctuations in sequential revenue growth rates.does not exhibit significant seasonality.

Gross Profit and Gross Profit Ratio
  Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2017 2016 2017 2016
Gross profit $7,074
 $4,073
 $18,609
 $17,144
Gross profit % 50% 37% 46% 45%


Gross profit ratio increasedincrease for the three and nine months ended September 30, 2017March 31, 2023 compared to the same period in 2016 due primarily to an increase in Carticel2022, was driven by higher MACI volume and MACI sales described above.price growth, which more than offset higher employee costs, raw material price increases and higher external storage and manufacturing facility costs.



Research and Development Costs
Expenses
  Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2017 2016 2017 2016
Research and development costs $2,919
 $3,443
 9,357
 11,037


The following table summarizes research and development expenses, which include materials, professional fees and an allocation of employee-related salary and fringe benefit costs for our research and development projects:

 Three Months Ended March 31,
(In thousands)20232022Change $Change %
MACI$3,073 $2,989 $84 2.8 %
Epicel1,171 1,220 (49)(4.0)%
NexoBrid968 651 317 48.7 %
Total research and development expenses$5,212 $4,860 $352 7.2 %

Research and development costsexpenses for the three months ended September 30, 2017March 31, 2023 were $2.9$5.2 million, versus $3.4compared to $4.9 million for the same period a year ago,in 2022. The increase is primarily due to a reduction in the ixCELL-DCM clinical trial expenses. Because the trial met the primary endpoint, patients who received placebo or were randomized to ixmyelocel-T in the double-blind portionlower reimbursement of the trial but did not receive ixmyelocel-T were offered the option to receive ixmyelocel-T beginning in 2016. We successfully treated the last patients in February 2017 and lower expenses were incurred in the current period. MACI research and development costs increasedfrom MediWound related to activity incurred as a resultNexoBrid BLA resubmission.


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Selling, General and Administrative Expenses
Research
Selling, general and development costsadministrative expenses for the ninethree months ended September 30, 2017March 31, 2023 were $9.4$29.5 million versus $11.0compared to $25.9 million for the same period a year ago. As described above, the trial expenses for the ixCELL-DCM clinical trial decreased as the trial completed treatment of the patients who received the placebo. Carticel-related expenses decreased as a result of the approved MACI product in December 2016. Additional costs were incurred related to MACI upon the approval.

  Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2017 2016 2017 2016
Dilated Cardiomyopathy $909
 $1,875
 $4,050
 $5,732
MACI 1,385
 636
 3,309
 1,916
Carticel 45
 462
 369
 1,828
Epicel 580
 470
 1,629
 1,561
Total research and development costs $2,919
 $3,443
 $9,357
 $11,037
Selling, General and Administrative Costs
  Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2017 2016 2017 2016
Selling, general and administrative costs $8,186
 $7,010
 $25,427
 $19,463
Selling, general and administrative costs for the three months ended September 30, 2017 were $8.2 million compared to $7.0 million for the same period a year ago.2022. The increase in selling, general and administrative costs forexpenses was primarily due to higher headcount and employee expenses, additional travel and in-person events across the three months ended September 30, 2017 is due primarily tocommercial organization, and an increase in personnel and employee costsmarketing expenses.


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Selling, general and administrative costs for the nine months ended September 30, 2017 were $25.4 million compared to $19.5 million for the same period a year ago. The increase in selling, general and administrative costs in 2017 is driven by an increase in personnel costs of $1.6 million primarily related to an increase in the MACI sales force, consulting and agency fees of $3.0 million related to the launch of MACI and costs associated with our reimbursement and patient support services for MACI of $0.9 million.

Total Other Income (Expense)
  Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2017 2016 2017 2016
Decrease in fair value of warrants $(1,060) $(203) $(512) $99
Foreign currency translation (loss) (6) (6) (20) (17)
Other income (expense) 5
 —
 6
 (10)
Net interest (expense) income (315) (86) (872) (85)
Total other income (expense) $(1,376) $(295) $(1,398) $(13)

The change in other income and expense for the three and nine months ended September 30, 2017March 31, 2023, compared to 2016 isthe same period in 2022 was due primarily to fluctuations in the rates of return on our investments in various marketable debt securities slightly offset by interest expense on the outstanding revolving credit agreement and term loans, the change in warrant value as a result of the fluctuations inrelated to our stock price and the reduction in the time to maturity. Fluctuations in the fair value of the warrants inRevolving Credit Agreement.



Stock-based Compensation Expense
future periods could result in significant non-cash adjustments to the condensed consolidated financial statements; however, any income or expense recorded will not impact our cash, operating expenses or cash flow.
Stock Compensation

Non-cash stock-based compensation expense included in cost of goods sold, research and development expenses and selling, general and administrative expenses is summarized in the following table: 

 Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended March 31,
(In thousands) 2017 2016 2017 2016(In thousands)20232022Change $Change %
Cost of goods sold $119
 $117
 $316
 $330
Cost of product salesCost of product sales$885 $1,118 $(233)(20.8)%
Research and development 177
 133
 $391
 $392
Research and development977 1,350 (373)(27.6)%
Selling, general and administrative 459
 404
 1,346
 1,251
Selling, general and administrative6,869 7,063 (194)(2.7)%
Total non-cash stock-based compensation expense $755
 $654
 $2,053
 $1,973
Total non-cash stock-based compensation expense$8,731 $9,531 $(800)(8.4)%

The changesdecrease in stock-based compensation expense arefor the three months ended March 31, 2023 compared to the same period in 2022, was due primarily to fluctuations in stock prices and the mix of service-based options and restricted stock units, which impacts the fair value of the options grantedand restricted stock units awarded and the expense recognized in 2017 compared to 2016.the period.


Liquidity and Capital Resources

We are currently focused on utilizingCash Flows

The following table summarizes our technology to identify, developsources and commercialize innovative therapies that enable the body to repair and regenerate damaged tissues and organs to restore normal structure and function.  Since the acquisition in 2014uses of cash for each of the CTRM Businessperiods presented:

Three months ended March 31,
(In thousands)20232022
Net cash provided by operating activities$7,860 $3,468 
Net cash provided by (used in) investing activities2,800 (10,669)
Net cash provided by financing activities107 503 
Net increase (decrease) in cash, cash equivalents, and restricted cash$10,767 $(6,698)

Net Cash Provided by Operating Activities

Our cash and cash equivalents totaled $61.8 million, short-term investments totaled $57.4 million and long-term investments totaled $19.9 million as of Sanofi,March 31, 2023. The $7.9 million of cash provided by operations during the three months ended March 31, 2023 was primarily the result of non-cash charges of $8.7 million related to stock-based compensation expense, $1.1 million of operating lease amortization and $1.2 million in depreciation and amortization expense, offset by a net loss of $7.5 million and a net increase of $4.6 million related to movements in our working capital accounts. The overall increase in cash from our working capital accounts was primarily driven by a decrease in accounts receivable due to cash collections on the revenue from the seasonally-high previous sequential quarter, offset by a decrease in accounts payable and accrued expenses due to timing of payments.

Our cash, cash equivalents and restricted cash totaled $61.8 million, short-term investments totaled $44.9 million and long-term investments totaled $22.8 million as of March 31, 2022. The $3.5 million of cash provided by operations during the three months ended March 31, 2022 was primarily the result of non-cash charges of $9.5 million related to stock-based compensation expense, $1.1 million of operating lease amortization, $0.9 million in depreciation and amortization expense, offset by a net loss of $7.1 million and a net decrease of $1.1 million related to movements in our working capital accounts. The overall decrease in cash from our working capital accounts was primarily driven by a decrease in accounts payable and accrued expenses due to timing of payments, an increase in inventory due to increased production needs, offset by a decrease in accounts receivable due to a decrease in sales volume compared to the previous sequential quarter.


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Net Cash Provided By (Used In) Investing Activities

Net cash provided by investing activities during the three months ended March 31, 2023 was the result of $21.5 million of investment sales and Epicel therapies have constituted nearly all of our product sales revenues.  Withmaturities, offset by $9.8 million in investment purchases, a $7.5 million regulatory milestone payment to MediWound resulting from the FDA’s approval of MACIthe NexoBrid BLA, and replacement$1.4 million of Carticel with MACI, we expectproperty and equipment purchases primarily for manufacturing upgrades and construction in process related to the Burlington Lease.

Net cash used in investing activities during the three months ended March 31, 2022 was the result of $12.6 million in investments purchases and $3.1 million of property and equipment purchases primarily for manufacturing upgrades and leasehold improvements, offset by $5.0 million of investment sales and maturities.

Net Cash Provided by Financing Activities

Net cash provided by financing activities during the three months ended March 31, 2023 was the result of net proceeds from the exercise of stock options and the employee stock purchase plan of $2.2 million, partially offset by the payment of employee withholding taxes related to the vesting of restricted stock units of $2.1 million.

Net cash provided by financing activities during the three months ended March 31, 2022 was primarily the result of net proceeds from the exercise of stock options and the employee stock purchase plan of $1.5 million partially offset by payments of employee withholding taxes related to the vesting of restricted stock units of $0.9 million.

Liquidity

Since our acquisition of MACI and Epicel therapies will constitute nearly allin 2014, our primary focus has been to invest in our existing commercial business with the goal of our product sales revenues. Additionally, we are focusing significant resources to grow our commercial business.

growing revenue. We have raised significant funds in order to advance and complete our product development and product life-cycle management programs and complete clinical trials needed to market and commercialize our products.products, including NexoBrid. To date, we have financed our operations primarily through cash received through MACI and Epicel sales, debt, and public and private sales of our equity securities. We may finance our operations through the sales of equity securities, including the net proceeds of approximately $18.0 million we receivedrevolver borrowings or other debt financings, in addition to cash generated from our December 2016 public offering and the availability of funds under the SVB-Mid-Cap Facility. While weoperations.

We believe that based on our current cash on hand, we are in a positioncash equivalents, investments, and available borrowing capacity will be sufficient to sustainsupport our current operations through at least November 2018, if actual results differ12 months from our projections, we may need to access additional capital.

On October 10, 2016 we entered into an at-the-market sales agreement (ATM Agreement) with Cowen and Company, LLC (Cowen) as sales agent to sell, from time to time, our common stock, no par value per share (ATM Shares), having an aggregate sale price of up to $25.0 million, through an “at the market offering” program (ATM Offering). The ATM Shares will be issued pursuant to our shelf registration statement on Form S-3 (File No. 333-205336). We filed a prospectus supplement, dated October 10, 2016, with the Securities and Exchange Commission in connection with the offer and saleissuance of the ATM Shares sold undercondensed consolidated financial statements included in this report. Although the ATM Agreement. We are obliged to pay 3%effects of the gross proceeds to Cowen as a commission. As of September 30, 2017, approximately $17.2 million of net capacity remained under the ATM Agreement.

Our cash totaled $15.5 million as of September 30, 2017. During the nineongoing COVID-19 pandemic have moderated in recent months, ended September 30, 2017, the cash used forour business and operations was $14.0 million.  This use of funds was fueled largely by our operating loss of $17.6 million reduced by noncash charges including $2.1 million of stock compensation expense, $1.2 million of depreciation expense and $0.5 million due to the change in fair value of warrants.

The change in cash used for investing activities is the result of material property plant and equipment purchases of $0.8 million for manufacturing upgrades and leasehold improvements through September 30, 2017.
The change in cash provided from financing activities is the result of the ATM activity during the nine months ended September 30, 2017 which did not occur during the nine months ended September 30, 2016. In 2016, we had net borrowings of $6.0 million under our term loan and revolving credit agreements and no additional borrowings in 2017.

On March 8, 2016, we entered into a $15.0 million debt financing with SVB which we replaced on September 9, 2016 with an expanded term loan and revolving line of credit agreement with SVB and MidCap Financial Services, or MidCap, which initially provide access to up to $20 million. The updated debt financing consists of a $4.0 million term loan which was drawn at the closing, a $4.0 million term loan which was drawn upon in November 2016, a $2.0 million term loan which is no longer available


as it was not drawn on by April 12, 2017 and up to $10.0 million of a revolving line of credit. The term loans are interest only (indexed to Wall Street Journal (WSJ) Prime plus 5.00%) until September 1, 2017 followed by 36 equal monthly payments of principal plus interest maturing September 9, 2020. Per the initial terms of the agreement, the revolving credit is limited to a borrowing base calculated using eligible accounts receivable which was further reducedmay be adversely affected in the amendment described below and maturing September 9, 2020 with an interest rate indexedfuture if conditions were to WSJ Prime plus 1.25%. We are subject to various financial and nonfinancial covenants including but not limited to a monthly minimum net revenue covenant (determined in accordance with U.S. GAAP), measured on a trailing twelve month basis. The December 31, 2017 minimum revenue covenant is set at $51.7 million. SVB and MidCap also have the ability to call debt based on material adverse change clauses which are subjectively determinable and result in a subjective acceleration clause. The Company does not believe any material adverse changes have occurred. While we believe the acceleration of the due date may be reasonably possible, it is not probable and therefore, the debt is classified in current and non-current liabilities. SVB and MidCap have a shared first priority perfected security interest in all of our assets other than intellectual property. As of September 30, 2017, there was an outstanding balance of $7.8 million under the term loan and $2.5 million under the revolving line of credit.

On December 30, 2016, we entered into an amendment to the SVB-MidCap facility to amend certain financial covenants and to modify the final payment of the term loan advance. We further amended the SVB-MidCap facility on May 9, 2017 to update the monthly net revenue requirement covenants, measured on a trailing twelve month basis. The amendment decreased the 12 month trailing minimum revenue covenant as of June 30, 2017 and revised the December 31, 2017 minimum revenue covenant to $51.7 million. As of September 30, 2017, we were in compliance with the minimum revenue covenant. The amount of eligible account receivables used to calculate the availability under the revolving line of credit is no longer reduced by the $3.0 million per the terms of an amendment, as our revenue met minimum revenue targets for two (2) consecutive quarters. As of September 30, 2017, there was $3.3 millionremaining capacity under the revolving line of credit. The distribution agreement with Orsini discussed in note 4 and the concentration of credit limitations in the calculation of eligible account receivables could further reduce our ability to borrow under the revolving line of credit.

While we believe that, based on our current cash on hand, we are in a position to sustain operations through at least November 2018, ifworsen. Our actual results differ from our projections or we pursue other strategic opportunities, we may need to access additional capital.  In addition, if our revenues do not meet the existing threshold set forth in the debt covenants, and we are unable to renegotiate those thresholds, SVB could call the debt immediately. Such events could result in the need for additional funds.  However, we may not be able to obtain financing on acceptable terms or at all.   The terms of any financing may adversely affect the holdings or the rights of our shareholders.  If we need additional funds and we are unable to obtain funding on a timely basis, we may need to significantly curtail our operations including our research and development programs in an effort to provide sufficient funds to continue our operations, which could adversely affect our business prospects.  Actual cash requirements may differ from projections and will depend on many factors, including continued scientific progress in ourany future impacts of the COVID-19 pandemic, the level and pace of future research and development programs,efforts, the scope and results of ongoing and potential clinical trials, the time and costs involved in obtaining regulatory approvals, the costs involved in filing, prosecuting and enforcing patents, the need for additional manufacturing capacity, competing technological and market developments, costs ofassociated with possible acquisitionacquisitions or development of complementary business activities, and the cost of product launch andto market acceptance of those products and commercialization of newly approvedour products.


Off-Balance Sheet Arrangements
At September 30, 2017,As of March 31, 2023, we were not party to any off-balance sheet arrangements.


Sources of Capital

On August 27, 2021, we entered into a Sales Agreement with SVB Securities, LLC (f/k/a SVB Leerink LLC), as sales agent (“SVB Securities”), pursuant to which we may offer and sell up to $200.0 million of shares of our common stock, no par value per share (“ATM Shares”). The ATM Shares to be offered and sold under the Sales Agreement will be issued and sold pursuant to an automatically effective shelf registration statement on Form S-3ASR (File No. 333-259119) filed by us on August 27, 2021, which expires three years from the filing date. We also filed a prospectus supplement relating to the offering and sale of the ATM Shares on August 27, 2021. We are not obligated to make any sales of ATM Shares, and SVB Securities is not required to sell any specific number or dollar amount of the ATM Shares under the Sales Agreement. As of March 31, 2023, we have sold no shares pursuant to the Sales Agreement.

On July 29, 2022, we entered into a $150.0 million five-year senior secured revolving credit agreement by and among the Company, the other loan parties thereto, the lenders party thereto, and JPMorgan Chase Bank, N.A., as the administrative agent (the “Revolving Credit Agreement”). We have no immediate plans to borrow under the Revolving Credit Agreement, but we may use the facility for working capital needs and other general corporate purposes. As of March 31, 2023, there are no outstanding borrowings under the Revolving Credit Agreement, and we are in compliance with all applicable covenant
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requirements. See Note 8, “Revolving Credit Agreement” in the accompanying condensed consolidated financial statements for further details.

Contractual Obligations and Commitments

The disclosure of our contractual obligations and commitments is set forth in the heading “Management’s Discussion and Analysis of Financial Conditions and Results of Operations - Contractual Obligations” in our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes, outside of the ordinary course of business, to our contractual obligations and commitments since December 31, 2022, except as noted below.

In April 2023, in connection with the Burlington Lease, we entered into a construction escrow agreement (the “Construction Escrow Agreement”) with the facility’s landlord and an escrow agent. Pursuant to the terms of the Construction Escrow Agreement, in April 2023 we began funding into an escrow account maintained by the escrow agent a portion of our share of tenant improvement construction costs at the facility, which will be designated as restricted cash. At the same time, the facility’s landlord began funding a portion of its tenant improvement allowance through a separate escrow account. To date, we have transferred into our escrow account 50% of our required cost amount, or approximately $28.3 million. We anticipate funding the remaining 50% of our required cost amount in late 2023 or early 2024. Additionally, and in order to support the expansion of our autologous cell manufacturing operations at the new facility in Burlington, we plan to invest in the acquisition and installation of certain specialized manufacturing and laboratory equipment.

Critical Accounting Policies

OurThe discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, arewhich have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).U.S. GAAP. The preparation of these condensed consolidated financial statements requires the application of appropriate technical accounting rules and guidance, as well as the use of estimates. The application of these policies necessarily involves judgments regarding future events. Theseus to make estimates and judgments inthat affect our reported assets, liabilities, revenues, expenses, and of themselves, couldrelated disclosures. Actual results may differ materially impact the condensed consolidated financial statementsfrom these estimates under different assumptions and disclosures based on varying assumptions. The accounting policies discussed in our Form 10-K for the fiscal year ended December 31, 2016 are considered by management to be the most important to an understanding of the consolidated financial statements because of their significance to the portrayal of our financial condition and results of operations. conditions.

There have been no material changes to thatour critical accounting policies and estimates in the three months ended March 31, 2023. For further information, disclosedrefer to our summary of significant accounting policies and estimates in our Annual Report duringon Form 10-K filed for the nine monthsyear ended September 30, 2017.December 31, 2022.



Cautionary Note Regarding Forward-Looking Statements

This report, including the documents that we incorporateincorporated by reference herein, contains forward-lookingcertain statements that describe our management’s beliefs concerning future business conditions, plans and prospects, growth opportunities and the outlook for our business based upon information currently available. Such statements are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the (“Exchange


Act) Act”). AnyWherever possible, we have identified these forward-looking statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking.  These statements are often, but are not always, made through the use ofby words or phrases such as “will,” “may,” “anticipates,” “believes,” “intends,” “estimates,” “expects,” “plans,” “projects,” “trends,” “opportunity,” “comfortable,” “current,” “intention,” “position,” “assume,” “potential,” “outlook,” “remain,” “continue,” “maintain,” “sustain,” “seek,” “target,” “achieve,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend” and similar words or phrases, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may,” or similar expressions. Accordingly, these statements involve estimates, assumptions and uncertainties whichAmong the factors that could cause actual results to differ materially from those expressedset forth in them.  The factors describedthe forward-looking statements include, but are not limited to, uncertainties associated with our expectations regarding future revenue, growth in revenue, market penetration for MACI®, Epicel®, and NexoBrid®, growth in profit, gross margins and operating margins, the ability to continue to scale our Annual Report, among others, could havemanufacturing operations to meet the demand for our cell therapy products, including the timely completion of a material adverse effect uponnew headquarters and manufacturing facility in Burlington, Massachusetts, the ability to achieve or sustain profitability, the expected target surgeon audience, potential fluctuations in sales and volumes and our business, results of operations over the course of the year, timing and financial conditions.
Becauseconduct of clinical trial and product development activities, timing and likelihood of the factors referredFDA’s potential approval of the arthroscopic delivery of MACI to the knee or the use of MACI to treat cartilage defects in the preceding paragraphankle, the estimate of the commercial growth potential of our products and product candidates, competitive developments, changes in third-party coverage and reimbursement, the ultimate timing of the commercial launch of NexoBrid in the United States, physician and burn center adoption of NexoBrid, supply chain disruptions or other events affecting MediWound Ltd.’s ability to manufacture and supply NexoBrid to meet customer demand, negative impacts on the global economy and capital markets resulting from the conflict in Ukraine, adverse developments affecting financial institutions, companies in the financial services industry or the financial services industry generally, global geopolitical tensions or record inflation and the ongoing or future impacts of the COVID-19 pandemic on our business or the economy generally. These forward-looking statements are based upon assumptions our
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management believes are reasonable. Such forward-looking statements are subject to risks and uncertainties, which could cause our actual results, or outcomesperformance and achievements to differ materially from those expressed in, anyor implied by, these statements, including, among others, the risks and uncertainties listed in our Annual Report under “Part I, Item 1A Risk Factors” and the risk listed in this Quarterly Report under “Part I, Item 1A Risk Factors.”

Because our forward-looking statements we make, you should not place undue relianceare based on estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control or are subject to change, actual results could be materially different and any suchor all of our forward-looking statements.  Further, any forward-looking statement speaksstatements may turn out to be wrong. Forward-looking statements speak only as of the date on which it is made and can be affected by assumptions we undertake no obligation to update any forward-looking statementmight make or statements to reflect eventsby known or circumstances after the dateunknown risks and uncertainties. Many factors mentioned in our discussion in our Annual Report on which such statement is made or to reflect the occurrence of unanticipated events.Form 10-K will be important in determining future results. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition,Consequently, we cannot assess the impact of each factor onassure you that our businessexpectations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those containedforecasts expressed in any forward-looking statements.  Thesesuch forward-looking statements include statements regarding:
•potential strategic collaborations with others;
•future capital needs and financing sources;
•adequacy of existing capitalwill be achieved. Except as required by law, we undertake no obligation to support operations for a specified time;
•product development and marketing plans;
•regulatory filing plans;
•features and successespublicly update any of our cellular therapies;forward-looking or other statements, whether as a result of new information, future events, or otherwise.
•manufacturing and facility capabilities;
•clinical trial plans, including publication thereof;
•anticipation of future losses;
•replacement of manufacturing sources;
•commercialization plans; or
•revenue expectations and operating results.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As of September 30, 2017, we would not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates or credit conditions on our securities portfolio. For additional information regarding ourquantitative and qualitative disclosures about market risk, refer tosee Part II, Item 7A. Quantitative“Quantitative and Qualitative Disclosures About Market Risk, in” of our Annual Report on Form 10-K for the year ended December 31, 2016.2022. Our exposures to market risk have not changed materially since December 31, 2022.

Item 4. Controls and Procedures


Evaluation of Disclosure Controls and Procedures


Management of the Company, with the participation of its Chief Executive Officer and Chief Financial Officer (its Certifying Officers), evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the evaluation as of March 31, 2023, the Company’s Certifying Officers concluded that the Company’s disclosure controls and procedures were effective.

The Company has established disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities and Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the SEC’sCommission’s rules and forms, and that such information is accumulated and communicated to management of the Company, with the participation of its Chief Executive Officer and Chief Financial Officer (its “Certifying Officers”),Certifying Officers, as appropriate, to allow timely decisions regarding required disclosure.

Management of the Company, with the participation of its Certifying Officers, evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Rules l3a-15(e) and l5d-15(e) under the Exchange Act. Based on the evaluation as of September 30, 2017, our Certifying Officers concluded that the Company’s disclosure controls and procedures were effective.


Changes in Internal Control over Financial Reporting


There have beenDuring the three months ended March 31, 2023, there were no material changes made in our internal control over financial reporting during(as such term is defined in Rules 13a-15(f) and 15d-15(f) of the quarter ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.Exchange Act).





PART II —- OTHER INFORMATION
Item 1. Legal Proceedings

FromWe are currently not party to any material legal proceedings, although from time to time we receive threats or may be subject to litigation matters incidental tobecome involved in disputes in connection with the operation of our business.  However, we are not currently a party to any material pending legal proceedings.


Item 1A. Risk Factors

There have been no material changesFactors that could cause the Company’s actual results to differ materially from the risk factors previously disclosedthose in the Company'sthis Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 and the risk factors found in Part I, Item 1A, "Risk Factors,"are any of the Company's Annual Report on Form 10-K for the year ended December 31, 2016. The risks described in theour Annual Report on Form 10-K and Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 are not the only risks the Company faces. Additional risks and uncertainties not currently known or currently deemed to be immaterial also may materially and adversely affect the Company’s business, financial condition, results of operations or cash flows.

Item 1B.  Unresolved Staff Comments
On August 11, 2017, we received a comment letter from the staff of the SEC with respect to our Form 10-K for the fiscal year ended December 31, 2016. We responded to the SEC's comments on September 11, 2017, and received one follow-up comment from2022 filed with the SEC on October 4, 2017,February 23, 2023. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Quarterly Report on Form 10-Q, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, except as follows.

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Adverse developments affecting financial institutions, companies in the financial services industry or the financial services industry generally, such as actual events or concerns involving liquidity, defaults or non-performance, could adversely affect our operations and liquidity.

Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds, have in the past and may in the future lead to market-wide liquidity problems.

We maintain cash and investments that are held in a number of investment and deposit accounts at leading financial institutions. The amounts held in the deposit accounts are in excess of the insurance coverage offered by the FDIC, and we may in the future, continue to have assets held at financial institutions that exceed the insurance coverage offered by the FDIC, the loss of which would have a severe negative effect on our operations and liquidity.

Uncertainty and liquidity concerns in the broader financial services industry remain. Inflation and rapid increases in interest rates have led to a decline in the trading value of previously issued government securities with interest rates below current market interest rates. The U.S. Department of Treasury, Federal Deposit Insurance Corporation (“FDIC”) and Federal Reserve Board have announced a program to provide up to $25 billion of loans to financial institutions secured by such government securities held by financial institutions to mitigate the risk of potential losses on the sale of such instruments. However, there is no guarantee that the U.S. Department of Treasury, FDIC and Federal Reserve Board will provide access to uninsured funds in the future in the event of the closure of banks or financial institutions in a timely fashion or at all.

Our access to our cash and cash equivalents in amounts adequate to finance our operations could be significantly impaired if the financial institutions with which we have arrangements directly face liquidity constraints or failures. In addition, investor concerns regarding the applicable accounting policies usedU.S. or international financial systems could result in less favorable commercial financing terms thereby making it more difficult for revenue recognitionus to acquire financing on acceptable terms or at all. Any material decline in available funding or our ability to access our cash and product sales. On October 18, 2017, we submittedcash equivalents could adversely impact our responseability to the SEC regardingmeet our operating expenses, result in breaches of our contractual obligations or result in violations of federal or state wage and hour laws, any of which could have material adverse impacts on our operations and liquidity. Furthermore, should our customers have relationships with financial institutions that fail, this comment. Asmay result in a delay of November 7, 2017 we are still waiting forcollecting outstanding receivables, which could have a response from the SEC to clear the unresolved comment.material adverse effect on our business.


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Company did not repurchase anyNot applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

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Item 6. Exhibits

The Exhibits listed in the Exhibit Index immediately following the Signature, are filed as a part of this Quarterly Report on Form 10-Q.




EXHIBIT INDEX

Incorporated by Reference
Exhibit NumberDescription of ExhibitsFormFile NumberExhibitFiling Date
3.18-K000-220254.1December 17, 2009
3.2S-1333-1600443.2March 31, 2010
3.38-K000-220253.1March 25, 2011
3.48-K001-352803.1November 24, 2014
3.58-K000-220253.1November 12, 2010
4.110-K001-352804.5February 25, 2020
31.1*
31.2*
32.1*
101.INS*Inline XBRL Instance Document
101.SCH*Inline XBRL Taxonomy Extension Schema Document
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document
104*
Exhibit No.Description
10.1
First Amendment to Executive Employment Agreement by and between Dominick C. Colangelo and the Company, dated September 14, 2017, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 19, 2017, incorporated herein by reference.

10.2
Amended and Restated Employment Agreement by and between Daniel Orlando and the Company, dated September 14, 2017, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on September 19, 2017, incorporated herein by reference.

10.3
Amended and Restated Employment Agreement by and between Gerard Michel and the Company, dated September 15, 2017, filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on September 19, 2017, incorporated herein by reference.


10.4**
 Amendment No. 1 to License Agreement between Vericel Corporation and Innovative Cellular Therapeutics CO., LTD., dated August 3, 2017.
10.5**
Amendment No. 2 to License Agreement between Vericel Corporation and Innovative Cellular Therapeutics CO., LTD., dated September 5, 2017.
10.6**
Amendment No. 1 to Side Letter between Vericel Corporation and Innovative Cellular Therapeutics CO., LTD., dated August 3, 1017.

10.7**
Amendment No. 2 to Side Letter between Vericel Corporation and Innovative Cellular Therapeutics CO., LTD., dated September 5, 2017.

10.8†**
First Amendment to Distribution Agreement between Orsini Pharmaceutical Services, Inc. and the Company, dated August 10, 2017.

31.1**
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2**
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS**
XBRL Instance Document
101.SCH**
XBRL Taxonomy Extension Schema Document
101.CAL**
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB**
XBRL Taxonomy Extension Label Linkbase Document
101.PRE**
XBRL Taxonomy Extension Presentation Linkbase Document
101 DEF**
XBRL Taxonomy Extension Definition Linkbase Document

** Filed herewith.



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† Confidential treatment has been requested as to certain portions thereto, which portions are omitted and will be filed separately with the Securities and Exchange Commission.



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Date: November 7, 2017May 10, 2023
 
VERICEL CORPORATION
/s/ DOMINICK C. COLANGELO
Dominick C. Colangelo
President and Chief Executive Officer
(Principal Executive Officer)
/s/ GERARD MICHELJOSEPH A. MARA
Gerard MichelJoseph A. Mara
Chief Financial Officer and Vice President, Corporate Development
(Principal Financial Officer)




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