UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED: ~~September~~June 30, ~~2022~~2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-35280

VERICEL CORPORATION

(Exact name of registrant as specified in its charter)


Michigan						94-3096597
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

64 Sidney Street

Cambridge, MA 02139

(Address of principal executive offices, including zip code)

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

Securities registered pursuant to Section 12(b) of the Act:


Title of Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock (No par value)	VCEL	NASDAQ

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 every Interactive Data File required to be submitted 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 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	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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 ☐ No x

As of ~~November 4, 2022, 47,222,987~~July 27, 2023, 47,642,194 shares of Common Stock, no par value per share, were outstanding.

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
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive Loss	5
	Condensed Consolidated Statements of Shareholders’ Equity	6
	Condensed Consolidated Statements of Cash Flows	87
	Notes to Condensed Consolidated Financial Statements	109
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2423
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2928
Item 4.	Controls and Procedures	3029
	PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	3029
Item 1A.	Risk Factors	3029

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3230
Item 3.	Defaults Upon Senior Securities	3230
Item 4.	Mine Safety Disclosures	3230
Item 5.	Other Information	3230
Item 6.	Exhibits	3331
Exhibit Index		3331
Signatures		3432

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

VERICEL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, amounts in thousands)


		September 30,		December 31,			June 30,		December 31,
		2022		2021			2023		2022
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	65,216	$	68,330	Cash and cash equivalents	$	43,023	$	51,067
Restricted cash						Restricted cash	27,794		—
Short-term investments	Short-term investments	45,724		35,068		Short-term investments	54,808		68,471
Accounts receivable (net of allowance for doubtful accounts of $115 and $40, respectively)		34,296		37,437
Accounts receivable (net of allowance for doubtful accounts of $44 and $47, respectively)						Accounts receivable (net of allowance for doubtful accounts of $44 and $47, respectively)	38,319		46,539
Inventory	Inventory	16,729		13,381		Inventory	13,883		15,986
Other current assets	Other current assets	4,410		4,246		Other current assets	5,044		4,803
Total current assets	Total current assets	166,375		158,462		Total current assets	182,871		186,866
Property and equipment, net	Property and equipment, net	15,918		13,308		Property and equipment, net	23,408		15,837
Restricted cash		—		211
Intangible assets, net						Intangible assets, net	7,188		7,500
Right-of-use assets	Right-of-use assets	42,628		45,720		Right-of-use assets	75,063		41,535
Long-term investments	Long-term investments	21,739		25,687		Long-term investments	20,985		19,962
Other long-term assets	Other long-term assets	1,357		317		Other long-term assets	1,196		1,303
Total assets	Total assets	$	248,017	$	243,705	Total assets	$	310,711	$	273,003
LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY					LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	8,113	$	9,016	Accounts payable	$	14,401	$	16,930
Accrued expenses	Accrued expenses	13,948		14,045		Accrued expenses	13,971		16,190
Current portion of operating lease liabilities	Current portion of operating lease liabilities	4,902		2,950		Current portion of operating lease liabilities	7,218		4,302
Other current liabilities	Other current liabilities	41		41		Other current liabilities	21		41
Total current liabilities	Total current liabilities	27,004		26,052		Total current liabilities	35,611		37,463
Operating lease liabilities	Operating lease liabilities	43,176		47,147		Operating lease liabilities	76,144		43,268
Other long-term liabilities	Other long-term liabilities	—		44		Other long-term liabilities	28		—
Total liabilities	Total liabilities	70,180		73,243		Total liabilities	111,783		80,731
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES (Note 12)						COMMITMENTS AND CONTINGENCIES (Note 12)
Shareholders’ equity:	Shareholders’ equity:					Shareholders’ equity:
Common stock, no par value; shares authorized — 75,000; shares issued and outstanding 47,201 and 46,880, respectively		584,900		553,902
Common stock, no par value; shares authorized — 75,000; shares issued and outstanding 47,616 and 47,253, respectively						Common stock, no par value; shares authorized — 75,000; shares issued and outstanding 47,616 and 47,253, respectively	612,059		593,245
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(1,146)		(154)		Accumulated other comprehensive loss	(621)		(978)
Accumulated deficit	Accumulated deficit	(405,917)		(383,286)		Accumulated deficit	(412,510)		(399,995)
Total shareholders’ equity	Total shareholders’ equity	177,837		170,462		Total shareholders’ equity	198,928		192,272
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	248,017	$	243,705	Total liabilities and shareholders’ equity	$	310,711	$	273,003

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

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VERICEL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, amounts in thousands, except per share amounts)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Product sales, net	Product sales, net	$	38,326	$	33,718	$	111,004	$	106,025	Product sales, net	$	45,922	$	36,826	$	86,939	$	72,678
Other revenue	Other revenue	225		788		667		2,568		Other revenue	—		220		—		442
Total revenue	Total revenue	38,551		34,506		111,671		108,593		Total revenue	45,922		37,046		86,939		73,120
Cost of product sales	Cost of product sales	13,318		12,408		40,132		36,600		Cost of product sales	15,981		14,192		30,478		26,814
Gross profit	Gross profit	25,233		22,098		71,539		71,993		Gross profit	29,941		22,854		56,461		46,306
Research and development	Research and development	5,046		4,284		14,698		12,363		Research and development	5,253		4,792		10,465		9,652
Selling, general and administrative	Selling, general and administrative	26,975		22,775		79,984		71,625		Selling, general and administrative	30,649		27,144		60,134		53,009
Total operating expenses	Total operating expenses	32,021		27,059		94,682		83,988		Total operating expenses	35,902		31,936		70,599		62,661
Loss from operations	Loss from operations	(6,788)		(4,961)		(23,143)		(11,995)		Loss from operations	(5,961)		(9,082)		(14,138)		(16,355)
Other income (expense):	Other income (expense):									Other income (expense):
Interest income	Interest income	342		44		578		163		Interest income	1,095		148		1,934		236
Interest expense	Interest expense	(105)		(1)		(143)		(3)		Interest expense	(149)		(20)		(294)		(38)
Other income (expense)		(5)		(13)		98		44
Other (expense) income										Other (expense) income	(5)		(9)		(17)		103
Total other income	Total other income	232		30		533		204		Total other income	941		119		1,623		301
Loss before income taxes		(6,556)		(4,931)		(22,610)		(11,791)
Income tax expense		21		—		21		215

Net loss	Net loss	$	(6,577)	$	(4,931)	$	(22,631)	$	(12,006)	Net loss	$	(5,020)	$	(8,963)	$	(12,515)	$	(16,054)
Net loss per common share:	Net loss per common share:									Net loss per common share:
Basic		$	(0.14)	$	(0.11)	$	(0.48)	$	(0.26)
Diluted		$	(0.14)	$	(0.11)	$	(0.48)	$	(0.26)
Basic and diluted										Basic and diluted	$	(0.11)	$	(0.19)	$	(0.26)	$	(0.34)

Weighted-average common shares outstanding:	Weighted-average common shares outstanding:									Weighted-average common shares outstanding:
Basic		47,182		46,669		47,096		46,355
Diluted		47,182		46,669		47,096		46,355
Basic and diluted										Basic and diluted	47,572		47,117		47,480		47,052

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

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VERICEL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited, amounts in thousands)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Net loss	Net loss	$	(6,577)	$	(4,931)	$	(22,631)	$	(12,006)	Net loss	$	(5,020)	$	(8,963)	$	(12,515)	$	(16,054)
Other comprehensive loss:	Other comprehensive loss:									Other comprehensive loss:
Unrealized loss on investments		(291)		—		(992)		(37)
Unrealized gain (loss) on investments										Unrealized gain (loss) on investments	15		(242)		357		(701)
Comprehensive loss	Comprehensive loss	$	(6,868)	$	(4,931)	$	(23,623)	$	(12,043)	Comprehensive loss	$	(5,005)	$	(9,205)	$	(12,158)	$	(16,755)

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

Table of Contents

VERICEL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited, amounts in thousands)


		Common Stock			Accumulated Other Comprehensive Loss		Accumulated Deficit					Total Shareholders’ Equity			Common Stock				Accumulated Other Comprehensive Gain (Loss)			Accumulated Deficit			Total Shareholders’ Equity
		Shares	Amount								Shares					Amount
BALANCE, DECEMBER 31, 2021		46,880	$	553,902	$	(154)			$	(383,286)					$	170,462
BALANCE, DECEMBER 31, 2022														BALANCE, DECEMBER 31, 2022	47,253		$	593,245		$	(978)		$	(399,995)		$	192,272
Net loss	Net loss	—	—		—		(7,091)					(7,091)		Net loss	—		—		—			(7,495)			(7,495)
Stock-based compensation expense	Stock-based compensation expense	—	9,531		—		—					9,531		Stock-based compensation expense	—		8,731		—			—			8,731
Stock option exercises	Stock option exercises	125	1,155		—		—					1,155		Stock option exercises	132		2,009		—			—			2,009
Shares issued under the Employee Stock Purchase Plan	Shares issued under the Employee Stock Purchase Plan	9	310		—		—					310		Shares issued under the Employee Stock Purchase Plan	11		216		—			—			216
Issuance of stock for restricted stock unit vesting	Issuance of stock for restricted stock unit vesting	108	—		—		—					—		Issuance of stock for restricted stock unit vesting	183		—		—			—			—
Restricted stock withheld for employee tax remittance	Restricted stock withheld for employee tax remittance	(41)	(1,423)		—		—					(1,423)		Restricted stock withheld for employee tax remittance	(72)		(2,097)		—			—			(2,097)
Unrealized loss on investments		—	—		(459)		—					(459)
BALANCE, MARCH 31, 2022		47,081	$	563,475	$	(613)	$	(390,377)				$	172,485
Unrealized gain on investments														Unrealized gain on investments	—		—		342			—			342
BALANCE, MARCH 31, 2023														BALANCE, MARCH 31, 2023	47,507		$	602,104	$	(636)		$	(407,490)		$	193,978
Net loss	Net loss	—	—		—		(8,963)					(8,963)		Net loss	—		—		—			(5,020)			(5,020)
Stock-based compensation expense	Stock-based compensation expense	—	10,808		—		—					10,808		Stock-based compensation expense	—		8,761		—			—			8,761
Stock option exercises	Stock option exercises	32	428		—		—					428		Stock option exercises	68		889		—			—			889
Shares issued under the Employee Stock Purchase Plan	Shares issued under the Employee Stock Purchase Plan	10	318		—		—					318		Shares issued under the Employee Stock Purchase Plan	18		384		—			—			384
Issuance of stock for restricted stock unit vesting	Issuance of stock for restricted stock unit vesting	19	—		—		—					—		Issuance of stock for restricted stock unit vesting	26		—		—			—			—
Restricted stock withheld for employee tax remittance	Restricted stock withheld for employee tax remittance	(1)	(18)		—		—					(18)		Restricted stock withheld for employee tax remittance	(3)		(79)		—			—			(79)
Unrealized loss on investments		—	—		(242)		—					(242)
BALANCE, JUNE 30, 2022		47,141	$	575,011	$	(855)	$	(399,340)				$	174,816
Net loss		—	—		—		(6,577)					(6,577)
Stock-based compensation expense		—	9,104		—		—					9,104
Stock option exercises		41	498		—		—					498
Shares issued under the Employee Stock Purchase Plan		15	331		—		—					331
Issuance of stock for restricted stock unit vesting		6	—		—		—					—
Restricted stock withheld for employee tax remittance		(2)	(44)		—		—					(44)
Unrealized loss on investments		—	—		(291)		—					(291)
BALANCE, SEPTEMBER 30, 2022		47,201	$	584,900	$	(1,146)	$	(405,917)				$	177,837
Unrealized gain on investments														Unrealized gain on investments	—		—		15			—			15
BALANCE, JUNE 30, 2023														BALANCE, JUNE 30, 2023	47,616		$	612,059	$	(621)		$	(412,510)		$	198,928

~~Table of Contents~~


		Common Stock			Accumulated Other Comprehensive Income (Loss)				Accumulated Deficit					Total Shareholders’ Equity			Common Stock				Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Shareholders’ Equity
		Shares	Amount										Shares					Amount
BALANCE, DECEMBER 31, 2020		45,804	$	510,061			$	14			$	(375,815)					$	134,260
BALANCE, DECEMBER 31, 2021																BALANCE, DECEMBER 31, 2021	46,880		$	553,902		$	(154)		$	(383,286)		$	170,462
Net loss	Net loss	—	—		—				(3,289)					(3,289)		Net loss	—		—		—			(7,091)			(7,091)
Stock-based compensation expense	Stock-based compensation expense	—	7,019		—				—					7,019		Stock-based compensation expense	—		9,531		—			—			9,531
Stock option exercises	Stock option exercises	359	3,532		—				—					3,532		Stock option exercises	125		1,155		—			—			1,155
Shares issued under the Employee Stock Purchase Plan	Shares issued under the Employee Stock Purchase Plan	14	249		—				—					249		Shares issued under the Employee Stock Purchase Plan	9		310		—			—			310
Issuance of stock for restricted stock unit vesting	Issuance of stock for restricted stock unit vesting	76	—		—				—					—		Issuance of stock for restricted stock unit vesting	108		—		—			—			—
Restricted stock withheld for employee tax remittance	Restricted stock withheld for employee tax remittance	(28)	(1,501)		—				—					(1,501)		Restricted stock withheld for employee tax remittance	(41)		(1,423)		—			—			(1,423)
Unrealized loss on investments	Unrealized loss on investments	—	—		(61)				—					(61)		Unrealized loss on investments	—		—		(459)			—			(459)
BALANCE, MARCH 31, 2021		46,225	$	519,360	$	(47)			$	(379,104)				$	140,209
BALANCE, MARCH 31, 2022																BALANCE, MARCH 31, 2022	47,081		$	563,475	$	(613)		$	(390,377)		$	172,485
Net loss	Net loss	—	—		—				(3,786)					(3,786)		Net loss	—		—		—			(8,963)			(8,963)
Stock-based compensation expense	Stock-based compensation expense	—	10,866		—				—					10,866		Stock-based compensation expense	—		10,808		—			—			10,808
Stock option exercises	Stock option exercises	330	3,531		—				—					3,531		Stock option exercises	32		428		—			—			428
Shares issued under the Employee Stock Purchase Plan	Shares issued under the Employee Stock Purchase Plan	13	309		—				—					309		Shares issued under the Employee Stock Purchase Plan	10		318		—			—			318
Issuance of stock for restricted stock unit vesting	Issuance of stock for restricted stock unit vesting	12	—		—				—					—		Issuance of stock for restricted stock unit vesting	19		—		—			—			—
Restricted stock withheld for employee tax remittance	Restricted stock withheld for employee tax remittance	(1)	(61)		—				—					(61)		Restricted stock withheld for employee tax remittance	(1)		(18)		—			—			(18)
Unrealized gain on investments		—	—		24				—					24
BALANCE, JUNE 30, 2021		46,579	$	534,005	$	(23)			$	(382,890)				$	151,092
Net loss		—	—		—				(4,931)					(4,931)
Stock-based compensation expense		—	8,596		—				—					8,596
Stock option exercises		176	1,676		—				—					1,676
Shares issued under the Employee Stock Purchase Plan		9	404		—				—					404
Issuance of stock for restricted stock unit vesting		4	—		—				—					—
Restricted stock withheld for employee tax remittance		(1)	(57)		—				—					(57)
BALANCE, SEPTEMBER 30, 2021		46,767	$	544,624	$	(23)			$	(387,821)				$	156,780
Unrealized loss on investments																Unrealized loss on investments	—		—		(242)			—			(242)
BALANCE, JUNE 30, 2022																BALANCE, JUNE 30, 2022	47,141		$	575,011	$	(855)		$	(399,340)		$	174,816

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

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VERICEL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, amounts in thousands)


		Nine Months Ended September 30,					Six Months Ended June 30,
		2022		2021			2023		2022
Operating activities:	Operating activities:					Operating activities:
Net loss	Net loss	$	(22,631)	$	(12,006)	Net loss	$	(12,515)	$	(16,054)
Adjustments to reconcile net loss to net cash flows from operating activities:	Adjustments to reconcile net loss to net cash flows from operating activities:					Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization expense	Depreciation and amortization expense	2,942		2,185		Depreciation and amortization expense	2,329		1,928
Stock-based compensation expense	Stock-based compensation expense	29,443		26,481		Stock-based compensation expense	17,492		20,339
Amortization of premiums and discounts on marketable securities	Amortization of premiums and discounts on marketable securities	305		737		Amortization of premiums and discounts on marketable securities	(504)		302
Amortization of debt issuance costs	Amortization of debt issuance costs	36		—		Amortization of debt issuance costs	108		—

Non-cash lease cost		3,120		3,420
Non-cash lease costs						Non-cash lease costs	2,466		2,155
Other	Other	21		17		Other	17		16
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Inventory	Inventory	(3,348)		(3,703)		Inventory	2,103		(2,548)
Accounts receivable	Accounts receivable	3,141		5,594		Accounts receivable	8,220		3,773
Other current assets	Other current assets	(164)		(793)		Other current assets	(241)		(563)
Accounts payable	Accounts payable	(37)		(672)		Accounts payable	956		1,152
Accrued expenses	Accrued expenses	(97)		(361)		Accrued expenses	(2,219)		(1,912)
Operating lease liabilities	Operating lease liabilities	(2,019)		(2,410)		Operating lease liabilities	(184)		(1,977)

Other non-current assets and liabilities, net						Other non-current assets and liabilities, net	28		—
Net cash provided by operating activities	Net cash provided by operating activities	10,712		18,489		Net cash provided by operating activities	18,056		6,611
Investing activities:	Investing activities:					Investing activities:
Purchases of investments	Purchases of investments	(43,950)		(49,375)		Purchases of investments	(28,537)		(34,948)
Sales and maturities of investments	Sales and maturities of investments	35,944		50,913		Sales and maturities of investments	42,038		26,344
Expenditures for property and equipment	Expenditures for property and equipment	(6,471)		(6,924)		Expenditures for property and equipment	(5,609)		(5,062)
Net cash used in investing activities		(14,477)		(5,386)
Purchases of intangible assets						Purchases of intangible assets	(7,500)		—
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	392		(13,666)
Financing activities:	Financing activities:					Financing activities:
Net proceeds from common stock issuance	Net proceeds from common stock issuance	3,040		9,701		Net proceeds from common stock issuance	3,498		2,211
Debt issuance costs		(1,076)		—

Payments on employee’s behalf for taxes related to vesting of restricted stock unit awards	Payments on employee’s behalf for taxes related to vesting of restricted stock unit awards	(1,485)		(1,619)		Payments on employee’s behalf for taxes related to vesting of restricted stock unit awards	(2,176)		(1,441)
Other	Other	(39)		(252)		Other	(20)		(18)
Net cash provided by financing activities	Net cash provided by financing activities	440		7,830		Net cash provided by financing activities	1,302		752
Net (decrease) increase in cash, cash equivalents, and restricted cash		(3,325)		20,933
Net increase (decrease) in cash, cash equivalents, and restricted cash						Net increase (decrease) in cash, cash equivalents, and restricted cash	19,750		(6,303)
Cash, cash equivalents, and restricted cash at beginning of period	Cash, cash equivalents, and restricted cash at beginning of period	68,541		33,831		Cash, cash equivalents, and restricted cash at beginning of period	51,067		68,541
Cash, cash equivalents, and restricted cash at end of period	Cash, cash equivalents, and restricted cash at end of period	$	65,216	$	54,764	Cash, cash equivalents, and restricted cash at end of period	$	70,817	$	62,238

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VERICEL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(Unaudited, amounts in thousands)


		Nine Months Ended September 30,					Six Months Ended June 30,
		2022		2021			2023		2022
Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Non-cash information:	Non-cash information:					Non-cash information:
Right-of-use asset and lease liability recognized	Right-of-use asset and lease liability recognized	$	137	$	45	Right-of-use asset and lease liability recognized	$	35,976	$	—
Additions to property and equipment included in accounts payable	Additions to property and equipment included in accounts payable	482		85		Additions to property and equipment included in accounts payable	4,321		869
Restricted stock held for employee tax remittance included in accounts payable		—		57


		As of September 30,					Six Months Ended June 30,
		2022		2021			2023		2022
Reconciliation of amounts within the condensed consolidated balance sheets:	Reconciliation of amounts within the condensed consolidated balance sheets:					Reconciliation of amounts within the condensed consolidated balance sheets:
Cash and cash equivalents	Cash and cash equivalents	$	65,216	$	54,553	Cash and cash equivalents	$	43,023	$	56,054
Restricted cash	Restricted cash	—		211		Restricted cash	27,794		6,184
Total cash, cash equivalents, and restricted cash at end of period	Total cash, cash equivalents, and restricted cash at end of period	$	65,216	$	54,764	Total cash, cash equivalents, and restricted cash at end of period	$	70,817	$	62,238

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

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VERICEL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization

Vericel Corporation, a Michigan corporation (together with its consolidated subsidiaries referred to herein as the Company, or Vericel), was incorporated in March 1989 and began employee-based operations in 1991. The Company is a fully-integrated, commercial-stage biopharmaceutical company and is a leader in advanced therapies for the sports medicine and severe burn care markets. Vericel currently markets ~~two cell therapy~~three commercial-stage products in the U.S., MACI®~~(autologous~~, Epicel® and NexoBrid®.

MACI (autologous cultured chondrocytes on porcine collagen membrane) ~~and Epicel~~® ~~(cultured epidermal autografts).~~

~~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. Epicel (cultured epidermal autografts) is 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 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 ~~North American rights to~~ NexoBrid,®, granting a ~~registration-stage~~license for commercial use in the U.S. NexoBrid is a topically-administered biological ~~orphan~~ product ~~designed~~containing proteolytic enzymes and is indicated for the ~~debridement~~removal of ~~severe~~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 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 ~~U.S. Food and Drug Administration (“FDA”)~~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,~~On May 11, 2023, the ~~World~~U.S. Department of Health ~~Organization declared~~and Human Services announced the ~~spread~~expiration of ~~a novel strain of coronavirus (“COVID-19”) to be a pandemic. This pandemic has contributed to an economic downturn on a global scale, as well as significant volatility in~~ the ~~financial markets. Since~~federal Public Health Emergency for COVID-19. At this juncture, the pandemic’s ~~inception, there has been significant volatility in our~~effects on the Company’s business and results of operations onhave largely moderated and we have begun to see a ~~quarterly basis due~~return to more normal operations. Should a resurgence of COVID-19 occur, or new virus variants emerge, it could result in additional disruptions that could impact the ~~widespread~~Company’s business and operations in the future, including U.S. hospital or surgical center staffing shortages, periodic cancellation or delay of elective MACI surgical procedures, ~~throughout the U.S., staffing shortages and our ability to access customers.~~

At the outset of the pandemic, the Company put in place a comprehensive workplace protection plan, which instituted protective measures in response to the spread of the COVID-19 virus. Vericel’s workplace protection plan has closely followed guidance issued by the Centers for Disease Control and Prevention (“CDC”) and has complied with applicable federal and state law. To date, Vericel has been successful in sustaining its operations and providing MACI and Epicel to patients in need. The Company continues to review its policies and procedures regularly, including its workplace protection plan, as the pandemic evolves and the Company may take additional actions to the extent required.

The Company continues to manufacture MACI and Epicel and is maintaining a significant safety stock of all key raw materials. Vericel does not expect that current global supply chain interruptions will impact its ongoing manufacturing operations. Additionally, although the Company has not experienced material shipping delays, significant disruption of air travel could result in the inability to deliver MACI or Epicel final products to customer sites within appropriate timeframes, which could adversely impact the Company’s business. Currently, the Company is not aware of COVID-19 related impacts on its distributors, operations or third-party service providers’ ability to manage patient cases.

The Company believes that a resurgence of COVID-19 because of emerging variants or other factors could result in additional disruptions that could impact our business and operations in the future, including intermittent restrictions on the ability of ~~the Company’s~~Company personnel to travel and access customers for selling, marketing, training, ~~and~~ 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 the Company’s capacity to manufacture, sell and support the use of ~~our~~its products.

The War in Ukraine

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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 ~~unaudited~~ condensed consolidated financial statements.

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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~~June 30, ~~2022,~~2023, the Company had an accumulated deficit of $~~405.9~~412.5 million and had a net loss of ~~$22.6~~$12.5 million during the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023. The Company had cash and cash equivalents of ~~$65.2~~$43.0 million and investments of ~~$67.5~~$75.8 million as of ~~September~~June 30, ~~2022.~~2023. The Company expects that cash from the sales of its products and existing cash, cash equivalents, investments, and available borrowing capacity will be sufficient to support the Company’s current operations through at least 12 months from the issuance of these condensed consolidated financial statements. ~~The effects of~~If revenues decline for a sustained period, the COVID-19 pandemic continue to evolve, however. To the extent the U.S. experiences a worsening in COVID-19 infections or additional virus variants emerge that result in more serious disease or limit the effectiveness of existing vaccines, subsequent healthcare measures – to include the postponement or cessation of elective and other surgical procedures – may cause the Company to experience a reduction in business and resulting revenue. This, consequently, may result in irrecoverable losses of customers and significantly impact the Company’s long-term liquidity, potentially requiring the Company to engage in layoffs, furloughs and/or reductions in salaries. The Company also may need to access additional capital; however, the Company may not be able to obtain additional financing on acceptable terms or at ~~all, particularly in light of the impact of COVID-19 on the global economy and financial markets.~~all. The terms of any additional financing may adversely affect the holdings or the rights of the Company’s shareholders.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash, cash equivalents and investments in marketable debt securities. The Company may maintain deposits in financial institutions in excess of the insurance coverage offered by the Federal Deposit Insurance Corporation, the loss of which could have a negative effect on our operations and liquidity. The Company believes that it is not exposed to significant credit risk as its 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

The accompanying c~~ondensed~~condensed consolidated financial statements of Vericel are unaudited and have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates, judgments, and assumptions that may affect the reported amounts of assets, liabilities, equity, revenue 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 which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amount of revenue and expenses. The full extent to which the COVID-19 pandemic will continue to directly or indirectly impact the Company’s business, results of operations and financial condition, including sales, expenses, reserves and allowances, manufacturing, clinical trials, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning the COVID-19 pandemic and the actions taken to continue to contain or treat COVID-19, as well as the economic impact on its customers. The Company has made estimates of the impact of the COVID-19 pandemic within these financial statements and there may be changes to those estimates in future periods. Actual results may differ from these estimates. As of September 30, 2022, the Company has not recorded impairments to investments, inventory, other current assets or long-lived assets as a result of the COVID-19 pandemic.

The condensed consolidated balance sheet as of December 31, ~~2021~~2022 has been derived from the audited consolidated financial statements at that date, but does not include all the information and notes required by U.S. GAAP for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, as filed with the SEC on February ~~24, 2022~~23, 2023 (“Annual Report”).

Recent Accounting Pronouncements

No new accounting standards were adopted during the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~ 2023. The Company considers the applicability and impact of any recent Accounting Standards ~~Update~~Updates (“~~ASU”~~ASUs”) issued by the Financial Accounting Standards Board (“FASB”). Based on the assessment, the ~~ASU’s~~ASUs were determined to be either not applicable or are expected to have minimal impact on the ~~Company's~~Company’s condensed consolidated financial statements.

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3. Revenue

Revenue Recognition and ~~Net~~ Product Sales, Net

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

MACI Biopsy Kits

MACI biopsy kits are sold directly to hospitals and ambulatory surgical centers based on contracted rates 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 Company, which can later be used to manufacture a MACI implant. The ordering of the kit does not obligate the Company to manufacture an implant nor does the receipt of the cartilage tissue by the Company from the customer following biopsy. The customer’s order of an implant is separate from the process of ordering the biopsy kit. Therefore, the sale of 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 distribute MACI in a manner in which the Company retains the credit and collection risk from the end customer. The Company pays both specialty pharmacies a 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 program to manage patient cases and to ensure complete and correct billing information is provided to the insurers and hospitals. In addition, the Company also sells MACI directly to DMS Pharmaceutical Group, Inc.(“DMS”) for patients treated at military treatment facilities. The sales directly to DMS are made at a contracted rate.

Prior authorization and 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 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 ~~which~~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 of 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 collections for these transactions using the portfolio approach. The Company records a reduction to revenue at the time of 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 ~~account receivables~~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 ~~September~~June 30, ~~2022.~~2023. The total allowance for uncollectible consideration as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 was ~~$6.3~~$5.3 million and ~~$7.0~~$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 ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023.

Changes in estimates of the ~~transaction price~~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

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has no contractual right to receive payment until the product is delivered to the hospital. The Company recognizes product revenue from sales 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, ~~since~~beginning in 2020 the U.S. Biomedical Advanced Research and Development Authority (“BARDA”) ~~has been procuring~~procured quantities of NexoBrid from MediWound, for use as a ~~medial~~medical countermeasure in the event of a mass casualty emergency in the U.S. involving thermal burns. ~~That~~The initial, quarterly, procurement of NexoBrid by BARDA under its agreement with MediWound completed during the third quarter of ~~2022, although BARDA holds an option to procure additional quantities~~2022. The Company recognized revenue based on a percentage of gross profits for sales of NexoBrid ~~for emergency response preparedness~~to BARDA upon delivery, at which time BARDA was in control of the ~~future.~~product. As of ~~September~~June 30, ~~2022,~~2023, the Company did not hold a direct contract or distribution agreement with BARDA, or take title to the product procured by BARDA. ~~The~~

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 ~~recognizes~~would recognize revenue based on a percentage of gross profits, ~~for~~minus a percentage of net sales, on any sales of NexoBrid directly to BARDA upon delivery, ~~at which time BARDA is in control of the product.~~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:~~revenue for the periods indicated:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
Revenue by product (in thousands)	Revenue by product (in thousands)	2022		2021		2022		2021		Revenue by product (in thousands)	2023		2022		2023		2022
MACI implants and kits	MACI implants and kits									MACI implants and kits
Implants based on contracted rates sold through a specialty pharmacy (a)		$	19,377	$	15,149	$	50,718	$	46,547
Implants subject to third-party reimbursement sold through a specialty pharmacy (b)		4,207		3,463		12,015		11,357
Implants based on contracted rate sold through a specialty pharmacy (a)										Implants based on contracted rate sold through a specialty pharmacy (a)	$	22,377	$	15,714	$	45,331	$	31,009
Implants subject to third party reimbursement sold through a specialty pharmacy (b)										Implants subject to third party reimbursement sold through a specialty pharmacy (b)	4,015		4,295		8,004		7,803
Implants sold direct based on contracted rates (c)	Implants sold direct based on contracted rates (c)	6,457		3,895		17,846		12,876		Implants sold direct based on contracted rates (c)	7,252		5,756		14,222		11,390
Implants sold direct subject to third-party reimbursement (d)	Implants sold direct subject to third-party reimbursement (d)	898		644		2,331		1,901		Implants sold direct subject to third-party reimbursement (d)	1,045		570		1,538		1,441
Biopsy kits - direct bill	Biopsy kits - direct bill	498		577		1,565		1,647		Biopsy kits - direct bill	528		545		1,062		1,066
Change in estimates related to prior periods (e)	Change in estimates related to prior periods (e)	(428)		153		1,142		(125)		Change in estimates related to prior periods (e)	1,119		1,733		369		1,898
Total MACI implants and kits	Total MACI implants and kits	31,009		23,881		85,617		74,203		Total MACI implants and kits	36,336		28,613		70,526		54,607
Epicel	Epicel									Epicel
Direct bill (hospital)	Direct bill (hospital)	7,317		9,837		25,387		31,822		Direct bill (hospital)	9,586		8,213		16,413		18,071

NexoBrid revenue (f)	NexoBrid revenue (f)	225		788		667		2,568		NexoBrid revenue (f)	—		220		—		442
Total revenue	Total revenue	$	38,551	$	34,506	$	111,671	$	108,593	Total revenue	$	45,922	$	37,046	$	86,939	$	73,120
																			(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 or AllCare whereby such specialty pharmacy does not have a direct contract with the underlying payer. The amount of reimbursement is established based on publicly available rates, fee schedules or past payer precedents.
(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.										(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 expectation 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.
(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.										(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).
(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).										(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).

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~~Concentration of Credit Risk~~

For the three and nine months ended September 30, 2022, there were no customers with a total revenue concentration greater than 10%. For the three and nine months ended September 30, 2021, the Company’s total revenue concentration from an Epicel customer was 9% and 11%, respectively. For the Company’s total accounts receivable balances, there were no customers as of September 30, 2022 or December 31, 2021, with a concentration greater than 10%.

4. Selected Balance Sheet Components

Inventory

Inventory asconsisted of ~~September 30, 2022 and December 31, 2021:~~the following:


(In thousands)	June 30, 2023		December 31, 2022
Raw materials	$	12,847	$	15,101
Work-in-process	863		832
Finished goods	173		53
Total inventory	$	13,883	$	15,986

(In thousands) September 30, 2022 December 31, 2021
Raw materials $ 15,797 $ 12,676
Work-in-process 883 644
Finished goods 49 61
Total inventory $ 16,729 $ 13,381

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Property and Equipment

Property and Equipment, net asconsisted of ~~September 30, 2022 and December 31, 2021:~~the following:


(In thousands)	(In thousands)	September 30, 2022		December 31, 2021		(In thousands)	June 30, 2023		December 31, 2022
Machinery and equipment	Machinery and equipment	$	4,697	$	4,522	Machinery and equipment	$	5,544	$	5,041
Furniture, fixtures and office equipment	Furniture, fixtures and office equipment	1,710		1,551		Furniture, fixtures and office equipment	1,710		1,710
Computer equipment and software	Computer equipment and software	8,112		7,769		Computer equipment and software	8,308		8,224
Leasehold improvements	Leasehold improvements	13,674		10,617		Leasehold improvements	14,896		13,689
Construction in process	Construction in process	4,943		3,097		Construction in process	13,148		5,438
Financing right-of-use lease	Financing right-of-use lease	46		74		Financing right-of-use lease	18		37
Total property and equipment, gross	Total property and equipment, gross	33,182		27,630		Total property and equipment, gross	43,624		34,139
Less accumulated depreciation	Less accumulated depreciation	(17,264)		(14,322)		Less accumulated depreciation	(20,216)		(18,302)
Total property and equipment, net	Total property and equipment, net	$	15,918	$	13,308	Total property and equipment, net	$	23,408	$	15,837

Depreciation expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was $1.0 million and ~~$2.9~~$2.0 million, respectively, and ~~$0.7~~$1.1 million and ~~$2.2~~$1.9 million, respectively, for the same periods in ~~2021.~~2022.

Intangible Assets

Intangible assets, net consisted of the following:


			June 30, 2023						December 31, 2022
(In thousands)	Useful Life (in years)	Amortization Method	Cost		Accumulated Amortization		Net		Cost		Accumulated Amortization		Net
NexoBrid license	12	Straight-line	$	7,500	$	(312)	$	7,188	$	7,500	$	—	$	7,500

Amortization expense for the three and six months ended June 30, 2023 was $0.2 million and $0.3 million, respectively.

Future amortization expense of intangible assets as of June 30, 2023 is estimated to be as follows:


(In thousands)	Amount
Remainder of 2023	$	313
2024	625
2025	625
2026	625
2027	625
Thereafter	4,375
Total	$	7,188

Accrued Expenses

Accrued Expenses asconsisted of ~~September 30, 2022 and December 31, 2021 are as follows:~~the following:


(In thousands)	(In thousands)	September 30, 2022		December 31, 2021		(In thousands)	June 30, 2023		December 31, 2022
Bonus related compensation		$	5,472	$	6,305
Employee related accruals		2,897		3,616
Bonus-related compensation						Bonus-related compensation	$	5,090	$	7,132
Employee-related accruals						Employee-related accruals	3,436		3,101
Insurance reimbursement-related liabilities	Insurance reimbursement-related liabilities	5,417		3,973		Insurance reimbursement-related liabilities	5,160		5,030
Other accrued expenses	Other accrued expenses	162		151		Other accrued expenses	285		927
Total accrued expenses	Total accrued expenses	$	13,948	$	14,045	Total accrued expenses	$	13,971	$	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, ~~vehicles~~ and ~~computer~~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.

In April 2023, in connection with the Burlington Lease, the Company 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, 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 are 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 Company anticipates funding the remaining 50% of its required cost amount in late 2023 or early 2024.

The term of the Burlington Lease ~~is currently expected to begin in~~began on June 1, 2023, ~~12 months following the landlord’s commencement of construction of the core and shell of the building in which the Premises are located~~ (the “Commencement Date”)., when the Company gained control of and commenced tenant improvement work at the Premises. 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 ~~$25.1 million in total,~~$24.4 million. The tenant improvement allowance will be used towards the design and construction of ~~certain~~the tenant improvements made to the Premises, subject to the terms set forth in the Burlington Lease.

The Company iswas not involved in the initial construction of the core and shell of the ~~building and will record~~building. On June 1, 2023, the ~~lease liability and right-of-use asset on its condensed consolidated balance sheet when the construction is substantially completed and it obtains~~Company gained control of the Premises ~~which~~to begin construction of its tenant improvements. As such, the corresponding right-of-use asset and lease liability of $35.5 million was recorded on the Company’s condensed consolidated balance sheet. As there was not an implicit rate within the lease available, the Company estimated the incremental borrowing rate of 7.7%, based on the rate of interest the Company would have to pay to borrow a similar amount on a collateralized basis over a similar term. The lease term of 13.1 years does not include the lease extension option, as the Company is ~~currently expected~~not reasonably certain to ~~be on or around the Commencement Date.~~exercise that option.

In 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 and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, lease expense of less than $0.1 million was recorded related to short-term leases. For the three and ~~nine~~six months ended~~September~~June 30, ~~2022~~2023, the Company recognized ~~$1.7~~$2.3 million and ~~$5.2~~$4.0 million, respectively, of operating lease expense and ~~$1.8~~$1.7 million and ~~$5.5~~$3.5 million, respectively, for the same ~~periods~~period in ~~2021~~2022. For the three and ~~nine~~six months ended~~September~~June 30, ~~2022~~2023 and 2022,~~2021,~~ the Company recognized less than $0.1 million of financing lease expense.

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Operating and finance lease assets and liabilities are as follows:


(In thousands)	(In thousands)	Classification	September 30, 2022		December 31, 2021		(In thousands)	Classification	June 30, 2023		December 31, 2022
Assets	Assets						Assets
Operating	Operating	Right-of-use assets	$	42,628	$	45,720	Operating	Right-of-use assets	$	75,063	$	41,535
Finance	Finance	Property and equipment, net	46		73		Finance	Property and equipment, net	18		37
Total leased assets	Total leased assets		$	42,674	$	45,793	Total leased assets		$	75,081	$	41,572
Liabilities	Liabilities						Liabilities
Current	Current						Current
Operating	Operating	Current portion of operating lease liabilities	$	4,902	$	2,950	Operating	Current portion of operating lease liabilities	$	7,218	$	4,302
Finance	Finance	Other current liabilities	41		41		Finance	Other current liabilities	21		41

Non-current	Non-current						Non-current
Operating	Operating	Operating lease liabilities	43,176		47,147		Operating	Operating lease liabilities	$	76,144	$	43,268
Finance		Other long-term liabilities	—		44

Total leased liabilities	Total leased liabilities		$	48,119	$	50,182	Total leased liabilities		$	83,383	$	47,611

~~Table~~Future minimum lease payments under non-cancellable leases as of ~~Contents~~June 30, 2023 are as follows:


(In thousands)	Operating Leases		Finance Leases		Total
Remainder of 2023	$	3,576	$	21	$	3,597
2024	10,743		—		10,743
2025	13,677		—		13,677
2026	13,969		—		13,969
2027	14,351		—		14,351
Thereafter	103,229		—		103,229
Total lease payments	$	159,545	$	21	$	159,566
Less: tenant improvement allowances	(25,167)		—		(25,167)
Less: interest	(51,016)		—		(51,016)
Total leased liabilities	$	83,362	$	21	$	83,383

6. ~~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 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.

~~Stock Compensation Expense~~

~~Non-cash stock-based compensation expense (service-based stock options, restricted stock units and employee stock purchase plan) is summarized in the following table:~~

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2022 2021 2022 2021
Cost of product sales $ 840 $ 1,114 $ 2,992 $ 3,313
Research and development 1,273 1,126 4,143 3,222
Selling, general and administrative 6,991 6,356 22,308 19,946
Total non-cash stock-based compensation expense $ 9,104 $ 8,596 $ 29,443 $ 26,481

~~Service-Based Stock Options~~

During the three and nine months ended September 30, 2022, the Company granted service-based options to purchase common stock of 42,890 and 1,206,539, respectively, and 189,882 and 1,663,954, respectively, for the same periods in 2021. The weighted-average grant-date fair value of service-based options granted during the three and nine months ended September 30, 2022 was $15.58 and $20.55 per option, respectively, and $35.65 and $33.03, respectively, for the same periods in 2021.

~~Restricted Stock Units~~

During the three and nine months ended September 30, 2022, the Company granted 16,734 and 399,502 restricted stock units, respectively, and 22,310 and 263,364, respectively, for the same periods in 2021. The weighted-average grant-date fair value of restricted stock units granted during the three and nine months ended September 30, 2022 was $27.52 and $34.35 per unit, respectively, and $54.35 and $52.19, respectively, for the same periods in 2021.

7. 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 as of September 30, 2022 and December 31, 2021:~~securities:


	June 30, 2023
			Gross Unrealized						Estimated Fair Value
(In thousands)	Amortized Cost		Gains		Losses		Credit Losses
Commercial paper	$	12,494	$	—	$	(15)	$	—	$	12,479
Corporate notes	43,864		—		(492)		—		43,372
U.S. government securities	2,476		—		(1)		—		2,475
U.S. government agency bonds	17,583		—		(116)		—		17,467
	$	76,417	$	—	$	(624)	$	—	$	75,793
Classified as:
Short-term investments									$	54,808
Long-term investments									20,985
									$	75,793

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September 30, 2022
Gross Unrealized Estimated Fair Value
(In thousands) Amortized Cost Gains Losses Credit Losses
Commercial paper $ 14,736 $ — $ (95) $ — $ 14,641
Corporate notes 50,893 — (1,048) — 49,845
U.S. government agency bonds 2,979 — (3) — $ 2,977
$ 68,608 $ — $ (1,146) $ — $ 67,463
Classified as:
Short-term investments $ 45,724
Long-term investments 21,739
$ 67,463


		December 31, 2021											December 31, 2022
				Gross Unrealized						Estimated Fair Value					Gross Unrealized						Estimated Fair Value
(In thousands)	(In thousands)	Amortized Cost		Gains		Losses		Credit Losses				(In thousands)	Amortized Cost		Gains		Losses		Credit Losses
Commercial paper	Commercial paper	$	10,243	$	—	$	(12)	$	—	$	10,231	Commercial paper	$	15,707	$	—	$	(101)	$	—	$	15,606
Corporate notes	Corporate notes	50,666		—		(142)		—		50,524		Corporate notes	52,159		—		(831)		—		51,328
		$	60,909	$	—	$	(154)	$	—	$	60,755
U.S. government agency bonds												U.S. government agency bonds	21,545		—		(46)		—		21,499
													$	89,411	$	—	$	(978)	$	—	$	88,433
Classified as:	Classified as:											Classified as:
Short-term investments	Short-term investments									$	35,068	Short-term investments									$	68,471
Long-term investments	Long-term investments									25,687		Long-term investments									19,962
										$	60,755										$	88,433

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~,2022, all marketable securities held by the Company had remaining contractual maturities of three years or less. There have been no impairments of the Company’s assets measured and carried at fair value during the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021.~~2022.

8.7. 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;

•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 were no transfers into or out of Level 3 from December 31, ~~2021~~2022 to ~~September~~June 30, ~~2022.~~2023.

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

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		September 30, 2022								December 31, 2021									June 30, 2023								December 31, 2022
				Fair Value Measurement Category								Fair Value Measurement Category									Fair value measurement category								Fair value measurement category
(In thousands)	(In thousands)	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		(In thousands)	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets:	Assets:																	Assets:
Money market funds	Money market funds	$	21,676	$	21,676	$	—	$	—	$	1,258	$	1,258	$	—	$	—	Money market funds	$	7,620	$	7,620	$	—	$	—	$	1,262	$	1,262	$	—	$	—
Commercial paper ~~(a)~~	Commercial paper ~~(a)~~	20,931		—		20,931		—		18,229		—		18,229		—		Commercial paper ~~(a)~~	12,479		—		12,479		—		15,606		—		15,606		—
Corporate notes	Corporate notes	49,845		—		49,845		—		50,524		—		50,524		—		Corporate notes	43,372		—		43,372		—		51,328		—		51,328		—
U.S. government agency bonds		2,977		—		2,977		—		—		—		—		—
U.S. government securities (a)																		U.S. government securities (a)	22,382		—		22,382		—		—		—		—		—
U.S. government agency bonds (b)																		U.S. government agency bonds (b)	17,467		—		17,467		—		27,976		—		27,976		—
		$	95,429	$	21,676	$	73,753	$	—	$	70,011	$	1,258	$	68,753	$	—		$	103,320	$	7,620	$	95,700	$	—	$	96,172	$	1,262	$	94,910	$	—

(a) Approximately ~~$6.3 million and $8.0~~$19.9 million of ~~commercial paper~~U.S. government securities had an original maturity of 90 days or less and ~~was~~were recorded as a cash equivalent as of ~~September~~June 30, ~~2022~~2023.

(b) 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, ~~2021.~~2022.

The fair values of the cash 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.

1817

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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 Revolving 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 Agreement), the Company must prepay the Revolving Loans in an amount equal to such excess. As of ~~September~~June 30, ~~2022,~~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 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 (collectively the “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.

Stock Compensation Expense

Non-cash stock-based compensation expense (service-based stock options, restricted stock units and employee stock purchase plan) is summarized in the following table:

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	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2023		2022		2023		2022
Cost of product sales	$	796	$	1,035	$	1,681	$	2,153
Research and development	993		1,520		1,970		2,870
Selling, general and administrative	6,972		8,253		13,841		15,316
Total non-cash stock-based compensation expense	$	8,761	$	10,808	$	17,492	$	20,339

Service-Based Stock Options

During the three and six months ended June 30, 2023, the Company granted service-based options to purchase common stock of 67,760 and 535,717, respectively, and 170,060 and 1,163,649, respectively, for the same periods in 2022. The weighted-average grant-date fair value of service-based options granted during the three and six months ended June 30, 2023 was $19.30 and $18.41 per option, respectively, and $19.25 and $20.74, respectively, for the same periods in 2022.

Restricted Stock Units

During the three and six months ended June 30, 2023, the Company granted 32,816 and 529,321 restricted stock units, respectively, and 39,746 and 382,768, respectively, for the same periods in 2022. The weighted-average grant-date fair value of restricted stock units granted during the three and six months ended June 30, 2023 was $32.16 and $29.97 per unit, respectively, and $31.94 and $34.65, respectively, for the same periods in 2022.

10. Net Loss Per Common Share

A summary of net loss per common share is presented below:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(Amounts in thousands, except per share amounts)	(Amounts in thousands, except per share amounts)	2022		2021		2022		2021		(Amounts in thousands, except per share amounts)	2023		2022		2023		2022
Net loss	Net loss	$	(6,577)	$	(4,931)	$	(22,631)	$	(12,006)	Net loss	$	(5,020)	$	(8,963)	$	(12,515)	$	(16,054)

Basic weighted-average common shares outstanding	Basic weighted-average common shares outstanding	47,182		46,669		47,096		46,355		Basic weighted-average common shares outstanding	47,572		47,117		47,480		47,052
Effect of dilutive stock options and restricted stock units	Effect of dilutive stock options and restricted stock units	—		—		—		—		Effect of dilutive stock options and restricted stock units	—		—		—		—
Diluted weighted-average common shares outstanding	Diluted weighted-average common shares outstanding	47,182		46,669		47,096		46,355		Diluted weighted-average common shares outstanding	47,572		47,117		47,480		47,052

Basic loss per common share	Basic loss per common share	$	(0.14)	$	(0.11)	$	(0.48)	$	(0.26)	Basic loss per common share	$	(0.11)	$	(0.19)	$	(0.26)	$	(0.34)
Diluted loss per common share	Diluted loss per common share	$	(0.14)	$	(0.11)	$	(0.48)	$	(0.26)	Diluted loss per common share	$	(0.11)	$	(0.19)	$	(0.26)	$	(0.34)

Anti-dilutive shares excluded from diluted net loss per common share:	Anti-dilutive shares excluded from diluted net loss per common share:									Anti-dilutive shares excluded from diluted net loss per common share:
Stock options	Stock options	6,536		5,852		6,536		5,852		Stock options	6,876		6,586		6,876		6,586
Restricted stock units	Restricted stock units	633		412		633		412		Restricted stock units	939		636		939		636

11. NexoBrid License and Supply Agreements

On May 6, 2019, the Company entered into exclusive license and supply agreements with MediWound to commercialize NexoBrid ~~and any improvements to NexoBrid~~ in North America. The FDA subsequently approved a Biologics License Application (“BLA”) for the product on December 28, 2022. NexoBrid is a topically-administered biological product, ~~that enzymatically removes nonviable burn tissue, or~~which contains proteolytic enzymes and is indicated for the removal of eschar in ~~patients~~adults with deep ~~partial and full-thickness~~partial-thickness and/or full thickness thermal burns. On June 29, 2021, the Company announced that MediWound had received a complete response letter (“CRL”) from the U.S. Food & Drug Administration (“FDA”) with respect to a biologics license application (“BLA”), which MediWound had previously submitted to the FDA seeking marketing approval for the product in the U.S. As part of the CRL, the FDA communicated to MediWound that it had completed its review of the BLA, as amended, and had determined that it could not approve the BLA in its then form. The Company has continued to work with MediWound, BARDA and the FDA to address the issues identified in the CRL. On July 1, 2022, the Company and MediWound submitted a BLA resubmission to the FDA to address and respond to the issues identified by the FDA in the CRL. Subsequently, the FDA informed the Company that it has accepted the resubmission for review and has established a Prescription Drug User Fee Act (“PDUFA”) date for completing that review of January 1, 2023.

Pursuant to the terms of the license agreement, iffollowing the ~~BLA is approved,~~FDA approval of NexoBrid, MediWound ~~will transfer~~transferred the BLA to Vericel ~~and Vericel will market NexoBrid in the U.S.~~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., EU and other international markets.

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In May 2019, the Company paid 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 NexoBrid in the U.S., as an intangible asset (see Note 4, “Selected Balance Sheet Components” for further details).

The Company is ~~also~~additionally obligated to pay MediWound ~~$7.5 million, which is contingent upon U.S. regulatory approval of the BLA for NexoBrid and~~ up to $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. As of ~~September~~June 30, ~~2022,~~2023, the sales milestone payments are not yet probable and therefore, not recorded as a liability. The Company also will pay MediWound tiered royalties on net sales ranging from mid-high single-digit to mid-teen percentages, subject to customary reductions.

Pursuant to the terms of the Company’s supply agreement with MediWound, MediWound will manufacture NexoBrid for the Company on a unit price basis, which may be increased pursuant to the terms of the supply 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. ~~After~~Under the ~~exclusivity period or upon~~ supply ~~failure,~~agreement, the Company ~~will be~~possesses the option to extend the initial term of the agreement by an additional 24 months, which it did in May 2022. Under the supply agreement, the Company is permitted to establish an alternate source of ~~supply.~~supply in certain circumstances, including the event of a supply failure.

~~Since~~Additionally, beginning in 2020 BARDA ~~has been procuring~~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. ~~That~~The initial, quarterly, procurement of NexoBrid by BARDA under its agreement with MediWound completed during the third quarter of ~~2022, although BARDA holds an option to procure additional~~

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~~quantities of NexoBrid in the future for emergency response preparedness.~~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. ~~If, in the future, BARDA procures NexoBrid directly from Vericel,~~As of June 30, 2023, the Company will pay a percentage of gross profits to MediWound on initial committed amounts and a royalty on any additional BARDA purchases of NexoBrid beyond the initial committed amount. As of September 30, 2022, the Company doesdid not hold a direct contract or distribution agreement with BARDA, or take title to the 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 will 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.

12. Commitments and Contingencies

From ~~time-to-time,~~time to time, the Company could be a party to various legal proceedings arising in the ordinary 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 Company 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 Company, could materially and adversely affect its financial condition or results of operations. If a matter is both probable to result in a material liability and the amount of loss can be reasonably estimated, the Company estimates and discloses the possible material loss or range of loss. If such loss is not probable or cannot be reasonably estimated, a liability is not recorded in its condensed consolidated financial statements.

As of ~~September~~June 30, ~~2022,~~2023, the Company ~~had~~has no material ongoing litigation in which the Company was a party or any material ongoing regulatory or other proceedings and had no knowledge of any investigations by government or regulatory authorities in which the Company is a target that could have a material adverse effect on its current business.

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

Overview

Vericel Corporation is a fully-integrated, commercial-stage biopharmaceutical company and a leader in advanced therapies for the sports medicine and severe burn care markets. We currently market two U.S. Food and Drug Administration (“FDA”) approved autologous cell therapy products and one FDA-approved specialty biologic product in the 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. Epicel® is a permanent skin replacement Humanitarian Use Device (“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”). We also hold an exclusive license from MediWound Ltd. (“MediWound”) for North American rights to NexoBrid®~~, a registration-stage biological orphan product designed for eschar removal or debridement of severe thermal burns. In 2020, MediWound submitted to~~ (anacaulase-bcdb). On December 28, 2022, the FDA approved a ~~biologics license application~~Biologics License Application (“BLA”) ~~seeking~~for NexoBrid, granting a license for commercial use in the ~~approval of~~U.S. NexoBrid is a topically-administered biological product containing proteolytic enzymes and is indicated for the ~~treatment~~removal of ~~adult patients suffering from~~eschar in adults with deep partial-thickness and/or ~~full-thickness~~full thickness thermal burns. ~~The FDA accepted~~Following NexoBrid’s approval, we are conducting cross-functional commercial launch activities for the ~~BLA for filing~~product, including education, training and ~~assigned a Prescription Drug User Fee Act (“PDUFA”) target date~~engagement activities and the deployment of June 29, 2021. Thereafter, on June 29, 2021, MediWound received a complete response letter (“CRL”) from the FDA regarding the BLA through which the FDA communicated to MediWound that it had completed its review of the BLA, as amended, and had determined that it could not approve the BLA in its then form.additional NexoBrid account managers. We have ~~continued~~received the first lot of NexoBrid finished product from MediWound for the U.S. commercial market, which currently is warehoused at our third-party logistics distributor. Although this NexoBrid finished product has met all required release criteria for distribution in the U.S., we are unable to ~~work~~release this product into the commercial channel at this time due to a deviation associated with a third-party testing lab used during MediWound’s manufacturing process. A detailed risk assessment has concluded that the deviation presents no incremental risk to the finished product’s quality and safety and we are actively engaged with MediWound ~~BARDA~~ and the FDA to address this matter. Although future manufacturing of NexoBrid for the ~~issues identified in~~U.S. market will not be impacted because the ~~CRL. On July 1, 2022, Vericel and~~at-issue test will be conducted directly by MediWound, ~~submitted a BLA resubmission to~~absent the FDA ~~seeking~~allowing the ~~potential approval~~commercial release of ~~NexoBrid. Subsequently,~~ the ~~FDA informed us that it~~finished product affected by the deviation, we expect to begin commercial sales of future NexoBrid lots during the first quarter of 2024. The FDA’s evaluation of the deviation will not affect the $3 million committed by BARDA for the replacement of NexoBrid previously procured for emergency response preparedness, which has ~~accepted the resubmission for review and has established a PDUFA date for completing that review of January 1, 2023.~~since expired.

COVID-19

~~In March 2020,~~On May 11, 2023, the ~~World~~U.S. Department of Health ~~Organization declared~~and Human Services announced the ~~spread~~expiration of ~~a novel strain of coronavirus (“COVID-19”) to be a pandemic. This pandemic has contributed to an economic downturn on a global scale, as well as significant volatility in~~ the ~~financial markets. Since~~federal Public Health Emergency for COVID-19. At this juncture, the pandemic’s ~~inception, there has been significant volatility in~~effects on our business and results of operations ~~on a quarterly basis due to the widespread~~have largely moderated and ~~periodic cancellation or delay of elective MACI surgical procedures throughout the U.S., staffing shortages and our ability to access customers.~~

At the outset of the pandemic, we put in place a comprehensive workplace protection plan, which instituted protective measures in response to the spread of the COVID-19 virus. Our workplace protection plan has closely followed guidance issued by the Centers for Disease Control and Prevention (“CDC”) and has complied with applicable federal and state law. To date, we have ~~been successful in sustaining our operations and providing MACI and Epicel~~begun to ~~patients in need. We continue~~see a return to ~~review our policies and procedures regularly, including our workplace protection plan, as the pandemic evolves and we may take additional actions to the extent required.~~

We continue to manufacture MACI and Epicel and are maintaining a significant safety stock of all key raw materials. We do not expect that current global supply chain interruptions will impact our ongoing manufacturingmore normal operations. Additionally, although we have not experienced material shipping delays, significant disruption of air travel could result in the inability to deliver MACI or Epicel final products to customer sites within appropriate timeframes, which could adversely impact our business. Currently, we are not aware of COVID-19 related impacts on our distributors, operations or third-party service providers’ ability to manage patient cases.

~~We believe that~~Should a resurgence of COVID-19 ~~because of emerging~~occur, or new virus variants ~~or other factors~~emerge, it could result in additional disruptions that could impact our business and operations in the future, including U.S. hospital or surgical center staffing shortages, periodic cancellation or delay of elective MACI surgical procedures, 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 ~~resulted in~~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 ~~unaudited~~ condensed consolidated financial statements.

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Manufacturing

We have a cell manufacturing facility in Cambridge, Massachusetts, which is used for U.S. manufacturing and distribution of MACI and Epicel. 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.

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On July 1, 2023, we renewed our long-term supply agreement with Matricel GmbH (“Matricel”) for the supply of ACI-Maix collagen membranes used in the manufacture of MACI (the “Matricel Supply Agreement”). In the event Matricel is unable to supply the membranes, we may license the technology and procure the membranes from another source. The Matricel Supply Agreement provides that Matricel shall supply the ACI-Maix membranes exclusively to us during the term of the agreement. The Matricel Supply Agreement is effective until December 31, 2030, with an option to extend its term for three additional years to December 31, 2033. Thereafter, the Matricel Supply Agreement may be renewed for additional three-year periods.

Product Portfolio

Our marketed products include two FDA-approved autologous cell therapies: MACI, a third-generation 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; 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 of TBSA. Both autologous cell therapy products are currently manufactured and marketed in the U.S. ~~In addition, we~~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, if approved by the FDA.~~America.

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 adults.

Our target ~~audience of U.S. physicians is approximately 5,000 orthopedic surgeons and is divided into two segments: a group of~~audiences are orthopedic surgeons who self-identify and/or have a formal specialty astraining in sports medicine, ~~physicians,~~ and a subpopulation of general orthopedic surgeons who perform a high volume of cartilage repair ~~procedures.~~procedures involving the knee. As of the date of this report, we ~~have~~employ approximately 75 MACI sales representatives to enable the sales force to reach our target audience. The team is divided into geographic regions, each managed by a Regional Manager and led by a Vice President of National MACI Sales. Most private payers have a medical policy that covers treatment with MACI with the top 30 largest commercial payers having a formal medical policy for MACI or ACI in general. With respect to private commercial payers that have not yet approved a medical policy for MACI, we often obtain approval on a case-by-case basis.

MACI is currently implanted into the patient’s cartilage defect through an open surgical procedure. We are currently evaluating the potential for the arthroscopic delivery of MACI to the cartilage defect – a procedure in which a surgeon can evaluate, prepare and treat the cartilage defect under direct arthroscopic visualization 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 as well as procedure-induced trauma, ultimately resulting in a reduction of a patient’s post-operative pain and accelerating a patient’s 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 are on track to initiate the study during 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.

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Epicel

Epicel is a permanent skin replacement for deep-dermal or full-thickness burns comprising greater than or equal to 30 percent of TBSA. Epicel is regulated by the Center for Biologics Evaluation and Research (“CBER”) of the FDA under medical device authorities, and is the only FDA-approved cultured 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 HDE~~a 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 8,000 individuals annually in the 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. 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 so long as the number of devices distributed in any calendar year does not exceed the Annual Distribution Number (“ADN”). The ADN is defined as the number of devices reasonably needed to treat a population of 8,000 individuals per year in the 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. 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 large burns treated with Epicel relative to standard care. Because 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 to be 360,400 which is approximately 3040 times larger than the volume of grafts sold in ~~2021. We currently have a fifteen person~~2022. As of the date of this report, our burn care field force ~~comprised~~consists of ~~seven account managers~~individual sales and ~~eight burn~~ clinical ~~specialists,~~representatives that regularly engage with our target audience. The team is divided into geographic regions, each managed by a Regional Manager and led by ~~two regional directors,~~ a ~~national account development director and one national sales director.~~Vice President of National Burn Care Sales.

NexoBrid

Our ~~development~~ portfolio of commercial-stage products now includes NexoBrid (anacaulase-bcdb), a ~~registration-stage,~~ topically-administered biological product ~~that enzymatically removes nonviable burn tissue, or~~containing proteolytic enzymes. The FDA approved NexoBrid on December 28, 2022, and the product is indicated for the removal of eschar in ~~patients~~adults with deep ~~partial and full-thickness~~partial-thickness and/or full thickness thermal burns. We have entered into exclusive license and supply agreements with MediWound to commercialize NexoBrid ~~and any improvements to the product~~ in North ~~America, if approved. On June 29, 2021, the Company announced that MediWound had received a CRL~~

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from the FDA with respect to the BLA, which MediWound had previously submitted to the FDA seeking marketing approval for the product in the U.S. As part of the CRL, the FDA communicated to MediWound that it had completed its review of the BLA, as amended, and had determined that it could not approve the BLA in its then form. We have continued to work with MediWound, BARDA and the FDA to address the issues identified in the CRL. On July 1, 2022, Vericel and MediWound submitted a BLA resubmission to the FDA to address and respond to the issues identified by the FDA in the CRL. Subsequently, the FDA informed us that is has accepted the resubmission for review and has established a Prescription Drug User Fee Act (“PDUFA”) date for completing that review of January 1, 2023.America.

NexoBrid is approved in the European Union (“EU”) and other international markets and has been designated as an orphan biologic in the U.S., EU and other international markets. ~~Pursuant~~NexoBrid has the potential to change the ~~terms~~standard of ~~our existing license agreement, if the BLA is approved, MediWound will transfer the BLA~~care for eschar removal with respect to ushospitalized burn patients and ~~we will~~treat a significant addressable market ~~NexoBrid~~ in the U.S. ~~Both~~With 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 product are underway, including education, training, and engagement activities.

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 have received the first lot of NexoBrid finished product from MediWound for the U.S. commercial market, which currently is warehoused at our third-party logistics distributor. Although this NexoBrid finished product has met all required release criteria for distribution in the U.S., we are unable to release this product into the commercial channel at this time due to a deviation associated with a third-party testing lab used during MediWound’s manufacturing process. A detailed risk assessment has concluded that the deviation presents no incremental risk to the finished product’s quality and safety and we are actively engaged with MediWound and ~~Vericel, under~~ the ~~supervision of a Central Steering Committee comprised of members of both companies will continue~~FDA to ~~guide development~~address this matter. Although future manufacturing of NexoBrid ~~in North America. Under our license agreement with~~for the U.S. market will not be impacted because the at-issue test will be conducted directly by MediWound, ~~since 2020 NexoBrid has been manufactured for BARDA prior to approval~~absent the FDA allowing the commercial release of the finished product affected by the ~~FDA under an emergency use authorization. Additional quantities~~deviation, we expect to begin commercial sales of future NexoBrid lots during the first quarter of 2024. The FDA’s evaluation of the deviation will not affect the $3 million committed by BARDA for the replacement of NexoBrid ~~may be manufactured~~previously procured for ~~BARDA in the future pursuant to the terms of its agreement with MediWound.~~emergency response preparedness, which has since expired.

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Results of Operations

The following is a summary of our condensed consolidated results of operations:


		Three Months Ended September 30,								Nine Months Ended September 30,									Three Months Ended June 30,								Six Months Ended June 30,
(In thousands)	(In thousands)	2022		2021		Change $		Change %		2022		2021		Change $		Change %		(In thousands)	2023		2022		Change $		Change %		2023		2022		Change $		Change %
Total revenue	Total revenue	$	38,551	$	34,506	$	4,045	11.7	%	$	111,671	$	108,593	$	3,078	2.8	%	Total revenue	$	45,922	$	37,046	$	8,876	24.0	%	$	86,939	$	73,120	$	13,819	18.9	%
Cost of product sales	Cost of product sales	13,318		12,408		910		7.3	%	40,132		36,600		3,532		9.7	%	Cost of product sales	15,981		14,192		1,789		12.6	%	30,478		26,814		3,664		13.7	%
Gross profit	Gross profit	25,233		22,098		3,135		14.2	%	71,539		71,993		(454)		(0.6)	%	Gross profit	29,941		22,854		7,087		31.0	%	56,461		46,306		10,155		21.9	%
Research and development	Research and development	5,046		4,284		762		17.8	%	14,698		12,363		2,335		18.9	%	Research and development	5,253		4,792		461		9.6	%	10,465		9,652		813		8.4	%
Selling, general and administrative	Selling, general and administrative	26,975		22,775		4,200		18.4	%	79,984		71,625		8,359		11.7	%	Selling, general and administrative	30,649		27,144		3,505		12.9	%	60,134		53,009		7,125		13.4	%
Total operating expenses	Total operating expenses	32,021		27,059		4,962		18.3	%	94,682		83,988		10,694		12.7	%	Total operating expenses	35,902		31,936		3,966		12.4	%	70,599		62,661		7,938		12.7	%
Loss from operations	Loss from operations	(6,788)		(4,961)		(1,827)		36.8	%	(23,143)		(11,995)		(11,148)		92.9	%	Loss from operations	(5,961)		(9,082)		3,121		(34.4)	%	(14,138)		(16,355)		2,217		(13.6)	%
Total other income	Total other income	232		30		202		673.3	%	533		204		329		161.3	%	Total other income	941		119		822		690.8	%	1,623		301		1,322		439.2	%
Income tax expense		21		—		21		100.0	%	21		215		(194)		(90.2)	%

Net loss	Net loss	$	(6,577)	$	(4,931)	$	(1,646)	33.4	%	$	(22,631)	$	(12,006)	$	(10,625)	88.5	%	Net loss	$	(5,020)	$	(8,963)	$	3,943	(44.0)	%	$	(12,515)	$	(16,054)	$	3,539	(22.0)	%

Comparison of the Periods Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

Total Revenue

Revenue by product ~~for the three and nine months ended September 30, 2022 and 2021 are~~is as follows:


		Three Months Ended September 30,								Nine Months Ended September 30,									Three Months Ended June 30,								Six Months Ended June 30,
Revenue by product (In thousands)		2022		2021		Change $		Change %		2022		2021		Change $		Change %
(In thousands)																		(In thousands)	2023		2022		Change $		Change %		2023		2022		Change $		Change %
MACI	MACI	$	31,009	$	23,881	$	7,128	29.8	%	$	85,617	$	74,203	$	11,414	15.4	%	MACI	$	36,336	$	28,613	$	7,723	27.0	%	$	70,526	$	54,607	$	15,919	29.2	%
Epicel	Epicel	7,317		9,837		(2,520)		(25.6)	%	25,387		31,822		(6,435)		(20.2)	%	Epicel	9,586		8,213		1,373		16.7	%	16,413		18,071		(1,658)		(9.2)	%
NexoBrid	NexoBrid	225		788		(563)		(71.4)	%	667		2,568		(1,901)		(74.0)	%	NexoBrid	—		220		(220)		(100.0)	%	—		442		(442)		(100.0)	%
Total Revenue		$	38,551	$	34,506	$	4,045	11.7	%	$	111,671	$	108,593	$	3,078	2.8	%
Total revenue																		Total revenue	$	45,922	$	37,046	$	8,876	24.0	%	$	86,939	$	73,120	$	13,819	18.9	%

Total revenue increase for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to the same periods in ~~2021,~~2022, was driven primarily by higher MACI volume and price ~~growth, offset primarily by lower Epicel volume and lower revenue associated with the delivery of NexoBrid to BARDA for emergency response preparedness.~~growth.

Seasonality.~~The effects~~ As a result of the ~~ongoing~~uncertainty and other impacts of the COVID-19 pandemic ~~have disrupted~~and the ~~normal~~resulting shifts of timing in some revenue, our historically observable seasonality of revenues has been impacted or obscured in 2022 and 2023 and potentially beyond. At this juncture the pandemic’s effects on our business and results of operations have largely moderated, although there continues to be a level of uncertainty whether MACI ~~business at times over the past thirty-one months. These effects have included, among others, periodic restrictions on the performance of~~

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~~elective surgical procedures throughout the country, the unavailability of physicians and/or changes~~seasonality will return to their treatment prioritizations, reductions in the levels of healthcare facility staffing and, in certain instances, the willingness or ability of patients to seek treatment and the inability of our clinical account specialists to call on surgeon customers. Overpre-pandemic patterns. In the last five years ~~ACI (MACI and Carticel prior to replacement)~~through 2022, MACI sales volumes from the first through the fourth quarter on average represented ~~19% (16%~~20% (18%-21% range), ~~22%~~21% (16%~~-25%~~-24% range), ~~23%~~24% (21%-26% range) and ~~36%~~35% (33%-38% range) respectively, of total annual volumes. Historically, MACI orders are normally stronger in the fourth quarter due to several factors including the satisfaction by patients of insurance deductible limits and the time of year patients prefer to start rehabilitation. Because of the effects of the COVID-19 pandemic, the MACI business seasonality in 2021 and 2020 did not follow our historical patterns, and while 2022 thus far has seen a return to more normal MACI ordering patterns, seasonality in 2022 could again be impacted by COVID-19 related factors. Due to the low incidence and variable occurrence of severe burns, Epicel revenue has inherent variability from quarter-to-quarter and does not exhibit significant seasonality.

Gross Profit

Gross profit ~~increased~~increase for the three and six months ended ~~September~~June 30, ~~2022~~2023, compared to the same ~~period~~periods in ~~2021,~~2022, was driven by higher MACI volume and price growth, which more than offset ~~by lower Epicel labor utilization,~~higher employee costs, raw material price increases and higher external storage and manufacturing facility costs.

~~Gross profit was similar for the nine months ended September 30, 2022 compared to the same period in 2021,~~ ~~as lower Epicel labor utilization, raw material price increases and higher external storage and manufacturing facility costs offset higher MACI volume.~~Table of Contents

Research and Development Expenses

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

Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2022 2021 Change $ Change % 2022 2021 Change $ Change %
MACI $ 3,000 $ 2,572 $ 428 16.6 % $ 8,961 $ 6,993 $ 1,968 28.1 %
Epicel 1,166 992 174 17.5 % 3,624 3,157 467 14.8 %
NexoBrid 880 720 160 22.2 % 2,113 2,213 (100) (4.5) %
Total research and development expenses $ 5,046 $ 4,284 $ 762 17.8 % $ 14,698 $ 12,363 $ 2,335 18.9 %

Research and development expenses for the three months ended September 30, 2022 were $5.0 million, compared to $4.3 million for the same period in 2021. Research and development costs continue to be centered around process development, and regulatory and medical affairs for MACI and Epicel. The increase is primarily due to increased headcount and stock-based compensation expense.


	Three Months Ended June 30,								Six Months Ended June 30,
(In thousands)	2023		2022		Change $		Change %		2023		2022		Change $		Change %
MACI	$	3,319	$	2,972	$	347	11.7	%	$	6,392	$	5,961	$	431	7.2	%
Epicel	914		1,238		(324)		(26.2)	%	2,085		2,458		(373)		(15.2)	%
NexoBrid	1,020		582		438		75.3	%	1,988		1,233		755		61.2	%
Total research and development expenses	$	5,253	$	4,792	$	461	9.6	%	$	10,465	$	9,652	$	813	8.4	%

Research and development expenses increased for the ~~nine~~three and six months ended ~~September~~June 30, ~~2022 were $14.7 million,~~2023 compared to ~~$12.4 million for~~ the same ~~period~~periods in ~~2021. The increase is~~2022, primarily due to an increase of $0.9 million in stock-based compensation expense, additional spend on the design of instruments to be used in connection with the potential arthroscopic delivery of MACI to the knee, if approved by the FDA, and increased headcount, partially offset bylower reimbursement of expenses from MediWound related to ~~the~~NexoBrid BLA ~~resubmission.~~resubmission that occurred in 2022 and MACI arthroscopic program costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended ~~September~~June 30, ~~2022~~2023 were ~~$27.0~~$30.6 million, compared to ~~$22.8~~$27.1 million for the same period in ~~2021.~~2022. The increase in selling, general and administrative expenses was primarily due to ~~an increase of $0.6 million in stock-based compensation~~higher marketing expenses, ~~increased headcount, an increase in travel~~external costs and ~~in-person events including more physician engagement and educational programs in addition to higher depreciation related to~~lease expense associated with the ~~new~~

~~office space in Cambridge, Massachusetts.~~Burlington Lease.

Selling, general and administrative expenses for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 were ~~$80.0~~$60.1 million, compared to ~~$71.6~~$53.0 million for the same period in ~~2021.~~2022. The increase in selling, general and administrative expenses was primarily due to ~~an increase of $2.4 million in stock-based compensation~~higher headcount and employee expenses, ~~increased headcount, an increase in~~additional travel and in-person events ~~including more physician engagement~~across the commercial organization, and ~~educational programs~~an increase in ~~addition to higher depreciation related to the new office space in Cambridge, Massachusetts.~~marketing and external expenses, which were partially offset by lower stock-based compensation expenses.

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Total Other Income ~~(Expense)~~

The change in other income ~~(expense)~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, compared to the same periods in ~~2021~~2022 was due primarily to fluctuations in the rates of return on our investments in various marketable debt securities ~~and~~slightly offset by interest expense related to our Revolving Credit Agreement.

~~Income Tax Expense~~

~~For the~~ ~~three months ended September 30, 2022, less than $0.02 million income tax expense was recorded and no expense for income taxes was recognized for the same period in 2021.~~ ~~Less than~~ ~~$0.02 million~~ ~~income tax expense was recorded for the nine months ended September 30, 2022, compared to~~ ~~$0.2 million~~ ~~recorded for the~~ ~~nine months ended~~ ~~September 30, 2021, respectively.~~

~~Stock-Based~~Stock-based Compensation Expense

Non-cash stock-based compensation expense is summarized in the following table:


		Three Months Ended September 30,								Nine Months Ended September 30,									Three Months Ended June 30,								Six Months Ended June 30,
(In thousands)	(In thousands)	2022		2021		Change $		Change %		2022		2021		Change $		Change %		(In thousands)	2023		2022		Change $		Change %		2023		2022		Change $		Change %
Cost of product sales	Cost of product sales	$	840	$	1,114	$	(274)	(24.6)	%	$	2,992	$	3,313	$	(321)	(9.7)	%	Cost of product sales	$	796	$	1,035	$	(239)	(23.1)	%	$	1,681	$	2,153	$	(472)	(21.9)	%
Research and development	Research and development	1,273		1,126		147		13.1	%	4,143		3,222		921		28.6	%	Research and development	993		1,520		(527)		(34.7)	%	1,970		2,870		(900)		(31.4)	%
Selling, general and administrative	Selling, general and administrative	6,991		6,356		635		10.0	%	22,308		19,946		2,362		11.8	%	Selling, general and administrative	6,972		8,253		(1,281)		(15.5)	%	13,841		15,316		(1,475)		(9.6)	%
Total non-cash stock-based compensation expense	Total non-cash stock-based compensation expense	$	9,104	$	8,596	$	508	5.9	%	$	29,443	$	26,481	$	2,962	11.2	%	Total non-cash stock-based compensation expense	$	8,761	$	10,808	$	(2,047)	(18.9)	%	$	17,492	$	20,339	$	(2,847)	(14.0)	%

The ~~increase~~decrease in stock-based compensation expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, compared to the same periods in ~~2021,~~2022, was due primarily to fluctuations in stock prices and the mix of service-based options and restricted stock units, which ~~impact~~impacts the fair value of the options and restricted stock units awarded and the expense recognized in the period.

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Liquidity and Capital Resources

Cash Flows

The following table summarizes our sources and uses of cash for each of the periods presented:


		Nine Months Ended September 30,					Six Months Ended June 30,
(In thousands)	(In thousands)	2022		2021		(In thousands)	2023		2022
Net cash provided by operating activities	Net cash provided by operating activities	$	10,712	$	18,489	Net cash provided by operating activities	$	18,056	$	6,611
Net cash used in investing activities		(14,477)		(5,386)
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	392		(13,666)
Net cash provided by financing activities	Net cash provided by financing activities	440		7,830		Net cash provided by financing activities	1,302		752
Net (decrease) increase in cash, cash equivalents, and restricted cash		$	(3,325)	$	20,933
Net increase (decrease) in cash, cash equivalents, and restricted cash						Net increase (decrease) in cash, cash equivalents, and restricted cash	$	19,750	$	(6,303)

Net Cash Provided by Operating Activities

Our cash, ~~and~~ cash equivalents and restricted cash totaled ~~$65.2~~$70.8 million, short-term investments totaled ~~$45.7~~$54.8 million and long-term investments totaled ~~$21.7~~$21.0 million as of ~~September~~June 30, ~~2022.~~2023. The ~~$10.7~~$18.1 million of cash provided by operations during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was primarily the result of non-cash charges of ~~$29.4~~$17.5 million related to stock-based compensation expense, ~~$3.1~~$2.5 million of operating lease amortization and ~~$2.9~~$2.3 million in depreciation and amortization expense, offset by a net loss of ~~$22.6~~$12.5 million and a net increase of $8.7 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 and receipts of tenant improvement allowances, offset by a decrease in accrued expenses due to timing of payments.

Our cash, cash equivalents and restricted cash totaled $62.2 million, short-term investments totaled $44.6 million and long-term investments totaled $23.7 million as of June 30, 2022. The $6.6 million of cash provided by operations during the six months ended June 30, 2022 was primarily the result of non-cash charges of $20.3 million related to stock-based compensation expense, $2.2 million of operating lease amortization, $1.9 million in depreciation and amortization expense, offset by a net loss of $16.1 million and a net decrease of ~~$2.5~~$2.1 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 accrued expenses due to timing of payments, a decrease in operating lease liabilities, and an increase in inventory due to increased production needs, ~~and payments on operating leases~~ offset by a decrease in accounts receivable due to cash collections.

Our cash, cash equivalents and restricted cash totaled $54.8 million, short-term investments totaled $43.7 million and long-term investments totaled $20.2 million as of September 30, 2021. The $18.5 million ofNet Cash Provided By (Used In) Investing Activities

Net cash provided by ~~operations~~investing activities during the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2023 was ~~primarily~~ the result of ~~non-cash charges~~$42.0 million of ~~$26.5~~investment sales and maturities, offset by $28.5 million in investment purchases, a $7.5 million regulatory milestone payment to MediWound resulting from the FDA’s approval of the NexoBrid BLA, and $5.6 million of property and equipment purchases primarily for manufacturing upgrades and construction in process related to ~~stock~~

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compensation expense, $3.4 million of operating lease amortization, and $2.2 million in depreciation and amortization expense, offset by a net loss of $12.0 million, and a net decrease of $2.3 million related to movement in our working capital accounts. The overall decrease in cash from our working capital accounts was primarily driven by a decrease in accounts receivable due to cash collections, an increase in inventory due to increased production needs, and payments on operating leases.

~~Net Cash Used In Investing Activities~~the Burlington Lease.

Net cash used in investing activities during the ~~nine~~six months ended ~~September~~June 30, 2022 was the result of ~~$44.0~~$34.9 million in ~~investment~~investments purchases and ~~$6.5~~$5.1 million of property and equipment purchases primarily for manufacturing upgrades and leasehold improvements, offset by ~~$35.9 million of investment sales and maturities.~~

Net cash used in investing activities during the nine months ended September 30, 2021 was the result of $49.4 million in investments purchases and equipment purchases of $6.9 million, primarily for manufacturing upgrades and leasehold improvements, offset by $50.9$26.3 million of investment sales and maturities.

Net Cash Provided by Financing Activities

Net cash provided by financing activities during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was the result of net proceeds from the exercise of stock options and purchases under the employee stock purchase plan of ~~$3.0 million, offset by payments of employee withholding taxes related to the vesting of restricted stock units of $1.5 million and payments of debt issuance costs of $1.1 million.~~

~~Net cash provided by financing activities during the nine months ended September 30, 2021 was primarily the result of net proceeds from the exercise of stock options of $9.7~~$3.5 million, partially offset by the payment of employee withholding taxes related to the vesting of restricted stock units of ~~$1.6~~$2.2 million.

Net cash provided by financing activities during the six months ended June 30, 2022 was primarily the result of net proceeds from the exercise of stock options and purchases under the employee stock purchase plan of $2.2 million partially offset by payments of employee withholding taxes related to the vesting of restricted stock units of $1.4 million.

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Liquidity

Since our acquisition of MACI and Epicel in 2014, our primary focus has been to invest in our existing commercial business with the goal of growing revenue. We have raised significant funds in order to advance and complete our product development and product life-cycle management programs and to market and commercialize our products, including NexoBrid. To date, we have financed our operations primarily through cash received through ~~Epicel~~MACI and ~~MACI~~Epicel sales, debt, and public and private sales of our equity securities. We ~~generated $10.7 million in operating cash flows during the nine months ended September 30, 2022, and we~~ may finance our operations through the sales of equity securities, revolver borrowings or other debt ~~financings.~~financings, in addition to cash generated from operations.

We believe that our current cash on hand, cash equivalents, investments, and available borrowing capacity will be sufficient to support our current operations through at least 12 months from the issuance of ~~these~~the condensed consolidated financial ~~statements. However,~~statements included in this report. Although the ~~continuing~~ effects of the ~~ongoing~~ COVID-19 pandemic ~~continue to evolve and may adversely impact~~have largely moderated in recent months, our business and ~~operations.~~operations may be adversely affected in the future if conditions were to worsen. Our actual cash requirements may differ from projections and will depend on many factors, including ~~any future impacts of the COVID-19 pandemic,~~ the level and pace of future research and development efforts, the scope and results of ongoing and potential clinical trials, the costs involved in filing, prosecuting and enforcing patents, the need for additional manufacturing capacity, competing technological and market developments, global macroeconomic conditions, costs associated with possible acquisitions or development of complementary business activities, and the cost to market our products.

As of ~~September~~June 30, ~~2022,~~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 Leerink Partners (f/k/a SVB Leerink ~~LLC,~~LLC), as sales agent, ~~(“SVB Leerink”),~~ 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~~ Leerink Partners is not required to sell any specific number or dollar amount of the ATM Shares under the Sales Agreement. As of ~~September~~June 30, ~~2022,~~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

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~~(the~~ (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 ~~September~~June 30, ~~2022,~~2023, there are no outstanding borrowings under the Revolving Credit Agreement, and we are in compliance with all applicable covenant requirements. See Note 9,8, “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, ~~2021.~~2022. There have been no material changes, outside of the ordinary course of business, to our contractual obligations and commitments since December 31, ~~2021,~~2022, except as ~~discussed in Note 5, “Leases” and Note 9, “Revolving Credit Agreement” in the accompanying condensed consolidated financial statements.~~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.

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On July 1, 2023, we renewed our long-term supply agreement with Matricel for the supply of ACI-Maix collagen membranes used in the manufacture of MACI. Under the terms of the Matricel Supply Agreement, we have committed to annual minimum purchase values totaling approximately €12.5 million over the eight-year term.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, expenses, and related disclosures. Actual results may differ materially from these estimates under different assumptions and conditions.

There have been no material changes to our critical accounting policies and estimates in the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023. For further information, refer to our summary of significant accounting policies and estimates in our Annual Report on Form 10-K filed for the year ended December 31, ~~2021.~~2022.

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Cautionary Note Regarding Forward-Looking Statements

This report, including the documents incorporated by reference herein, contains certain 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 (“Exchange Act”). Wherever possible, we have identified these forward-looking statements by words such as “will,” “may,” “anticipates,” “believes,” “intends,” “estimates,” “expects,” “plans,” “projects,” “trends,” “opportunity,” “current,” “intention,” “position,” “assume,” “potential,” “outlook,” “remain,” “continue,” “maintain,” “sustain,” “seek,” “target,” “achieve,” “continuing,” “ongoing,” and similar words or phrases, or future or conditional verbs such as “would,” “should,” “could,” “may,” or similar expressions. Among the factors that could cause actual results to differ materially from those set forth in the 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 manufacturing operations to meet the demand for our cell therapy products, including the timely completion of a new 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 results of operations over the course of the year, timing and conduct of clinical trial and product development activities, timing and likelihood of the FDA’s potential approval of the arthroscopic delivery of MACI to the knee or the use of MACI to treat cartilage defects in the ankle, 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, regulatory decisions 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 potential future impacts on our business or the economy generally stemming from a resurgence of COVID-19 or another similar public health emergency. These forward-looking statements are based upon assumptions our management believes are reasonable. Such forward-looking statements are subject to risks and uncertainties, which could cause our actual results, performance and achievements to differ materially from those expressed in, or 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 are 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 or all of our forward-looking statements may turn out to be wrong. Forward-looking statements speak only as of the date made and can be affected by assumptions we might make or by known or unknown risks and uncertainties. Many factors mentioned in our discussion in our Annual Report on 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. Consequently, we cannot assure you that our expectations or forecasts expressed in such forward-looking statements will be achieved. Except as required by law, we undertake no obligation to publicly update any of our forward-looking or other statements, whether as a result of new information, future events, or otherwise. ~~These forward-looking statements include statements regarding:~~

•~~manufacturing and facility capabilities;~~

•~~potential strategic collaborations with others;~~

•~~future capital needs and financing sources;~~

•~~adequacy of existing capital to support operations for a specified time;~~

•~~our liquidity and our ability to satisfy obligations of our Revolving Credit Agreement as they become due;~~

•~~our ability to comply with the financial and other covenants in our Revolving Credit Agreement;~~

•~~our exposure to risk as a result of potential changes in interest rates;~~

•~~reimbursement for our products;~~

•~~the timing of the FDA’s review of the NexoBrid BLA resubmission;~~

•~~expectations regarding approval by the FDA of the NexoBrid BLA resubmission;~~

•~~product development and marketing plans;~~

•~~features and successes of our therapies;~~

•~~clinical trial plans, including publication thereof;~~

•the effects of the ongoing COVID-19 pandemic on our business, including economic slowdowns or recessions, impacts to our operations or to the healthcare industry generally, which could reduce demand for our products;

•anticipated inflationary pressures and our responses thereto as well as other unfavorable global and regional economic conditions, geopolitical events, and military conflicts, such as repercussions from the ongoing war in Ukraine;

•~~anticipation of future losses;~~

•~~replacement of manufacturing sources;~~

•~~commercialization plans; or~~

•~~revenue expectations and operating results.~~

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

For quantitative and qualitative disclosures about market risk, see Part II, Item 7A. “Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. Our exposures to market risk have not changed materially since December 31, ~~2021, except as discussed below.~~

~~Interest Rate Risk~~

~~Revolving Credit Agreement~~

We are subject to interest rate risks in connection with our Revolving Credit Agreement, which is variable rate indebtedness. As of September 30, 2022, there were no borrowings outstanding under the Revolving Credit Agreement. To the extent that we have outstanding borrowings under the Revolving Credit Agreement, we may increase our exposure to risk from interest rate fluctuations which may have a negative impact on our earnings and cash flows.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 ~~September~~June 30, ~~2022,~~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 U.S. Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management of the Company, with the participation of its Certifying Officers, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the three months ended ~~September~~June 30, ~~2022,~~2023, there were no material changes made in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act).

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We are currently not party to any material legal proceedings, although from ~~time-to-time~~time to time we may become involved in disputes in connection with the operation of our business.

Item 1A. Risk Factors

Factors that could cause the Company’s actual results to differ materially from those in this Quarterly Report are any of the risks described in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021~~2022 filed with the SEC on February ~~24, 2022.~~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, ~~2021,~~2022, except as follows.

~~Our Revolving Credit Agreement contains covenant restrictions that may limit~~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 ~~ability to operate our business.~~operations and liquidity.

~~The terms of our Revolving Credit Agreement, contain, and~~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 of our other future debt agreements may contain, covenant restrictions that limit our ability to: (i) incur additional indebtedness (ii) create liens; (iii) consolidate, merge, sell or otherwise dispose of all, or substantially all, of our 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 our affiliates. As a resultevents of these ~~covenants, our ability~~kinds, have in the past and may in the future lead to ~~respond to changes in business and economic conditions and engage in beneficial transactions, including to obtain additional~~market-wide liquidity problems.

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~~financing as needed,~~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 U.S. Department of Treasury, Federal Deposit Insurance Corporation (“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.

Our access to our cash and cash equivalents in amounts adequate to finance our operations could be ~~restricted. Furthermore, our failure to comply~~significantly impaired if the financial institutions with ~~our debt covenants~~which we have arrangements directly face liquidity constraints or failures. In addition, investor concerns regarding the U.S. or international financial systems could result in ~~a default under our Revolving Credit Agreement, which could permit the holders to accelerate our obligation to repay any borrowings.~~

~~We may incur substantial indebtedness.~~

On July 29, 2022, we entered into a $150.0 million five-year senior secured Revolving Credit Agreement. As of September 30, 2022, we had no outstanding borrowings under the Revolving Credit Agreement. We may be exposed to the impact of interest rate changes primarily through our borrowing activities. Subject to the limits contained in the Revolving Credit Agreement, we may incur substantial additional debt from time-to-time for general corporate purposes, including, without limitation, acquisitions and capital expenditures, and such other uses as permitted under the Revolving Credit Agreement. If we do so, the risks related to our debt could intensify. Specifically, our debt could have important consequences to our investors, including the following:

•less favorable commercial financing terms thereby making it more difficult for us to ~~satisfy our obligations under the Revolving Credit Agreement; and if we fail to comply with these requirements, an event of default could result;~~

•~~limiting~~acquire financing on acceptable terms or at all. Any material decline in available funding or our ability to ~~obtain additional financing~~access our cash and cash equivalents could adversely impact our ability to ~~fund future working capital, capital expenditures, acquisitions, or other general corporate requirements;~~

•~~requiring a substantial portion~~meet our operating expenses, result in breaches of our ~~cash flows to be dedicated to debt service payments instead~~contractual obligations or result in violations of ~~other purposes, thereby reducing the amount~~federal or state wage and hour laws, any of ~~cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes;~~

•~~increasing our vulnerability to general adverse economic and industry conditions;~~

•~~exposing us to the risk of increased interest rates as borrowings under our Revolving Credit Agreement are subject to floating interest rates based on SOFR,~~ which could ~~increase the cost of servicing~~have material adverse impacts on our operations and liquidity. Furthermore, should our customers have relationships with financial ~~instruments and could materially reduce our profitability and cash flows;~~

•~~limiting our flexibility in planning for and reacting to changes in the industry in which we compete;~~

•~~placing us at a disadvantage compared to other, less leveraged competitors; and~~

•~~increasing our cost of borrowing.~~

~~We are currently operating~~institutions that fail, this may result in a ~~period~~delay of ~~economic uncertainty and capital markets disruption,~~collecting outstanding receivables, which ~~has been significantly impacted by geopolitical instability, an ongoing war between Russia and Ukraine, and record inflation. Our business, financial condition and results of operations~~ could ~~be materially adversely affected by any negative impact on the global economy and capital markets resulting from the war in Ukraine, geopolitical tensions, or record inflation.~~

U.S. and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between Russia and Ukraine. In February 2022,have a full-scale military invasion of Ukraine by Russian troops began. Although the length and impact of the ongoing military conflict is highly unpredictable, the war in Ukraine has led to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions, which has contributed to record inflation globally. We are continuing to monitor inflation, the situation in Ukraine and global capital markets and assessing the potential impactmaterial adverse effect on our business.

Although, to date, our business has not been materially impacted by the ongoing military conflict between Russian and Ukraine, geopolitical tensions, or record inflation, it is impossible to predict the extent to which our operations will be impacted in the short and long term, or the ways in which such matters may impact our business. The extent and duration of the war in Ukraine, geopolitical tensions, record inflation and resulting market disruptions are impossible to predict but could be substantial. Any such disruptions may also magnify the impact of other risks described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

~~NexoBrid’s approval in the U.S. for the treatment of severe burns may be further delayed, or it may not be approved by the FDA for use in the U.S. at all.~~

On June 29, 2021, we announced that MediWound had received a CRL from the FDA with respect to a BLA that MediWound had previously submitted to the FDA seeking marketing approval for NexoBrid in the U.S. As part of the CRL, the FDA communicated to MediWound that it had completed its review of the BLA, as amended, and had determined that it could not approve the BLA in its then form. The FDA identified issues related to the chemistry, manufacturing and controls, or CMC section of the BLA and had requested that MediWound provide additional CMC information. The FDA also stated that inspections of manufacturing facilities in Israel and Taiwan are required before the BLA can be approved, but that it was unable to conduct the required inspections during the original review cycle due to COVID-19-related travel restrictions. In addition, the CRL referenced observations that were made during GCP inspections related to the Phase 3 pivotal DETECT study and

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requested that MediWound address questions regarding the impact of the observations on the study’s efficacy findings. The FDA also requested that MediWound provide a safety update as part of a BLA resubmission.

We have continued to work with MediWound, BARDA and the FDA to address the issues identified in the CRL, and on July 1, 2022, Vericel and MediWound submitted a BLA resubmission to the FDA to address and respond to the issues identified by the FDA in the CRL. Subsequently, the FDA informed us that it has accepted the resubmission for review and has established a PDUFA date for completing that review of January 1, 2023. We cannot predict the likelihood that the FDA will ultimately approve the NexoBrid BLA. In addition, if approval to market NexoBrid is sought in Mexico or Canada, we cannot predict how long regulatory authorities in those countries will take to provide NexoBrid with marketing authorization in their jurisdictions or whether such authorizations will be granted at all. A significant delay or a failure to receive regulatory approval for NexoBrid in the U.S. may have a material adverse impact on our business prospects.

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

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

~~Not applicable.~~Rule 10b5-1 Trading Plans

During the fiscal quarter ended June 30, 2023, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.”

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Item 6. Exhibits

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

EXHIBIT INDEX


~~Exhibit No.~~						~~Description~~

~~3.1~~						~~Restated Articles of Incorporation of the Company, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on December 17, 2009, incorporated herein by reference.~~

~~3.2~~						Certificate of Amendment to Restated Articles of Incorporation of the Company, dated February 9, 2010, filed as Exhibit 3.2 to the Company’s Post-Effective Amendment No. 1 to Form S-1 filed on March 31, 2010, incorporated herein by reference.

~~3.3~~						Certificate of Amendment to Restated Articles of Incorporation of the Company, dated March 22, 2011, attached as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on March 25, 2011, incorporated herein by reference.

~~3.4~~						Certificate of Amendment to the Restated Articles of Incorporation of the Company, dated November 21, 2014, attached as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 24, 2014, incorporated herein by reference.

~~3.5~~						~~Bylaws, as amended, attached as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 12, 2010, incorporated herein by reference.~~

~~10.12†~~						Revolving Credit Agreement, dated as of July 29, 2022, by and among Vericel Corporation, as borrower, the lenders party thereto, and JPMorgan Chase Bank, N.A. as administrative agent, sole bookrunner and sole lead arranger.

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 and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~

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~~						~~Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).~~

Incorporated by Reference

Exhibit Number

Description of Exhibits

Form

File Number

Exhibit

Filing Date

3.1

Restated Articles of Incorporation of the Company.

8-K

000-22025

4.1

December 17, 2009

3.2

Certificate of Amendment to Restated Articles of Incorporation of the Company dated February 9, 2010.

S-1

333-160044

3.2

March 31, 2010

3.3

Certificate of Amendment to Restated Articles of Incorporation of the Company dated March 22, 2011.

8-K

000-22025

3.1

March 25, 2011

3.4

Certificate of Amendment to the Restated Articles of Incorporation of the Company, dated November 21, 2014.

8-K

001-35280

3.1

November 24, 2014

3.5

Amended and restated bylaws.

8-K

000-22025

3.1

November 12, 2010

4.1

Description of Capital Stock.

10-K

001-35280

4.5

February 25, 2020

10.1#*

Vericel Corporation Deferred Compensation Plan

10.2*

Vericel Corporation 2022 Omnibus Incentive Plan Restricted Stock Unit Award (Deferred) Agreement for Non-Employee Directors

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 and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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*

Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

# Management contract or compensatory plan or arrangement covering executive officers or directors of Vericel.

* Filed herewith.

† Certain schedules and similar attachments to this exhibit have been omitted pursuant to Item 601(a)(5) and/or Item 601(b)(10)(iv), as applicable, of Regulation S-K. The Company agrees to furnish an unredacted, supplemental copy (including any omitted schedule or attachment) to the SEC upon request. Redactions and omissions are designated with brackets containing asterisks.

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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 9, 2022~~August 2, 2023


			VERICEL CORPORATION


			/s/ DOMINICK C. COLANGELO
			Dominick C. Colangelo
			President and Chief Executive Officer
			(Principal Executive Officer)


			/s/ JOSEPH A. MARA
			Joseph A. Mara
			Chief Financial Officer
			(Principal Financial Officer)

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