Vericel Corporation- advanced cell therapies for the sports medicine and severe burn care markets


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Vericel’s Scientific Investment Thesis


Josh Sun, PhD


Investment returns may go up as well as down according to market conditions beyond my control. My views are not an invitation to treat, nor are they meant to be relied on. Every due diligence I develop is a document that I use for my own investment purposes. Please use my blog to supplement your own investment decisions, at your own risk, and according to your own criteria.

Investment Strategy:

Investing in biotech/pharma companies is a high risk, high reward venture that puts most common investors at an increased risk when compared to their professional counterpart. Price fluctuation for small-cap stocks is heavily facilitated by short-term market sentiment over trivial factors, which at times can be counter-intuitive (ie. a decline in stock price after announcing FDA-approval of an experimental drug).

It is imperative to understand that almost all biotech companies are developed from a pure speculative standpoint: they have no product, very limited data, but they need money to continue to conduct research, thus they will pull every possible method to obtain money. Some companies will bring on famous biotech leaders to their scientific advisory board to attract investors, gain market attention, and to network their way toward establishing a fund large enough to conduct experimental or clinical studies. Unlike the tech industry, where the product directs a companies success, the biotech industry will proclaim that  an idea  has potential for company/clinical success. Investing in an idea is very high risk.

I believe that a strong strategy is to invest with a long-term mindset to help mitigate the short-term risks.  Strong science and strong business practices are two quantitative factors that provide a proper analysis regarding company growth and direction. The former requires specific expertise within the scientific field, and because the general public is more in tune with the companies business practice, the company will oversell their science to gain market and investor attention.

I will primarily analyze the scientific or clinical data that drives every company, and present to you a dissertation that you can use to help facilitate your decision to invest.

I will not present any news, technical analysis, such as daily chart observations,  trend-lines, channel analysis, etc. because these factors are fueled by short-term interests, and ultimately subject to personal and emotional bias.


Autologous cell therapy: Vericel harvests a patient-specific cell-type, expands the cells (allowing them to proliferate), and implants these cells back into the patient. Vericel has 2 FDA approved products that are indicated for treatment against 1) cartilage defects in the knee and 2) deep dermal or full thickness burns comprising a total body surface area greater than or equal to 30%.

About the Company:

Vericel is a leader in advanced cell therapies for the sports medicine and severe burn care markets. Currently, the company has two FDA-approved products in the United States:

  1. MACI® (autologous cultured chondrocytes on porcine collagen membrane) is a third generation autologous cellularized scaffold product that is indicated for the repair of single or multiple symptomatic, full-thickness cartilage defects of the adult knee, with or without bone involvement.
  1. Epicel® (cultured epidermal autografts) is a permanent skin replacement for the treatment of patients with deep dermal or full thickness burns greater than or equal to 30% of total body surface area.


The fundamental applicative nature of  both products have  proven to exhibit both safety and efficacy, as exemplified by their FDA approval. Unless we witness unforeseen complicated adverse effects, it is safe to state that these therapeutics are currently proven to be a concrete asset.

Scientific Analysis

MACI is a product that utilizes a patients own chondrocytes to facilitate a more effective method of repairing multiple symptomatic, full-thickness cartilage defects of the adult knee. Articular cartilage is essentially highly specialized connective tissue that coats the ends of our bones where they come together to form a joint. Cartilage allows our joints to move in a friction-less fashion, thus damage to articular cartilage can cause pain, swelling, or a clicking/grinding sensation. 

The cells that are responsible for maintenance of cartilage integrity and production are called ‘chondrocytes’. During excessive trauma, aging,  or pathological inflammatory conditions,  changes to chondrocyte function can result in degradation of the cartilage architecture.

The company’s patented single-pass perfusion technology enables the selective expansion of certain cell populations, which have been shown to promote wound healing, new blood vessel formation and tissue restoration (1). An overview of their product development is depicted here:

Presentation: Vericel Analyst and Investor Day. 2018

The first commercially available cell-based therapy for articular cartilage repair, Carticel, came to market in 1997 under the company, Aastrom Biosciences, Inc. Though Carticel was indeed an effective method of treatment, it came with major limitations: extended surgical time, arthrotomy, sutures, and periosteal patch harvest. MACI, on the other hand, is a 3rd generation product with improved patient outcomes.

Vericel’s ability improve upon a product that has already garnered approval by the FDA demonstrates stability, longevity, and a progressive scientific practice.

Important Safety Information: “MACI is contraindicated in patients with a known history of hypersensitivity to gentamicin, other aminoglycosides, or products of porcine or bovine origin. MACI is also contraindicated for patients with severe osteoarthritis of the knee, inflammatory arthritis, inflammatory joint disease, or uncorrected congenital blood coagulation disorders. MACI is also not indicated for use in patients who have undergone prior knee surgery in the past 6 months, excluding surgery to procure a biopsy or a concomitant procedure to prepare the knee for a MACI implant.

MACI is contraindicated in patients who are unable to follow a physician-prescribed post-surgical rehabilitation program.

The safety of MACI in patients with malignancy in the area of cartilage biopsy or implant is unknown. Expansion of present malignant or dysplastic cells during the culturing process or implantation is possible.

Patients undergoing procedures associated with MACI are not routinely tested for transmissible infectious diseases. A cartilage biopsy and MACI implant may carry the risk of transmitting infectious diseases to healthcare providers handling the tissue. Universal precautions should be employed when handling the biopsy samples and the MACI product.

Final sterility test results are not available at the time of shipping. In the case of positive sterility results, health care provider(s) will be contacted.

To create a favorable environment for healing, concomitant pathologies that include meniscal pathology, cruciate ligament instability and joint misalignment, must be addressed prior to or concurrent with the implantation of MACI.

Local treatment guidelines regarding the use of thromboprophylaxis and antibiotic prophylaxis around orthopaedic surgery should be followed. Use in patients with local inflammations or active infections in the bone, joint, and surrounding soft tissue should be temporarily deferred until documented recovery.

The MACI implant is not recommended during pregnancy. For implantations post-pregnancy, the safety of breast feeding to infant has not been determined.

Use of MACI in pediatric patients (younger than 18 years of age) or patients over 65 years of age has not been established.

The most frequently occurring adverse reactions reported for MACI (≥5%) were arthralgia, tendonitis, back pain, joint swelling, and joint effusion.

Serious adverse reactions reported for MACI were arthralgia, cartilage injury, meniscus injury, treatment failure, and osteoarthritis.”

The duration of such adverse effects is unclear.  Frequently occurring adverse effects may not be long-term, whereas the benefits of MACI extend to 15 years.

MACI Clinical Studies

There are always strengths and limitations to every clinical study.  Investigators can “optimize” their study to represent a more biased analysis depending on what objective (endpoint) they hope to achieve.

Vericel, specifically MACI, has a strong clinical publication record. Multiple publications from this type of procedure demonstrates stability and reproducibility. One caveat to their publication record is that they have been publishing their results to the same journal for over a decade (American Journal of Sports Medicine). There is nothing wrong with submitting a manuscript to the same journal, however this brings up the likelihood that they have a connection with the editors/reviewers, which increases their chances of publication approval and decreases the need to conduct further studies to address reviewer questions (questions that may require further studies to prove their hypothesis).

Vericel’s  publication record provides an analysis of a wide range multi-layered  supportive endpoints (radiological vs. clinical outcomes, full-weight bearing rehabilitation, time spent ambulating on crutches, graft integrity, a 5-year and 15-year analysis, etc.). They are assessing different clinical aspects that may be used to determine MACI’s clinical efficacy.

List of MACI clinical journal publications:

Active Clinical TrialsPEAK (55-1702-1): “This is a 2-year prospective, multicenter, randomized, open-label, parallel group clinical trial; a total of 45 patients, ages 10 to <17 years, will be randomized to receive a 1-time treatment with MACI or microfracture (2:1, 30 MACI:15 microfracture).

After meeting screening criteria at the initial visit, all patients will have a screening arthroscopy to further assess study eligibility. During the screening arthroscopy, patients will be further evaluated against entry criteria. Cartilage lesion size will be measured prior to any cartilage repair procedure and randomization. All patients who meet the eligibility criteria and are considered suitable for treatment in the study will have a cartilage biopsy taken prior to randomization to study treatment. Eligible patients will be randomized during the screening arthroscopy procedure to receive either MACI or microfracture treatment. Patients randomized to microfracture will undergo the procedure during the screening arthroscopy.

All biopsied tissue will be sent to the Vericel manufacturing facility in Cambridge, Massachusetts, where the sample will be processed to isolate the autologous chondrocytes. Cells from patients randomized to the MACI group will be used in the preparation of the MACI implant; cells from patients randomized to the microfracture group will be cryopreserved.

Patients randomized to treatment with MACI will return within 12 weeks of the screening arthroscopy to undergo the chondrocyte implantation procedure via arthrotomy. Patients are to follow a recommended postoperative rehabilitation program and compliance with the rehabilitation schedule will be monitored.

Patients will be followed post-study treatment for 2 years (104 Weeks).”

Expanding MACI’s indication to the pediatric population diversifies revenue potential and relatively de-risks the obstacles needed to increase current revenue from the adult sports medicine market

MACI Conclusion

A company that has the means to utilize their resources to drive up  revenue in the sports medicine  market,  to begin expanding their  patient population, to continue publishing clinical investigative results, argues the notion that such company is aiming to grow long-term value for both their patients and their investors.


Epicel, a humanitarian device, is a product that utilizes a patients own skin (from a skin biopsy) to develop a graft, which the patient can use to treat deep dermal of full thickness burns that comprises of greater than or equal to 30% of the body surface area. Vericel can grow enough skin to cover the patient’s entire body. 90% of the outermost layer of our skin is composed of keratinocytes – an epidermal cell that produces a key intermediate filament protein called keratin. Keratinocytes possess multiple physiological functions that I will not discuss, however the main purpose for developing a cultured epidermal autograft (skin graft) is to treat patients that are suffering from severe skin burns. An overview of Epicel production, delivery, and administration is shown below:

Screen Shot 2018-09-06 at 3.53.55 PM.png
Presentation: Vericel Analyst and Investor Day. 2018

Epicel has been around for a very long time, and though Epicel is indeed FDA-approved, it’s quite not as an impressive product than its more famed counterpart, MACI. I do not want to take away from the benefit this product provides to its patients, however let me digress on a certain points that make Epicel less than an admirable product, and provide methods by which company is aiming to address the shortcomings of Epicel use.

A. Epicel Shortcomings

– Xeno-transplantation and tissue donation issues 

Although Epicel utilizes a patients own keratinocytes, the patients keratinocytes are grown together with mouse cells. In other words, Epicel contains mouse cells along with human cells as a method of treatment. Thus, there are certain safety measures and potential adverse effects that can not be excluded. For example, risk of immunogenecity, either direct or indirect (infection) can increase risk of complications during treatment.

– Epicel FDA Medical Device Report Analysis: Each year, the FDA receives several hundred thousand medical device reports of suspected device-associated deaths, serious injuries and malfunctions. Medical Device Reporting (MDR) is one of the postmarket surveillance tools the FDA uses to monitor device performance, detect potential device-related safety issues, and contribute to benefit-risk assessments of these products.

In a post-market surveillance study, there were reports of medical device adverse events associated with use of Epicel.

Number of MDRs by the Year received for Adults and Pediatric Patients

If you take a look at the graph, over the course of 16 years, there were 90 reported adverse events. Of the 90 events, 76 of them were deaths, 12 injuries, and 2 malfunctions (20 of the 90 adverse events were pediatric related. Of the 20 pediatric patients, 15 of them died). That said, there were several reported complications for each patient, thus it is almost impossible to determine whether such adverse events were associative of causal. Nonetheless, the top 3 adverse events in order of frequency were: 1-multi-organ failure, 2-sepsis, and 3-cardiac problems (cardiac arrest, cardiogenic shock, cardiopulmonary failure).

A literature review was  conducted to evaluate related adverse events with Epicel therapy. There are case reports of developing squamous cell carcinoma:


The development of cancer after Epicel therapy prompted the company to update the prescription label

Direction for Use – Warnings: Squamous Cell Carcinoma (SCC)“Squamous cell carcinoma (SCC) has been reported in patients with burn injury after being grafted with Epicel. Distinctive features of these cases include multicentric location, large size, aggressive growth, local recurrence after resection, and fatal outcome in some of the cases. In the reported cases, the SCC occurred in the grafted areas 12 to 19 years after Epicel grafting. A latency period of 32 ± 18 years from the time of burn injuries to occurrence of SCC is described in the literature. A patient with epidermolysis bullosa dystrophica (DEB) developed an invasive SCC a few days after grafting with Epicel. The patient underwent a lower extremity amputation within weeks of diagnosis.Of the three patients diagnosed with SCC with known age, one was an eight-year-old child at the time of treatment with Epicel. The child was diagnosed with SCC in the area of the Epicel graft 11 years and 7 months after treatment, and the outcome was fatal.Although SCC is a known complication of burn scars and DEB, the role of Epicel in the causation of SCC cannot be excluded.”

Epicel is a tracked medical device and from 2007 – 2015, survival data was collected:


At quick glance, this data is very impressive. We achieve ~80% survival in patients being treated with Epicel. Let’s re-define the table in terms of mortality:

Epicel has a ~20% mortality rate

– Lack of Epicel Clinical Studies

The only clinical study performed with cultured epidermal autografts (Epicel), dates back to 1996. (Munster AM. Cultured skin for massive burns. A prospective, controlled trial. Ann Surg. 1996;224(3):372-5.)

In this study, a reduction in mortality in the cultured epithelial autograft group compared with controls, from 48% to 14%.

A recent poster presentation revealed the “largest dataset of burn patients treated with CEA, including the largest dataset of pediatric patients, demonstrating the clinical benefit of using CEA for severely burned patients”

Screen Shot 2018-09-08 at 4.15.09 PM
Twenty-five Years’ Experience and Beyond with Cultured Epidermal Autografts (CEA) for Coverage of  Large Burn Wounds in Adult and Pediatric Patients, 1989-2015; Hickerson, American Burn Association Annual Meeting (March 23, 2017)

It is important to note that this graph is not a controlled clinical study. It is merely an associative study that compares two separate data sets, and no medical claims can be made from this study

Again, studies like this could easily be fashioned in such a way that only proves a single point. It is not clear if confounding variables are accounted for.  Unless the methods used in this study is published, I will tread carefully when translating this finding to your investment decision. In fact, the company can not make any medical claims regarding Epicel efficacy:

“The effectiveness of Epicel has not been proven in clinical studies. The long-term safety of Epicel is unknown. The safety of Epicel has not been studied in pregnant and nursing women.”

Furthermore, the survival analysis the company is proclaiming is biased according to a specified range of TBSA percentages and does not correlate with the indicated range of treatment:

“According to a data set reported in the 2016 ABA National Burn Repository, burns greater than 65 to 70% TBSA are associated with a 50% case mortality rate” said Dr. Dave Recker, chief medical officer of Vericel. “The reported 84% survival rate from the Epicel clinical experience databases in over 950 patients with a mean TBSA of 67% continues to support a probable survival benefit of Epicel in severe burn patients.”

Probable = risk

I may be nit-picky with my assessment, but here is the problem with this type of data analysis: Epicel’s indication is for patients with a TBSA >30%, thus the mortality/survival data should encompass a TBSA >30%. Notice how the mortality/survival statistics presented are only stratified to a specific range (TBSA 65-70%). What would happen if Vericel presented the survival/mortality data that includes the total indicated range of treatment?  What is the survival rate for patients with a TBSA >30% in patients treated with or without Epicel? Are these findings statistically significant? 

No studies have been conducted that demonstrates that Epicel clinically reduces the mortality rate in burn patients with a TBSA > 30%, when compared to patients not treated with Epicel with a TBSA > 30%.

B. A business band-aid to redirect Epicel’s scientific/clinical shortcomings

Given that Epicel is a humanitarian use device (HUD), it is essentially exempt from demonstrating effectiveness, and instead only requires to demonstrate probable benefit (as shown above)

There are certain profit restrictions involved with an HUD, unless an indication is made to a pediatric population, which Epicel has an indication for. However, there are still limitations to how much money Vericel can make with Epicel. This limitation is called the Annual Distribution Number – the number of devices that may be sold for profit in any given year.

“The FDA has determined the ADN number for Epicel is 360,400 which is approximately 50 times larger than the volume of grafts sold in 2017. We currently have a 5-person field force.” – SEC Form 10K

According to the company’s presentation, it seems as though strategic investments would be to increase marketability and revenue potential by expanding commercial and medical affairs team, and enhance patient and customer support programs. Regardless of this strategic move, the lack of proven clinical effectiveness will put investors at risk long-term, especially if there is competition within the burn market. What will happen if a competitor markets an FDA-approved product that clinically demonstrates decreased mortality rates? 

Epicel Conclusion

The increasing awareness of adverse events associated with Epicel use and lack of clinical studies evaluating its efficacy,  makes Epicel a less than admirable product for the company and may put long-term investors at an increased risk, despite the current strategic business practices that are currently in play.


Ischaemic dilated cardiomyopathy is one of the leading causes of morbidity and mortality as well as the largest cause of hospital re-admissions in the USA.  Vericel’s multi-cellular therapeutic approach against this disease utilizes a patient’s own bone marrow by selectively expanding two key types of bone marrow mononuclear cells: CD90+ mesenchymal stem cells and CD45+CD14+ auto-fluorescent+ activated macrophages. Coined Ixmyelocel-T, Vericel has conducted a phase 2B clinical trial with significant results. 

“To date, the phase 2B trial is the largest cell therapy study done in patients with heart failure so far. The transendocardial delivery of ixmyelocel-T in patients with heart failure and reduced ejection fraction due to ischaemic dilated cardiomyopathy resulted in a significant reduction in adjudicated clinical cardiac events compared with placebo leading to improved patient outcomes.”

 Ixmyelocel-T is currently in the pre-approval stage and the FDA required Vericel to “conduct at least one additional phase 3 clinical study to support a biologic License approval (BLA) for ixmyelocel-T”.

The clinical and experimental studies regarding Ixmyelocel-T therapy is profound, and currently demonstrates to me that it is a very strong asset in expanding long-term company growth.
List of publications:

“Ixmyelocel-T has been granted a U.S. Orphan Drug designation by the FDA for the treatment of DCM. We completed enrolling and treating patients in our completed Phase 2b ixCELL-DCM study in February, 2015. Patients were followed for 12 months for the primary efficacy endpoint of major cardiac adverse events, or MACE. On March 10, 2016, we announced the trial had met its primary endpoint of reduction in clinical cardiac events and that the incidence of adverse events, including serious adverse events, in patients treated with ixmyelocel-T was comparable to patients in the placebo group.  Patients were then followed for an additional 12 months for safety. Because the trial met the primary endpoint, patients who received placebo or were randomized to ixmyelocel-T in the double-blind portion of the trial but did not receive ixmyelocel-T have been offered the option to receive ixmyelocel-T. We successfully treated the last patients in February, 2017, and the last follow-up visit will occur approximately one year later. In addition, we have conducted clinical studies for the treatment of critical limb ischemia, and an ixmyelocel-T investigator-initiated clinical study was conducted for the treatment of craniofacial reconstruction. On September 29, 2017, the FDA indicated we would be required to conduct at least one additional phase 3 clinical study to support a BLA for ixmyelocel-T.  Given the expense required to conduct further development and our focus on growing our existing commercial products and becoming profitable, at this time we have no current plans to initiate or fund a Phase 3 trial on our own but instead are seeking a partner to fund further development.” -SEC Form 10K


Is this investment scientifically or clinically sound?

MACI is clearly the strongest asset that pushes the company’s long-term potential given its strong applicative potential. The ability to produce a lineage (MACI) of autologous cellularized scaffold products, drive up MACI revenue in the sports medicine  market by expanding their  patient population, and to effectively demonstrate significant clinical outcomes by utilizing various clinical parameters, argues the notion that such company is aiming to grow long-term value for both their patients and their investors.

Epicel, on the other hand, has some issues regarding its safety and efficacy that may limit it’s potential as a viable  profit-producing product. The best move the company will make regarding Epicel will be from a pure business standpoint: strengthening brand value, expanding peer-peer programs, launching reimbursement resources. This is a must, because a medical provider is going to wave caution to letting a patient utilize an expensive product that has not demonstrated any controlled clinical efficacy. Furthermore, Epicel is not patent protected, and the increasing competition within the burn market puts investors at more of a long-term risk than necessary. Nonetheless, Epicel is necessary to increase revenue.

Though Ixmyelocel-T is not currently FDA-approved, the fact Vericel has decided to ramp up revenue from its currently approved products while awaiting Phase III partnership is a strategic move that allows for  investors and shareholders to anticipate an increased market sentiment if or when partnership is announced. 

The science and clinical data is sound for both MACI and Ixmyelocel-T. Epicel poses a slight risk regarding its lack of clinical efficacy and limited revenue potential. However, Vericel’s product portfolio in its entirety is diverse, thus is a strong candidate for a long-term investment with a minimum horizon of at least 5 years.



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