Hi, everyone. I'd like to welcome you to the third day of the J.P. Morgan Healthcare Conference. I'm Elizabeth Ughetta. I'm a member of the investment banking healthcare team, and it is my pleasure to introduce CEO of Vericel, Nick Colangelo.
Great. Well, thank you, Elizabeth. It's great to be here today. Before we begin, as always, I just wanna remind everyone that our presentation contains forward-looking statements, so you should refer to our documents on file with the SEC for further information. Vericel is a leading provider of advanced therapies in the sports medicine and severe burn care market. We combine innovations in biology with medical technologies to create a highly differentiated portfolio of advanced cell therapies and specialty biologics that repair tissue and restore lives. Our lead product is MACI, which is an advanced cell therapy that uses a patient's own cells to restore damaged cartilage and restore function. MACI has become the leading cartilage repair product in the sports medicine market, and it's the only FDA-approved product in its class.
In the burn care market, our treatments are focused on hospitalized patients with severe burns, and the treatment pathway for these patients entails, first of all, removing the burned tissue or eschar, and then covering the wound to allow for wound closure. So NexoBrid, which is a product that we just launched in the U.S., in the fourth quarter of last year, is indicated for the removal of eschar in adult patients with severe burns. And NexoBrid, which is a skin graft product that uses a patient's own cells, to cover the wound, is the only FDA-approved permanent skin replacement, for these severe burn patients with greater than 30% total body surface area burns. So we believe that with leading products that address both aspects of the treatment pathway, that we have the premier burn care portfolio in the market.
One of the sorta unique features of our portfolio is that we have significant barriers to entry. So MACI and Epicel are regulated by the FDA as combination device biologic products, with obviously the biologic component being the use of a patient's own cells. So that's very important because there's no established biosimilar or generic pathways for products like this, no 510(k) pathway. So if anybody wants to compete with us in these markets, they have to run a full clinical development program, and that's very difficult to do in these areas. And so there are no near-term like competitors for MACI and Epicel. Similarly, with NexoBrid, it was approved as an orphan biologic product in the U.S.
In addition to its patent protection, which runs into the 2030s, we have market exclusivity, orphan market exclusivity in the U.S., as well as 12-year biologics data exclusivity. A really unique portfolio in terms of sorta the barriers to entry for others to come in to compete with us, and we think it provides an exceptional foundation for sustained profit and revenue growth over the long term. We think we're well-positioned to deliver on that growth, and it starts with our strong financial profile. In addition to sustained high revenue growth over the past several years, we've also delivered positive adjusted earnings and operating cash flow every quarter for the last three and a half years, even during COVID.
So very strong performance from a profitability perspective, and we ended the year with about $152 million in cash and no debt. So great foundation from a financial perspective for us. And as we look forward, we're really focused on reinforcing our position as a premier high-growth sports medicine business by expanding our leadership in the cartilage repair market, by focusing on the key MACI growth drivers in the current indication for knee cartilage repair. We're also focused on advancing our pipeline, which is principally based around lifecycle management opportunities for MACI, including arthroscopic delivery and an indication expansion, including MACI ankle, and then creating a second high-growth franchise in burn care with the launch of NexoBrid and continued utilization of Epicel. And so we enter 2024 with a great deal of momentum.
We announced our preliminary financial results yesterday, which were very strong. So total company revenue growth of 20% for the full year to over $197 million, and strong growth of 23% in the fourth quarter to about $65 million, so record revenues for the company. And MACI had a really strong full year and fourth quarter as well. So for the full year, MACI grew 25% to about $165 million. It grew 22% in the fourth quarter to about $57 million. So again, really strong growth for MACI. The growth was, you know, up 50% sequentially over the third quarter and represented the sixth straight quarter of 20%+ growth for MACI. So it's really resumed its high-growth profile once the COVID headwinds abated and so on.
And it was really driven by strong underlying growth, or performance on the business fundamentals. So we had record... In addition to record revenue, record implants, record implanting surgeons, record biopsies, and record biopsying surgeons, so a really strong performance across the board, for MACI. And then on the burn care side, as we mentioned... We've always said that with the addition of NexoBrid, that we could create a second high-growth franchise, and the burn care franchise was up 31% this fourth quarter over Q4 2022. So really strong top-line performance for the company, and we also continued to deliver strong profitability for the year, in the quarter. So from a gross margin percent perspective, gross margins will be over 70% for the fourth quarter, which is typical.
It's our highest revenue quarter, and then in the high 60% range for the year. Our adjusted EBITDA or adjusted earnings margin was 30% in the fourth quarter and mid-teens for the full year, and that mid-teens adjusted earnings was 30% higher than in 2022. So you know, the profile of the company is high top-line revenue growth of 20%, bottom line earnings growth of 30%. So really solid performance for the company. And then when we kinda look at our business results, we had 2 submissions in the fourth quarter, a supplemental BLA submission for a pediatric indication for NexoBrid, the MACI Arthro submission for MACI arthroscopic delivery, both of which were reviewed and accepted for review by the FDA. So good, strong operational performance as well.
As we look into 2024, we expect total revenue growth to continue to be strong in the 20%+ range. As I mentioned, we expect that we'll have a second high-growth franchise in our burn care now with the first full year of NexoBrid revenue. And then with the launch of MACI Arthro in Q3, it will enable greater penetration into our addressable market, and we expect to have some revenue impact in the back half of the year for MACI Arthro. So it's the continuing momentum of our core portfolio, full year of NexoBrid, and then hopefully the launch of MACI in the back part of the year, we think sets us up really well for 2024 and really creates an inflection point in our profitability.
So we'll talk about sort of our expectations for next year on the gross margin, and adjusted earnings line, but we do expect to be GAAP net income profitable in 2024. We're on track for that. So we are serving large and under-penetrated markets that we think support this long-term growth. Our core portfolio of MACI and Epicel is basically a $3 billion+ addressable market. With the launch of NexoBrid, hopefully the launch of MACI Arthro later this year, and then MACI Ankle towards or at the end of the decade, we have an opportunity to grow our addressable market by 40% to over $4.5 billion. So we think this will support our long-term growth expectations.
From a revenue perspective, this, our core portfolio of MACI and Epicel, plus these new product launches that I've mentioned, are expected to drive further growth in 2024 and beyond. So since we launched MACI in 2017, we've had a compounded annual revenue growth rate of over 20%, again, reaching over $197 million this year. And really, it's been kind of the definition of a durable growth platform. You know, it's been a number of years that we've been able to grow at a high rate, and we expect that to continue. And then again, as we move into 2024 and beyond, it's that momentum in the core portfolio, full year of NexoBrid in 2024, which will be, you know, we would expect to be at an even higher rate in 2025.
The launch of MACI in the back half of the year, again, will be potentially some revenue in the back half of 2024, but really first full year of MACI Arthro in 2025. So we think the company is set up very well from a revenue perspective as we move forward. And then from a profitability perspective, as I mentioned, we think we're at an inflection point, good, strong, performance this year. From a gross margin perspective in 2024, we expect to achieve 70% gross margins, and then beyond that, move into the 70%+ range, which we've always said is kind of our, our longer-term goal on the gross margin perspective.
From an adjusted earnings perspective, as I mentioned, we expect mid-teens gross margin or Adjusted EBITDA margin this year, about moving up to about 20% Adjusted EBITDA margin this year, sorry, and then trending towards 30% in 2025 and getting to our long-term goal of 30% or more as we move beyond 2025. We think the company is set up from a good place from a profitability perspective as well. Turning to our portfolio and our pipeline, I'll start with MACI, give an overview of the cartilage repair market and what we believe are the key near-term and long-term growth drivers for the business going forward. Cartilage defects on the knee are a significant issue.
These defects are found in about 60% of knee arthroscopies, and they're caused by either acute or repetitive trauma, degenerative conditions, et cetera. And the issue is that cartilage does not have intrinsic healing properties, unlike most of the other tissues in your body. There's no blood vessels that bring repair cells, there's no lymphatics that clear away cellular debris, and there's no nerves. So once you have these cartilage defects, which are like a pothole on the surface of the knee, unless they're repaired, it basically leads to obviously pain, dysfunction, but then osteoarthritis and partial and full knee replacement. So that's what we're trying to address, and we did publish a study last year where even with MACI patients, the longer you wait between the time a biopsy's taken and an implant is done, these defects grow and often result in multiple defects.
So very important to make sure that they're addressed as early as possible.... and given the large incidence of these knee cartilage injuries, it represents a substantial commercial opportunity for us. So there's about 750,000 cartilage repair procedures that are done each year, and we did a very large quantitative market assessment a few years ago. MACI has a broad label, as I'll talk about in a moment, indicated for the treatment of defects anywhere in the knee. So when you talk to surgeons about the patients they see that would be eligible based on the MACI label, it's a very large percentage. Over 40% of those patients would be eligible for MACI treatment. We know, however, that surgeons think about different patient phenotypes and different treatment options for them.
So when we asked a different question, like, "Who would you expect to use MACI on, based on the patient's age, size, and location of defects, ability to do rehab, et cetera?" There was about 125,000 patients, and then because most payers require a defect to be 1.5 or 2 square centimeters or above, take a cut for that, and you end up with about 60,000 patients, so less than 10% of the procedures that are done each year. But at our price point, it represents north of a $3 billion opportunity for us and obviously supports the strong growth we've seen with MACI over the past several years.
So MACI itself is comprised of a patient's own cells seeded onto a collagen membrane, and the way it's made is that during an initial arthroscopic assessment, a surgeon will take a Tic Tac-sized biopsy of cartilage, healthy cartilage, send it to our facility in Cambridge. We process the biopsy, we isolate the chondrocytes and expand them, and then we cryopreserve them until the surgeon and patient are ready to move forward with surgery. At that point, thaw the cells, continue to expand them. We seed them onto the resorbable collagen membrane at a density of about 500,000-1,000,000 cells per square centimeter, and then ship the product to the surgical site. The surgeon prepares the defect, cuts the membrane to the size of the defect, simply glues it in with fibrin glue, and then it's done.
Chondrocytes are spindle cells, so they grab onto those collagen fibers, and when it's implanted, they migrate down to the subchondral bone. They start to replicate and produce the cartilage that's naturally present in the knee and allows patients to restore their active lifestyles. So MACI's been growing very well, as I've mentioned, since we launched the product, and there's really a number of attributes that contribute to that. First of all, as I mentioned, MACI has a very broad label, so there's no limitation on the size, number of defects, whether there's bony involvement or a lot or not. So there's a lot of patients that are eligible to be treated with MACI, and it has unsurpassed clinical data.
It's the only product that's been approved under a BLA by the FDA based on a randomized, controlled Phase III pivotal study, so really compelling clinical data and again, that, you know, allows more patients to be considered for treatment with MACI. From a surgeon perspective, we had a prior product called Carticel, which was the same thing, take a patient's cells, but it was a cell suspension, so very hard to deliver surgically. We'd liken it to spackling a wall with water, right? It had to microsuture, a cover, inject the cells. It was just a pretty technically demanding procedure, so MACI obviously became a much less invasive, simpler, faster surgery for the surgeons to do, which has led to the dramatic increase we've seen, as you often do, as surgeries become less invasive or minimally invasive.
You see a broad adoption and a really strong growth in the surgeon base. Likewise, because it's a less invasive procedure, there's shorter rehab protocols, so that's obviously important from a patient perspective. And then MACI has a really strong reimbursement profile, so every major plan in the country has a medical policy that covers MACI, and over 90% of the prior approval submissions are approved, so strong reimbursement. And that's how payers regulate or monitor the use because they have to approve each case, and that way, they know that the patient's appropriate to be treated with MACI. So as I've mentioned, surgeon adoption is really what's fueling the growth right now for MACI. We talk about, you know, four growth drivers for MACI.
So it's how many surgeons are taking biopsies and incorporating MACI into their practice. That's the breadth of penetration into the target universe. How many biopsies per surgeon are you getting? That's the depth into their, or the penetration into their practice. How are those biopsies that they take converting into implants, and then price? And so at this point in time, as MACI's growing, really the principal drivers are, surgeon growth for us. So we started when we launched MACI with 3,000 target surgeons, and by 2019, we had essentially, on an annual basis, achieved 50% penetration of our targets taking biopsies. Cumulatively, it was higher than that, and you know, since we've launched MACI, we've had a double-digit compounded annual growth rate in surgeons taking biopsies, so we've continued to see adoption of this, broadly into practices.
With another year of double-digit growth in 2023, we're approaching 50% penetration in our current 5,000 targets, so we expanded in 2020 our targets and our sales force to 76 territories. And with the launch of arthroscopic MACI, we expect to add another 2,000 surgeons who are targets who we can, by LexisNexis data with CPT codes and see surgeons that are doing high volumes of cartilage repair but aren't doing open procedures, which tells you they're doing their cartilage repair and other, you know, meniscal and like procedures arthroscopically, so they're a good, high potential target universe for us. And over time, we'd expect to see the same kind of penetration rate into our new target universe.
So, surgeon, the point is, surgeon growth will continue to be a strong growth driver for the company in the years ahead. So that's our current portfolio in terms of MACI, and as we look at, you know, our pipeline, obviously, with the launch of NexoBrid in the fourth quarter of last year, you know, we're continuing to advance our MACI initiatives. As I mentioned, that's MACI arthroscopic delivery, so continuing to make MACI a less simpler and less invasive procedure, and then moving forward with an expansion into the ankle for MACI, so other joints where cartilage injuries are pretty prominent. So starting with arthroscopic MACI, you know, we think this will open up a large segment of our addressable market. So, for the reasons I've mentioned earlier about less invasive, simpler surgery, we think it provides a significant growth opportunity.
In our market research, you know, surgeons generally, whether they're MACI users or not, have a high interest in an arthroscopic option for MACI for cartilage repair. And for current MACI users, they would expect to do more procedures with an arthroscopic delivery option. And we think, you know, this will provide a big opportunity for us because it will be the only restorative cartilage repair product that can be delivered arthroscopically. So when we look at our addressable market and break it down by size and location of defect, it gives you a sense of the opportunity ahead of us. So MACI's kind of a go-to product in patella defects, so the cartilage injuries on the back of the kneecap and in the patellofemoral joint.
We have a pretty double-digit market share, a pretty big market share there. On the femoral condyles, which are the end of the thighbone, there's more injuries there because that's the part of the knee that bears the most weight. And so we have probably half our business there, but because there's double the number of injuries or procedures done there each year, our market share is lower. So the whole concept here of arthroscopic MACI is that we're focused on 2-4 square centimeter defects on the femoral condyles. Those are the most prominent defects. Of the 60,000 patients, about 20,000, or a third of the addressable market, are 2-4 square centimeter defects on the femoral condyle.
And if we can achieve the same share that we have in the patella defects, you know, it would essentially double our business over the coming years. So a very important opportunity for us, as we move forward. So that's a procedural advancement that, you know, we think, again, will kinda continue on the path of making MACI a simpler and less invasive procedure. As I mentioned, we also look at indication expansion opportunities, and the ankle is the second-largest opportunity for us behind the knee. So there's about 165,000 cartilage resurfacing procedures that are done in the ankle each year. We went through the same quantitative market assessment with orthopedic surgeons and foot and ankle surgeons that treat these kinds of defects, and about 18,000 of those procedures comprise the TAM for MACI.
And again, at our price point, that's another, you know, billion-dollar market opportunity for us. So combined with the knee, ends up making MACI, you know, a $4 billion market opportunity between the knee and the ankle. So very exciting opportunity for us, and we expect to initiate a phase III study in 2025 for ankle and have a potential launch for the product at the end of the decade. So turning to our burn care franchise, you know, essentially, the treatment pathway for these severe hospitalized burn patients is determined by the size and the depth of their burns. So if you have a full-thickness burn, which means the burn goes all the way down to the muscle, fat, or bone, that's a full-thickness burn.
A burn of any size, a full-thickness burn of any size, basically, patients are, you know, transferred to one of the 140 specialized burn centers in the country. If you have a partial thickness burn, which means there's some dermal components of the skin left that's greater than 10%, these patients are also typically transferred to the, you know, one of the accredited burn centers in the country, and those are the patients that we focus on. Again, for these patients, as I mentioned earlier, the first thing you have to do is remove the burn tissue, and then you figure out how you're gonna cover the wound with Epicel or autografts or other products to help the wound heal. You know, this is a large market opportunity for us as well.
There's 500,000 burns in the U.S. each year. About 40,000 of those patients are hospitalized. About three-quarters of those, or 30,000 patients a year, will need to have some sort of eschar removal, so that's the addressable market for NexoBrid. And about, you know, at pricing of about $10,000 per patient on average, it's a $300 million market opportunity for NexoBrid. For Epicel, that's a more severe burn patient population, so these are patients that have, you know, 30% or more total body surface area burns. There's about 600 surviving patients each year. At our price point, it represents another $300 million market opportunity. So combined, this represents a north of $500 million market opportunity for us.
And so when you think about eschar removal, to start with NexoBrid. As I mentioned, it's really important to remove that eschar as quickly as you can. You know, this is damaged tissue. Your body has an inflammatory response to it. It causes continued burn progression if you don't remove that damaged tissue, and obviously leads to infections and things like sepsis, which are significant morbidities for these patients. The current standard of care is surgical excision. So essentially, they'll take a knife, the surgeons take the patient into the OR, take a knife, and slice away the dead or burned tissue. And obviously, that's traumatic for a patient. You're taking a two-dimensional knife, you're trying to remove tissue in a three-dimensional burn of variable depth. So there's a lot of healthy tissue loss, a lot of blood loss. So very traumatic for the patient.
There are some non-surgical options, typically associated with dressing changes, but, you know, they've not demonstrated efficacy. So really, there's a significant need for kind of a selective and effective eschar removal product, and we think NexoBrid is that. So NexoBrid is a mixture of proteolytic enzymes that are topically applied, and these enzymes can recognize collagen proteins that are damaged by thermal burns. And basically, what it does over a four-hour period is dissolve the dead tissue or eschar and leaves the healthy tissue. So much better for the patient, obviously, and a much more straightforward application, where, again, you clean the wound. Basically, there's an antibacterial soak, and then NexoBrid, which comes as a lyophilized powder, is mixed with a gel vehicle. It's topically applied.
It's left in place for four hours, and after four hours, they simply wipe away that tissue, and you're left with the healthy tissue, and you can move on to the next phase of treatment, which is: How do you cover the wound so the wound closes? So again, we think this is a dramatic opportunity to change the standard of care in eschar removal, and really excited about the opportunity for us. So we launched essentially and treated the first patients with NexoBrid in the fourth quarter. You know, we're focused at this point, obviously, on helping the hospitals and the burn centers get through the P&T or Pharmacy and Therapeutics Committee approval, so there's access, and it's stocked in the hospital pharmacies.
Doing initial training and then covering the initial cases so that we can ensure successful outcomes for the patients that are initially treated at these hospitals. And, you know, established a good foundation in Q4, so of our 90 of the 140 hospitals make up our Tier One and Tier Two targets. We have P&T packages that are submitted to these committees that we prepare and provide to the surgeons. 50+ of the burn centers have already submitted those packages. More than 25 burn centers already have P&T committee approval, and upwards of 20 centers in the fourth quarter have ordered NexoBrid. So really building a foundation that we'll build on each quarter throughout 2024. Epicel, as I mentioned, is the second phase of treatment for these patients.
Epicel is the only FDA approved permanent skin replacement for these large patients with these large total body surface area burns, both pediatric and adult patients. And it's a really important product for this patient population. Skin, you know, its function is a barrier function, so it's highly immunogenic. Even though skin's an organ, you can't do a transplant of someone else's skin onto a patient. The body will just slough it off. So the only options for these patients are autografts, where you take some healthy skin, run it through a mesher, try to cover as much of the wound as you can, or Epicel.
The data sort of supports the life-saving potential for this product, where in published data, basically at every decile of burn, which is how these patients are considered and treated, you saw a profound survival benefit with Epicel versus standard of care. Really excited to continue to broaden the utilization of Epicel for these critically ill patients. Again, we're really excited about our core portfolio, our upcoming product launches, what that means for the company in terms of continued revenue growth and kind of a top-tier profitability profile. With that, we continue to kind of look for additional opportunities to maximize the value of the company. We spend our time on corporate development activities, principally around products in our current franchises in sports medicine and burn care.
As one of the only companies with a successful cell therapy business in the United States, we also have a lot of capabilities in that area, and we do spend some time looking at opportunities like MACI and Epicel that would make sense for the company. But principally, it's centered, our efforts are centered on the sports medicine and burn care areas. And, you know, we spend a lot of time looking at things. The company was built, you know, through business development transactions, but we have a kind of unique profile. And not only do products need to meet our innovation hurdles, but also our financial hurdles so that we maintain our current profile, which is really driving the value of the company. So, so I will wrap up there.
Again, very excited about kind of what lies ahead for the company, and at this point, Elizabeth, I guess we'll open it up for any questions.
Yeah, that's perfect. If anyone has any questions, please just go ahead and raise your hand, and we'll come around with the mic. Thanks.
(Good morning, how are you?)
Good. Thank you. Yeah. Just wondering if you could just comment on international opportunities as you see the company going forward?
Yeah, that's a great question. So we... MACI actually was approved in Europe and was approved in Australia... and we actually purchased this business from Sanofi. It was part of Genzyme Biosurgery, coming up on our 10-year anniversary, later this year. And basically, you know, in countries like Australia and certain large countries in Europe, the pricing became difficult because the governments allow hospital exemptions. So surgeons, you know, could basically take a biopsy at bedside and sort of do a, I'll call it a homebrew, kinda, you know, chondrocyte cell culturing process and administer it to patients. And so it really sort of impacted... Obviously, those products weren't being manufactured under GMP manufacturing conditions, and it really sort of impacted the pricing in those markets.
So by the time we bought the business, they had already moved out of Australia. They had a facility in Europe. They were just going back through the reimbursement process. We kind of suspended the marketing license and said, "Hey, we'll, you know, we'll manufacture in Cambridge, in Boston," where we manufactured the product that supported the clinical study in Europe. And, you know, despite harmonization, there were just some differences in the manufacturing that the EMA, the European Medicines Agency, would have required, and we weren't gonna shut down our manufacturing for the U.S. to do that. However, there are a few countries over there that could be potential for us.
We're moving to a new facility in the Boston suburbs in 2025 and 2026, and that will be designed, you know, in accordance with both U.S. and European sort of CMC requirements. So we could go back into some select countries in Europe with MACI over time. So we really are focused mostly on the U.S. You know, with these sort of innovative cell and gene therapy products, it's a tough pricing environment outside the U.S. Most of the value of the products are in the U.S., and that's where we really focus our efforts.
Thank you. Any other questions on that? All right, I would like to ask one.
Okay.
So not many higher companies have managed to reach profitability at your scale-
Right.
So what do you think you've done differently to get to this point?
Yeah, that's a, a great question. You know, we, we are pretty proud of the fact that, you know, at $200 million in revenue, we've, you know, been sustainably profitable, and that's gonna really increase just as you, anyone can do the numbers and say, as your revenues grow at the rates you're projecting, and you see the leverage across the business model, it's really dropping down to, you know, both the gross margin and, and the adjusted earnings margin. And again, we expect to be GAAP net income profitable in 2024 and beyond. And, and it kind of starts with sort of the leverage we have in our business. So, you know, MACI and Epicel and even NexoBrid, these are high-value products. They're premium-priced products and relatively concentrated call points. So we have 76 reps in territories for MACI.
We have 24 commercial folks out in the field between reps and clinical support specialists for Epicel and NexoBrid that really are only calling on 140 burn centers. So you've got this dynamic of premium pricing, concentrated call points, and that gives us leverage across the P&L. And then I'd say our management team, you know, it's a pretty experienced management team. And you know, we sort of run the company like you'd run your own finances, and we don't sacrifice growth. We're fortunate that when we do things like launch NexoBrid and increase our sales force, or with the launch of MACI, we'll add, you know, maybe 12 folks associated with that. We can just fund that out of our operating income and normal operations.
And so, you know, we're fortunate to have a business model like that, but we're also pretty diligent in how we approach the business.
Thank you for sharing.
Okay.
All right. If no further questions, let's give a round of applause.
Okay. Thanks, everyone.