This report forms part of our biweekly series on short ideas. These may be cyclical or structural decline stories, stock promotes, or sometimes good companies with big undisclosed problems.
We have no position in any of the ideas we publish. We offer no investment advice, only our own research-based observations.
This week, we examine a biopharma company that has been on our scope for the last five years, Vericel.
VCEL is a one-trick pony that keeps promising new applications for its cartilage-repair product and never delivers.
VCEL makes a material called MACI to replace cartilage in patients who have severe damage to their knees. It also makes a burn treatment. The burn therapy, called Epicel, is for a very limited number of people who have suffered severe burns in disasters over at least 30% of their bodies.
Growth in these products is clearly limited: The cartilage surgery costs a lot – over $40,000 – and often is denied insurance coverage, so the number of surgeries is and always has been small. A 2018 study cited by VCEL reports that fewer than half of the patients deemed clinically appropriate for MACI receive insurance approval for the procedure. The surgery is not available outside the U.S. – too expensive, the company says. Epicel’s addressable market is fewer than 1,000 patients per year, according to the company.
Although revenue grows, VCEL has lost money every year since 1996, a year before its IPO, apart from a measly $2.9 mln in 2020. Executives keep promoting concepts that go nowhere and disappear into corporate silence: a cardiovascular treatment, sales of bone marrow, “arthroscopic MACI,” meaning a less invasive cartilage-replacement therapy, an ankle indication for MACI, a China venture. None of this has happened.
VCEL’s stock is over $35 a share and the market cap around $1.7 bln. That’s up 38% from a year ago.
As sales have risen over the last three years, losses have also escalated.
The losses can no longer be attributed to growing pains; at this stage of maturity, the company should be profitable.
The losses have continued year-to-date 2023.
By the end of 2022, the accumulated deficit reached $400 mln - a good indication of the historic value-add from this company.
Despite the losses, management rewards itself with ample share compensation. Last year, management took $37 mln in share compensation, even as the company lost $17 mln.
We think VCEL is a stock promote that will never make money for public shareholders. But management keeps pushing new stories, and insiders keep selling. Let’s dive in.