Vericel's Short Report: Deep Dive Into Knee-Repair Focused Company's 27 Years of Losses

J Capital Research has released a short idea report on Vericel Corporation VCEL, noting promising new applications for its cartilage-repair product yet consistently falling short on delivery.

Vericel specializes in manufacturing a substance known as MACI, designed to replace damaged cartilage in individuals with severe knee injuries. 

Additionally, the company produces a burn treatment named Epicel, targeted at a very niche demographic—those who have suffered extensive burns covering at least 30% of their bodies.

The growth potential of these products is constrained. Cartilage surgery is costly, exceeding $40,000 in expense, and frequently excluded from insurance coverage, resulting in limited surgical volume. 

A 2018 study, cited by Vericel, revealed that less than half of the patients eligible for MACI received insurance approvals. 

Furthermore, the procedure is not accessible beyond U.S. borders due to its prohibitive cost. 

According to the company's estimations, Epicel's addressable market is reported to be fewer than 1,000 patients annually.

Despite experiencing revenue growth, Vericel has endured losses each year since 1996, a trend commencing a year before its initial public offering, with a solitary exception of $2.9 million in 2020. 

The short report notes that Vericel's market capitalization of approximately $1.7 billion has increased by around 38% compared to the previous year. However, the growth in market value coincides with a simultaneous upsurge in losses over the past three years. 

By the close of 2022, Vericel had accumulated a staggering deficit of $400 million.

Despite this chronic financial underperformance, Vericel's management continues to award itself generous stock-based compensation packages. 

In 2021, the management extracted $37 million in share-based compensation, even as the company recorded a net loss of $17 million.

Price Action: VCEL shares are up 0.39% at $33.80 on the last check Wednesday.