Good day ladies and gentlemen and welcome to the Vericel Corporation First Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only-mode. Later, we will conduct the question-and-answer session and instructions will follow at that time. [Operator Instructions] I will now like to turn the call over to Gerard Michel, Chief Financial Officer. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to the Vericel’s first quarter 2017 conference call to discuss our first quarter 2017 financial results as well as the progress of our commercial business and development program. Before we begin, let me remind you that on today’s call, we will be making forward-looking statements covered under the Private Securities Litigation Reform Act of 1995 and all of our projections on forward-looking statements represent our judgment as of today. These statements may involve risks and uncertainties that are described more fully in our filings with the SEC, which are also available on our website. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. With us on today’s call are Nick Colangelo, Vericel’s President and Chief Executive Officer; Dan Orlando, our Chief Operating Officer; Dr. David Recker, our Chief Medical Officer; and Mike Halpin, Senior Vice President of Quality and Regulatory Affairs. I will now turn the call over to Nick.

Thank you, Gerard, and good morning, everyone. Before I turn the call over to Dan and Gerard to review our first quarter commercial and financial performance, I would like to comment on a few business highlights during the first quarter, including those that were announced this morning. Beginning with the MACI launch. While the first quarter was a transition quarter for our cartilage repair business, we are now in full launch mode for MACI. As Dan will discuss in more detail, as of the beginning of the second quarter, our new sales representatives were deployed into our expanded territory alignment, and our payer strategy has borne early positive results as several commercial plans have updated their medical policies to include MACI since late March. We are very encouraged by the overall surgeon interest and demand for MACI, as evidenced by a significant increase in biopsies following the initiation of our surgeon training activities in late January and the fact that over 200 surgeons have been trained on MACI since that time. Of particular note, as we focus on expanding our customer base, former Carticel users and non-Carticel user target segments are leading every category of key performance indicators. As Gerard will discuss in more detail, Carticel and MACI net revenues reflect the change in estimate for revenue reserves in the first quarter based on the fact that the Company was recently notified about an unresolved contractual dispute between one of the company’s pharmacy providers and the payer which is not related to the MACI launch. In essence, we’ve assumed the claims that issue will be paid at a lower rate pending resolution of the issue between the pharmacy and the payer. If the issue is resolved in the pharmacy’s favor or the claims are processed through another pharmacy at a…

Thank you, Nick. Turning to our commercial performance for the first quarter. The first quarter was a transition quarter for our cartilage repair business as MACI launch activities initiated in late January when MACI became available to the market and we initiated our surgeon training programs. We are very encouraged by the overall surgeon interest and demand for MACI, and in particular, that of former Carticel users and non-Carticel user target surgeons for leading every category of key performance indicators. Biopsies increased 17% in the first quarter compared to Q1 2016 with biopsies from the former Carticel user and non-user categories growing at the fastest rate. There generally is a gap of several months between when a biopsy is taken and the membrane is implanted. So, the increase in biopsies represents a foundation of potential treatment. And we expect the impact of this increase to be seen in the second half of this year. We completed our train the trainer programs this past weekend with top European key opinion leaders with extensive experience that led the initial training of our top U.S. surgeons. These U.S. KOLs will in turn begin an aggressive schedule of regional training programs and local speaker programs planned for the balance of this year. In fact, we already conducted a handful of these programs during the first quarter. And once again, the former Carticel user and non-user segments comprised by far the highest rate of attendance. To-date, over 200 surgeons have been trained and implementing and implanting MACI with nearly half of those surgeons coming from the former Carticel user and non-Carticel user segment. Together, these facts demonstrate the strong appeal that MACI has with surgeons that previously were not interested in using Carticel based on the technically demanding nature of the Carticel surgical procedure. To…

Thanks, Dan. Despite the challenges in the first quarter, we’re enthusiastic about the early customer response to MACI, and we understand the work that needs to be done to continue to educate burn surgeons about using Epicel earlier to provide better patient outcomes and resume growth for the product. I’ll now turn the call over to Gerard to review our first quarter financial results.

Thanks, Nick. Total net revenues for the quarter ended March 31, 2017 were approximately $9.4 million and included approximately $5 million of Carticel and MACI net revenues and approximately $4.4 million of Epicel net revenues compared to $8.8 million of Carticel revenues and $5.3 million of Epicel revenues, respectively, from the first quarter of 2016. Carticel and MACI net revenues reflect the change in estimate for revenue reserves of $2.1 million related to 2016 sales and approximately $700,000 related to 2017 sales. The Company engages pharmacies to contract with insurance providers and recently received notification of a dispute between one contracted pharmacy and a payer. Since the Company retains credit and collection risk from the end customer, we revised our estimate by assuming cases processed by that specific pharmacy will be paid at a lower out-of-network rate. The earlier estimates were based on claims being paid on an in-network basis consistent with the actual payment history and the pharmacy’s interpretation of its contract with the payer. Revenue in the first quarter was also impacted by the fact that approximately 4% of the implants shipped in the quarter did not meet revenue recognition standards and, therefore, were not recorded as revenue in the quarter. We will continue to selectively produce and ship MACI when reimbursement is uncertain in order to foster near-term uptake and long-term physician demand for MACI. In the first quarter, we reported approximately $4.4 million of Epicel net revenues. While Epicel revenues declined from the first quarter of 2016, it is important to note that Q1 2016 was a challenging comparative quarter as Epicel volume was the highest volume for any quarter over the past decade and increased 46% compared to the first quarter of 2015. To put Q1 2017 performance in perspective, excluding the first quarter of…

Thanks, Gerard. First quarter of 2017 was challenging due to a number of factors, and we’re clearly not pleased with our financial results. There obviously is an inherent complexity when launching a next-generation product requiring a change in payer medical policy that can take quarters while physician demand immediately switches to the new product. However, we believe that we’ve implemented a payer strategy that’s accelerating this transition process. And for the balance of the year, we’ll continue to focus on increasing volume for both MACI and Epicel, and driving revenue growth. While our focus remains on our core commercial business, we’re very pleased with the other business developments announced today. We believe that the RMAT designation for ixmyelocel-T enhances the value of the product to potential partners since it provides the pathways for priority review and accelerated approval. Likewise, the license of our product portfolio to ICT provides an opportunity to develop a global footprint for our product portfolio and to create another potential revenue stream for the Company. We believe that these developments have the potential to create long-term value moving forward. That concludes our prepared remarks. Now, I’d like the operator to open the call to your questions.

[Operator Instructions] Our first question is from Jay Colby with Ladenburg. Your line is now open.

Hey. This is Kevin. Thanks for taking my questions. Congrats with regard to the RMAT designation. Can you clarify with regard to the potential for accelerated approval? Do you anticipate that that could be based on the completed 2b study, or how should we interpret that language in the context of a large existing database around ixmyelocel-T?

Yes. Thanks, Kevin. This is Nick. And I’ll start and I’ll turn the call over to Mike Halpin, who I’d like to introduce as our new Senior Vice President of Quality and Regulatory Affairs. As I mentioned earlier in the call, the standards for getting the RMAT designation is, obviously, treating a serious unmet need and then preliminary clinical evidence indicating that the drug has potential to address that unmet need. In terms of the accelerated approval, it can be based both on surrogate endpoints as well as data from a meaningful number of clinical sites. So, we certainly believe that there is a basis for engaging with the FDA in discussions around an accelerated approval based on a Phase 2b study, as we conducted that study at nearly 30 sites in the United States.

So, I think our next step -- this is Mike Halpin, would be to have a type B meeting with the FDA to explicitly discuss the accelerated approval strategy with the Phase 2b results we currently have and the other clinical data that currently exists for the product and explore the pathway.

And along those lines, can you just comment with regard to business development strategy for ixmyelocel-T in the U.S. and in other ex-U.S. jurisdiction, specifically Japan? Do you want clarity with regard to, for example, in the U.S. that may come from this type B meeting before pushing more aggressively perhaps and partnering, or are these sort of independent track considerations with regard to business development and regulatory strategy for ixmyelocel-T?

Kevin, it’s is Gerard. Certainly, assists and conversations we’ve been having and I think will continue the conversations, I do think though it would be an inflection point getting the information out of the type B meeting. So, right now, what we have is, the table set for a lot of opportunities in terms of accelerated approval, till we have the meeting with the FDA, we’ve been entirely clear what the path is. So, I expect accelerated discussions once that meeting has occurred.

And then, just one last point of clarification with regard to discussions outside the U.S., I think some of us have looked at regulatory environments, for example, in Japan. I thought that there may be faster pathways to partnering in certain geographies outside the U.S. Is that kind of consistent with your current business development focus or should we think about the U.S. is now being perhaps a higher priority or faster path for potential marketing or partnering?

I think the U.S., given its market size is -- might be a faster path to a deal. Japan, clearly, we have and we’ve discussed this on other calls, looked into that and have had conversations for reasons I’m not going to get into, that has not led to a deal there, but we’ll continue to investigate that opportunity. We’re quite familiar with the accelerated path there. There are, obviously, other regions of the world that might have great interest in the product, China, for example, given the deal that we’ve just signed. And point of fact, ixmyelocel-T was probably the primary driver of the deal in terms of significant interest in the product and the thought, then they have -- our partner has some ideas about accelerated regulatory paths there as well.

Our next question is from Ted Tenthoff with Piper Jaffray. Your line is now open.

Great. Thank you very much. And congratulations on the progress, and looking forward to seeing that transition more towards MACI. Just a quick question on ICT. Could you repeat what you said the upfront was? And was that cash included in the numbers that you gave today of 19.8?

Yes, that cash is included. So, the upfront is relatively modest, $1 million. And then, there is a $5 million payment effectively for equity. Just given some currency constraints in terms of moving money out of China, that money may end up being taxed and that’s why I gave a $4.5 million figure. And for that 5 -- whatever comes out, we’re assuming it will be $4.5 million. They’re going to get equity based on yesterday’s closing price of $2.55. That’s why it’s a bit convoluted, but I appreciate the opportunity to clarify.

Yes, Ted. Let me just clarify further that the $5.5 million essentially was not included in the $19.8 million that we reported in the first quarter.

$1 million?

No.

No. None of that was included. So, I just wanted to make sure...

I thought you were referring to when you said total payments worth up 2. No, definitely not. That was not in the financial results.

Okay, cool. So, $1 million upfront that’ll be recognized in the near-term, and then an estimated $4.5 million for the 1.8 million shares?

Correct.

Yes.

Very nice to see that. Excellent. That’s my all the questions for now. Thank you.

And I am showing no further questions. I would like to turn the call back over to Nick Colangelo for any further remarks.

Thank you, operator, and thanks, everyone, for your questions and continued interest in Vericel. Obviously, with these exciting developments that we announced today and our MACI launch in full swing pulsing, we’re excited about the opportunities ahead. And we look forward to reporting on our progress on our next call. Have a great day. Thanks.

Ladies and gentlemen, thank you for participating in today’s conference. You may all disconnect. Everyone, have a good day.