Vericel Corp. (VCEL)

[commoncentsinvestor]

Back in June I made a comment on a Seeking Alpha article in which I suggested the author take a look at VCEL which at the time was selling for about $3. The author of the article is Justin Polce. Recently I went back to that article and asked him if he had in fact looked into VCEL. He responded and said he had looked at it but unfortunately didn't buy any and he asked about my opinion of it going forward. Here is my response:

Commoncentsinvestorguy
Comments (527) |Following
Hi Justin,
Sorry you did not take advantage of the already big gains in VCEL, but at $6, it has a very long way to go. I will try to explain as simply as I can why I believe that to be true.
Firstly, for a stock to take up as much space in my portfolio as VCEL does, I require that it has the potential to at least double or triple over the next 12 to 18 months and have little if any downside risk. I believe VCEL definitely fits those parameters.
You ask: ".looks to me like they will be somewhere around $54m in 2017 revs (flat v. 2016), correct?"
Almost but not quite correct. Revenues for the first 9 months of 2017 have been $40.6M. Historically December has been Vericels biggest revenue month so I expect FY 2017 to be about $60M. That would be about a 10% increase over 2016. Nice, but not exactly a bonanza. Here's why.
MACI was just FDA approved in January 2017. It is a 2 step procedure. First a biopsy and then the surgery. There is about a 3 to 4 month gap between the two as they prepare and grow the cartilage regeneration scaffold. So immediately you lose about a quarter of a years revenue. Then of course with a new procedure they had to sell surgeons on it and train them. Another time delaying factor. Then you also have to get insurance company approval. I believe they have now reached approvals with almost all the majors and coverage for about 90% of the market. They should reach 100% soon.
Because of these reasons, rocket growth was never expected in 2017. 2018 is a different matter. At Carticels peak they had about 150 surgeons trained. With MACI they are now over 450. Carticel was approved for fewer areas of the knee and as a 2nd line treatment. Most policies now cover MACI as a first line treatment.
For all these reasons I fully expect MACI to at minimum do 2 1/2 times the revenues of Carticel which were $40M in 2016. That would be a bare bones minimum of $100M. Add another $20M minimum for Epicel, and at the very least we have $120M revenues.
I estimate it takes $80M for break even and then 50% falls to the bottom line. That would be a net profit of $20M or about an EPS of .57. Give that a 20 multiple and you are at $11.40 per share.
Now, I really don't think I could be any more conservative in those estimates and I really expect revenues over the next 12 months to at least reach $150M or more. That would warrant a share price of at least $20.
So that is my Vericel thesis going forward. AND it contains absolutely no value for any revenues from ICT for sales in China & South Korea, nor anything for their ixCell product which has achieved Fast Track, Orphan & RMAT status and which they are actively seeking a partner to take it to FDA approval.
Still believe on a risk/reward basis VCEL is as good as they come.

To read full exchange: https://seekingalpha.com/article/4084840-aralez-time-turn-around