Fast-growing Vericel finds success on two fronts: knee surgery and burn care

Nick Colangelo is Vericel’s chief executive. Vericel

In the spring of 2014, a small Michigan biotech closed a $6.5 million deal to buy several cell therapies from the French drug giant Sanofi. They included a technology to treat weekend warriors with worn-out knees and a new kind of skin graft for people with catastrophic burns.

Almost exactly five years later, the acquisitions look like smart moves.

The Ann Arbor company, Aastrom Biosciences, promptly renamed itself Vericel and moved its headquarters to a Sanofi manufacturing site in Cambridge. Annual revenue has more than doubled, from about $40 million in 2014 to more than $90 million last year. The company’s market value has skyrocketed from approximately $50 million to about $670 million. And its workforce has grown from 40 employees to 225.

Meanwhile, the two cell therapies have changed the way some doctors treat one of the most common injuries (torn knee cartilage) and one of the most life-threatening ones (burns that cover much of the body).

“It’s been a transformational transaction,” Vericel’s CEO, Nick Colangelo, says.

The two products were part of Sanofi’s cell therapy and regenerative medicine business unit, a holdover from Sanofi’s 2011 acquisition of Genzyme for $20.1 billion. Sanofi evidently felt the therapies didn’t fit in with its core business. But Vericel has made the most of them.

The key therapy has been Vericel’s knee cartilage repair system, MACI.

For years, the standard of care for a patient with damaged cartilage in the knee was to first trim the worn tissue. Then an orthopedic surgeon would drill a small hole into the bone, allowing blood and bone marrow cells to seep out and create a blood clot that formed repair tissue.

Too often, however, that procedure, known as microfracture, was only a temporary fix, doctors say, and the patient would be back for another operation in several years.

MACI works differently. A surgeon removes a sample of healthy cartilage about the size of two Tic Tacs through an incision in the knee.

That tissue is then taken to Vericel’s cell-processing lab in Cambridge, where the cells are cultured in flasks and then placed on a matchbook-size collagen membrane at a density of at least half-a-million cells per square centimeter.

The membrane is then surgically implanted into the worn-out knee, replacing the damaged cartilage and causing healthy tissue to grow.

The procedure costs about $40,000, but about 90 percent of patients with private insurance are eligible for coverage, Colangelo said.

Dr. Christian Lattermann, chief of sports medicine at Brigham and Women’s Hospital in Boston and a paid consultant to Vericel, said MACI is less invasive than traditional knee surgery.

And because it uses a patient’s own tissue, the procedure poses almost no risk of rejection.

“Patients like it a lot,” Lattermann said. “Recovery is faster, and there’s usually less pain.”

Since publicly traded Vericel launched the product in early 2017, 1,500 to 2,000 patients have had the procedure each year, Colangelo said. That may seem like a modest number, but executives say the potential market is much bigger — about 60,000 patients annually and $2 billion in revenue.

Ryan Zimmerman, an analyst who follows Vericel for the financial services firm BTIG in Chicago, said the new procedure has become the gold standard for cartilage repair. About 900 of the 3,000 sports medicine surgeons in the United States have learned how to use it.

“Surgeons have gravitated to this procedure,” Zimmerman said.

Vericel’s other key product is Epicel, a skin graft grown from a patient’s skin cells. These grafts replace skin in patients with deep burns covering at least 40 percent of their bodies and in some cases covering as much as 90 percent.

From two postage-stamp-size biopsies, Vericel says, it can grow enough skin to cover a patient’s body within a few weeks.

About 40,000 people are hospitalized with burns each year in the United States, Colangelo said, and about 600 of those patients have burns covering 40 percent of their bodies.

Epicel made headlines last month when Vericel grew skin grafts for a baby born in San Antonio who had skin only on his head and parts of his legs. The skin grafts were then surgically attached to the infant.

The same month, Vericel signed another business deal that the firm hopes pays off. Vericel will pay MediWound, an Israeli company, $17.5 million upfront and an additional $7.5 million upon US approval of a gel that the latter firm makes to help burn patients.

Vericel is licensing the gel, NexoBrid, and plans to market it in North America.

The gel uses enzymes to remove burned tissue before surgeons attach skin grafts. Currently, the damaged tissue — a breeding ground for infections — is typically removed through surgery.

The US Biomedical Advanced Research and Development Authority has awarded MediWound a contract of up to $196 million to develop the product and provide it to the government.

The authority stockpiles vaccines, drugs, and other treatments in case of public health emergencies, including chemical, biological, and nuclear attacks.