Welcome to Vericel’s fourth quarter 2014 conference call. [Operator instructions.] I will now turn the conference call over to Vericel’s chief financial officer, Gerard Michel.

Thank you, operator, and good afternoon, everyone. Welcome to Vericel’s fourth quarter 2014 conference call to discuss our fourth quarter and year-end 2014 financial results as well as the progress of our commercial business and development programs. 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 and forward-looking statements represent our judgments 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 our today's call are Nick Colangelo, Vericel’s President and Chief Executive Officer; Dan Orlando, Vericel’s Chief Operating Officer; Dr. Dave Recker, our Chief Medical Officer; and Dr. Ross Tubo, Vericel’s Chief Scientific Officer. I will now turn the call over to Nick.

Thank you, Gerard, and good afternoon everyone. Before we discuss our fourth quarter and year-end financial results, I’d like to take a few minutes to review the business highlights for Vericel during the past year. 2014 was a highly transformative year for our company. Following the restructuring of our business in 2013 to focus on our orphan disease program for the treatment of advanced heart failure, we entered 2014 focused on strategic growth initiatives for the company. As part of that strategy, we acquired Sanofi’s cell therapy and regenerative medicine business in May of last year and established Vericel as a commercial stage cell therapy company. Through this acquisition, we acquired worldwide commercial rights to three approved autologous cell therapy products, a U.S. sales and marketing organization, and a commercial stage [G&P] cell manufacturing facility in Cambridge, Massachusetts. We now have a robust product portfolio with two marketed products in the U.S. generating substantial revenues and a high potential late stage pipeline. In addition to substantially expanding our business last year, we enhanced our senior management team by adding accomplished senior executives with strong track records of developing and commercializing products in the United States and deep experience in restructuring and integrating acquired businesses. We also substantially strengthened our financial position. Our successful $40 million equity raise in September has put us on a very solid financial foundation for the business that we’re now building. Our new business attracted a strong institutional shareholder base of leading fundamental healthcare investors and we view their participation in the financing as a strong vote of confidence in our current business strategy. Finally, in the fourth quarter we changed our corporate name to Vericel to reflect our expanded business and relocated our corporate headquarters to Cambridge, Massachusetts. In January, we announced the expansion of our board of directors with the appointments of Dr. Steve Gilman, former chief scientific officer of Cubist; Kevin McLaughlin, chief financial officer at Acceleron Pharma; and Dr. Paul Wotton, chief executive officer at Ocata Therapeutics. These distinguished pharmaceutical executives bring significant expertise in pharmaceutical research, drug development, corporate finance, and business development, which will be extremely valuable as we continue to implement our strategic plan to build the company, and we’re very pleased to welcome them to our board. Having built a solid foundation for the company over the past year, our strong fourth quarter results reflect both the successful ongoing integration of the acquired commercial business and the implementation of new strategic initiatives to support the acquired products. As we’ve discussed, the key priority in acquiring the Sanofi business was to drive the business to profitability as rapidly as possible, and we’re encouraged by the revenue and gross margin improvements that we achieved in the fourth quarter. Total Carticel and Epicel net revenues for the fourth quarter were $14.7 million, which represents a 13% increase over the fourth quarter of 2013. Total Carticel and Epicel net revenues for the year, which include seven months of sales, were approximately $28.3 million, which represents a 9% increase compared to the same period in 2013. Importantly, given our near term goal to improve gross margins and the profitability of the acquired business, gross margins increased to 54% for the fourth quarter and 40% for the June to December timeframe. We also reduced our quarterly operating loss to $2.3 million despite a significant increase in clinical trial expenses associated with a high rate of recruitment in our Phase IIB ixCELL-DCM clinical trial. Our fourth quarter performance represents an important step towards our goal of achieving profitability with the capital we raised in our recent financing. Our goal remains to aggressively drive the business to profitability as quickly as possible and grow the business over the long term. While our fourth quarter performance was strong, it’s important to keep in mind that this is a lower volume specialty biologics business and revenue trends can be inconsistent quarter to quarter for a variety of reasons, particularly when, as Dan will discuss, we’re in the process of rebuilding the foundation of the commercial organization. That being said, we’re confident that with our new talented sales professionals and the implementation of new marketing programs and cost saving initiatives, we can not only drive the company to profitability but continue to increase utilization of our products and grow revenues in the quarter and years ahead. Dan and Gerard will provide more details about our commercial and financial performance in a moment, and Gerard will provide some historical data about the acquired products to help put their performance going forward in better perspective for you. I’m also encouraged by our clinical and regulatory progress. In January, we completed patient enrollment in our Phase IIB ixCELL-DCM clinical trial that is evaluating the efficacy and safety of ixmyelocel-T in patients with advanced heart failure due to ischemic dilated cardiomyopathy. The primary endpoint of this study is major adverse cardiovascular events defined as the number of all caused deaths, cardiac hospitalizations, and unplanned emergency department visits for treatment of acute worsening heart failure over 12 months. This important milestone was made possible by the strong performance of our clinical development team and the tremendous support of our clinical investigators and advisors, study participants, and DSMB committee members, and we thank them for their commitment to the trial. By completing enrollment on schedule, we’re now on track to report top line results from this study in early 2016. From a regulatory perspective, our key priorities remain to bring MACI to market in the U.S. as rapidly as possible and to pursue a pediatric label change for Epicel. Our clinical and regulatory teams have spent a considerable amount of time analyzing the existing data and putting together briefing packages for discussions with the FDA on both of these topics. Regarding MACI, our Phase III product candidate for the treatment of cartilage defects in the knee, which has been approved in Europe and used in approximately 10,000 patients globally, we’ll be meeting with the FDA later in the second quarter to review the existing preclinical and clinical package and to discuss U.S. registration requirements. We believe that this meeting will enable us to determine the next steps required to submit a BLA for MACI in the United States. With respect to Epicel, as we’ve discussed in the past, Epicel is approved in the U.S. as a humanitarian use device under a humanitarian device exemption. As such, Epicel is subject to certain restrictions that limit pricing to an amount that does not exceed the cost of the research and development, fabrication, and distribution. However, under the Food and Drug Administration’s Safety and Innovation Act, or FDASIA, a humanitarian use device may be eligible to be sold for profit after receiving HDE approval if the device is intended for the treatment of pediatric patients and such device is labeled for use in pediatric patients. Epicel currently is indicated for use in patients who have deep dermal or full thickness burns greater than or equal to 30% of total body surface area. We’ve submitted a presubmission meeting request package to the FDA to discuss the submission of an HDE supplement to revise the labeled indications for use for Epicel to specify use in adult and pediatric patients, add pediatric labeling, and request an exemption from the profit prohibition for Epicel. Our request is based on the fact that Epicel is routinely used to treat both adult and pediatric patients and the original HDE application included a significant amount of clinical data from pediatric patients. Our goal is to be able to increase resources devoted to Epicel through expanded utilization of this life saving product and we look forward to meeting with the FDA in the coming months to obtain feedback on our proposed regulatory approach to filing an HDE supplement for Epicel. Now, I’d like to turn the call over to Dan for an update on our commercial activities.

Thanks, Nick. I’m pleased to report that we had [strong] fourth quarter sales performance for our two marketed products. We’ll start with Carticel. Net sales for Carticel implants and surgical kits was approximately $11.4 million for the fourth quarter and approximately $22.3 million for the seven months in 2014 that we owned the acquired business. As Gerard will review in a moment, Carticel revenues are subject to seasonal fluctuations, with sales traditionally being strongest in the fourth quarter. We believe, however, that our fourth quarter results also reflect the positive impact of several ongoing initiatives designed to improve Carticel’s gross margin and ultimately provide long term top line growth. To date, we have realigned our sales territories, created a new incentive compensation program, and hired new sales leadership. We are now in the midst of building a high performance team of sales professionals to serve our customers and expand Carticel utilization. At this time, nine of the 21 sales representatives or more than 40% of Carticel’s sales force are new, talented sales professionals with orthopedic and operating room experience who are being trained by our very best performers. It will take some time to see the impact of these new representatives in terms of consistent Carticel growth. Our Carticel sales representatives work closely with our orthopedic surgeon customers to assist in identifying appropriate candidates for Carticel implant and in providing additional patient and customer support. These relationships, of course, take some time to build. Our goal is to minimize the disruption from turnover in the sales force as we build a high performance sales team that can deliver consistent future growth. Carticel enjoys a very loyal following among orthopedic surgeons, many of whom who’ve used the product for over 20 years. However, expanding the Carticel prescriber base and utilization is a critical component of growing the business over the long term. To this end, one of our top 2015 commercial priorities is to expand the Carticel prescriber base and reestablish a robust peer to peer educational program. Our sales and marketing team is implementing programs designed to reach over 1,000 orthopedic surgeons and clinical care support staff through a variety of these programs. We are also making special efforts to expand the Carticel prescriber base and increase Carticel utilization in military facilities given that younger patients seeking to return to full activity represent ideal candidates for Carticel therapy. Likewise, we have initiated training programs for new residents and fellows to train the next generation of Carticel users. All of these programs are starting in earnest next month and, while we expect it may take several quarters for these initiatives to expand the prescriber base, we are encouraged by the level of interest and participation in these programs. Finally, in addition to building a foundation of consistent top line growth, we remain focused on improving gross margins for Carticel. As we’ve discussed in the past, a key efficacy metric is improving the ratio of cartilage biopsies that result in revenue generating Carticel implants. The implant to biopsy ratio, which has been flat at 34% for the last three years, improved to 38% in 2014, and we expect further improvement as our representatives continue to deliver a strong intent to treat message to surgeons. In addition, we expect that our ongoing process development research projects, some of which have already been implemented, will further decrease the labor and manufacturing costs associated with Carticel production. Now turning to Epicel, our life saving product for treating severe burns, Epicel net sales were approximately $3.3 million for the fourth quarter and approximately $6 million for the seven months of 2014 that we owned the acquired business. Epicel revenues also are subject to seasonal fluctuation, with sales traditionally being strongest in the winter months. We believe, however, that our fourth quarter results also reflect the positive impact of initiatives designed to increase Epicel utilization and its contribution to the overall business. One of our top commercial priorities is to increase Epicel utilization by targeting institutions that previously used Epicel prior to the reduction of Epicel’s sales force. Last fall, we increased the sales force from one to three representatives as we work towards restoring previous levels of promotional effort. Based on the early success of that initiative, we have continued to expand the Epicel sales force and have just added a fourth sales representative, a burn nurse who previously sold Epicel and who brings significant physician relationships to our team. In addition, we’re working closely with some of the premier burn surgeons and institutions in the country as part of a peer-to-peer program designed to educate other surgeons and institutions about the life saving potential and administration of this underutilized product. We believe that these and other initiatives will drive top line revenue for Epicel In summary, we’re making good progress and strengthening the Carticel and Epicel franchisees and ensuring that the business is positioned for profitability and growth over the long term. Now, I’ll turn it back to Nick.

Thank you, Dan. I’m very encouraged by the performance of our commercial and operations groups and congratulate you and your entire team on the progress that you’ve made during the past six months. We’ve accomplished a lot in a short period of time, and the actions taken by your team have significantly improved the opportunities and prospects for our business moving forward. I’ll now turn the call over to Gerard to review our fourth quarter financial results.

Thanks, Nick. Vericel reported a net loss for the quarter and year ended December 31, 2014 of $3.4 million or $0.17 per share and $19.9 million or $2.23 per share respectively, compared to a net loss of $2.9 million or $0.97 per share and $15.6 million or $6.95 per share for the same periods in 2013. Net product revenues for the quarter were approximately $14.7 million and included approximately $11.4 million of net sales of Carticel implants and surgical kits and approximately $3.3 million of net sales of Epicel. Total Carticel and Epicel net revenue for the fourth quarter increased by approximately $1.5 million compared to the fourth quarter of 2013. Net product revenues for the year, which included seven months of sales of the acquired products, were $28.8 million and included $22.3 million of Carticel net sales and $6 million of Epicel net sales. Total Carticel and Epicel net revenues for the June through December period increased approximately $2.5 million compared to the same period in 2013. Gross profit for the quarter ended December 31, 2014 was $8 million or 54% of net product sales. Gross profit for the year ended December 31, 2014 was $11.5 million or 40% of net product sales. Cost of product sales for the full year includes $2.5 million in restructuring costs. The improved margins in the fourth quarter resulted from improved implant to biopsy ratios and higher fourth quarter volumes. Research and development expenses for the quarter and year ended December 31, 2014 were $5.8 million and $21.3 million respectively, versus $3.3 million and $15.1 million for the same periods a year ago. The increase in research and development expenses in the fourth quarter is due to a net increase of $1.6 million in clinical expense due to an increase in the number of patients treated and followed in the Phase IIB ixCELL-DCM clinical trial, offset by a decrease in other clinical trial expenses in the prior period and approximately $900,000 of personnel and other expenses associated with Epicel, Carticel, and MACI. The increase in full year R&D expenses is primarily due to a $3.2 million charge associated with the settlement agreement that eliminates all future milestone payments related to the development and commoditization of MACI in the United States and $800,000 net increase in clinical trial expenses resulting from an increased enrollment in the Phase II ixCELL-DCM clinical trial, offset by a decrease in other clinical trial expenses in the prior period and the addition of $2.2 million of personnel and other expenses associated with Epicel, Carticel, and MACI. Selling, general, and administrative expenses for the quarter and year ended December 31, 2014 were $4.5 million and $13.8 million respectively, compared to $1.6 million and $5.9 million for the same periods a year ago. The increase in SG&A expenses in the fourth quarter is primarily due to approximately $2.8 million in sales and marketing expenses associated with the recently acquired commercial business, approximately $900,000 of increased IT, legal consulting, and personnel costs related to integrating and managing the acquired business in the U.S., offset by approximately $600,000 in reductions in previously accrued estimated obligations associated with closing the Danish subsidiary. The increase in SG&A expenses for the year ended December 31, 2014 over the prior year is due to approximately $5.4 million in sales and marketing expenses related to the commercial business; approximately $1.9 million in increased IT, legal, consulting, and personnel costs related to integrating and managing the acquired business in the U.S.; an increase of approximately $500,000 in restructuring charges; and $300,000 in general and administrative costs from the Danish subsidiary, which has ceased manufacturing operations. Loss from operations for the quarter and year ended December 31, 2014 was $2.3 million and $23.5 million respectively compared to $4.9 million and $21 million for the same periods a year ago. Material noncash items impacting the operating loss for the quarter and year included approximately $200,000 and $800,000 respectively of stock based compensation expense and $300,000 and $800,000 respectively in depreciation expense, offset by a decrease in our asset retirement obligation in Denmark of approximately $1 million. Other income for the quarter and year ended December 31, 2014 was $24,000 and $3.6 million respectively, compared to $2 million and $5.3 million for the same periods a year ago. The decrease in other income for the full year is due primarily to a decrease in the fair value of our warrants in 2013 compared to 2014, offset by the $3.5 million bargain purchase [unintelligible] in 2014. The change in other income for the quarter is also primarily due to an increase in other income attributable to a decrease in the fair value of our warrants in the fourth quarter of 2013 compared to the same period in 2014. As of December 31, 2014, the company had $30.3 million in cash and cash equivalents compared to $8.1 million in cash and cash equivalents at December 31, 2013. The increase in cash was due primarily to proceeds from the company’s successful equity offering in September. Based on our progress to date, and in the absence of additional strategic transactions or other strategic events driving the need to raise additional capital, we believe that our cash position is sufficient to fund our business operations until we achieve profitability. Of the $2.4 million net loss in the fourth quarter, the legacy R&D focused business contributed $4 million of loss while the acquired commercial business generated $1.6 million of net profit. While we will no longer break out results in this way going forward, it is important to note that we anticipate losses from the legacy businesses will decline as the ongoing ixCELL-DCM clinical trial completes, and we expect the commercial business to increase its profit contribution as both revenues and gross margins increase. We recognize that there is little historical information available for both Carticel and Epicel sales. In today’s call, we have provided total product net revenue comparisons versus the same period in the prior year and we will continue doing so. Although we are not providing revenue guidance at this time, we would like to provide some additional background information regarding seasonality and overall trends to assist analysts and investors in constructing their own models. This information will also be included in our 10-K, which we anticipate filing tomorrow. Carticel revenue is subject to seasonal fluctuations with stronger sales occurring in the second and fourth quarters. During 2014, the percentage of annual sales by quarter was as follows: 21.6% in the first quarter, 23.7% in the second quarter, 21.8% in the third quarter, and 33% in the fourth quarter. Epicel revenue is also subject to seasonal fluctuations, with stronger sales in the winter months, although the trend in any single year can be absent due to the extreme variability inherent with Epicel’s low patient volume. Over the last four years, the percentage of annual sales by quarter has been as follows: first quarter, 28%; second quarter, 24%; third quarter, 20%; and fourth quarter, 28%. The variability between the same quarter in consecutive years has been as high as 10% of the annual volume and therefore can be difficult to ascertain sales trends or forecasts in annual revenue from any single quarter. Large swings in revenue in some quarters should be expected, especially when factors such as severe winter weather affect the number of patients and procedures. However, we do expect overall growth as we increase the number of burn centers prescribing Epicel, and we believe this volatility will diminish. That completes my financial review. Now I’ll turn the call over to Nick.

Thanks, Gerard. We’re making great progress in transforming our business into a dynamic new organization and achieving our goal of commercial and scientific leadership in this field. In the year ahead, we look forward to increasing product revenues by expanding the number of prescribing physicians for Carticel and the number of treating burn centers for Epicel, increasing margins by improving the Carticel implant to biopsy ratio and introducing manufacturing process improvements, initiating the required next steps to submit a BLA for MACI in the United States, and obtaining a pediatric label change for Epicel. That concludes our prepared remarks. Now I’d like to turn the call over to the operator to open the call for your questions.

[Operator instructions.] The first question comes from Kevin DeGeeter from Ladenburg Thalmann.

First, I’d love to start off with gross margin. Significantly above I guess what we were looking for, and I was hoping you could provide us a little more granularity as to the contribution of volume to that improvement in gross margin versus the more structural changes in terms of improved biopsy to unit sales and other factors. Specifically, as we’re looking at potentially a little more modest Carticel contribution in Q1 historically, how should I think about that coming in on gross margin? Can we stay above 50% or do you think with the lower units, that comes in a bit?

I think with lower units, that comes in a bit. The biggest driver for the fluctuations you’re seeing right now are volumes. I think the biggest driver to getting our gross margins down will be increased volume over time, which we anticipate coming. Without a doubt, the improved biopsy ratio is having an impact. I think that’s probably a third of it, and about two thirds right now is likely the volume, with the same [unintelligible] in two quarters.

I’ll note that the biopsy to implant ratio that we quoted, 38%, so the 4% improvement was the entire year. The majority of that came in the second half of the year, when we changed the incentive program, etc. So we really saw very aggressive improvement there driven by our sales force’s execution. So it was a very good job, and we expect that to continue and contribute. Also, Ross Tubo and his group is doing a great job of identifying opportunities to improve the margins. So we’re working as hard externally with sales as we are internally to improve our margins.

And you mentioned 13% year over year growth for the combination Carticel and Epicel. Can you comment on just the growth rate year over year for Carticel. I don’t want to talk about Epicel. I recognize there’s small numbers there. But for the more mature Carticel business, was it similar to 13%? A little higher, a little lower?

We’re going to hold off on giving product comparison period to period, primarily because business wasn’t in our hands before, and we want to get a solid foundation of managing our sales before we start giving direct period comparisons. I think it’s best also, due to the volatility, of the low volume of these products, for now let’s keep it combined and in a few quarters, we’ll be able to start comparing product to product, period to period.

Do you have a specific date set for a meeting with the FDA regarding the MACI Phase III discussion?

We do have a meeting date set for later in the second quarter, and obviously, we’re in heavy preparations for that meeting, Dave and his team. And we would expect sometime midyear to have a little more clarity, obviously post meeting, post meeting minutes, etc. So sometime in the third quarter, likely to have some more clarity on the path forward.

The next question comes from Jason Kolbert from Maxim Group.

This is actually Jason McCarthy for Jason Kolbert. I just was wondering, it looks like there’s progress that’s being made, and that’s great. And I wonder if you guys could go back to the cardiac space, and maybe talk about what the plans are. With data likely coming maybe even at the end of this year or early 2016, then what the plans would be to move ixmyelocel-T forward beyond that, whether you’d seek a partner or you’d go it alone, or maybe what the internal discussions might be.

That’s a good question. Obviously, we announced in January that we completed enrollment of the Phase IIB study, which was a great job by David and his team, with the support of our steering committee, etc. That positions us to have data as we had previously guided, top line results, by the end of Q1 2016. At that time, if the data looks compelling, as Gerard would say, a high class problem to have. We will decide with this orphan indication whether it’s something that we want to bring forward on our own or seek a partner. So we think we’ll have a lot of optionality in that case.

The next question comes from Jason Napodano from Zacks.

Just a little more questions on the gross margin line. I understand the implant to biopsy ratio that you reported, and it’s great to hear that that is up from the old Sanofi Genzyme days. You mentioned the change in incentive to the sales force. Can you give us a sense on ultimately where you think that number could go? 38%, again, it’s nice that it’s up from the Sanofi Genzyme days, but it still seems that there’s a lot of room to improve that.

I don’t know of Sanofi was as low as 38%. It may have been. But yeah, there’s quite a ways to improve this. Clearly it’s not a small molecule. These are fairly labor intensive products to produce. But the easy fix was getting the biopsy ratio down, and that’s what we’re doing, or Dan is doing a great job of. The next thing to do is to get some process improvements going and Ross is working hard on those. We already have some of those implemented, but other ones coming down the pike. And then I think we can probably trend towards, after getting the volumes way up, because that’s a big driver as well, with the same headcount, I think we can trend to something north of 60%. When exactly that will happen, that’s probably a two-year timeframe to get well north of 60%. But that’s kind of our internal goal.

[Target] margin. As far as the ratio, we think that the top end of that is maybe around 50%. Because in some patients, based on what their insurance carrier is, they have to do a different procedure before Carticel, so physicians have to work through that and we think that it’s reasonable. We know that our best implanting physicians are well north of a 50% biopsy to implant ratio, but we think on average we’d like to target around 50%.

So I guess besides improving on the cost side, the other way to get higher gross margins is to raise the price. So I’m wondering if you guys have taken a price increase on Carticel either this year or since you acquired the product and kind of where you are with that versus like I said the old Sanofi Genzyme days.

I think we have given some people a price increase. Seven percent was the increase we took at the start of the year. Just to be clear, that did not run through all of the first quarter, as people are getting their sharp pencils out right now. It takes some time. We don’t put that price right through orders that are coming in. This is a several week lead time type product. So it’s not until a good part of January is past before most of the orders coming in are at that price.

Last question, just on Epicel. I’m wondering if you could get a sense of what percent of the business is pediatric use right now, and then when you go in and petition to allow for profits because you potentially get the pediatric label, is that the kind of thing where really anyone can say, hey, our product can be used in a pediatric indication? Or do you have to have some kind of pediatric data or some kind of use to mount that is within pediatrics, like 10% of the business or 20% business has to be within pediatrics before they say okay, we’ll grant you that allowance?

Dave, let me just give a top line, and then you can go into more detail. Just in terms of our current utilization, about a third of business is used in pediatric, or the product is used in pediatric patients. That’s defined as through the age of 21. The second part of the question, you know, you have to have clinical data to have an indication for use in pediatrics. So you can’t just say we could be used in pediatrics, you have to have the data. And in our case, there was a substantial portion of the original clinical package that included pediatric patients, somewhere around 30% to 40%. And when it was originally submitted, it was submitted as a group and analyzed as a group, and Dave and his team have been hard at work analyzing separate adult and pediatric populations to be able to have a discussion around why the labeled indications for use should be revised, and then separately [unintelligible] for use in adult and pediatric patients and then obviously separately present the pediatric clinical data etc. to help healthcare providers in their use of the product in that patient population.

I was just going to add that, as Nick said, you don’t have to have a certain percentage of population or a certain percentage of use in the pediatric population. What you need to demonstrate to the agency, as with any kind of an approval, is that there’s safety and efficacy. I’ll remind you that Epicel is approved in a unique situation, as a humanitarian use device, under an HDE or Humanitarian Device Exemption process. The level of evidence required for an HDE to be approved is not the same as that for a traditional BLA or NDA. You have to show safety, but only probably efficacy in the population whom it’s being indicated. Having said that, there are so few of these products available. The agency really has a hard time trying to decide exactly what it’s going to take for a pediatric approval and thereafter to be able to charge a profit for their product. So it’s a bit of an unknown on both sides, both for Vericel as well as for the FDA. We’re convinced, as Nick said, that we have enough data from the original filing. There’s substantial pediatric evidence and we’ve had a fair number of pediatric patients since then. We hope that we can go in and have a nice discussion with the agency and they’ll agree that in fact the product is safe and reasonably beneficial in a pediatric population.

Is that something that they decide at that meeting, or is there a time period that they’ll take to review?

So the good news the time period, again for an HDE, is not as long as for an NDA. The time period is 75 days. And to the first question, they won’t give us an answer. They have most of the data, but there still needs to be a submission after that meeting. And as I said, once the submission is put in, they’ve got 75 days to review.

The next question comes from George Zavoico of Jones Trading.

It sounds like you’ve put in a lot of initiatives going forward to increase the sales, increasing reps and that sort of thing. Has that plateaued, or do you think in 2015 you’ll be adding more reps? And will SG&A continue to increase quarter to quarter because of the implementation of the new educational strategy.

The approach we’d like to take is a measured approach where we see the opportunity to expand as the demand expands or the prescriber base expands, etc. Epicel’s a good example. We’ve seen that as we’ve gotten back into institutions that weren’t actively promoted to that we’ve started to generate new patients. So we have a strong signal that if we increase the promotional effort, we’re going to get a positive return. So that’s why we’re jumping ahead now and adding a fourth representative. And we’re looking for the same basically out of Carticel. We think that the ideal footprint for Carticel is somewhere around 25 representatives. We currently have 20. And so, again, we’ll continue to expand, but it’s going to happen in a measured fashion. In fact, I’ll give you a good idea. We’re already looking to add to that group of 20.

And do the 20 reps now cover the entire country?

Yes.

And the new ones you’ll parse the territories out into smaller, or are there parts of the country that aren’t covered yet?

We cover the entire country. Remember, our target physicians are just orthopedic surgeons, but typically they’re sports medicine physicians or they have a subspeciality or have identified themselves as cartilage specialists. So a lot of patients get referred towards these physicians, so we don’t necessarily have to cover every small city. But certainly, the ability of the rep to be there, to help the physician identify patients and to be there to service the facility, etc., there are limitations to geography. And we recognize that as well. But we have a clear path to profitability and we are taking a measured approach to adding that headcount as we go.

That’s good. I hope that as the efficiency and the experience of these reps improves, that their sales to rep ratio goes up too. [laughs] With regard to the incentive changes, the changes in the incentive program, it seems that this is a particularly important move on your part. Exactly what was put in place to drive the incentives?

The easiest way to picture it is think about a grid. On the left hand side is volume and on the top is ratio. And it’s basically the better you perform, the higher your volume, and the less biopsies that you need to get to that volume, the further you go higher up into the right in that grid and you can accelerate your income and payout. So it’s pretty simple. One of the nice parts about it is that it is simple, and a rep can measure their own success on a monthly basis. So we’ve seen good, strong response to that.

Because pretty much delineating it precisely and simply… So the reps can track their on progress, that was enough to light a little bit of a fire under them, huh?

Yes.

Let me just give one bit of background. When we acquired this business, the previous incentive compensation system included extra payments for additional biopsies. So when Dan refers to intent to treat, it’s really focused around having a discussion with the physicians about intent to treat the patient, not just send in biopsies and so on. So it’s kind of this combination of helping people understand how you drive profitability for your territory and the company by being more efficient and not sending in biopsies that the operations group has to process that really there wasn’t the intent to treat that patient. So it’s a function of having full P&L responsibility and having the business managed in a vertically integrated fashion for the first time, or the first time in a long time.

And final question regarding the process improvements that you’re talking about, for increasing efficiencies. From a regulatory standpoint, how much can you change the process before you have to take any steps with the regulators or pass it by the regulators? Or do you not have to do that at all?

I’ll let Ross answer the question, but just like any process change, there are some that you can report in your annual report, there are others that you can implement with a CB30 and there are others that require additional discussion before you would implement those. So these initial ones are ones where there was existing data or data that Ross is generating that will allow us to implement those changes relatively quickly. Other changes fall into the bucket of requiring additional data and additional time to get those approved.

So it’s an ongoing process, then, over the next year or two probably, or more?

I think that we’ll actually be able to implement perhaps towards the end of this year is what we’re shooting for, with these process improvements.

The next question comes from Kevin DeGeeter from Ladenburg Thalmann.

I actually just had one more. I wanted to better appreciate our understanding of the sales cycle for particularly I guess Carticel in the context of trying to appreciate when the nine or so new reps really fully hit their stride. Is that sort of a six to nine month cycle, longer than that? Any guidance on that would be very helpful.

That’s a good question. Kevin, the typical rep is going to take a minimum of six months. Some of that is just the relationship with the physician as well as getting patients into the cycle, getting biopsies from good target patients who then get through the insurance discussion and turn around for implant. We have been able to hire a very impressive group of individuals who, as I mentioned, have both orthopedic and operating room experience, some with sports medicine experience as well. So we’re very encouraged that they’re going to come up the curve quickly. But you’re right, it’s going to take a good six to nine months to really see a consistent contribution from these new reps.

And I’ll just kind of sing harmony on that. We’re trying to be balanced, as I mentioned in my comments. To balance disruption, we’re bringing in a really high performing sales team. And so we look for the results of that. We’re getting close now, and we expect the results of that to be really more consistently demonstrated in the second half of the year.

I’m showing no further questions. I would now like to turn the call back over to Nick for closing remarks.

Okay, well, thanks everyone for your questions and continued interest in Vericel. We’re obviously very excited about the opportunities ahead and look forward to reporting on our progress on the next call. Thank you.