Gerard Michel - CFO Nick Colangelo - President and CEO Dan Orlando - COO David Recker - Chief Medical Officer Ross Tubo - Chief Scientific Officer

Chad Messer - Needham

Good day ladies and gentlemen, and welcome to Vericel Corporation’s Fourth Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instruction will be given at that time. [Operator Instructions]. As a reminder this conference call may be recorded. I will now transfer the call over to Vericel’s Mr. Gerard Michel, Chief Financial Officer. You may begin.

Thank you, operator, and good morning everyone. Welcome to Vericel’s fourth quarter 2015 conference call to discuss our fourth quarter and year-end 2015 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 in 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 statement 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, Vericel’s Chief Operating Officer; Dr. David 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 morning 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. While 2014 clearly was a transformative year for our company, 2015 is best described as a year in which we built a strong foundation for growth. We started the year focused on completing the transition for our single program development stage company to a stable commercial business with growing revenues and margins from our current marketed products. To that end, we’ve taken a declining business that had revenues of 42 million in negative parts 2013 and grown the business to over $50 million in revenue with nearly 50% gross margins in 2015, our first full year earning the business. With our recently announced clinical and regulatory achievements, we now have transitioned from a commercial turnaround story and positioned the company for both near-term and long-term growth. As we’ve discussed over the course of the past year, we’ve been focused on three clinical and regulatory priorities that would serve as drivers for significant growth. Bringing MACI, our investigational third-generation cartilage repair product to market in the US as rapidly as possible, expanding the labeled indications for use of Epicel to include pediatric patients, and completing the phase 2b ixCELL-DCM clinical trial in patients with advanced heart failure due to ischemic dilated cardiomyopathy. I’m very pleased to report that we’ve completed our significantly advanced each of these key priorities. With respect to MACI, the following discussion with the FDA, we announced in June last year that we plan to better Biologics License Application or BLA to the FDA by the end of the year. Our clinical and regulatory team met that goal and we were pleased to announce last week that the FDA accepted the MACI BLA for review. During the fourth quarter, we also announced the execution of a long term supply agreement with Matricel [corticollagen] membrane used in the product of MACI. We also met with the FDA last summer regarding the submission of a Humanitarian Device Exemption or HDE supplement for Epicel to revise the labeled indications of use to specifically include pediatric patients and add pediatric labeling. Again the clinical and regulatory team met our stated goal of submitting the HDE supplement to the FDA in the fourth quarter and we announced on February 22 that the FDA approved the supplement. The impact of this approval is significant; as a result of the label revisions we can now better inform surgeons regarding the safety information for Epicel in the pediatric patient population. As Dave will discuss in a few minutes the revised label also announced specifieds and highlights to probable survival benefit for patients treated with Epicel. Finally, as I will discuss in further detail in a few moments, we also can now start Epicel for profit moving forward. Turning to ixmyelocel-T in January 2015, we announced the completion of patient enrollment in the phase 2b ixCELL-DCM study and are planning to report top line results around the end of Q1 2016. With a tremendous effort that included completing database slot within 30 days of last patient last visit, the clinical and regulatory team beat this goal and we announced positive topline results last week. Dave will discuss those results in greater detail in a moment. I want to thank Dave for his leadership and congratulate him and his team on their clinical and regulatory successes this past year. Before reviewing our commercial results, I’ll turn the call over to Dave so that he can provide further details regarding these achievements.

Thank you Nick. 2015 was indeed a productive year with the clinician and the Epicel HDE supplement, the BLA submission for MACI and the completion of the efficacy portion of the ixCELL-DCM product. Since the end of 2015, each of those achievements has already been eclipsed by even further progress in early 2015. The Epicel HDE supplement was approved by the FDA, the MACI BLA was accepted by the FDA for review, and we’ve announced positive topline results for the ixCELL-DCM product. Let me begin by providing further detail on the just ixmyelocel-T clinical trial results. The stage two ixCELL-DCM clinical trials was a multi-center, randomized, double-blind, placebo controlled phase 2b clinical trial designed to access the efficacy and safety and tolerability of ixmyelocel-T in patients with advanced heart failure due specifically to ischemic dilated cardiomyopathy or DCM. A total of 114 patients were treated in the trial at 28 sites in the United States. The trial met its primary endpoint of demonstrating a reduction in the total number of all-cause deaths, cardiovascular hospitalizations or unplanned outpatient or emergency department visits to treat acute decompensated heart failure during the 12 months following treatment ixmyelocel-T compared to placebo. All clinical events in the primary and secondary endpoints were adjudicated in a blinded fashion by an independent adjudication committee at the Brigham and Women's Hospital in Boston. From a safety perspective, the incidence of adverse events including serious adverse event in patients treated ixmyelocel-T was [culpable] to or lower than in patients in the placebo group. As announced last week, the full data result will be presented at the upcoming late-breaking clinical trial sessions at the 65th Annual scientific session of the American College of Cardiology on April 4, and subsequently be submitted for publication. We are very excited about the results with ixCELL-DCM clinical trial which we believe the largest randomized cell therapy product completed to date for the treatment of heart failure. This is a challenging study in a very sick patient population and we gratefully appreciate the contributions of the patients, investigator and therapeutic personnel who participated in this trial. Turning to Epicel, we’re very pleased with the FDA’s decision to expand the labeled indication for use of Epicel to reflect the experience of pediatric patients with severe burns who have been treated with Epicel. We believe that the revised label provides valuable information describing the safety and clinical use of Epicel in this vulnerable pediatric population. Approval of each of these is based on evidence of safety and probable benefit to health. We are also very pleased with the revised label now clearly sensitized with the probably benefit of Epicel mainly related to patient survival was demonstrated in two Epicel clinical experience databases that randomized controlled independent physician-sponsored study. Given the importance of this probable survival benefit, I will briefly summarize database and study survival data. First, data from a clinical database used to support the original Epicel HDE application which included 552 patients here with Epicel from 1989 to 1996 with a mean Total Body Surface Area or TBSA burns of 68.6% including 205 pediatric patients demonstrated a survival rate of 86.6% of all patients and 89.3% for pediatric patients at three months post-initial surgery. Second, data from the Epicel medical device tracker database, a post-approval registry of 402 patients treated with Epicel from October 2007 to June 2015 with a mean TBSA burns of 66.0% including 120 pediatric patients, demonstrated a survival rate of 81.3% for all patients and 88.3% for pediatric patients. Finally, data from the randomized controlled physician sponsored study in severe burned patients followed over a seven year period demonstrated a survival rate of 90% for the 20 patients with the mean TBSA burn of 69.1% treated with Epicel and standard care compared to a survival rate of 37.5% for 24 patients with a mean TBSA burn of 62.9% and a controlled group who received standard care alone. We believe with the probable survival benefit of Epicel is extremely important, and we are excited to be able to provide this additional information to burn surgery. Finally, we submitted the MACI BLA on January 4 and were very pleased to announce last week that the FDA accepted the BLA for review. The FDA provided at new [control] date of January 3, 2017 and stated that it is not currently planning to hold an advisory committee meeting to discuss the application. The FDA’s acceptance of the MACI BLA review represents another important milestone for their goal of providing new treatment options for the repair of symptomatic cartilage defects in the knee of adult patients. And we look forward to continuing to work closely with the FDA during the BLA review process. I’ll now turn the call back to Nick.

Thank you Dave and once again congratulations on all of your accomplishment on our clinical regulatory objectives. Obviously the great news regarding the positive topline ixCELL-DCM study results creates an exciting opportunity for the company. We’ll now focus on determining the regulatory pathway for bringing the products out as rapidly as possible in each of the key geographies, including the US, Europe and Japan, and the optimal partnering strategy to do so in an efficient manner for the company and our shareholders. Turning to our commercial results, I am pleased to report that total Carticel and Epicel revenue for 2015 was $50.4 million, representing a 14% increase over net product revenues in 2014. Total Carticel and Epicel net revenues for the fourth quarter were 15.4 million, an increase of 5% compared to the fourth quarter of 2014. Overall, Epicel clearly is driving most of the revenue growth, while Carticel revenue has been stable and represents a strong foundation for building our cartilage repair franchise with the potential launch of MACI in 2017. Carticel net revenues increased 1% for 2015. Although we would have liked to have seen more growth in Carticel, we’ve been successful in arresting what had been steady erosion in revenue prior to the acquisition, and we’ve done so with approximately 20% fewer Carticel territories than existed prior to the acquisitions. Moreover, 2015 was a transition year of rebuilding the foundation of Carticel commercial organization as approximately one-third of our Carticel sales representatives and two-thirds of the Carticel leadership in 2015 were new. As our new sales professionals are now established in their positions, we’re seeing renewed momentum and we’re confident in our plan to grow Carticel revenue ahead of the potential MACI launch. From a physician perspective, there’s a core group of orthopedic surgeons who use Carticel and are waiting for the introduction at MACI of less invasive third-generation product. We believe that current Carticel users will increase their usage of our autologous chondrocyte implant procedures when MACI is launched, and that will convert non-Carticel users with MACI given its ease of use relative to Carticel. Our commercial team currently is working on launch and marketing plans for MACI and with the BLA now accepted for review by the FDA, we believe this franchise is poised for significant long-term growth. Epicel revenues for 2015 were 15.2 million, an increase of 60% compared to 2014 and 4.1 million in the fourth quarter, an increase of 24% compared with the fourth quarter of 2014. Epicel has benefited from additional promotional support, and our continued focus on increasing Epicel utilization in burn centers that use the product in prior years. To that end, 14 burn centers that did not place orders for Epicel in 2014, placed orders in 2015, and we intend to further increase our Epicel sales force from four to six sales professionals in 2016. We’re excited to expand the usage of this underutilized product and the revised label specifying a probable survival benefit will assist us in to the forming positions about the benefits of Epicel. As we’ve discussed in the past, humanitarian used devices approved under our humanitarian device exemption cannot be sold for profit except in certain circumstances including where the device is labeled for use in pediatric patients. With the recent approval of the Epicel HDE supplement, Epicel may now be sold for profit as long as the number of devices distributed in any calendar year does not exceed the annual distribution effort, which is defined as the number of devices reasonably needed to treat a population of 4,000 individuals per year in the United States. The FDA is determined that the annual distribution number for Epicel is approximately 360,000 grafts and this number represents more than 50 times our 2015 graft volume. In December 2015, we closed our marrow donation subsidiary business in order to focus management’s attention on opportunities with greater growth potential. This business contributed less than $1 million in revenue in 2015. We worked hard this past year to improve gross margins which have varied from quarter-to-quarter, but increased overall to 48% in 2015, versus 40% for the seven months that we owned the business in 2014. As revenues increased we expect to continue to improve gross margin this year. Turning to our financial position, we believe that our recent transaction with Silicon Valley Bank, which Gerard will cover in greater detail, provides us with adequate access to capital to operate the business without any near-term capital [instructions]. This will allow us to consider the most appropriate manner to fund development of ixmyelocel-T, balancing risk, dilution and retaining long term value for the company and our shareholders. I’ll now turn the call over to Gerard to review our fourth quarter financials.

Thanks Nick. Total revenues for the quarter ended December 31, 2015 were approximately $15.4 million and included $11.3 million of net sales, Carticel implant and surgical kit, and $4.1 million of net sales of Epicel. Total Carticel and Epicel net product revenues in the fourth quarter increased approximately 5% over fourth quarter net product revenues since 2014. Total net revenues for the year ended December 31, 2015 were approximately 51.2 million including approximately $35.2 million of net sales of Carticel implant and surgical kits and approximately $15.2 million of net sales of Epicel, compared to total net revenues of $28.8 million for the seven months of sales in 2014. Total Carticel and Epicel net product revenues for 2015 increased approximately 14% over pro forma Carticel and Epicel net product revenues for 2014. Total revenues for the quarter and year-ended December 31, 2015 included approximately $100,000 and $700,000 of revenues respectively from our marrow donation business which ceased operations in December 2015. Gross profit for the quarter ended December 31, 2015 was $8.2 million or 53% of total net revenues versus $8 million or 54% of total net revenues in the fourth quarter of 2014. Gross profit for the year was 24.7 million or 48% of total revenues versus gross profit of $11.5 million or 40% of total revenues in 2014. R&D expenses for the quarter and year-ended December 31, 2015 were $7.4 million and $18.9 million respectively compared to 5.8 million and 21.3 million for the same period in 2014. The fourth quarter R&D expense included $2.2 million in MACI BLA and Epicel HDE supplement regulatory consulting expenses and a $2.4 million PDUFA filing fee. SG&A expenses for the quarter and year-ended December 31, 2015 were 5.7 million and 22.5 million respectively, compared to 4.5 million and 13.8 million for the same period of 2014. The increase in SG&A expense is primarily due to Vericel being in commercial business for all of 2015 compared to only seven months in 2014, as well as an increase in sales and marketing expenses associated with Carticel and Epicel and strategic planning activities for MACI. Loss from operations for the quarter and year ended December 2015 was 5 million and 16.7 million respectively compared to 2.3 million and 22.5 million respectively for the same period a year ago. As I previously mentioned, the fourth quarter operating loss included $2.2 million for the MACI BLA and Epicel HDE regulatory consulting expenses and a $2.4 million PDUFA filing fee. Excluding these one-time expenses, the company would have had an operating loss of approximately $400,000 in the fourth quarter, demonstrating strong progress towards our goal of achieving operating profitability in the core commercial business. Material non-cash items impacting the operating loss for the quarter and year includes $600,000 and $2.7 million respectively of stock based compensation expense and $400,000 and $1.6 million respectively in depreciation and amortization expense. Other income or expenses for the quarter or year-ended December 31, 2015 was 46,000 and 331,000 in income respectively compared to less than $100,000 in expense or $3.6 million of income respectively of the same period of 2014. The change in other income for the quarter is primarily due to an increase in other income attributable to a decrease in the fair value of warrants in 2015 compared to the same period in 2014. The decrease in other income for the full year 2015 is primarily due to a bargain purchase gain of $3.5 million recognized in 2014 and a decrease in the fair value of warrants in 2015 compared to 2014. Vericel reported a net loss in the quarter and year-end December 31, 2015 of $4.9 million or $0.28 per share and $16.3 million or $0.97 per share respectively, compared to a net loss of 2.4 million or $0.17 per share and 19.9 million or $2.23 per share respectively for the same period in 2014. Please note that per GAAP our EPS calculation must take into account the undeclared quarterly stock dividends accrued by the Series B preferred stock in the fourth quarter a value of $1.8 million which is [designed] for the Series B preferred stock dividend and deducted from net income prior to [calculating] EPS. As of December 31, 2015 the company had $14.6 million of cash, compared to $30.3 million of cash at December 31, 2014. Lastly we announced that we entered two debt facilities with Silicon Valley Bank. The first is a $5 million term loan available on $3 million tranche until February 28, 2017 and a $2 million tranche available upon MACI BLA approval. We also put in to place an account receivable back $10 million revolver. And at the end of 2015, our accounts receivable balance was $10.9 million. The effective interest rate on the term loan and the AR facility based on our current interest rate is in the mid-single digits. The transaction did not include any loss. In light of our year-end cash balance of $14.6 million, the improving operating results from our commercial business and the recent HDE financing, we believe that we adequate taxes to capital to allow us to operate business without any near-term capital strength. We will need to meet with the FDA to determine the path and therefore try to bring ixmyelocel-T to the market in US and in parallel have discussions with potential global and regional partners before we determine the preferred strategy to fund development of [ixmyelocel-T]. Given the positive clinical results, we intend to continue to advance the development of ixmyelocel-T heart failure program, but we do not feel compelled to raise capital at this time. As Nick previously state, we are focused on determining the most appropriate matter to fund development of ixmyelocel-T balancing risk to the overall business, dilution to current shareholders and retaining a significant portion of the upside potential of the program for the company and our shareholders. That completes my financial review. Now I will turn the call over to Nick.

Thanks Gerard. In summary, 2015 was an extremely productive year during which we completed our corporate transformation in to a sustainable and growing commercial enterprise, substantially increase revenues and gross margins and made significant progress on our clinical and regulatory objectives that would drive near-term and long-term growth for the company. Our success during 2015 is a reflection of our unwavering focus on execution and the commitment of an extraordinary team of clinical, operations and commercial professionals to our mission to build a new leading cell therapy company. With a growing commercial business, with revenues over $50 million and a high potential pipeline supported by robust clinical data, we believe that we in fact positioned the company as one of the leading cell therapy companies in the industry. In the year ahead, we’ll continue to focus on strong revenue growth and on generating operating profits from our commercial business, preparing for the potential launch of MACI in early 2017, and determining the best regulatory and partnering strategy to advance ixmyelocel-T market as rapidly and efficiently as possible. That concludes our prepared remarks. Now I’d like the operator to open the call to your questions.

Thank you. [Operator Instructions] our first question comes from the line of Chad Messer of Needham. Your line is now open. Chad Messer - Needham: Any guidance or help you can give us on potential price increases for Epicel and pricing of MACI versus where Carticel is?

In terms of price increasing on asset sale fairly we’re glad to have flexibility, its critical. We continued the growth we have on the product for much longer. We probably would have to reduce price as volumes increase. Frank fully we are no longer out facing that situation. This is a lifesaving therapy that’s incredibly valuable, and at some point it does probably warrant some price increases, again at some point. I think we want to be careful and prudent, as to when we take that step, given the current political environment and also given the fact that we have the MACI BLA currently being reviewed by the same division that gave us pediatric [limitation]. So we’ll do what’s best for patients and the business overall but I don’t think I want to forecast exactly what we’ll do and when. Chad Messer - Needham: And then maybe you can talk about MACI versus Carticel? MACI is a next generation improved product than - it’s expected to have a broader label. So just wondering how we should think about pricing there?

Clearly MACI will definitely bring incremental value in terms of reduced procedure time, patients hopefully less invasive procedure, so we see some rational there as well. It is also important to keep in mind that Carticel right now is head and shoulders above any other product used to treat [cartilage] defects in terms of pricing. We are doing our analysis on that, and I think it’s a little too soon to offer any guidance on that. We do believe there is some room for a premium, but exactly what that means is to be dealt. Chad Messer - Needham: I think I intuited the answer from comments that were made, but would you expect a complete cannibalization of Carticel by the MACI business? One has a front and one has a second line, if you will, indication, just wondering if there room for Carticel and the MACI?

Chad, this is Dan Orlando. In regards to Carticel and the transition to MACI, we expect that the 100 week will have [PDUFA] as you know now early 2017, and we are planning for an effective strategy to implement the complete transition from Carticel to MACI. Chad Messer - Needham: I know this is probably even harder than the other questions I’ve asked to answer, but I got to ask it, MACI obviously a product that’s been around and had approval in Europe for quite some time. You guys effectively taking that over and making great progress with the FDA, where Genzyme and Sanofi didn’t make progress. What’s your secret skill over there, and why have you guys been so successful where a major pharmaceutical power house wasn’t?

Well Chad thanks, that’s a good complement to Dave and his team, and I think it starts with, as we will do with ixmyelocel-T really understanding the data, developing a strong strategy and having a relationship where we work to partner with the FDA. And Dave and his team have demonstrated that whether in the regulatory form or even in the case of ixmyelocel-T, where the company previously struggled a bit on clinical execution. And like the commercial organization you build relationships with surgeons and in this case with our investigators, and I think that’s what allows the team to be as effective as its been in the clinical and regulatory rounds.

[Operator Instructions] And I’m showing no further questions at this time. I’d like to hand the call back over to management for any closing remarks.

Well thank you for your questions and continued interest in Vericel. We’re really excited about the opportunities ahead and we look forward to be reporting on our progress in our next call. Have a great day.

Well ladies and gentlemen, thank you for participating in today’s conference. That does conclude today’s program, you may all disconnect. Have a great day everyone.