AxoGen Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
March 5, 2024

There are 10 speakers on the call.

Operator

Hello, and welcome to the AxoGen, Inc. 2023 4th Quarter and Full Year Financial Results Conference Call and Webcast. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Harold Tamayo, Vice President of Finance and Investor Relations.

Operator

Harold, you may now begin.

Speaker 1

Thank you, Kevin, and good morning, everyone. Joining me on today's call is Kyle Nzadarek, AxoGen's Chairman, Chief Executive Officer and President and Nir Nalover, Chief Financial Officer. Karen will discuss the quarter full year 2023, and Nir will provide an analysis of our financial performance, guidance and discuss our outlook for the year, followed by a question and answer session. Today's call is being broadcast live via webcast, which is available on the Investors section of the AxoGen website. Following the end of the live call, a replay will be available in the Investors section of the company's website at www.axoGeninc.com.

Speaker 1

Before we get started, I'd like to remind you that during this conference call, the company will make projections and forward looking statements, including our expectations regarding our ability to expand our footprint, expand core accounts, anticipate growth for revenue categories, penetration of core accounts, marketing opportunities with nerve applications associated with emerging trauma, breast, OMF and surgical treatment of pain and new products. Our expectations regarding the timing of our launch for Avaya Plus are statements regarding the timing of the complete biologics license application submission for Avance Nerve Graft as well as statements of the timing of the approval of the BLA. Our expectations that assuming approval of the BLA, advanced nerve graft will be designated as a reference product and expected market exclusivity of such designation. Our belief is that our balance sheet will continue to be sufficient to bridge through to cash flow breakeven and longer term profitability. Our expectation is that we will continue trending towards cash flow breakeven and our belief that trends towards operating leverage will allow us to maintain a strong balance sheet position and provide ample support as we work towards profitability.

Speaker 1

Forward looking statements are based on current beliefs and assumptions and are not guarantees of future performance and are subject to risks and uncertainties, including not without limitation, the risks and uncertainties reflected in the company's annual and periodic reports, such as hospital staffing issues, regulatory processes and approvals, surgeon and product adoption and market awareness of our products. The forward looking statements are representative only as of the date they are made and are set as required by applicable law. We assume no responsibility to publicly update or revise any forward looking statements. In addition, for a reconciliation of non GAAP measures, please reference today's press release and our corporate presentation on the Investors section of the company's website. Now, I would like to turn the call over to Karen.

Speaker 1

Karen?

Speaker 2

Thank you, Harold, and thank you all for joining us today as we discuss our 20 23 Q4 and full year financial results. 2023 was a solid year of key accomplishments and we enter 2024 with a strong commercialization strategy fueled by innovation and focused execution by our sales team. Full year 2023 revenue was $159,000,000 a 14.7% increase compared to 2022. In the back half of twenty twenty three, we saw improved commercial execution. And during this period, we estimate that revenue from our emergent trauma procedures grew in the mid single digits and revenue from scheduled procedures grew above 25% as compared to the same period in 2022.

Speaker 2

As a reminder, these estimates of procedure categories are based on available data received from hospitals and sales reps and assumptions regarding specific surgeon practices and account information, and as such are subject to the limitations of the data received and our assumptions. We're pleased with our progress and execution as we drive long term growth leveraging innovation, clinical data, surgeon education and patient activation. We're appreciative of our ongoing surgeon engagement and feedback as they continue to integrate AxoGuard plus into their nerve protection algorithm, finding differentiated applications as compared to AXAGuard Classic. We're confident that AXAGuard plus will expand the adoption of nerve protection products and will help more patients with nerve injuries. Additionally, we're continuing to expand our offering for nerve protection with AvivePLUS soft tissue matrix, which we anticipate will be commercially available in the Q2 of 2024.

Speaker 2

AvivePLUS is a resorbable nerve protection product that functions as a barrier, providing temporary protection and tissue separation during the critical phase of healing for nerve injuries. We believe AvivePLUS will be regulated as a Section 361 tissue product and will further strengthen our position in nerve protection, supporting emergent trauma and the surgical treatment of pain. In 2023, we also launched our resensation breast neurotization technique for women who choose an implant based reconstruction. We believe this innovative technique could apply to an additional 10% to 15% of all breast reconstruction patients. We're pleased with the surgeon engagement, positive feedback from our educational programs and the early adoption of this new technique.

Speaker 2

This approach will allow more patients to have the opportunity for sensory restoration following their mastectomy and reconstruction. In August, the RECON study was published in the Journal of Hand Surgery. The publication includes the author's analysis of the results, which found that Avance returned a greater degree of functional recovery than conduits and superiority was demonstrated as gap length increased. We believe that this addition of level 1 evidence supporting the efficacy of Avance Nerve Graft and published literature continues to play an important role in surgeon clinical decision making, especially with middle adopter surgeons. This study adds to a strong pool of clinical evidence supporting Avance Nerve Graft.

Speaker 2

In combination with the recent publications of the meta analysis, the premier all payers cost comparison study and the U. S. Cost Effectiveness Analysis, these four studies provide a package of compelling evidence for both clinicians and payers. During the year, we completed the validation and transitioned into our new processing facility near Dayton, Ohio. This facility was designed for long term growth and expansion, providing 3 times our previous capacity.

Speaker 2

This new facility will also support our BLA for Advanced Neurocraft. Now turning to our 4th quarter results. We're pleased with our performance during the quarter. Revenue from the quarter increased by 18.7% to $42,900,000 compared to last year. We estimate that revenue from the emergent trauma represented approximately half of total revenue and grew mid single digits compared to last year.

Speaker 2

As a reminder, emergent trauma generally results from injuries that initially present in an ER. These procedures are typically referred to and completed by a specialist either immediately or within a few days following the initial injury. We believe scheduled procedures also represented approximately half of total revenue. During the quarter, we estimate that this category grew more than 25% versus the prior year. As a reminder, scheduled procedures are generally characterized as procedures where a patient is seeking relief of a nerve condition caused by a nerve defect or surgical procedure.

Speaker 2

These include breast reconstruction following a mastectomy, nerve reconstruction following the surgical removal of a painful neuroma, nerve decompression and oral and maxillofacial procedures such as a mandible reconstruction. Strength in this category reflects the opportunity to provide improved quality of life outcomes for patients, compelling clinical data, effective surgeon education and implementation of patient activation programs. As mentioned in today's press release, our growth strategy continues to be focused on going deeper into core accounts where we see significant opportunity to expand our footprint. As a reminder, core accounts are defined as those generating more than $100,000 in revenue over the trailing 12 months. Revenues from core accounts represent approximately 65% of total revenue.

Speaker 2

Growth was primarily driven by increased productivity of our direct sales force as they gain deeper surgeon adoption and expanded use cases of our products within these core accounts. We ended the 4th quarter with 100 and 16 direct sales representatives, up 1 from a year ago and flat sequentially. We will continue to evaluate and add sales reps as their territories approach targeted levels. Our direct sales force is supplemented by independent sales agencies that represented approximately 10% of our total revenue. In Q4, growth was broad based across all applications and products.

Speaker 2

We were pleased by the contributions from innovations in new products and new applications. We continue to raise awareness. We also saw strong surgeon and patient interest in neurotization and implant based breast reconstruction and expanded the number of surgical teams trained in this important new application. Moving on to updates on our growing body of clinical evidence. Over the years, we've made significant investments to develop quality clinical evidence to demonstrate the safety, performance, economics and utility of our nerve repair solutions.

Speaker 2

Our active clinical programs are progressing as expected. At the end of the quarter, we have 245 peer reviewed publications including trauma, breast, ovarian, and breast. This January, we announced positive top line results from the RAPUMA to neurectomy and protection of the terminated nerve end with Asagard nerve cap. This post marketing study met its primary end by the subjects as compared to clinical decision making. Now turning to the BLA for Avanxin Aircraft.

Speaker 2

We've recently completed our we're encouraged by the positive interactions and have aligned with the FDA on a rolling submission process and the content of the modules for submission. We now anticipate the filing to be completed in Q3 of 2024 with potential approval in mid-twenty 25. As a reminder, a BLA approval will complete the regulatory transition of Avance Nerve Graft from a 361 tissue product to a 351 biological product. Importantly, we believe Avance will be designated as the reference product for potential biosimilars providing 12 years of market exclusivity. With over 100 guidance, we're executing our mission of revolutionizing the science of nerve repair.

Speaker 2

Now I'll turn the call over to Nir to provide a review of our financial highlights and guidance. Nir?

Speaker 3

Thank you, Karen. Once ramping up and meeting people on the team. I am very excited about the AgroGen story and the potential of the company. And moving to the financial results. For this quarter our revenue reached $42,900,000 marked with 18.7% growth from the Q4 of 2022.

Speaker 3

This growth is attributed to a 10.5% increase in unit volume for emergent trauma represented approximately half of total revenue, we estimated revenue from scheduled procedures. Our gross profit for the quarter was $33,800,000 an increase from the $30,000,000 recorded in the Q4 of 2022. This represents gross margin of 78.7 percent down from 83% in the same period last year. This change is mainly driven by the cost associated with starting tissue processing at our new facility. Our total operating expenses for the quarter increased by 3.7 percent to $37,000,000 up from $35,600,000 in Q4 of 2022.

Speaker 3

Specifically, our sales and marketing expenses for the 4th, we saw improved sales force productivity. Research $7,300,000 from $6,800,000 in 2022 driven by costs related to the BLA. As a percentage of total revenues, total R and D expenses reduced to 17% down from 18.8% in the last quarter of the previous year. To $7,500,000 in Q4 of 2023 from $8,900,000 in Q4 of 2022 driven mainly by Stockholm forfeitures due to the departure of executives from our company. The quarter ended with a net loss of $3,900,000 or $0.09 per share compared to a net loss of $5,400,000 or 0.13 dollars per share in the Q4 of 2022.

Speaker 3

However, we recorded an adjusted net loss of $2,600,000 to $600,000 compared to an adjusted EBITDA loss of $0.2 guidance. As outlined in today's press release, we're issuing our full year guidance for 2024. We expect revenue to be in the range of $177,000,000 to 100% in the range of 76% to 79%. In the future, we expect our gross margin to benefit from improved capacity overpass increases. And in summary, we are pleased with our 4th quarter performance.

Speaker 3

We will continue to execute our strategies, invest in innovation, improve our productivity and

Operator

Our first question today is coming from Chris Pasquale from Nephron. Your line is now live.

Speaker 4

Thanks. Karen, Avive was annualizing at close to $8,000,000 in sales before

Speaker 2

That we launched that was Avive that we withdrew because of changes in regulatory classifications from the FDA. And we've launched a VIVE plus to help move back into that segment of a temporary protection barrier, which we think is an important tool for surgeons. I don't think it's going to be an immediate ramp up, so I don't want to overplay that as something that's going to completely pop into this next few quarters. We do have some surgeons who are very anxious to get this product because they used it that we have and allow us to continue to see growth overall in protection. But it won't ramp immediately up into that size of revenue.

Speaker 2

There is some cannibalization. Surgeons had to turn to another tool when they no longer had a Vybe to try and still provide some protection for their nerves. But we do

Speaker 5

have a

Speaker 4

question during 2024, the guidance a little bit lower than what we were thinking. I'm assuming that's related to the new facility. Can you give that you see a pathway back to the 82%, 83% margins the company enjoyed a year ago?

Speaker 3

Yes. Thank you for the question. So yes, so indeed as we mentioned, we fully transitioned to the new processing facility end of last year. It is the important milestone for BLA. It is designed for long term growth and basically has capacity, which is 3 times our previous one, which is very good for long term extension and the margin.

Speaker 3

That said, in the short term, it's running at a fraction of its total capacity and this is one of the drivers for the lower margin. And we're ramping it up, learning about the various efficiencies. That said, we want to give guidance that we feel fully confident with. We expect the more sequential

Speaker 4

decreases in gross margin through the year, not a first half dip and then a second half rebound?

Speaker 3

Right. I mean, basically, we're selling an old inventory, which was produced in the prior and the previous facility. So this is lower. But again, we're learning all of those impacts, as I said, of the new facility. And for the total year, our guidance is with the $76,000,000 to $79,000,000 with definitely a clear expectation for improvement in the long term.

Speaker 6

And in terms of scenarios and healthcare utilization environment at the low and high ends of the range?

Speaker 2

Yes. So we measured growth through the year, driven predominantly by productivity improvements with our existing sales team. So think of it as about the same number of reps, maybe up or down a few, but in the same size, not a big expansion of sales teams, so it's driven by productivity and a real focus in driving that growth in our core account. So that's our strategy. That's how we think we're continuing to build this out.

Speaker 2

And we've drawn that out and have taken

Speaker 6

Any color on how you're thinking of the growth differential in 2024 between emergent trauma and scheduled non trauma? Can you break that out for us or help us think about that?

Speaker 2

Well, as we've talked about before, we think the conversion process in trauma, well, it's a very large market, is just hampered by the very nature of the fact that it's an unscheduled procedure. And surgeons don't take trauma call every day in a given month. And so we think that the trauma growth will continue to be paced through continued growth by having to reach those surgeons in a longer timeframe with a greater number of adoption steps. In scheduled procedures, by the very nature of the fact that they're scheduled, you can plan to be with the surgeon as they adopt a new technology, work with them in those cases and help change their practice patterns over a more discrete amount of time. So we think the adoption process in scheduled cases can be more rapid than what you see in trauma.

Speaker 2

So it's a blend of those 2 that is what made up our overall guidance.

Speaker 6

Okay. Thanks, Karen. And maybe if I could just squeeze one last one in. Can you maybe just elaborate on how you're thinking about seasonality and sales cadence for the year?

Speaker 2

Yes, great question. So as we talked about in the past, trauma is has a peak during the time periods where people are more active. And so as our business was originally trauma, you saw a Q2, there was a big jump up, Q2 to Q3 there was a follow that cadence. So you're seeing some shifts in our cases will be driven like most other elective scheduled procedures. They tend to be heavy towards the end of the year, a little slight nuance difference for breast reconstruction, where many women prefer not to have their breast reconstruction during that holiday period.

Speaker 2

But in most scheduled elective procedures, you'll see a push towards the end of the year, and it will be a little bit lighter at the beginning of the year and then more of a steady slope through the throughout the year. So again, we're going to see some shifts over time in the cadence quarter to quarter as we balance between trauma and scheduled cases.

Speaker 6

Okay. Thanks, Karen.

Operator

Thank you. Next question today is coming from Mike Kratke from Leerink Partners. Your line is now live.

Speaker 5

Hi, everyone. Thanks for taking the line. What's the latest you've been hearing from KOLs and physicians on the extent to which having that entire utilization and what are the key factors that are driving that?

Speaker 2

Well, we're really excited about continuing to move forward and getting to the final stage of our submission on the BLA. It's been a long process for us, and we had a very productive meeting with the FDA that we think laid out a clear path for us as we go forward. So yes, we are turning our sights not just to the submission, but to our commercialization post BLA. Look, from a surgeon standpoint, the surgeons really care more about the data and that recon publication than they care about the regulatory classification of a particular product. But we do think it will be helpful to continue to drive standardization, especially with middle adopters in the care of them.

Speaker 2

We also think that having the BLA and again the data will be helpful as we continue to work with payers to make sure that AVANCE is listed as non experimental on their payers' algorithms. So we think that it will be continued to be helpful as we continue to grow, but the first step actually was actually getting this recent publication of the RECON data, which we're wanting to make sure that surgeons see, so they can make an informed choice in their clinical decision making.

Speaker 1

Got it.

Speaker 5

Yes, that makes sense. And then maybe just one separate one. You saw great growth in the scheduled procedures in 4Q. Would be curious if you could provide some additional color on which procedures within that category were driving some of that growth and whether you've seen some of that momentum continue so far in early

Speaker 2

2024? Well, all I mentioned in the script, all of our application areas grew and with all of our products. So it wasn't one hit. It's really for us to continue to develop and grow at this market and expansion in as we've entered here into Q1.

Speaker 5

Understood. Thanks very much.

Operator

Thank you. Next question is coming from Caitlin Cronin from Canaccord Genuity. Your line is now live.

Speaker 7

Hi, thanks for taking the questions and congrats on a great quarter.

Speaker 2

Thanks, Dana.

Speaker 7

Yes, hi everyone. Just to start with 2024 guidance, it seems to imply deceleration year over year at the midpoint, even though it seems like scheduled procedure growth has seemed to tick up. Any kind of reason for that? And where do you think the mix between scheduled and emergent trauma could trend really over time?

Speaker 2

Well, again, I think we're taking a measured approach. We looked at this not just on them We had great momentum coming out of the year, but really looking at the total year to take a measured approach and think about our overall guidance. And so that was the thinking behind it. Again, so far we've been pleased how we saw the beginning of the year, but we're wanting not to get out over our skis on this.

Speaker 7

Okay. Makes sense. And where did active accounts end the year?

Speaker 2

Can somebody pull up the active account number for me? So we generally are focusing and it will be in the deck that we'll get out, but we're generally focusing on the core accounts because that's where the majority of our revenue comes from is from those core accounts. But of course, active accounts grow into core accounts. So it's important to make sure that we have that cedar pool of active accounts. But our real focus is on thinking about how can we take these accounts to be $100,000 or bigger, so that we can continue to go deeper and become a standard of care in those core accounts.

Speaker 2

If you remember, an active account is a pretty low threshold. It means that we had only 6 orders in the past and you've got a surgeon who has started to use the product in some small way. 1,006 active and build a bigger base.

Speaker 7

Understood. Thanks so much.

Operator

Thank you. Next question today is coming from Dave Turkaly from Citizens JMP. Your line is now live.

Speaker 8

Hi, good morning. Good morning.

Operator

So I

Speaker 4

was wondering if you might provide us a little additional detail of when you

Speaker 8

look at the 3 16 gig product or how many of them are there accounts that are doing the trauma procedures as well as the schedules and how kind of popular or how common is that?

Speaker 2

Yes. So it's going to be hard to answer that, because it's some of all of those things. Look, most of our core accounts use more than one product, but they most are not fully penetrated that they use all of our products in all of the applications and algorithm. So initially in sort of short digital nerve injuries and work their way up to complex mixed in motor injuries across a stair step process of adoption. And most of our accounts are at a early stage of penetration.

Speaker 2

That's why we think we want to continue to focus on the core account to become a standard of care in those core accounts. There are some core accounts that are trauma only. There are some core accounts that are scheduled procedures only. And so it is still generally what it takes to become a core account is 1 surgeon, who will then be about $100,000 in revenue and the reps job is to continue to expand out to other surgeons across all of the applications. And so because the threshold is only 100,000, like I said, there can be a core account, can be one surgeon who takes trauma call, and that could be a core account.

Speaker 2

But we got a lot of opportunity to build it from there.

Speaker 8

Thank you for that. And then maybe one for Nir. Congrats on the progress on the bottom line. I guess, as we're looking into next year, thinking that direction, I was wondering if you make any comment on sort of what you think that EBITDA loss might look like or maybe compared to what 23% was directionally? Any help there would be great.

Speaker 3

Yes. I mean, we don't yes, it's all the specific figures, but I would say a couple of things that I would be looking at. Revenue growth and benefit of the operational leverage and the economies of scale. I think this is the most important thing. In addition to that, better and continued focus on resource allocation, sales force productivity.

Speaker 3

In addition to that, a couple of tailwinds, one of them impacting the EBITDA and the other one the cash balance. But the royalties on Avance that we have been paying for the past couple of years drawn a bit over $3,000,000 in 2023, they rolled off at the end of 2023. So those are sort of the high level levers that I would be looking at when you're looking at the improvement from last year to this year when it comes to bottom

Speaker 8

line. Thank you.

Operator

Thank Our next question is coming from Ross Osborne from Cantor Fitzgerald. Your line is now live.

Speaker 9

Yes, good morning. Thanks for taking the question. So in your prepared remarks, you mentioned seeing ExoGuard Plus being used in new types of cases versus classic offering. Could you maybe just walk us through some of those use cases?

Speaker 2

Sure. One of the things we're really excited about AxoGuard Plus is the layers provide a slippery gliding surface. So when you think about your extremities and where you need to bend or move, that slippery layer helps when a nerve is going around a large joint. So elbows, knees, hips, those are all areas where that gliding surface can be important to make sure that the nerve remains free from attachments and can move smoothly across and through that joint. And so that's one of the big areas that we see surgeons really seeing a great application for the AXA Gird plus So we continue to see be interested in how they're using it, seeing some great applications in those areas where they want to have that gliding surface and getting some very positive feedback about the product.

Speaker 9

Okay, great. And then maybe lastly for us just on OpEx. So it sounds like hiring maybe minimal this year in terms of sales reps. But would you walk us through any new or expanded marketing initiatives? And also remind us the puts and takes on the R and D line, please?

Speaker 9

Thank you.

Speaker 2

Yes. We think of it as from a sales rep number that we will stay very close to that 116 number maybe up or a few reps from that, but it will stay very close to the 116 number. In terms of new things, again, we've already talked about the Avive Plus, which will be coming up here shortly. So we'll have a new product continuing to focus in different parts of nerve protection. We aren't looking at any big launch in a new application, but we are doing continued development work in several application areas and are injured in many types of procedures.

Speaker 2

And so we have a medical affairs team that really focuses on advanced techniques in nerve repair and looking at new expansion areas. And so at this point, I don't have anything that I want to tell you is a confirmed expansion area, but to say that our R and D team

Speaker 9

Great. Thank you.

Operator

Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to Karen for any further or closing comments.

Speaker 2

Well, thank you. As we conclude today's earnings call, I want to express my appreciation to our team for their exceptional efforts and to all the participants for your attention and contributions. The dedication of our staff has been pivotal in achieving the milestones we discussed today and we look forward to sharing our continued progress with you in the future.

Operator

Thank you. That does conclude today's teleconference webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

Remove Ads
Powered by Quartr
Earnings Conference Call
Vertex Q4 2023
00:00 / 00:00
Remove Ads