AxoGen Q1 2025 Earnings Report

AxoGen EPS Results

• Actual EPS: N/A
• Consensus EPS: -$0.01
• Beat/Miss: N/A
• One Year Ago EPS: N/A

AxoGen Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $48.35 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

AxoGen Announcement Details

• Quarter: Q1 2025
• Date: 5/8/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, May 8, 2025
• Conference Call Time: 8:00AM ET

AxoGen (NASDAQ:AXGN), together with its subsidiaries, develops and commercializes technologies for peripheral nerve regeneration and repair worldwide. The company's products include Avance Nerve Graft, a biologically active off-the-shelf processed human nerve allograft for bridging severed peripheral nerves without the comorbidities associated with a second surgical site; AxoGuard Nerve Connector, a porcine submucosa extracellular matrix (ECM) coaptation aid for tensionless repair of severed peripheral nerves; AxoGuard Nerve Protector, a porcine submucosa ECM product that is used to wrap and protect damaged peripheral nerves, as well as reinforces the nerve reconstruction while preventing soft tissue attachments; and Axoguard HA+ Nerve Protector, a processed porcine submucosa ECM base layer with a hyaluronate-alginate gel coating designed to provide short- and long-term protection for peripheral nerve injuries. Its products also comprise Axoguard Nerve Cap, a porcine submucosa ECM product that is used to protect a peripheral nerve end, as well as separates the nerve from the surrounding environment to reduce the development of symptomatic or painful neuroma; and AxoTouch two-point discriminator, a tool that is used for measuring the innervation density of surface area of the skin. The company provides its products to hospitals, surgery centers, and military hospitals, plastic reconstructive surgeons, orthopedic and plastic hand surgeons, and various oral and maxillofacial surgeons. AxoGen, Inc. is headquartered in Alachua, Florida.

AxoGen Q1 2025 Earnings Call Transcript

Key Takeaways

• Revenue increased 17.4% year-over-year to $48.6 million in Q1, with adjusted net loss narrowing to $0.9 million and full-year 2025 revenue growth guidance of 15–17% maintained.
• Leadership transition announced as CFO Nir Naor will step down and Lindsay Hartley will assume the role on May 12, with Naor advising through July 1, 2025 to ensure continuity.
• High potential accounts strategy drove a 24% increase in average account productivity, with 566 active accounts at quarter end and ongoing hires to expand commercial coverage in extremities, breast, head & neck and prostate.
• BLA for Avance advanced nerve graft remains on track for September approval after successful FDA mid-cycle and site inspections, setting up 12 years of exclusivity and no expected reimbursement or ordering disruptions.
• Clinical evidence & innovation efforts include planning multiple Level 1 studies in breast neurotization and extremities, eight new peer-reviewed publications and progress on therapeutic reconstruction, easy coaptation and protection expansion initiatives.

Presentation

[Operator]

Good morning, everyone. Joining me on today's call is Michael Dale, AxoGen's Chief Executive Officer and Director Nir Naor, Chief Financial Officer and Jens Kemp, Chief Marketing Officer. Michael will discuss first quarter twenty twenty five financial results and corporate highlights. Nir will then provide an analysis of our financial performance and guidance and discuss our outlook for the year, followed by a question and answer session. Today's call is being broadcasted live via webcast, which is available on the Investors section of AxoGen's website.

[Operator]

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. Before we get started, I'd like to remind you that during the conference call, the company will make projections and forward looking statements. Forward looking statements, which are usually identified by the use of words such as objectives, targets, will, believe, expect, estimate, should, guidance, intend, projects or other similar phrases include, but are not limited to statements relating to financial guidance, including revenue, margins, cash flow, future profitability, expectations for growth, estimated market opportunities, timing for future product and application launches and the company's expectations for approval of the bi biologics license application for AVANCE nerve graft, including the anticipated timing of approval and assumption of that AVANCE nerve graft will be designated as a reference product for any future biosimilar nerve graft and that such designation will provide marketplace exclusivity. 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 without limitation, the risks and uncertainties reflected in the company's SEC filings, including its Form 10 ks and 10 Q. The forward looking statements are representative only as of the date that they are made.

[Operator]

And except as required by applicable law, the company assumes no responsibility to publicly update or revise any forward looking statements. In addition, for a reconciliation of non GAAP measures, please refer to today's press release and the corporate presentation on the Investors section of the company's website. Now, I'll turn the call over to Michael.

[Michael Dale, President, CEO & Board Director at AxoGen]

Thank joining the twenty twenty five first quarter financial results. As you know, we announced a leadership transition this morning with Nir Noor stepping down as Chief Financial Officer. We want to thank Nir for his contributions to the company and wish him all the best in his future endeavors. I'm delighted to announce that succeeding Nir will be Lindsay Hartley. Lindsay will formally assume her new responsibilities as Chief Financial Officer on May 12.

[Michael Dale, President, CEO & Board Director at AxoGen]

Lindsay has served as Vice President and Corporate Controller at AxoGen since 2021 and brings a wealth of experience and we are confident in her ability to lead our financial operations. Nir will remain in an advisory capacity through 07/01/2025 to ensure a smooth transition of responsibilities. I will begin today's call with a financial and corporate overview highlighting our progress to date against plans for the business through the quarter, which will include the quarterly key performance indicators relevant to our growth strategies for each of the four markets as identified at our March 4 Investor Day. In addition, I will provide an update on the biologic license approval often referred to it as BLA process for our advanced nerve graft. I will then turn the call to Nir who will provide a summary of the quarter's financials and update on full year 2025 guidance for the business.

[Michael Dale, President, CEO & Board Director at AxoGen]

So how did we do for the quarter? I'm pleased to report we kicked off the year with broad based growth across our entire portfolio to include double digit growth performance in all markets. This growth was driven in each instance by good overall execution of the customer creation initiatives we described during our March, generating continued adoption of our nerve repair algorithm in the high potential accounts central to our growth strategies. Said another way perhaps more simply, we are focusing our customer facing sales and clinical resources on the highest potential hospital providers and physicians to maximize our ability to teach and establish nerve care as an expectation as part of their patient care. This basic strategy continues to show promise in the form of increasing productivity per headcount and account.

[Michael Dale, President, CEO & Board Director at AxoGen]

Progress with our strategic work to develop additional clinical evidence, societal support, coverage and payment and new product research and development will naturally leverage and further improve our objective to make nerve care standard of care for all patients. Revenue in our first quarter increased to $48,600,000 up 17.4% compared to last year, driven by continued adoption of AccuGen's nerve repair algorithm across each of our target markets and applications including extremities, oral maxillofacial and head and neck and breast. Per our plan for 2025, we started the work to expand our commercial infrastructure during the quarter completing multiple strategic hires across our sales, marketing and market access teams to strengthen our capabilities and capacity. As we mentioned at our Investor Day last quarter, we will begin disclosing specific key performance indicators to help everyone better understand and measure our progress against plans and their relationships to growth. We will begin providing updates on these KPIs during each quarterly earnings release starting today.

[Michael Dale, President, CEO & Board Director at AxoGen]

These KPIs describe performance or progress across the following areas high potential accounts, commercial infrastructure, professional education and societal support and prostate market development preparations. I'll begin with an update on our performance in growth in high potential accounts. As a reminder, high potential accounts are primarily characterized by the following criteria larger hospitals including level one trauma centers and or academic affiliated hospitals with a high number of nerve repair procedures and lastly already trained microsurgeons. As of the end of first quarter, we are on track relative to our productivity targets in high potential accounts. As we said during our Investor Day, we are targeting to generate approximately 66% of our growth in 2025 from high potential accounts.

[Michael Dale, President, CEO & Board Director at AxoGen]

In first quarter, we exceeded this target driven by an increase in average account productivity of 24% versus our plan of twenty one percent. As a reminder, we have identified approximately seven eighty accounts that meet high potential criteria. Average account productivity is the average revenue generated per high potential account. The first quarter had five sixty six active high potential accounts which represents an increase of 5% versus first quarter of twenty twenty four. Next, I will provide updates on the expansion of our commercial infrastructure and professional education initiatives by market.

[Michael Dale, President, CEO & Board Director at AxoGen]

Beginning with extremities, we enjoyed double digit growth during the quarter and continued adoption of our nerve protection portfolio in both trauma and chronic nerve injury procedures. Our plans to expand our customer facing field footprint in extremities and raise the awareness of the need to treat non transected nerve injuries includes adding five additional sales representatives in high potential territories in 2025. We intend to add these territories before the end of the third quarter. Key extremities market development activity during the quarter included the completion of one upper extremity professional education fellows program involving 30 surgeons. For 2025, we intend to conduct at least four upper extremity fellows programs, three attending physician level programs and training at least 105 surgeons.

[Michael Dale, President, CEO & Board Director at AxoGen]

We also completed one international extremity focused professional education program in Spain involving 22 surgeons. In breast, we continue to experience double digit growth and new customer creation from adoption of our ReSensation technique. And implant based reconstruction procedures. Regarding our plans to expand our customer facing footprint from 12 to 22 sales specialists in 2025, we have initiated the recruitment and hiring process and expect to complete the expansion of the sales team before the end of third quarter. We ended first quarter with one regional sales director and 13 breast re sensation sales specialists trained in territories.

[Michael Dale, President, CEO & Board Director at AxoGen]

Although we made good progress generating a significant talent pool for expansion of the sales team, we are running behind our original hiring and training plan, but believe we will be on track by the end of the second quarter. We also executed on two professional education programs and trained 35 surgeon payers and are on track to complete five national programs and train 75 surgical payers by year end. We finished the first quarter with 119 active breast resensation programs, which represents an increase of 4% versus first quarter of twenty twenty four. Each program has multiple hospital accounts and we are working to increase adoption in these accounts. In first quarter, we had two twenty nine active accounts which represents an increase of 6% over 2024.

[Michael Dale, President, CEO & Board Director at AxoGen]

We had an estimated two fifty four surgeons who performed a breast resensation procedure in the first quarter which represents a 16% increase versus the first quarter of twenty twenty four. In our oral, maxillofacial and head and neck markets, we saw strong continued momentum and growth from adoption of our nerve algorithm in mandible reconstruction procedures as well as other head and neck procedures. To accelerate growth in mandible reconstruction, increase our brand awareness and key opinion leader engagement in head and neck, we have started the hiring process to add the planned five field based market development managers and expect to complete hiring by the end of the second quarter. We also conducted one professional education fellows training program where we trained 26 surgeons and we are on track to conduct two more professional education programs and train at least 45 surgeons by year end. Finally, an update on prostate.

[Michael Dale, President, CEO & Board Director at AxoGen]

Our prostate clinical and market development plan is on track and we are excited about the opportunity to improve nerve function outcomes in robotic assisted radical prostatectomies. In first quarter, we hired a new Director of Marketing and are in the process of hiring a clinical support team. Our initial focus is on surgical technique development and onboarding sites for our clinical development pilot. The clinical pilot will support the development of a scalable training and education program by the end of the third quarter. We expect to be able to meet the goal of having 10 pilot sites running by the end of the year.

[Michael Dale, President, CEO & Board Director at AxoGen]

We have confirmed three clinical pilot sites and are in advanced discussions with other sites. We have already started to support cases in our pilot sites. We recently attended the American Urological Association Conference in Las Vegas where we had an opportunity to get an update on the latest developments in robotic assisted radical prostatectomy and unmet clinical needs. Nerve injury related outcomes continue to be a significant challenge and we believe AxoGen is well positioned to address these challenges in a clinical meaningful way with our portfolio. We also had an opportunity to engage with multiple globally recognized key opinion leaders during the quarter and can report there is high interest to partner with Accident to address the challenge of nerve related injuries in prostatectomy.

[Michael Dale, President, CEO & Board Director at AxoGen]

As a reminder, we have KPIs related to advancing the clinical our clinical research priorities. For breast neurotization, we are advancing efforts on the design of our Level one study protocol and are in detailed discussions with health economics and outcomes research and surgeon advisors on the study design and expect to complete the protocol design by year end. In extremities, we are on track to complete study design for a comparative level one study of advanced nerve graft versus autograft in mixed and motor nerve nerves by year end. In addition, we are on track to develop our clinical evidence plan for oral, maxillofacial and head and neck by year end. In the first quarter, we continue to see strong external validation of Akxten's differentiated technologies and leadership in peripheral nerve repair with eight new peer reviewed publications citing clinical use or discussion of our products.

[Michael Dale, President, CEO & Board Director at AxoGen]

For those interested, these peer reviewed studies are available on our website. This growing body of literature supports surgeon confidence in adopting our technologies and aligns with our strategic objective of becoming a standard of care option. Consistent with our Investor Day comments and aligned with our product development strategy, we continue to make meaningful progress across our three core innovation pillars. We advanced our therapeutic reconstruction program focused on enhancing overall functional recovery following nerve repair. Our easy coaptation initiatives progressed towards developing milestones aimed at simplifying nerve coaptation and making it more predictable for surgeons.

[Michael Dale, President, CEO & Board Director at AxoGen]

And finally, as part of our protection expansion efforts, we initiated early stage preclinical design work exploring our next generation new applications for our protection technologies. From a development perspective, we're actively progressing all product and application initiatives outlined in our 2025 innovation roadmap. Finally, I would like to address the status of our biologics license approval often referred to as BLA for advanced nerve graft. The BLA remains on track and continues to progress as planned. We held a mid cycle meeting with the FDA in March and have our late cycle meeting with the agency scheduled for later this month.

[Michael Dale, President, CEO & Board Director at AxoGen]

We are pleased to report successful clinical trial site inspections as well as a successful sponsor inspection of action under the FDA's Bio Research Monitoring also known as BIMO program. These important regulatory milestones further reinforce our confidence in the strength and completeness of our BLA submission and align with prior guidance that we expect BLA approval in September. Overall, Accident is excited to reach this next milestone with BLA approval securing twelve years of market exclusivity with respect to biosimilar nerve allografts and establishing advanced nerve graft as the only implantable biologic indicated for the repair of functional deficits in peripheral nerves. I will now hand over the call to Nir to discuss the financials and our guidance. Nir?

[Nir Naor, Chief Financial Officer at AxoGen]

Thanks Mike. For this quarter,

[Nir Naor, Chief Financial Officer at AxoGen]

our revenue reached $48,600,000 representing 17.4% growth from the first quarter of twenty twenty four. This growth is attributed to an approximately 14% in unit volume and mix and a 3% increase in price. Our gross profit for the quarter was $34,900,000 an increase from the $32,600,000 recorded in the first quarter of twenty twenty four. Represents gross margin of approximately 71.9%, down from 78.8% in the same period last year. The year over year decline was driven by two factors.

[Nir Naor, Chief Financial Officer at AxoGen]

The first was the year over year impact from a growing proportion of a van sold, which was processed at a higher cost at our new facility in Dayton, Ohio. We expect that advanced cost of goods will reduce over time as capacity utilization increases and as we start recognizing additional efficiencies following planned process improvements. The second impact on the gross margin this quarter was due to increased inventory reserves and related write offs. Looking beyond this quarter, as we progress through the BLA process, which is not expected to conclude before September, our ability to make significant improvements to our processes and procedures is limited. Once we receive approval, we will be able to implement continuous process and quality system improvement, which we expect to positively impact our gross margin.

[Nir Naor, Chief Financial Officer at AxoGen]

Our total operating expenses for the quarter decreased to $36,600,000 down slightly from $37,200,000 in the first quarter of twenty twenty four. Sales and marketing expenses as a percentage of total revenue decreased to 43.3% from 47.9% in the first quarter of twenty twenty four as we saw an increase in our sales productivity and solid execution of our strategy focusing on high potential accounts. Research and development expenses decreased by 17.8% to $6,100,000 from $7,400,000 in 2024, driven primarily by the completion of the development of a five plus soft tissue matrix in Q1 of twenty twenty four as well as by reduction of clinical trial expenses. As a percentage of total revenues, total R and D expenses were 12.5%, down from 17.9 in the first quarter of the prior year. General and administrative expenses were $9,500,000 in Q1 of twenty twenty five, down 5% from the $10,000,000 in Q1 of twenty twenty four.

[Nir Naor, Chief Financial Officer at AxoGen]

This quarter ended with a net loss of 3,800,000 or $0.08 per share compared to a net loss of $6,600,000 or $0.15 per share in the first quarter of twenty twenty four. Adjusted net loss for the quarter was $900,000 or $02 per share compared to an adjusted net loss of $2,700,000 or $06 per share in the first quarter of twenty twenty four. Adjusted first quarter EBITDA was $2,900,000 compared to an adjusted EBITDA of $1,000,000 in the prior year. As a reminder, AxoGen's definition for adjusted EBITDA is EBITDA excluding stock based compensation. As of March 31, our balance of cash, cash equivalents and investments was $28,100,000 compared with $39,500,000 at the end of the fourth quarter.

[Nir Naor, Chief Financial Officer at AxoGen]

Turning now to our guidance. We are maintaining our full year 2025 revenue growth guidance in the range of 15% to 17%. In addition, we continue to expect full year 2025 gross margin to be in the range of 73 percent to 75%. As a reminder, this includes approximately $2,000,000 1 off costs related to the BLA approval, which would impact full year gross margin by approximately one percentage point. The timing of most of those costs would be around the anticipated BLA approval date currently expected to be in September.

[Nir Naor, Chief Financial Officer at AxoGen]

Notably, we estimate that two thirds of those costs are non cash related and pertain to the vesting of our BLA related stock compensation. From a cash perspective, we continue to expect to be cash flow positive for the entire year and expect to self fund our new strategic plan with cash from operations. In summary, we're pleased with our first quarter performance. We will continue to execute our strategies, invest in innovation, improve our resource allocation and strive towards greater bottom line profitability. And now we'd like to open the line for questions.

[Nir Naor, Chief Financial Officer at AxoGen]

Operator?

[Operator]

Thank you. We will now be conducting a question and answer session.

[Operator]

You.

[Operator]

Our first question comes from the line of Michael Sarcon with Jefferies. Please proceed with your question.

[Michael Sarcone, Analyst at Jefferies]

Good morning and thanks for taking our questions. Also, Nir, it's been great working with you and best of luck on your new opportunity.

[Nir Naor, Chief Financial Officer at AxoGen]

Thank you.

[Michael Sarcone, Analyst at Jefferies]

Just wanted to start maybe around Avance and the BLA approval. Great to hear that everything is tracking to plan. I did want to know, right now, I guess you sell that product as regulated as a tissue based product, but you're working to get this biologics license application. I was wondering if you had any insight to for the different customer accounts, once this product gets approved as a biologic, do accounts have to go through like another VAC process or a recertification to kind of recertify the product as a new category before they can continue to use it? Would love to get any sense of what you found there and what you're expecting?

[Michael Dale, President, CEO & Board Director at AxoGen]

Sure. Mike, I'm going to ask Jens to respond to that. It's clearly a question that we've anticipated and I think we're ready for. Jens, go ahead.

[Jens Schroeder Kemp, Chief Marketing Officer at AxoGen]

Yes. Thanks Mike. So based on our research to date and conversations with customers, we do not expect any major changes to ordering or shipment for Avance, storage of Avance or the reimbursement pathway. As an implantable biologic with an already established CPT one code, the reimbursement pathway will remain unchanged and we will continue to be reimbursed as an implant using CPT code 64912. While some institutions may require approval from P and T committees, Axiagen does not anticipate any major disruptions hospital access or product availability.

[Michael Sarcone, Analyst at Jefferies]

Got it. That's very helpful. Thank you. And then maybe one for Nir. Just on the gross margin kind of well below what we were expecting.

[Michael Sarcone, Analyst at Jefferies]

Just wanted to get a sense for how severe were the kind of onetime inventory write offs? And then you are maintaining your gross margin guidance. Just wanted to get a sense for do we see a full rebound in 2Q? Just kind of would love to get a sense for the cadence of gross margin through the rest of the year.

[Nir Naor, Chief Financial Officer at AxoGen]

Yes. So yes, we don't break out the exact impact of those write offs, but they were significant for Q1. And they were also driven by various process improvements that we were making to allow us better in the earlier detection of the need for such write offs. So we definitely expect to improve in the course of the year. In addition to that, as we mentioned, gross margin also supposed to be impacted by process improvements, which we intend to put in place after the BLA.

[Nir Naor, Chief Financial Officer at AxoGen]

Regarding cadence, yes, we do expect it to improve subject to what we said before regarding the BLA related expenses to be hit in Q3. So that is basically the guidance. So yes, we do expect to improve with those around $2,000,000 of one off BLA approval related expenses in Q3.

[Michael Sarcone, Analyst at Jefferies]

Got it. And sorry, just

[Michael Sarcone, Analyst at Jefferies]

to sneak one more follow-up in there. I mean, quickly do those, do you think those process improvements could take place following the BLA approval? Just really trying to get a sense for how much of a step up we could see in 4Q after the BLA approval?

[Michael Dale, President, CEO & Board Director at AxoGen]

It won't be a stepwise improvement, Michael. It will be through the next twelve months thereafter. More or less, I'm oversimplifying a complex situation, but the BLA is moving from one quality and operation systems to another. It's the same product the day before and the day after this event transpires, but the quality systems are different. And we are not we are in a position now where we're navigating to an approval of an existing quality system and significant changes in operations and systems and quality systems can't change as part of normal course of continuous improvement between now and then.

[Michael Dale, President, CEO & Board Director at AxoGen]

And so anything we want to do based upon looking at workflow and natural efficiency improvements unfortunately can't really take place until after we close the chapter on the approval of the plant.

[Michael Sarcone, Analyst at Jefferies]

Got it. Thanks, Blaine. Thanks,

[Michael Dale, President, CEO & Board Director at AxoGen]

Part of the guidance of gross margin for this year is that we knew it would be noisy as we ramp production and went through the inventories that we initially started the plant with as well as identified work process improvements.

[Michael Sarcone, Analyst at Jefferies]

Great. Thank you. Sure.

[Operator]

Thank you. Our next question comes from the line of Caitlin Cronin with Canaccord. Please proceed with your question.

[Caitlin Cronin, Director at Canaccord Genuity Inc]

Hi, thanks for taking the questions. Anir, wish you the best. I'm just to jump off that last question talking about the process for validation changing with the BLA. So if Avance is approved, can you still sell through current inventory levels of that inventory to necessarily go through that specific new validation process?

[Michael Dale, President, CEO & Board Director at AxoGen]

Yes, we can. So that's simple answer is yes. So we have as part of the approval process, the existing inventories that were produced under the tissue designation will still be available for sale.

[Caitlin Cronin, Director at Canaccord Genuity Inc]

That's great. And then just with the moving parts with the BLA and also the new segment initiatives, just the cadence of OpEx for this year?

[Nir Naor, Chief Financial Officer at AxoGen]

Yes. So I would say two trends. Number one, as we mentioned, as part of our strategic plan, we are or it's already started to invest in hiring and other investments throughout the year. So OpEx is expected to grow gradually pursuant to that. That said, again, as we mentioned in the past, once we pass the BLA, there are some costs that are expected to roll off.

[Nir Naor, Chief Financial Officer at AxoGen]

Again, BLA as of September of this year.

[Caitlin Cronin, Director at Canaccord Genuity Inc]

Great. And then just one more, appreciate the team specific updates. Just an update overall and where you are now from a sales team standpoint in terms of count and then where you plan to be by the end of the year just broadly across all different call points and segments?

[Michael Dale, President, CEO & Board Director at AxoGen]

In terms of true salespeople in territories, by the end of the year that we should have a net approximately net 20. In addition to that, there are various marketing support staff, clinical staff that are also added that will be added during that time frame. But in terms of TruPS actual sales territory expansions, it will be approximately 20 by the end of the year.

[Caitlin Cronin, Director at Canaccord Genuity Inc]

Great. And where did you begin the year with?

[Michael Dale, President, CEO & Board Director at AxoGen]

I have to confess Caitlin. I don't have that number off top of my head.

[Caitlin Cronin, Director at Canaccord Genuity Inc]

Okay. No problem. That's it for me. Thanks so much.

[Michael Dale, President, CEO & Board Director at AxoGen]

Thanks Caitlin.

[Operator]

Thank you. Our next question comes from the line of Chris Pasquale with Nephron Research LLC. Please proceed with your question.

[Chris Pasquale, Partner - Medical Devices & Supplies at Nephron Research LLC]

Thanks. I wanted to ask about the high potential accounts initiative. If I heard correctly, do think there are about seven eighty of those nationwide and five sixty six were active in 1Q. Would just love to know kind of where you stand with the other two fifteen or so? Are those accounts that you don't have a relationship with today?

[Chris Pasquale, Partner - Medical Devices & Supplies at Nephron Research LLC]

Or are they just ordering sporadically? And part of the goal here is to get them to a consistent cadence of reordering where they would be considered active in each period.

[Michael Dale, President, CEO & Board Director at AxoGen]

Great question. So it's actually a mix. So we do have accounts that have different ordering patterns. So not all of our Hypertensional accounts order each month or each quarter. So we do have on an annual basis more active high potential accounts than the five sixty six.

[Michael Dale, President, CEO & Board Director at AxoGen]

But we also do have accounts that we are not currently present in and we see that as a great opportunity to continue to expand our presence in this cohort. So there's plenty of opportunity to expand within our existing customer base and there are still high potential accounts where we need to establish a footprint.

[Chris Pasquale, Partner - Medical Devices & Supplies at Nephron Research LLC]

Great. And then I think the leaning in on clinical data is a really interesting and I think important part of the strategy here. You talked about wanting to run another comparative study of AVANCE to autograft in the core extremity segment. The trial to support the BLA submission took a long time to enroll. I'm curious, one, sort of the your view on the need for a second randomized study in that indication?

[Chris Pasquale, Partner - Medical Devices & Supplies at Nephron Research LLC]

Or is this trial answering a different question? And then the feasibility of completing that work in a timely fashion given the history here?

[Michael Dale, President, CEO & Board Director at AxoGen]

Yes. Fair questions, Chris. The mixed motor trial against autograft that's different than what was done with recon specifically. So it's intended to answer narrowly that question. From a planning standpoint, we don't believe that it would take as long to enroll as some of the historic studies.

[Michael Dale, President, CEO & Board Director at AxoGen]

We look at this in terms of trial recruitment and in terms of patient recruitment enrollment something that should transpire over a period of year and then followed by the follow-up. So these are still two to three year programs at minimum in terms of activity. But they're also that's what's required to complete these Class I evidence data sets. So I hope that answers your question. We feel pretty good that we can do this.

[Chris Pasquale, Partner - Medical Devices & Supplies at Nephron Research LLC]

Yes. That's great. Thanks Mike.

[Operator]

Thank you. Our next question comes from the line of Dave Turkaly with Citizens. Please proceed with your question.

[David Turkaly, Research Analyst at Citizen JMP]

Hey, good morning and good luck out here. Mike, I know you've had some track record with some really differentiated technologies in the space and Accutane has got a history of sort of nice price increases, I think you called out 3%. I was curious how sustainable do you think that is looking back at some of your prior companies and then comparing it to this? Do you think that's a consistent factor moving forward?

[Michael Dale, President, CEO & Board Director at AxoGen]

It's a fair question. I don't have a specific answer. What I can tell you, we evaluate it on an annual basis. And to your question, I think there will be a point at which that may not be, but we don't have a date for that. We have not a specific plan assumption at the moment.

[Michael Dale, President, CEO & Board Director at AxoGen]

So I don't regrettably, don't have a perfect answer for you.

[David Turkaly, Research Analyst at Citizen JMP]

That's fine. No worries. And you did say a lot, so thanks for all the detail. When you look at all the clinical efforts you have ongoing, I guess, don't know, outside of obviously your BLA and maybe this new mixed nerve, but would you look at any of them to call out that could have maybe the most near term impact on let's say maybe your financial results?

[Michael Dale, President, CEO & Board Director at AxoGen]

Fortunately, these studies do not cost do not incur costs like that for example purposes like that of Structural Heart for example. So it's one of the reasons why we are able to guide that we believe over the course of the strategic plan that we'll be able to fund all of our operations. So hopefully the answers if your question is about cost can we actually afford to do this? The simple answer is yes. We believe we can.

[Michael Dale, President, CEO & Board Director at AxoGen]

Strategically, we believe this evidence generation is necessary. We have a lot of clinical experience, lot of individual paper publications, a lot of individual surgeon in the hospital experience. But fundamental level one evidence is needs to be increased because outside of recon and one other study over the years we haven't engaged in other studies. And so with our new plan, we identified as gaps and opportunities was to do that and that's what we're going to do. We think it will be exciting for our customers.

[Michael Dale, President, CEO & Board Director at AxoGen]

These are partnerships. Many of these individuals are physician scientists. And while they may believe in something the more evidence we can add to that equation the better. And then finally, of course, as everyone can appreciate in this in our world goes directly to the heart of coverage and payment. And so if we don't start this stuff, it never gets done.

[Michael Dale, President, CEO & Board Director at AxoGen]

And bottom line, we're going to get it done.

[David Turkaly, Research Analyst at Citizen JMP]

Thank you.

[Nir Naor, Chief Financial Officer at AxoGen]

You're welcome.

[Operator]

Thank you. Our next question comes from the line of Mike Cracky with Leerink Partners. Please proceed with your questions.

[Brett Gasaway, VP - Equity Research at Leerink Partners]

Hey guys, this is Brett on for Mike. Thanks for taking the questions. Neer, best of luck to you in your next role. It's been great working with you so far. So I want to go back to Brett.

[Brett Gasaway, VP - Equity Research at Leerink Partners]

You obviously mentioned that the hiring and sales specialists is running a bit behind plan. Obviously, is one of your fastest growing segments. So just want to get a sense for if there's anything contemplated within the original guide for breadth and if that was reliant on the pacing of that hiring and then obviously if anything has shifted with the delay?

[Michael Dale, President, CEO & Board Director at AxoGen]

We still believe that we'll be able to catch up on time in terms of that footprint. Now to be very blunt, if we don't, which I don't expect to be the case, but if we didn't, yes, that would affect absolutely the cadence of the market development. So I hope that answers your question. Bottom line, we will be on track by the end of this quarter.

[Brett Gasaway, VP - Equity Research at Leerink Partners]

Understood. Yes, that's helpful. And just one more on prostate. Obviously, you said the pilot there launching in 3Q, but it seems to imply that a lot of that pilot will be in 4Q at least the ramp to '10. Is there anything again similar line of questioning implied within the guide for 4Q that is factoring that in?

[Brett Gasaway, VP - Equity Research at Leerink Partners]

Obviously, probably a smaller portion of revenue, but just the extent to which the guide relies on that pilot?

[Michael Dale, President, CEO & Board Director at AxoGen]

Yes. We have no the guide does not rely on prostate market development from a revenue standpoint. We're doing our best to go slow with prostate just to make sure that we I mean there's tremendous enthusiasm, but we want to make sure that enthusiasm is channeled into a standardized surgical approach, so that what so that the outcomes that we generate we can make and draw conclusions from in terms of how to go forward with market development, because we also intend to run clinical studies in prostate as well next year. And so hopefully that answers the question. So there's lots of interest That's the easy part.

[Michael Dale, President, CEO & Board Director at AxoGen]

The hard part, the real work is making sure that we develop surgical approaches that are teachable, so that we can draw conclusions from the clinical outcomes and then very importantly engage in level one evidence.

[Brett Gasaway, VP - Equity Research at Leerink Partners]

Understood. Thanks guys.

[Michael Dale, President, CEO & Board Director at AxoGen]

Sure.

[Operator]

Thank you. Our next question comes from the line of Ross Osborne with Cantor Fitzgerald. Please proceed with your question.

[Matthew Park, Equity Research Associate at Cantor Fitzgerald]

Hey guys, this is Matt Park on for Ross today. Thanks for taking the questions. Going back to a question asked earlier on reimbursement, I guess outside of continued evidence generation, are there specific commercial payer targets or policy barriers you're looking to address this year?

[Michael Dale, President, CEO & Board Director at AxoGen]

Sure. I will ask Rick Ditto who now leads that part of our program and he can speak to you to his impressions.

[Rick Ditto, VP, Global Health Economics, Reimbursement & Policy at AxoGen]

Thanks for the question. Following the BLA, we're working with evidence intermediaries. These are the health benefit managers and groups that summarize evidence for payers. And we'll start in Q4 tackling some of the regional non coverage policies that are out there for advanced nerve graft and then we'll as we develop a winning formula we'll start tackling the national payers next year.

[Matthew Park, Equity Research Associate at Cantor Fitzgerald]

Got it. That's helpful. And then just one more for me on OMF and head and neck. You said continued strong momentum here. Are there specific referral pathways or procedure types that are helping drive the strong performance?

[Matthew Park, Equity Research Associate at Cantor Fitzgerald]

And then how do you see this growth in this segment trending relative to extremities and breast as you continue to penetrate the market here? Thanks.

[Jens Schroeder Kemp, Chief Marketing Officer at AxoGen]

Yes. Thanks for question. Yes. So the focus is on driving growth in mandible reconstruction procedures. We have a very good position in benign mandible reconstruction procedures and are making inroads with malignant pathology as well.

[Jens Schroeder Kemp, Chief Marketing Officer at AxoGen]

So the primary growth driver is mandible reconstruction. But then as we start engaging more with head and neck surgeons, there are multiple other procedures that we're targeting including radical neck dissections and pyrotectomies. So there's a lot of opportunity in the head and neck space and that's why we're adding five field based market development managers to really accelerate brand awareness and adoption with that surgeon group.

[Nir Naor, Chief Financial Officer at AxoGen]

Yes. I know we've talked about in the past, but just to build upon Jens' comments, it's still not uncommon, not infrequent situation where we meet these specialists within these various centers who are either unaware of oxygen and as a result don't appreciate that the alternatives even exist. So this is still very immature market development and therein lies the opportunity.

[Matthew Park, Equity Research Associate at Cantor Fitzgerald]

Got it. Super helpful color. Thanks for taking the questions.

[Operator]

Thank you. Our next question comes from the line of Jason Bedford with Raymond James. Please proceed with your question.

[Jayson Bedford, Managing Director - Medical Technology at Raymond James Financial]

Good morning. So a few questions. On gross margin, you came in a bit below our estimate for the quarter. I'm guessing you came in a bit lower than your internal, maybe not. You still have the one time costs related to the BLA that will hit in the third quarter.

[Jayson Bedford, Managing Director - Medical Technology at Raymond James Financial]

So by maintaining the guide, it kind of implies a higher exit rate. So is it fair to assume the exit 25% north of 75 Percent on the gross margin line?

[Michael Dale, President, CEO & Board Director at AxoGen]

You mean in Q4, Jason?

[Jayson Bedford, Managing Director - Medical Technology at Raymond James Financial]

Correct.

[Michael Dale, President, CEO & Board Director at AxoGen]

We're well, one, don't give quarter to quarter guidance and I don't want to do that. But no, I would think that would be too high.

[Nir Naor, Chief Financial Officer at AxoGen]

Would say Jason in general, yes, we do expect as I think I answered to one of the other analysts, the other quarters to be higher than Q1, again subject to those one off BLA approval related costs in Q3.

[Jayson Bedford, Managing Director - Medical Technology at Raymond James Financial]

Okay. Maybe just on the top line, I'll ask the high potential account question a little differently. Have you seen much of a drop off in those accounts that are not high potential? Meaning, I think there's a few hundred accounts out there that aren't necessarily a focus. But have you seen the business with those accounts fall off at all?

[Michael Dale, President, CEO & Board Director at AxoGen]

Well, our focus is on these accounts. So by definition, yes, because technically we have been we have touched more than 3,000 accounts over recent years. And I use the word touch because you're in and out and you're not maintaining constant market development and physician development in those accounts. So yes, we have some accounts which have done nothing since beyond that original experience and it's because we moved all of our resources towards these accounts. It doesn't mean we never step outside of a high potential account, but fundamentally the focus has been reframed and the expectations are to build recurring enduring revenue in these accounts.

[Michael Dale, President, CEO & Board Director at AxoGen]

So it's a long winded way of saying, yes, there are places that have not done an action procedure because we don't go there any longer. It's really just it's a resource allocation question and this is the decision that we believe is best for driving growth in standard of care.

[Jayson Bedford, Managing Director - Medical Technology at Raymond James Financial]

Okay. That's helpful. Thank

[Michael Dale, President, CEO & Board Director at AxoGen]

had 600 people. It'd be very different equation. But that's literally why we just to be clear about why are we doing this is that those individuals in terms of time and duration working with a physician have to make choices. And so the high potential account is what we think is most practical.

[Jayson Bedford, Managing Director - Medical Technology at Raymond James Financial]

No. The strategy makes sense. I'm just looking at it. You grew well, right? 17% is quite strong and either it's the high potential accounts doing really, really well or the non high potential actually hanging in there a bit better than maybe expected.

[Jayson Bedford, Managing Director - Medical Technology at Raymond James Financial]

That was kind of the genesis of the question. Got it. Thank you.

[Michael Dale, President, CEO & Board Director at AxoGen]

Thanks, Jason.

[Operator]

Thank you. Our next question comes from the line of Frank Takkin with Lake Street Capital Markets. Please proceed with your question.

[Frank Takkinen, Senior Research Analyst at Lake Street Capital Markets, LLC]

All right. Thanks for taking the questions. Congrats on the first quarter. I was hoping to start with one, just kind of growth rates across businesses. I know you're not going to disclose too much specifics, but my assumption is some of the businesses grew faster than 17% and then maybe were still in the double digits, but below that 17% rate.

[Frank Takkinen, Senior Research Analyst at Lake Street Capital Markets, LLC]

Any kind of goalpost you can provide on growth rates between breast, OMF and extremities?

[Michael Dale, President, CEO & Board Director at AxoGen]

Yes. A fair question, Frank. But we don't want to get into that level of detail at this point in the future perhaps, but not today.

[Frank Takkinen, Senior Research Analyst at Lake Street Capital Markets, LLC]

Okay. Fair enough. I was going to follow -up on the breast comment you made. I think you said two fifty four active surgeons plus sixteen percent year over year. I was curious where you feel you currently stand in those active accounts from a percent of surgeons currently offering re sensation?

[Frank Takkinen, Senior Research Analyst at Lake Street Capital Markets, LLC]

Any approximation of how much growth you still have to just inside of your same accounts with new surgeons?

[Michael Dale, President, CEO & Board Director at AxoGen]

Well, I think if you look at kind of the growth in programs and account versus the growth in number of surgeons doing breast resuscitation, we can see that we are still activating new surgeons within those accounts and we believe there's still a lot of surgeons within our existing programs that we can continue to develop. So we do believe there's still significant opportunity within existing programs.

[Frank Takkinen, Senior Research Analyst at Lake Street Capital Markets, LLC]

Okay. And then maybe just last one. On the BLA process, what's left between now and September? Any major checkpoints that you feel that are most important to successfully receiving the BLA?

[Michael Dale, President, CEO & Board Director at AxoGen]

Sure. Well, the most important thing is to keep answering the questions that we receive timely. So we've I think the number is when they answer your question it's called an IR information request and it's a very formal process. So we've fielded I think 200 of these thus far through the process once they began the once they accepted our application. And that's gone very well.

[Michael Dale, President, CEO & Board Director at AxoGen]

We've been able to answer timely. The intercourse between FDA and our staff is very professional and very cordial. And the work is going well. The next major milestone will be the late cycle meeting and that's where we all sit down to kind of review and kind of take stock of where we are. So we'll learn more there.

[Michael Dale, President, CEO & Board Director at AxoGen]

All we can say at this stage is there's lots of work going on and so far we're getting the work done. But it's just part of the process.

[Frank Takkinen, Senior Research Analyst at Lake Street Capital Markets, LLC]

Perfect. That's helpful. Thanks for taking the questions.

[Michael Dale, President, CEO & Board Director at AxoGen]

Sure. Thanks, Frank.

[Operator]

Thank you. We have reached the end of the question and answer session. I would like to turn the floor back to Michael Dale for closing remarks.

[Michael Dale, President, CEO & Board Director at AxoGen]

Thank you, operator. On behalf of the Action team, want to thank everyone for their time and interest in our work to fulfill the promise and potential for all stakeholders in our business purpose to restore health and improve quality of life by making restoration of peripheral nerve function an expected standard of care. We look forward to updating you on our continued progress and our plans for the earnings call next quarter. Thank you very much.

[Operator]

Thank you. And this concludes today's conference and you may disconnect your line at this time. Thank you for your participation.

Participants

Executives

• Michael Dale, President, CEO & Board Director
• Nir Naor, Chief Financial Officer
• Jens Schroeder Kemp, Chief Marketing Officer
• Rick Ditto, VP, Global Health Economics, Reimbursement & Policy

Analysts

• Michael Sarcone, Analyst at Jefferies
• Caitlin Cronin, Director at Canaccord Genuity Inc
• Chris Pasquale, Partner - Medical Devices & Supplies at Nephron Research LLC
• David Turkaly, Research Analyst at Citizen JMP
• Brett Gasaway, VP - Equity Research at Leerink Partners
• Matthew Park, Equity Research Associate at Cantor Fitzgerald
• Jayson Bedford, Managing Director - Medical Technology at Raymond James Financial
• Frank Takkinen, Senior Research Analyst at Lake Street Capital Markets, LLC