24 Jan Axogen: Repairing Lives of Patients with Peripheral Nerve Injuries
Axogen, Inc. (NASDAQ: AXGN) is a global leader in developing and marketing innovative surgical solutions for peripheral nerve injuries. The Company helps to restore peripheral nerve function and quality of life to patients with physical damage or transection to peripheral nerves by providing innovative, clinically proven, and economically practical repair solutions for surgeons and health care providers.
Axogen, Inc. (NASDAQ: AXGN)
Market Cap: $381.37M; Current Share Price: 8.86 USD
Data by YCharts
The Company and its Products
Peripheral nerves provide the pathways for motor and sensory signals throughout the body. Every day, people suffer traumatic injuries or undergo surgical procedures that impact the function of their peripheral nerves. Physical damage to a peripheral nerve or the inability to properly reconnect peripheral nerves can result in the loss of muscle or organ function, sensory feeling, or the initiation of pain.
Axogen’s platform for peripheral nerve repair features a comprehensive portfolio of products, including:
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Axogen is exclusively focused on peripheral nerve repair with a differentiated platform. The Company is known for over ten years of consistent clinical outcomes and over 200 peer-reviewed clinical publications. To date, Axogen has implanted over 100,000 Avance nerve grafts, and its products are currently available in the U.S., Canada, Germany, United Kingdom, Spain, and several other European, Asian, and Latin American countries.
We’ll discuss the critical rationale for covering this Company.
- Vast Market Opportunity
Peripheral nerve injury (PNI) through damage or transection is a significant source of physical disability impairing the ability to move muscles or to feel normal sensations. Axogen’s total addressable market is divided into four categories: (1) trauma, (2) oral maxillofacial (OMF), (3) breast reconstruction neurotization (Breast), and (4) Upper Extremity Compression.
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The U.S. PNI has a potential Total Addressable Market for Axogen’s current product portfolio of $2.7 billion. The Trauma portion of the Total Addressable Market encompasses traumatic PNI throughout the body, with approximately 95% of injuries affecting upper and lower extremity nerves. Axogen estimates that the Trauma portion of the Total Addressable Market is roughly $1.9 billion based on epidemiological studies regarding the general number of trauma patients, clinical literature reviews reporting PNI incidence, and physician interviews.
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The OMF portion of the Total Addressable Market is approximately $300 million annually, based upon research indicating that approximately 56,000 PNI occur in the U.S. each year related to third molar surgeries, anesthetic injections, dental implants, orthognathic surgery, and mandibular resection procedures. The Breast portion of the Total Addressable Market is approximately $250 million. PNI caused by recurrent carpal tunnel syndrome and cubital tunnel syndrome constitutes the “Upper Extremity Compression” portion of the Total Addressable Market. Axogen estimates that the Upper Extremity Compression portion of the Total Addressable Market is approximately $270 million, or 130,000 procedures.
It is to be noted that applications for Axogen’s products include two primary categories – emergent trauma procedures and scheduled procedures. Emergent trauma cases generally result from injuries that initially present in an ER. Scheduled procedures involve a patient seeking relief from a condition caused by a nerve defect or surgical procedure.
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For Q3 FY23, Axogen’s revenues from emergent trauma procedures grew in the mid-single digit range versus Q3 FY22, while revenues from scheduled non-trauma procedures grew approximately 20% from Q3 FY22.
In other words, the Company has a vast global opportunity in the peripheral nerve injuries field. Moreover, in the last quarter, it has shown considerable growth in emergent trauma and scheduled procedures compared to the same period in the previous year – this indicates that Axogen is well-equipped to make the most of the upcoming opportunities.
- Dependable Growth Strategy
Axogen aims to improve current approaches to peripheral nerve repair to solidify its position as a leader in peripheral nerve repair products. For this purpose, critical elements of its strategy include:
- Increase Awareness of Products –
Before the introduction of Axogen’s portfolio of peripheral nerve repair products, surgeons had limited options to repair damaged or transected peripheral nerves surgically. The Company intends to increase market penetration and share by increasing awareness of the impact of nerve damage on quality of life and improving the adoption of nerve repair techniques and products through the continued use of educational conferences and presentations, surgical resident and fellow training, scientific publications, digital communication, and a knowledgeable and professional sales team.
- Expand Clinical and Scientific Data Regarding the Performance of Products –
As of December 31, 2022, there have been over two hundred peer-reviewed clinical publications on Axogen’s products. The Company continues to accept subjects for which more than 2,700 Avance nerve repairs are enrolled in its RANGER® clinical study, a utilization registry of Avance Nerve Graft. An additional arm of the RANGER study has been initiated to track neurotization outcomes in breast reconstruction (Sensation-NOW®). Eleven publications and more than 70 scientific conference presentations have been generated from the registry. Rethink Pain™, a multicenter observational registry in nerve pain and the surgical treatment of pain, has been initiated, and enrollment is underway. Several additional investigator-initiated case reports, studies, and publications have been completed, including breast neurotization, mandible reconstruction, compressive neuropathies, and the surgical treatment of pain. Case series in brachial plexus, neurotization of breast reconstruction, compression injuries, and the surgical treatment of pain are also being developed. Axogen also supports outside research and will continue to work with investigators on grants with a translational focus.
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- Commitment to the Education of Best Practices in Peripheral Nerve Repair –
Axogen has established educational conferences and presentations and surgical resident and fellow training. In 2022, the Company trained more than three-quarters of hand and microsurgery surgeon fellows in the U.S. through such courses and training. Axogen has historically provided education on peripheral nerve repair through in-person national programs, including its “Advances and Best Practices in Nerve Repair,” as well as local and regional educational events. The Company’s education efforts include online tools and discussion forums such as Nerve Matters, an online community of peripheral nerve surgeons where the surgeons can ask questions, present cases, and share findings in peripheral nerve repair.
- Focus on developing deeper penetration with existing accounts –
Axogen provides complete sales and distribution services. Its direct sales force continues to be supplemented by independent sales agencies, representing approximately 10% of its total revenue. The Company expects the number of direct sales professionals to increase over time. Additionally, the Company has successfully utilized a hybrid commercial approach that includes independent agencies in more remote geographies to provide appropriate local support for surgeons without the travel time required of a direct sales representative.
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- Expand the Product Pipeline and Applications in Peripheral Nerve Repair
Axogen has developed and continues to develop new and next-generation products to support surgeons needing to repair damaged or transected peripheral nerves. Some of the Company’s upcoming innovations include
– New product launches in nerve protection: Axoguard HA+ Nerve Protector™ launched in August and strategic roll-out of Avive+ Soft Tissue MatrixTM in Q2 2024.
– Resensation® for breast neurotization expansion into implant-based reconstructions.
- Financial Performance
For Q3 FY23, revenue was $41.3 million, an increase of approximately 12% over Q3 FY22. Gross margin was 80.5% for the quarter, compared to 83.3% in Q3 FY22. Adjusted EBITDA of $2.4 million, compared to adjusted EBITDA of $0.4 million in Q3 FY22. Net loss was $4.1 million, or $0.10 per share, compared to net loss of $4.3 million, or $0.10 per share in Q3 FY22.
For FY22, revenue was $138.6 million, a 12% increase compared to FY21 revenue of $127.4 million. Adjusted EBITDA loss was $9.3 million for FY22, compared to an adjusted EBITDA loss of $9.3 million for FY21.
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Q4 FY23 revenue is expected to be approximately $42.7 million, representing an 18% increase over Q4 FY22, driven by solid performance across the product portfolio. FY23 revenue is expected to be roughly $158.8 million, representing a 15% increase over FY22. The Company continues to believe that the gross margin for FY23 will be approximately 80%.
As seen from the above chart, from 2016 to 2022, revenues have grown at a CAGR of 22%. Over the last two years, gross profit has been above 80%. In the future, Axogen is expected to continue its revenue growth and maintain similar gross profit percentages, making it an exciting watch.
Risks
Axogen competes in the medical device and biotechnology industries and is characterized by rapidly advancing technologies, intense competition, and a strong emphasis on proprietary products. Due to Axogen’s limited resources, smaller size, and relatively early stage, the Company may face competitive challenges from larger entities and market factors that could negatively impact its growth, including competitors’ introduction of new products and bundling of products to achieve pricing benefits.
Secondly, the Company’s products are subject to regulation throughout their lifecycle by the FDA and other federal and state regulatory bodies in the U.S. and comparable authorities in other countries. Any change in rules or approvals may negatively impact Axogen’s prospects.
Conclusion
Axogen operates in a market with significant opportunities and has shown consistent revenue growth since 2016. It has a a substantial gross margin of about 80% and a sound growth strate, which seems to indicate a promising future. Nevertheless, the medical device and biotechnology industry is subject to rapid change, and Axogen’s products are monitored by FDA rules and regulations, which could affect the Company’s prospects. Hence, investors must proceed with caution.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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Reference:
https://www.sec.gov/ix?doc=/Archives/edgar/data/805928/000080592823000020/axgn-20221231.htm
https://www.sec.gov/ix?doc=/Archives/edgar/data/805928/000080592823000148/axgn-20230930.htm
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