Axogen, Inc.

Welcome to Axiogen, Inc.'s second quarter 2020 conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Pete Mariani, Axiogen's Chief Financial Officer. Please begin, Mr. Mariani.

Thank you, Devin, and good afternoon, everyone. Joining me on today's call is Karen Zadare, Axiogen's Chairman, Chief Executive Officer, and President. Karen will begin today's call with an overview of our second quarter performance and an update on the ongoing recovery in our markets, followed by a review of the recent announcement of our recon study enrollment and our path to a BLA submission. I will then provide an analysis of our second quarter performance, along with a summary of our recently announced debt deal with Oberlin Capital. Today's call is being broadcast live via webcast, which is available on the investor section of Axigen's website. Within an hour following the end of the live call, a replay will be available in the investor section of the company's website at www.axigeninc.com. Before we get started, I'd like to remind you that during this conference call, the company will make projections and forward-looking statements regarding future events. We encourage you to review the company's past and future filings with the SEC, including, without limitation, the company's forms 10K and 10Q, which identify the specific factors that may cause actual results or events to differ materially from those described in these forward-looking statements. These factors may include, without limitation, statements related to the expected impact of COVID-19 on our business, statements regarding product acquisition and or development, Product Potential, the Regulatory Environment, Sales and Marketing Strategies, Capital Resources, or Operating Performance. And with that, I'd like to turn the call over to Karen. Karen?

Thank you, Pete, and good afternoon, everyone. Our total revenue for the quarter was $22.1 million, representing a 17% decline versus the prior year period. While COVID-19 had a material negative impact on total revenue, We saw steady improvement across the quarter as our customers reopened their surgical schedules. Our second quarter performance reflects a recovery in our market that was stronger than we anticipated, as well as the priority that surgeons and hospitals have placed on nerve repair with actogen products in the early stages of the recovery. Our recovery also reflects the hard work and creativity of the entire Axigen team to support our customers and their patients in this difficult environment. The recovery varied regionally based on the intensity and trends of COVID-19 in local markets. As elective surgeries resumed, we experienced short-term regional surges in nerve repair cases, reflecting the completion of deferred procedures. These recovery surges were typically followed by returning to more normalized levels for the territory. Surgeon interviews that we conducted confirmed that nearly all surgeons had experienced significant disruption to their practice and a reduction in surgical procedures due to COVID-19. But many surgeons believed that they were already caught up with their current backlog of deferred procedures, while most others believed they would catch up by the end of the summer. In addition to regional variation, Our recovery also varied by nerve repair application, with our core trauma business leading our recovery. The recovery of procedures in our breast and OMS applications, as well as our emerging business in the surgical treatment of pain, began later in the quarter. Overall, we're encouraged by the execution of our team and the priority hospitals and surgeons are giving to nerve repair with oxygen products during the recovery. However, we remain measured in our outlook for the remainder of the year as most currently deferred procedures will likely be completed by the end of the summer and COVID-19 may continue to negatively impact the incidence of trauma and regional surgical procedure volumes. We therefore expect third and fourth quarter revenue to remain below prior year levels. In the area of sales execution, We continue to strategically focus our sales representatives on extremity trauma and on driving deeper penetration with our existing surging customers, although COVID-19 required us to adjust our approach. During April, healthcare facilities broadly restricted vendor access, and we directed our sales team to enter facilities only when requested and necessary. Our sales representatives remained in frequent contact with our customers virtually, and they worked together to provide effective case support remotely. We also used this restricted time to provide six weeks of extensive product and skills training for our sales team, which we believe provided the benefits of keeping the sales team positively engaged and improved their ability to support our customers. On May 1st, we released our sales team to begin reentering healthcare facilities following local, regional, and national guidelines and using contact tracing. While our access to healthcare facilities has improved, The ability to effectively support our customers remotely continues to be an important learned capability that our team has embraced and we believe our customers have appreciated. We ended the second quarter with 112 direct sales representatives, an increase of three representatives added early in the quarter. With our flowing of sales headcount expansion this year, we have minimized change and disruption to stabilize our sales territories and provide consistency of support to our customers. Our direct sales channel was supplemented by 19 independent sales agencies who generally cover geographies that are less impacted by COVID-19 during the quarter. These geographies delivered better year-over-year performance than those covered by our direct sales representatives. As a result, the indirect channel represented approximately 15% of our total revenue in the second quarter compared to an approximately 10% in the first quarter. We had 789 active accounts in the second quarter, an increase of 4% from 762 one year ago and down 4% versus the first quarter. We have always reported our number of active accounts as an average for the quarter, and the significant decrease in the number of orders from accounts in April and early May had a material impact on the average for the second quarter. Our active accounts have continued to increase each month, such that for the three months ending July 31st, our average active accounts has increased and is more consistent with our Q1 average of 825. We were pleased that a large majority of our top surgeons and hospitals continue to use and order oxygen products for their patients despite the challenges of COVID-19. The top 10% of our active accounts continue to represent approximately 35% of our revenue. Our sales team remains focused on our strategy of going deeper with current surgeon customers and exited the second quarter well prepared for the second half of the year. We continue to focus on building market awareness of Axigen and our products despite reduced in-person access to surgeons and restrictions on surgeon travel to scientific conferences. In June, we expanded our digital marketing capabilities allowing us to more fully engage with surgeons electronically. These digital efforts provide an enhanced long-term capability to supplement the efforts of our sales team and help our sales reps engage with surgeons where access to hospitals remains limited. Our efforts to educate surgeons and develop advocates continued in the second quarter. In March, we canceled the remainder of our 2020 schedule of in-person surgeon and fellows education programs and we've since developed several virtual education programs led by surgeon experts in nerve repair. In June, we launched an invitation-only program for early career upper extremity surgeons who are passionate about advancing the field of nerve repair. The program is an interactive six-part series led by an expert faculty. Similarly, we launched a surgeon-led extremity trauma webinar series open to all of our surgeon customers. We're also continuing our commitment to educating hand and microsurgery fellows and are launching an updated training program for the second half of 2020. We've previously discussed our plans to introduce new products and expand the application of our portfolio into the surgical treatment of pain, focused on symptomatic neuromas. We launched AxiGuard NerveCap in February and are pleased with our early results as we focus on expanding the nerve repair algorithm of our current surgeon customers. NerveCap is an important addition to our solutions portfolio designed to protect the peripheral nerve end and separate the nerve from the surrounding environment to reduce the development of symptomatic or painful neuroma. With the addition of NerveCap, we now have a full portfolio of products for nerve connection, nerve protection, and nerve termination. Increasing surge in adoption of our product portfolio continues to be supported by a large and expanding body of clinical data. We recently announced that our RECON clinical study had reached its targeted enrollment of 220 subjects in July. RECON is our phase three pivotal study supporting our biologics license application, or BLA, which will transition our advanced nerve graft from a section 361 tissue product to a section 351 biologic product. We're pleased to have reached this important milestone despite a challenging environment for clinical studies and we appreciate the dedication and commitment of our participating study teams as well as our internal team of clinical professionals. The RECON clinical study protocol requires a one-year follow-up assessment with the allowance for an additional three months visit window. With the final subject enrolled in July of 2020, the last subject is expected to complete the study no later than October of 2021. We've increased our efforts to support completion of subject follow-up visits during the COVID-19 crisis by implementing an expanded home health visit program to allow follow-up visits to be conducted by a trained healthcare professional outside of the clinic environment and with appropriate safety precautions. We're working closely with our research centers to monitor follow-up visit windows and minimize any potential disruption. We anticipate providing a preliminary report of trial data in the second quarter of 2022 and expect to file the BLA in 2023. In addition to the completion of enrollment of the RECON study, our ranger registry now has over 2,200 nerve injuries enrolled. and we expect data from the study to be presented at clinical conferences and published in the second half of the year. Enrollment in our REPOSE study is ongoing. REPOSE is a prospective randomized controlled study evaluating the use of Astigard Nrfcap in the management of painful neuroma as compared to a standard neurectomy procedure. Preliminary outcomes from the pilot phase of the REPOSE study found that at six months, subjects reported meaningful improvements in pain and quality of life scales. We've completed the last subject follow-up visit and data analysis is underway to support a reposed study pilot phase manuscript. While this is a small pilot study, we remain encouraged by the positive impact reported to date and will continue enrollment of the comparative phase of the study as centers reopen to research subjects. As we noted in our call in May, we've paused enrollment of our SensationNOW Clinical Registry for the remainder of 2020 given the COVID-19-related restrictions in our study centers. We are pleased with the enrollment of 600 subjects in the registry and believe this will create a significant body of evidence around this important breast neurotization technique. Similarly, we've paused enrollment in our Rethink Pain Registry and our Avive Assist Study. We continue to monitor the recovery of activities at study centers and will prioritize the potential restart of these clinical programs based on our business needs. We remain committed to providing meaningful and impactful clinical evidence on the utility of our nerve repair portfolio. Despite ongoing COVID-related challenges in the market, we're encouraged by the performance of our Axigen team to creatively adapt and adjust to these challenges. We've learned new skills in supporting our customers and continue to advance our strategy focused on extremity trauma and driving deeper penetration with our existing surgeon customers. We remain as excited as ever with the opportunity in front of us, and we believe we are well positioned to drive continued growth as we emerge from the pandemic. Now I'll turn the call over to Pete for a review of financial highlights. Pete?