Axogen, Inc.

Greetings, and welcome to the Oxygen, Inc. Report's second quarter 2021 financial results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Pete Mariani, Executive Vice President and Chief Financial Officer. Go ahead, sir.

Thank you, Maria, and good afternoon, everyone. Joining me on today's call is Karen Zadare, Axiom's Chairman, Chief Executive Officer, and President. Karen will begin today's call with an overview of our second quarter performance, an update on our operational highlights, and a review of our financial guidance. I will then provide an analysis of our financial performance followed by closing remarks from Karen and a question and answer session. Today's call is being broadcast live via webcast, which is available on the investor section of the Oxygen website. Within an hour following the end of the live call, a replay will be available in the investor section of the company website at www.oxygeninc.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 10-K and 10-Q, 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 our growth, our 2021 financial guidance, product development, product potential, regulatory processes and approvals, APC renovation timing and expense, financial performance, sales growth, product adoption, market awareness of our products, data validation, our assessment of internal controls over financial reporting. And with that, I'd like to turn the call over to Karen.

Thank you, Pete. And good afternoon, everyone. Our total revenue for the second quarter was $33.6 million, representing growth of 52% compared to the prior year. I'm pleased with our Q2 results as our team continued to execute well in a dynamic healthcare market. In the second quarter, we achieved growth across our business, led by our overall growth in the repair of traumatic nerve injuries and in the use of advanced nerve grafts across applications. With more than 50,000 advanced implants since launch and 145 peer-reviewed clinical publications featuring advanced, adoption of our flagship product continued to grow as surgeons adopted the oxygen algorithm across our full portfolio of nerve repair products. Our commercial team remains focused on our strategy of driving deeper penetration of our customer accounts. We believe that these efforts have positioned the business for improving growth as the incidence of trauma and the volume of elective procedures return to normal levels. We're pleased with the continued growth in our second quarter of our application for the surgical treatment of pain. The removal of painful neuromas and the use of advanced to repair the resulting gap is an elective procedure often performed by the same surgeons who repair nerve injuries in our core extremity trauma business, providing an opportunity for these surgeons to expand their nerve repair practice. Our breast neurotization business continues to demonstrate growth as awareness of the problem of numb breasts following mastectomy continues to increase among patients and healthcare providers. Using the resensation technique, surgeons can use advanced to reconnect the nerves with the goal of restoring feeling to the reconstructed breast. During the quarter, hospitals continue to open surgical schedules for this elective procedure. And our OMXO facial nerve repair business remains steady during the quarter. The success and benefits of OMXO nerve repair are well documented in clinical studies and textbooks. And we expect improved growth for these elective procedures in the second half of the year. Starting now to commercial execution on our sales team. We ended the quarter with 109 direct sales representatives in the U.S. compared to 106 at the end of the first quarter and 112 one year ago. We expect to end the year with 115 to 120 direct sales representatives as we plan to strategically expand our sales team during the second half of the year to support growth in 2022 and beyond. Our direct sales channel continues to be supplemented by independent sales agencies who represented approximately 12% of our total revenue in the second quarter, compared to approximately 15% one year ago. In the second quarter, our sales rep productivity continued to improve and continues to be the primary driver of our revenue growth as we both drive deeper penetration of our existing accounts and add new accounts. Last quarter, we introduced a new account metric that we believe demonstrates the strength of adoption and potential revenue growth in accounts that have developed a more consistent use of oxygen products in their nerve repair algorithm. We refer to these as core accounts, defined as accounts that have purchased at least $100,000 in the last 12 months. Our core accounts typically have at least one surgeon who's adopted the oxygen nerve repair algorithm for the majority of his or her nerve injury patients and have other surgeons who are at earlier stages of oxygen product adoption. In the second quarter, we had 306 core accounts, an increase of 34% from 228 one year ago. Core accounts represented approximately 60% of our revenue in the quarter. We see significant opportunity to drive increased revenue as more accounts reach this level of adoption and as surgeons within these accounts increase their adoption across our nerve repair applications, including extremities trauma, pain, breast, and LMS. We've also historically reported a number of active accounts among the estimated 5,100 healthcare facilities that treat nerve injuries in the U.S. These accounts have a lower adoption threshold of at least six orders in the past 12 months. In the second quarter, our active accounts increased to 959, representing a 22% increase compared to 789 one year ago. Active accounts have consistently represented approximately 85% of our total revenue with the top 10% of our active accounts representing approximately 35% of our revenue each quarter. Turning now to our continued focus on building market awareness. In the second quarter, we continued to utilize digital marketing to supplement the efforts of our sales team to deliver important and timely nerve repair news and content to targeted surgeons. We were pleased with the continued high level of surgeon engagement with our email campaigns during the quarter, and our surgeon customers continued to participate in our Nerve Matters online surgeon community, discussing their use of peripheral nerve injury solutions. The community has grown to over 3,400 surgeons as we exited the first half of the year. We also continued to increase awareness of nerve repair with patients through our direct patient marketing campaigns, which were successfully... successfully increased visits to our Resensation.com and RethinkPain.com websites during the first half of 2021. As the leader in nerve repair, we continue to invest in surgeon education and advocate development. We kicked off our second annual Masterminds program in April, providing a series of virtual education events for emerging leaders in nerve repair. We remain committed to providing education and training for each class of fellows, and as in prior years, we've trained more than three quarters of the hand and microsurgery fellows in the class of 2021 through a combination of local in-person hands-on labs and virtual programs. We're planning a safe return to in-person programs with five fellows education events currently scheduled for the second half of 2021. Beyond a surgeon's fellowship, we provide support for the transition to practice and are pleased the majority of the new hand surgery attendings from the 2020 class have performed cases using our nerve repair products following completion of their fellowship training. As we carefully return to live programs, we'll be offering a surgeon educational event at the upcoming 76th Annual Meeting of the American Society for Surgery of the Hand Conference in September in San Francisco. Our lab will explore practical solutions for upper extremity trauma through lecture and hands-on cadaveric experiences, along with case review and discussion. We continue to expand our body of clinical evidence in support of our product portfolio and increasing surgeon adoption. Our ranger and match registries continue to enroll, with over 2,400 nerve repairers now enrolled in ranger. In 2020, analysis of the match registry which is a comparative population of conduit and autograft subjects for ranger, demonstrated that advanced neurograft outcomes were statistically better than conduit and were similar to those for autograft. Data from these two clinical programs continues to play an important role in informing surgeons' clinical decision making. Our RECON study remains on schedule after completing enrollment of 220 subjects in July of 2020. As a reminder, Recon is our Phase III 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 biological product. The study is progressing well, and we now anticipate the final follow-up visit to occur in the coming weeks. A top-line study data readout is expected in the second quarter of 2022 and will be followed by filing of our BLA in 2023. Enrollment in the comparative phase of REPOSE, our study of maxigard nerve cap compared to standard treatment for symptomatic neuroma, is well underway, and we expect enrollment to be completed in Q1 2022, and then study data readout in Q2 of 2023. Two recent publications resulting from a collaboration between Washington Nerve Institute and Washington University bring to life the significant negative impact of chronic nerve pain on patient quality of life and the economic burden associated with managing these injuries. Both of these manuscripts address the role of peripheral nerve surgery in the treatment of chronic nerve pain. Finding that surgical intervention can significantly improve patient quality of life and that timely surgical referrals are associated with the reduction in the overall economic burden especially compared to conventional, non-surgical management of the pain. This data helps to inform surgeons and referring clinicians on the growing role of the surgical treatment for chronic nerve pain. As we advance the science of nerve repair, we remain committed to investing the time and resources necessary to provide meaningful and impactful clinical evidence on the utility of our nerve repair portfolio. Nerves regenerate slowly, which often necessitates long follow-up times to assess treatment effects and gather the meaningful clinical data that surgeons, payers, and regulators have come to expect when making clinical care decisions. Our RECON and RANGER studies highlight the significant amount of time, effort, and expertise required to conduct clinical research in peripheral nerves. The RECON study began enrollment approximately six years ago, and the RANGER registry began enrollment more than 10 years ago. In Ranger, many of the nerve injuries have follow-up assessment periods of up to 36 months to fully appreciate the impact of the repair. We're fortunate to have an established body of clinical evidence supporting advanced nerve grafts, and we remain committed to obtaining the clinical evidence to demonstrate the safety, performance, and utility of our nerve repair solutions. I'd like to take a moment to comment on the proposed changes in CMS reimbursement rates for nerve repair in the outpatient setting for 2022. While the proposed increases for 2022 are modest at approximately 3% across most nerve repair procedures, we continue to be pleased with the significant increase over the last three years for repairs utilizing an implant. While Medicare patients represent a relatively small percentage of trauma cases, commercial payers often follow the lead of CMS. These reimbursement changes make simple nerve repairs economically feasible in the ambulatory surgery center setting. And we believe we are well positioned with our full portfolio of products to support nerve repair in all surgical sites of care. Before I turn the call over to Pete, I'd like to spend a moment discussing our outlook for 2021, including our updated financial guidance. We're confident that our commercial execution combined with our substantial investments in clinical data over the past decade, will continue to support search and adoption and our long-term growth as we continue our mission to revolutionize the science of nerve repair. On the strength of our first half results, we're increasing our financial guidance for the year. We now expect that full-year 2021 revenue will be in the range of $134.5 million to $137.5 million, versus the prior range of 133 to 136 million. And we continue to expect full-year gross margin to remain above 80%. This guidance reflects our optimism in the business as we continue to monitor the impact of COVID variants on procedure volumes and surgical capacity. As we look forward to 2022 and beyond, we continue to view Axigen as a long-term growth company, delivering sustainable annual revenue growth in the high teens below 20%. I'll now turn the call over to Pete for a review of the financial highlights. Pete?