Axogen, Inc.

Greetings. Welcome to the Axigen Incorporated Fourth Quarter 2021 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, Ed Joyce, Axigen's Director of Investor Relations. Please begin, Mr. Joyce.

Thank you, Hilary, and good afternoon, everyone. Joining me on today's call is Karen Zatare, Axigen's Chairman, Chief Executive Officer and President, and Pete Mariani, Executive Vice President and Chief Financial Officer. Karen will begin today's call with an overview of our fourth quarter, an update on our operational highlights, and our guidance for the year. Pete 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 Accident websites. Within an hour of the end of this call, a replay will be available on 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 be making 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 which may cause actual results or events to differ materially from those described in the forward-looking statement. These factors may include, without limitation, statements related to the expected impact of COVID-19 and hospital staffing on our business, statements regarding our growth, our financial guidance, product development, product potential, expected clinical enrollment timing and outcomes, regulatory process and approvals, APC renovation timing and expense, financial performance, sales growth, product adoption, market awareness in our products, data validation, our assessment of our internal controls over financial reporting, our visibility at and sponsorship of conferences and educational events, and other matters not within our control. And with that, I'd like to turn the call over to Karen. Karen?

Thank you, Ed. And good afternoon, everyone. Our total revenue for the fourth quarter was $31.5 million, representing a 3% decline versus the prior year period. Excluding the impact of revenue from a VIVE soft tissue membrane in both years, revenue for the quarter was approximately flat year over year. Although we saw a sequential improvement in revenue in November, the Omicron variant negatively impacted procedure volumes and hospital staffing in December, which negatively impacted our revenues for the quarter. For the year, we achieved revenue of $127.4 million, an increase of 13% over the last year. excluding the impact of Avive, revenue increased 15% year-over-year. I'm proud of the growth we were able to achieve, despite the ongoing challenges of COVID and hospital staffing shortages, and we believe more surgeons and accounts recognize the value Axigen provides. We had an excellent year engaging and educating surgeons using a combination of in-person and virtual programs, And we again met our annual goal of training more than 75% of hand and microsurgery fellows. We are confident that we've built the right organization and a solid foundation of clinical evidence that will allow us to deliver sustainable long-term growth as the impact of COVID wanes and hospital operating environments improve. The Omicron-related challenges we faced late in the fourth quarter continued through the early part of Q1. Like all of you, we're encouraged by reports of declining COVID rates in the recent weeks. However, we believe it will take longer for hospital staffing challenges to improve and for surgical schedules to normalize. As a result, we are measured in our outlook of the pace of procedure volume improvement in the first half of the year compared to 2021 and anticipate a return to more normalized growth rates in the second half. Commercially, we remain focused on driving deeper penetration into customer accounts while also continuing to add new accounts. We've achieved success with this strategy as demonstrated by the growth in our active and core accounts, which helps us frame and monitor our growth. As a reminder, active accounts have ordered at least six times in the last 12 months and may still be in the early stages of adoption. Core accounts represent more penetrated accounts, defined as those that have greater than $100,000 in revenue in the trailing 12 months. We ended the year with 951 active accounts, up 6% over the last year, and 294 core accounts, up 9% over the last year. Active accounts typically represent about 85% of our total revenue, with the top 10% contributing about 35% of revenue. Our core accounts continue to represent about 60% of our revenue and typically contain at least one surgeon who's adopted the oxygen nerve repair algorithm for a significant portion of his or her nerve injury patients. Leveraging this surgeon's success with our products, we focus on going deeper with that first surgeon and gaining adoption by additional surgeons. We have significant opportunity for growth within our core accounts by more deeply penetrating the treatment of traumatic injuries, and continuing to expand into other nerve repair applications, including breast, OMF, and the surgical treatment of pain. We ended the year with 115 direct sales representatives, an increase of six during the quarter, and up from 111 a year ago. We believe we have an established and well-trained sales footprint and expect that our growth can be delivered primarily by improving sales rep productivity. At the same time, we will continue to monitor and evaluate our sales territories for capacity and growth opportunities, and anticipate increasing our sales team by five to 10 sales reps this year. Our direct sales force continues to be supplemented by independent sales agencies that represented approximately 10% of our total revenue in the fourth quarter. We continue to build market awareness through numerous initiatives across our applications. For example, We're employing direct-to-patient educational campaigns to increase awareness of the potential for nerve repair procedures to improve outcomes for patients with breast cancer and those suffering from chronic neuropathic pain. Over the last few years, we've been very successful growing the number of patients visiting our Resensation website to learn more about the problem of breast numbness post-mastectomy and the potential for nerve repair to restore sensation. In the fourth quarter, we launched an educational animation to help illustrate the problem of post-mastectomy numbness and its impact on quality of life, as well as how resensation may be a potential solution. Through these awareness efforts, surgeons report that an increasing number of their patients are expressing interest in returning sensation for a more complete breast reconstruction. Leveraging our success with direct-to-patient educational campaigns for resensation, We're following a similar strategy to increase visitors to our Rethink Pain website to raise awareness of the surgical treatment of pain as a potential solution for patients suffering from chronic neuropathic pain. In 2021, we initiated a partnership with the U.S. Pain Foundation. Each November, the foundation runs a campaign called No-vember to explore and educate on a unique area of pain management through webinars, social media content, and more. In November of 2021, the Foundation focused its campaign to raise awareness of neuropathic pain and its treatment options resulting in a significant community response. Direct-to-patient educational campaigns will continue to be important in our market development efforts for the breast and pain applications. In terms of our progress with our clinical endeavors, we continue to expect top-line results of our RECON study in the second quarter. Recon is our phase three pivotal study supporting our biologic license application, or BLA, which will transition our advanced nerve grafts from a section 361 tissue product to a section 351 biological product. We look forward to the readout of our Recon top line results. The study was designed to test for non-inferiority of the primary endpoint, static two-point discrimination, as compared to conduit nerve repairs. In addition to the Recon data, Our teams are continuing to work on other BLA CMC and documentation requirements for our facilities, operations, quality systems, and validation as a part of our preparations for a successful application. We expect to submit our BLA to the FDA in 2023. Our ranger and match registries continue to enroll, now with over 2,600 nerve repairs enrolled in ranger. Match is a subset of the ranger registry, which is a comparative population of conduit and autographed subjects for ranger. Readouts from this data have demonstrated that advanced nerve graft outcomes were statistically significantly better than conduit and were similar to those for autographed. Data from these two clinical registries continues to play an important role in forming surgeons in their clinical decision process. Enrollment in the comparative phase of repose Our study of Axigard nerve cap compared to standard treatment for symptomatic neuroma is ongoing. Surgery delays have led to slower than expected enrollment, and we're now anticipating completing enrollment in Q2 of this year, with a top-line data readout from the comparative phase in Q3 of 2023. We've always made clinical evidence generation an important priority and believe that our collection of meaningful data publications is the most comprehensive in the area of peripheral nerve repairs. This unparalleled amount of evidence in nerve repair is expected by our surgeons and payers when making clinical care decisions. As of the end of the year, we have 181 peer-reviewed papers, including growing numbers among all of our nerve repair applications, namely trauma, breast, OMF, and the surgical treatment of pain. We remain committed to developing the clinical evidence to demonstrate the safety, performance, and utility of our nerve repair solutions to support the continued adoption of the Axigen algorithm across our full portfolio of nerve repair products. I'd now like to spend a moment discussing our outlook for this year. We expect that full year revenue in 2022 will be in the range of $135 to $142 million. This revenue guidance represents about 10% to 15% growth over 2021, excluding the $4.1 million of Avive revenue from last year. Full year gross margin is expected to be above 80%. As I noted earlier, we're being measured in our outlook for procedure volume improvement and revenue growth in the first half of the year compared to 2021. But we anticipate a return to more normalized growth rates in the second half of the year. We're confident that we've built the right organization with a solid foundation of clinical evidence that will allow us to deliver sustainable long-term growth as the impact of the COVID pandemic wanes and hospital operating environments improve. We continue to view Axigen as a long-term growth company, delivering sustainable annual revenue growth in the high teens to low 20% range. Now I'll turn the call over to Pete for a review of financial highlights. Pete?