Axogen, Inc.

Welcome to the AxiGEN fourth quarter 2022 conference call. At this time, all participants are in 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, Rob, and good morning, everyone. Joining me on today's call is Karen Zatteray, Axiogen's Chairman, Chief Executive Officer and President, and Pete Mariani, Executive Vice President and Chief Financial Officer. Karen will discuss the quarter and our outlook for the year, and Pete will provide an analysis of our financial performance, followed by a question and answer session. Today's call is being broadcast live via webcast, which is available on the investor section of the Axiogen website. Following the end of the live call, a replay will be available on the investor section of the company's website at www.axiogeninc.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, including the 2023 financial outlook, timing of the BLA submission, and growth trajectory of the company. Forward-looking statements are based on current beliefs and assumptions and are not guarantees of future performance and are subject to risk and uncertainties, including, without limitation, the risks and uncertainties reflected in the company's annual and periodic reports. Actual results or events could differ materially from those described in any forward link statement as a result of various factors, including, without limitation, the continued impact of COVID-19 on our business, global supply chain issues, record inflation, the impacts of the failure of Silicon Valley Bank and the recent turmoil in the banking industry, hospital staffing issues, product development, product potential, expected clinical enrollment timing and outcomes, regulatory process and approvals, APC renovation timing and expense, financial performance, sales growth, surgeon and product adoption, market awareness of our products, data validation, our visibility at and sponsorship of conferences and educational events, a global business disruption caused by Russia's invasion of Ukraine and related sanctions, as well as those risk factors described under Part 1, Item 1A, risk factors of our annual report on Form 10-K for the most recently ended fiscal year. Forward-looking statements are not a guarantee of future performance, and actual results may differ materially from those projected. The forward-looking statements are representative only as of the date they are made, and except as required by applicable law, we assume no responsibility to publicly update or revise any forward-looking statements. In addition, for reconciliation of the non-GAAP measures, revenue as reported to revenue excluding the impact of a VIVE, as well as adjusted core and active account numbers excluding the impact of a VIVE purchases, Please reference today's earnings release and materials on the investor section of the company's website. And with that, I'd like to turn the call over to Karen. Karen?

Thanks, Ed. And thank you, everyone, for joining us this morning. Our server called today with an overview of our fourth quarter and our full year achievements and review our outlook for 2023. People then provide more detail on our financial performance before we open the line for questions. 2022 was a solid year of key accomplishments and milestones. We delivered high teens revenue growth during the back half of 2022 and drove improved operating efficiencies across the business. In May, we announced our Pivotal Recon Study successfully achieved its primary endpoint as well as important secondary endpoints. Late in the year, we also saw the publication of an independent landmark Meta-analysis of Peripheral Nerve Repair. This publication provides the strongest clinical evidence to date of the performance of advanced nerve graft across all gap lengths and nerve types compared to autografts and conduits. Additionally, construction of our new processing facility in Dayton, Ohio was completed and the validation and transition is in process. This new facility will support our BLA for advanced nerve grafts and provide for our long-term processing capacity. We remain on track for submission of our BLA for advance by the end of 2023 and anticipate our approval in 2024. A BLA approval will complete the regulatory transition of advanced nerve grafts from a 361 tissue-based product to a 351 biological product and, importantly, Avance will then be designated as a reference product, which would in turn provide 12 years of data exclusivity with regard to potential biosimilars. With over 75,000 Avance nerve grafts implanted since launch, we are well positioned to continue to lead and innovate in this large and developing personal nerve repair market. I'm proud of our team, and I look forward to continuing our mission of revolutionizing the science of nerve repair. Now turning to fourth quarter performance. Revenue increased 17% to $36.2 million compared to last year, excluding the impact of revenue from Avive's soft tissue membrane in the fourth quarter of 2021. For the full year, we achieved revenue of $138.6 million, a 12% increase over the last year, excluding Avive revenue in 2021. As I noted earlier, We were pleased to see our sequential quarterly improvement with high teens growth in the second half of 2022 versus single digits in the first half. This improvement reflects improved hospital staffing and surgical capacity in the second half of the year, as well as our ability to execute on our strategy and gain surgeon adoption. Getting more surgeon adopters in our core and active accounts is a key driver of our growth. As a reminder, active accounts are those that 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 had greater than $100,000 in revenue in the trailing 12 months. The number of our core accounts increased to 332 in the quarter, representing growth of 1% sequentially and 18% over a prior year adjusted level of 282 excluding the impact of Avive purchases in 2021. This represents the impact of our growth strategy to drive deeper penetration into our core and active accounts. Core accounts represent about 60% of our revenue and typically contain at least one surgeon who's adopted the Actigen 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 gaining more cases with that first surgeon and gaining use by additional surgeons, including middle adopters in that account. Again, we believe our best opportunity for growth is driving deeper penetration in core accounts across all of our nerve repair applications, including trauma, breast, OMS, and the surgical treatment of pain. The number of our active accounts increased to 968 in the quarter. representing growth of 2% sequentially and 3% over an adjusted prior year level of 941. Active accounts represent about 85% of our total revenue, with the top 10% contributing about 35% of revenue. We ended the year with 115 direct sales representatives, up from 111 at the end of the third quarter. We believe our revenue growth can be primarily supported by increases in our sales rep productivity and we will modestly add additional sales reps as their territories approach targeted levels. Our direct sales force is also supplemented by independent sales agencies that represent approximately 10% of our total revenue. We strive to build market awareness of nerve repair with healthcare providers through our direct-to-patient initiatives, particularly for breast and pain applications. We utilize our marketing initiatives to drive patient engagement to our resensation and Rethink Pain websites. These sites are aimed at increasing patient awareness and education of the potential for nerve repair procedures to improve outcomes for those undergoing mastectomy and reconstruction and also for those suffering from chronic neuropathic pain. Our surgeon education programs remain a top priority for Actigen and continue to generate interest in the surgical community. Once again in 2022, We achieved our annual goal of training more than 75% of the most recent class of hand and microsurgery fellows. We have high engagement from the fellowship training institutions, and we're well on our way towards achieving the target with the 2023 class. We remain committed to developing the clinical evidence to demonstrate the safety, performance, and utility of our nerve repair solutions to support surgeon adoption of the Axigen algorithm across our full portfolio of nerve repair products. We added eight new peer-reviewed publications this quarter, now with a total of 215 across extremity trauma, breast, OMF, and pain. We believe that this portfolio of high-quality clinical evidence is the most comprehensive in the area of peripheral nerve repair and a key part of gaining surgeon adoption. Late in Q4, we saw the publication of the most comprehensive peer-reviewed analysis on peripheral nerve repair outcomes entitled The Systematic Review and Meta-Analysis of Nerve Gap Repair. The authors compared the meaningful recovery rates between allografts, autografts, and conduits across 35 high-quality peer-reviewed studies. The studies were screened for nerve injury type and similar outcome measurements, culminating with an evaluation of over 1,500 nerve repairs included in this analysis. The authors concluded that meaningful recovery rates for allograft and autograft repairs were comparable across all gap lengths up to 70 millimeters, and that there were no statistical differences between allograft and autograft outcomes in both sensory and motor nerve repairs. Additionally, allograft and autograft repairs delivered significantly better rates of meaningful recovery in short gaps, up to 30 millimeters, as compared to conduit repairs. Lastly, an additional part of this meta-analysis was an examination of the acute procedure-related costs comparing autograft procedures to allograft. And the study found the costs were comparable in both the inpatient and outpatient setting. I would also like to highlight a couple of recent publications in the oral and maxillofacial segment. One study found that despite potential concerns that cancer treatments could negatively impact nerve regeneration, The oral cancer patients in the study with allograft nerve repair reported meaningful sensory recovery rate similar to those previously published for benign reconstruction. In addition to that study, another recent publication highlighted the cost effectiveness of allograft nerve repair compared to non-surgical therapy. Patients with persistent trigeminal neuropathy or nerve damage affecting sensation in their face, tongue, or jaw are commonly afflicted with high rates of depression, loss of work, and decreased quality of life. This patient compared the total cost of ongoing non-surgical therapies compared to surgical repair with allograft reconstruction and found that nerve reconstruction was more effective and had lower long-term costs and represents a significant improvement for the patient. For our Axigen-sponsored research programs, we were pleased to see our recount study discussed in the most recent annual combined hand, nerve, and microsurgery meeting. Our ranger and match registries continue to enroll, and this data is an important part in informing surgeons in their clinical decision-making. Lastly, we anticipate top-line data readout from our reposed Axigard nerve cap study in the fourth quarter of this year. Continuous innovation of products and applications is a key strategic pillar for our long-term growth, and we are mission-driven to provide leading, innovative treatments for patients with peripheral nerve injuries. Our advanced nerve graft has revolutionized peripheral nerve repair, and we're excited to see this technology expand into new clinical applications. I'd like to highlight one of these exciting initiatives for breast reconstruction patients. Restoring sensation as a part of breast reconstruction is an important quality of life attribute for many women. Our re-sensation technique was developed to provide sensation for patients receiving an autologous flap reconstruction, which represents roughly 20% of the overall breast reconstruction procedures. The remaining 80% of breast reconstruction procedures are implant-based. To support patients undergoing implant-based reconstruction, We have collaborated with pioneering surgeons to develop a procedure to provide neurotization to a subset of this patient population. We believe this new approach can be applied to an incremental 10 to 15% of breast reconstruction patients. Leading surgeons have seen promising results, and we expect to train 20 breast reconstruction surgical teams in this new procedure in 2023. I'd now like to spend a moment discussing our outlook for this year. We expect the full year 2023 revenue will be in the range of $154 to $159 million, which represents about 11 to 15% growth over 2022. Our growth in the second half of 2022 reflects our ability to execute in an environment of improved hospital staffing and surgical capacity. We're confident in our ability to gain adoption and remain measured on the pace of continued improvements as hospitals continue to work through these challenges. and return to more normalized operating schedules. Additionally, we expect 2023 growth margin will be reduced in the first half of the year with the transition to our new processing facility. And we expect growth margins will return to approximately 80% by the fourth quarter of 2023. We view Axigen as a growth company and are confident in our ability to continue our long track record of a surge in adoption and growth supported with patient-focused, innovative products and applications, high-quality clinical data, surgeon education programs, and our commercial execution. We're pleased with our performance and accomplishments in 2022, which include high teens' growth in the second half of the year, the reporting of meaningful clinical data, and our progress towards our new processing center and filing the BLA for advance. We look forward to extending these accomplishments in 2023. By continuing to move into middle adopters, gaining surge in conversion, and bringing new innovation to peripheral nerve repair, we can further solidify our position as the leader in peripheral nerve repair and drive long-term sustainable growth. Now I'll turn the call over to Pete for a review of financial highlights. Pete.