Axogen, Inc.

Greetings. Welcome to the Axogen, Inc. Report Second Quarter 2023 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 call, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. At this time, I would like to hand the call over to Adonna Alexander, Investor Relations Consultant. Thank you. You may begin.

Thank you, Daryl. Good evening, everyone. Joining me on today's call is Karen Zattery, AxiGen'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 and guidance, followed by a question and answer session. Today's call is being broadcast live via webcast. which is available on the investor's section of Axigen's website. Following the end of the live call, a replay will be available in the investor's 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 follow-looking statements, including our 2023 financial outlook and longer-term revenue and growth expectations, timing of our BLA submission, anticipated growth for revenue categories, penetration of core accounts, marketing opportunities with nerve applications associated with emergent trauma, breast, OMS, and the surgical treatment of pain and new products, timing for the start of processing at our APC facility, launch of our HA Plus protector, optimism associated with key strategic pillars, and our balance sheet. Forward-looking statements are based on current beliefs and assumptions and are not guarantees of future performance and are subject to risks and uncertainties, including, without limitation, the risks and uncertainties reflected in the company's annual and periodic reports, such as hospital staffing issues, regulatory process and approvals, APC renovation, timing and expense, search and product adoption, and market awareness of our products. The following, sorry, the following statements of representatives only as of the date they were made, and except as required by applicable loan, we assume no responsibility to publicly update or revise any follow-looking statements. In addition, for reconciliation of the non-GAAP measures including adjusted core and active account numbers, excluding the impact of advised purchases, please reference today's press release and our corporate presentation on the investor section of the company's website. I'd like to turn the call over to Karen. Karen?

Thank you, Donna. And thank you all for joining us today as we discuss our second quarter 2023 financial results. We're pleased to report another quarter of solid performance and growth. Our revenue for the quarter came in at $38.2 million, representing an 11% increase compared to last year's second quarter. As we begin today's comments, I wanted to share some additional insights on our revenue and growth that we'll review today and continue to provide going forward. Our business was originally anchored in emergent trauma, and over the past several years, we've introduced a number of new nerve repair applications that utilize our Advance and AxiGuard product lines. These new applications share common characteristics that now lead us to think about our business along two primary categories. scheduled non-trauma procedures, and emergent trauma procedures. Scheduled procedures are generally characterized as procedures where a patient is seeking relief of a condition caused by a nerve defect or surgical procedure. These include breast reconstruction following a mastectomy, nerve reconstruction following the surgical removal of painful neuromas, oral and maxillofacial procedures, and nerve decompression. The nature of scheduled procedures affords patients the opportunity to actively search for treatment options and advocate for solutions that may improve quality of life following the procedure. For example, in breast reconstruction, this may include prioritizing neurotization as a part of their treatment plan. These procedures lend themselves to standardization of surgical techniques and more consistent nerve repair algorithms. In addition, these patients are likely to engage in extended follow-up evaluations with their physicians. Emergent procedures generally result from injuries that initially present into an emergency room. These procedures are typically referred to and completed by a specialist either immediately or within a few days following the initial injury. Given the emergent and diverse nature of traumatic injuries, The required repair algorithm and procedure scheduling can be highly variable, and follow-up evaluations are generally inconsistent. While the various applications can have unique surgeon customers, the procedures are often performed in the same accounts and use the same family of Axigen products. Scheduled procedures typically have a higher value of Axigen products used per procedure as compared to routine trauma. And given the planned nature of these procedures, there's a higher level of predictability. In addition, these procedures are generally additive to our sales rep productivity. Reporting by application is challenging. However, we've recently developed improved analytical tools that allow us to better monitor product utilization data within accounts and generate improved estimates of our revenue by application. Our estimates are based on available data received from hospitals and sales reps and assumptions regarding specific surgeon practice and account information. And as such, are subject to the limitations of the data received and our assumptions. Going forward, we'll be sharing these insights on the split of the categories to provide an improved understanding of the growth trajectories of scheduled and emergent procedures. Currently, revenue from scheduled procedures represents approximately half of total revenue. During the quarter, we estimate that this category grew over 20% versus the prior year. The growth in our scheduled category is reflective of the opportunity to provide improved quality of life outcomes for patients. We have built the success with compelling solutions, backed by clinical data, and supported by effective patient activation programs that educate patients and connect them with trained surgeons. Strength in our scheduled procedures is continuing to deliver on the company's underlying goals of gaining deeper surgeon adoption and expanded use cases of our products across our core and active accounts. Revenue from emergent procedures also currently represents approximately half of total revenue. During the quarter, we estimate that revenue from these procedures grew in the low single digit percent range versus the prior year. Although we saw high single digit sequential growth in the category, we continue to see near-term headwinds as hospitals continue to prioritize resources and address operating challenges. More recently, as hospitals continue to focus on improving profitability, We're also seeing an increasing interest in moving routine nerve repair procedures into more cost-efficient ambulatory surgery center settings. The near-term transition of these procedures creates gaps in procedure predictability. However, we believe that this transition will be a net positive for oxygen nerve repair procedures over time as we work closely with surgeons, accounts, and private payers to improve procedure logistics and economics in this care setting. Furthermore, we believe that recent publications demonstrating the clinical effectiveness, cost, and surgical time efficiencies of allograft nerve repairs will support continued surgeon adoption and expansion of the trauma category. We expect to return to more normalized revenue growth rates of high single digits to low double digits in the trauma category over time. Our growth continues to be driven through the improved penetration of our active and core accounts. 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 with greater than $100,000 in revenue in the trailing 12 months. Core accounts have increased to 347 this quarter, an increase of 16% year over year, and down 1% sequentially. Approximately 60% of our revenue is derived from core accounts, which usually consists of at least one surgeon who's adopted the Axigen nerve repair algorithm for a significant portion of the nerve injury patients. Our focus is on leveraging the success of these early surgeon adopters with our products to gain more cases within that account, and to encourage additional surgeons to adopt our products. We continue to believe that our greatest opportunity for growth lies with deepening our penetration in our core accounts. The number of our active accounts increased to 974 in the quarter, representing growth of 4% year over year and down 1% sequentially. Revenue from the top 10% of active accounts represents approximately 35% of total revenue. We ended the second quarter with 115 direct sales representatives, down one from the end of the first quarter and a year ago. We believe our revenue growth can continue to be driven primarily by increased productivity of our sales force, and we will evaluate and add additional sales reps as their territories approach targeted levels. Our direct sales force is supplemented by independent sales agencies that represent approximately 10% of our total revenue. Last quarter, we were pleased to provide an update on our key strategic pillar of product and procedure innovation, and we expect that this will continue to be a driver of long-term growth. As a summary, we announced three specific innovations across our offering, including an expansion of our resensation technique for women who choose an implant-based reconstruction, which we believe could apply to an additional 10% to 15% of all breast reconstruction patients. We continue to see strong surgeon interest in offering resensation and implant-based reconstructions to their patients, and we're on track to exceed our goal of training at least 20 surgical teams this year. Most of our trained teams have begun completing procedures, and we have additional training sessions scheduled in the second half of this year and early 2024. We also announced innovation in our nerve protection portfolio. The category of nerve protection covers a wide range of injuries and defects, including compression, crush injuries, and complex traumatic injuries. We believe that the diversity of these injury types and their anatomical locations present unique challenges. Optimizing outcomes for these patients requires targeted solutions to adequately address the specific aspects of the injury and healing process. We're happy to announce we've successfully initiated the pilot launch of the first of these new products, AxiGuard HA Plus Nerve Protector, and we'll fully launch this extension of our nerve protection platform later this month. Initial surgeon feedback from usage in multiple applications in anatomical locations across our targeted surgical specialties has been positive. Given the positive feedback, we believe AxiGuard HA Plus will continue to expand the adoption of nerve protection products and help more patients with nerve injuries. Additionally, we also announced last quarter that we expect to have a resorbable nerve protection product that provides temporary protection and tissue separation during the critical phase of healing for nerve injuries. This application was previously addressed by Avive soft tissue membrane. We are continuing the development of a replacement solution to address this important market opportunity and expect this will further strengthen our position in nerve protection supporting emergent trauma and the surgical treatment of pain. We expect to launch this product in Q1 of 2024. As I mentioned earlier, the success of our scheduled procedures has been supported by our patient activation initiatives, primarily for breast and pain applications. our marketing initiatives are designed to engage patients and direct them to our resensation and rethink pain websites. These websites are aimed at educating patients and building market awareness about the potential benefits of nerve repair procedures. In addition, patient resources are available for locating surgeons skilled in these advanced techniques, particularly for those undergoing mastectomy and reconstruction, and for individuals suffering from chronic neuropathic pain. We believe the patient engagement strategy we have developed in breast can be used to accelerate and expand our pain and other scheduled procedures where patients are seeking solutions to their nerve conditions. Our surgeon education programs on nerve repair remain a top priority for Axigen and continue to generate interest in the surgical community. Our education initiatives encompass a wide range of learning events, including hands-on best practices training, educational conferences, and presentations. Moving on to updates in our growing body of clinical evidence. We continue to develop quality clinical evidence to demonstrate the safety, performance, and utility of our nerve repair solutions. Our sponsored clinical programs remain on track. As of the end of the quarter, we have over 200 peer-reviewed publications across trauma, breast, OMS, and pain. On August 2nd, the RECON study was published online in the Journal of Hand Surgery. The publication includes the author's analysis of the results, which found that ADVANCE returned a greater degree of functional recovery than conduits and superiority was demonstrated as gap lengths increased. We're excited to see the addition of this Level 1 evidence supporting the efficacy of ADVANCE NeuroGraft in the published literature. We believe this data will play an important role in surgeon clinical decision making especially with middle adopter surgeons. We continue to be pleased with the interest we're seeing from surgeons on the recently published meta-analysis that reported positive clinical and cost outcomes for advance. In addition, the premier publication also reported positive procedural cost outcomes for advance and noted a 41-minute OR time savings for advanced procedures as compared to autographed. Both publications provide strong evidence in support of advanced nerve repairs compared to alternative techniques. Turning to our new production facility and our BLA for advanced nerve graft, I want to provide an update on timing for these key projects. First, we've completed construction of the oxygen processing center and in the second quarter placed into service the warehouse and office spaces. Final validation of the tissue processing center was delayed in the quarter, and we now expect to begin processing tissue in the new facility later this month. This facility provides for up to three times our current capacity and was designed for long-term growth and expansion. Processing information from the APC will be included in the CMC portion of our submission of the BLA for advanced nerve grafts. we will be requesting to utilize a rolling submission process with the FDA at a pre-BLA meeting that is expected to occur early first quarter of 2024. If the FDA agrees, we expect to begin the submission in the first quarter of 2024 and complete the submission in the second quarter of 2024. The company believes this process would support BLA approval in the first half of 2025. A BLA approval will complete the regulatory transition of advanced nerve graft from a 361 tissue-based product to a 351 biological product. And importantly, we believe advanced would be designated as the reference product, which would in turn provide 12 years of exclusivity with regard to potential biosimilars. Looking ahead, we remain focused on executing our strategic initiatives and driving long-term sustainable growth. We believe that we've set a firm foundation for growth anchored in our investment in clinical data, which has recently produced three significant publications that will be important for surgeon adoption of the Axigen algorithm, particularly with middle adopters. Our investment in innovation has produced new applications and products that we are launching this year and next. We have also demonstrated success with our patient activation programs in Resensation, and are extending and expanding these programs to other scheduled procedures where patients are seeking improved quality of life solutions for nerve-related challenges. Finally, we're excited to open our new APC Processing Center later this month, which will provide longer-term capacity and support our filing of the BLA for advance in 2024. Now I'll turn the call over to Pete to provide a review of our financial highlights and guidance. Pete?