Axogen, Inc.

Joining me on today's call is Michael Dale, Axiogen's Chief Executive Officer and Director, and Lindsay Hartley, Chief Financial Officer. Michael will discuss second quarter 2025 financial results and corporate highlights. Lindsay will then provide details on financial performance, guidance, and overall outlook for the year. This will be followed by a question and answer session. Today's call is being broadcast live via webcast, which is available on the investor section of Axiogen's website. Following the end of the live call, a replay will be available in the investor sections of the company's website at www.oxygeninc.com. Before we get started, I'd like to remind you that during the conference call, the company will make projections and forward-looking statements. Forward-looking statements, which are usually identified by the use of words such as objectives, targets, will, believe, expect, estimate, should, guidance, intend, projects, or other similar phrases include but are not limited to statements relating to financial guidance, including revenue, margins, cash flow, future profitability, expectations for growth, market development priorities, estimated market opportunities, timing for future product and application launches, and the company's expectations for approval of the biologics license application for advanced nerve graft, including the anticipated timing of approval and the assumption that advanced nerve graft will be designated as a reference product for any future biosimilar nerve graft, and that such designation will provide marketplace exclusivity. 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 risk and uncertainties reflected in the company's SEC filings, including its Form 10-K and 10-Q. The forward-looking statements are representative only as of the date that they are made and expect, as required by applicable law, the company assumes no responsibility to publicly update or revise any forward-looking statements. In addition, for reconciliation of non-GAAP measures, please refer to today's press release and the corporate presentation on the investor section of the company's website. Now, I'll turn the call over to Michael.

Thank you, Operator, and welcome to everyone joining us this morning as we discuss our 2025 second quarter financial results. I'll begin today's call with a financial and corporate overview highlighting our progress through the second quarter and year-to-date implementing our strategic plan. followed by an update on the biologics license application, or BLA, for our advanced nerve graft. I will then pass the call to Lindsay to review second quarter's financials and outlook for the remainder of 2025, and then we will open the lines for a question and answer session. As remarked in this morning's earnings release, we are delighted with our second quarter performance and progress year to date for the business. We believe our strong revenue growth and related business milestone achievements reflects the soundness of both our market development strategies and commercial execution capabilities. I have mentioned publicly on various occasions that I felt our performance through mid-year would be an important measure of our progress optimizing our business model. While there will always be opportunity for further optimization, as a leadership team, we believe based on the measures we use for our customer creation business models, we are managing our market opportunities the way we had planned and have high confidence in our ability to grow the business consistent with the guidance we have previously provided for our strategic plan. Regarding the quarter, Q2 sales increased to $56.7 million, growing 18.3% compared to the same period last year. This performance reflects double-digit growth across all of our nerve repair target markets, including extremities, oral, maxillofacial, and head and neck, and breasts. Consistent with prior quarters, our growth is driven by expanding adoption of nerve care using Axigen's nerve algorithm for the treatment of all types of peripheral nerve injuries, including traumatic, iatrogenic, and chronic nerve injuries. The advanced nerve graft is the primary growth driver, often complemented based on the clinical situation by one or more of our nerve repair connection, protection, or termination products. In extremities, we continue to execute our high potential account strategy with solid growth in both traumatic and chronic nerve injury procedures in the quarter. In oral maxillofacial and head and neck, surgeon adoption of the action algorithm during the quarter was strong across all procedures, but particularly in mandible reconstruction procedures. And likewise in breast, we continue to see strong adoption of our breast resensation techniques, supported by new surgeon activation, increased procedure volume in implant-based reconstruction cases, and the expansion of our commercial infrastructure. In summary, we are encouraged by the broad-based adoption of our nerve care portfolio and momentum across each of our three target markets. To assess our progress, we continue to monitor key metrics tied to our plan and 2025 strategic priorities, including high potential accounts, commercial expansion, professional education, new product development, clinical research, and prostate market development. I'll begin with an update on our performance and growth in high potential accounts. We continue to focus on expanding our presence in these accounts to drive more consistent customer creation, algorithm adoption, and improvements in Salesforce productivity. Our goal for 2025 is to generate at least 66% of revenue from high potential accounts. Through the first half of the year, we continue to exceed our target with approximately 70% of revenue growth driven by high potential accounts. Furthermore, through the first half of the year, average high potential account productivity is up 21% year over year, tracking in line with our full year target. These results reinforce our belief that our focus on high potential accounts is enabling broader and more enduring adoption of nerve care, and as such, more predictable growth. During the first half of 2025, there were 641 active high potential accounts, all of the approximately 780 accounts that meet our high potential criteria, which represents an increase of 19 accounts or 3% as compared to the first half of 2024. Regarding our 2025 commercial infrastructure expansion goals, as of end of second quarter, we are now at or ahead of our hiring plan for each target market. In breast, we ended the quarter with 19 breast recensation sales specialists and one regional sales director. We are on track to double the breast sales force in 2025 by the end of the year, targeting 22 reps and two regional sales directors. To support broader adoption in non-breast markets, we added five additional sales representatives in high potential territories in the second quarter, ending with 124 sales professionals, including 12 regional sales directors. In oral, maxillofacial, and head and neck, consistent with our plan, we added five field-based market development managers year to date. Surgeon training remains a core component of our customer creation and nerve repair algorithm adoption. Execution of our 2025 professional education programs are on track, and we fully expect to meet our 2025 surgeon training targets. In breast, we have trained 35 surgeon pairs year to date, And with three programs planned in the second half of the year, we are confident we will meet our 2025 target of 75 surgeon pairs trained. Active breast resensation programs increased 9% from the second quarter of 2024, from 116 to 126. We estimate 280 surgeons performed a breast resensation procedure in the second quarter, which represents a 17% increase versus the second quarter of 2024. In extremities, we have trained 67 surgeons year-to-date, up 37 from first quarter 2025, with six additional programs planned in the second half of the year. We expect to meet our 2025 target of 105 surgeons trained. In oral, maxillofacial, and head and neck, we have trained 41 surgeons year-to-date, up 15 from first quarter 2025. We are on track to meet our 2025 target of 45 surgeons trained. Next, I will provide an update on our clinical research priorities. We continue to advance our 2025 initiatives and are on track to complete a level one study protocol for implant-based neurotization, a level one clinical evidence plan for advanced versus autographed and mixed and motor nerves, and a clinical evidence plan for oral, natural, facial, and head and neck. Regarding research and development, as we have outlined in our strategic plan, innovation is critical to our long-term growth Through mid-year, we continue to progress and advance our innovation platform across three core pillars, therapeutic reconstruction, ease of coaptation, and protection expansion. Regarding coverage and payment, during the quarter, multiple non-coverage policies were removed within the Blue Cross Blue Shield network for NERC care, adding an estimated 10 million additional covered lives. Year-to-date, we estimate 17 million additional lives are now covered for nerve repair for peripheral nerve injuries using synthetic contuits or allografts, which brings coverage amongst commercial payers to more than 55%. Adding to our progress during the second quarter, we enjoyed significant external validation of Axygen's differentiated technologies and leadership in peripheral nerve repair, with 17 new peer-reviewed publications citing clinical use or discussion of our products. For those interested, these peer-reviewed studies are available on our website. And finally, I will provide an update on our prostate clinical and market development plan. We are excited about the opportunity to improve nerve function outcomes in robotic-assisted radical prostatectomy and continue to work closely with key opinion leaders to advance surgical technique development. During the second quarter, we completed the hiring of our clinical development team, which will provide field-based support to surgeons and pilot sites, incorporating nerve repair into their robotic-assisted prostatectomy cases. We added three additional clinical pilot sites and now have six active sites. We expect to meet the goal of having 10 pilot sites running by year end. Procedures are ongoing, and we aim to complete 100 cases by year end. Before I hand it over to Lindsey, I would like to address status of the biologics license application or BLA for advanced nerve graft. The BLA remains on track and continues to progress as planned. During the second quarter, we completed several key regulatory milestones to support our anticipated approval in September of 2025. The late cycle meeting with the FDA, pre-licensing inspection, and sponsor inspection under the FDA's bioresearch monitoring program. These milestones follow the successful clinical trial inspections we spoke about on our last call, further reinforcing our confidence in the strength and completeness of our biological license application submission for advanced nerve graft. We reiterate prior guidance that we expect BLA approval in September. The BLA approval will secure 12 years of market exclusivity from biosimilar nerve allografts and establish advanced nerve graft as the only implantable biologic indicated for the repair of functional deficits in peripheral nerves. With that, I will turn it over to Lindsey, who is off to a great start as Chief Financial Officer and is adding a great deal of clarity to our operating performance.

Thanks, Mike. I'm pleased to report our second quarter results. We reported revenue of $56.7 million reflecting an 18.3% growth compared to the second quarter of 2024, and a 16.7% sequential increase over the first quarter of 2025. The year-over-year performance was driven by an increase of approximately 3% in price and 15% in unit, volume, and mix. Our gross profit for the quarter came in at $42 million, UP FROM 35.3 MILLION IN THE SECOND QUARTER OF 2025, AND 34.9 MILLION IN THE FIRST QUARTER OF 2025. THIS REPRESENTS A GROSS MARGIN OF 74.2%, UP FROM 73.8% IN THE SAME PERIOD LAST YEAR, AND UP FROM 71.9% IN THE FIRST QUARTER OF 2025. The year-over-year increase is primarily due to lower inventory write-offs and shipping costs on products sold, partially offset by slightly higher product costs. Gross margin for the first half of 2025 was 73.1%, 3% less than the first half of 2024. The decrease of gross margin for the first half of 2025 was driven by a 2.8% increase in year-over-year product cost. Product cost increased as a result of the transition of processing advanced nerve graft to our oxygen processing center. And cost related to the additional steps and tests required as we approach the transition to processing as a biologic in September. We expect the cost of our advanced product to decrease over time as we gain economies of scale at the Oxygen Processing Center, and once the BLA is approved, we can begin implementing a continuous improvement program. Our operating expenses increased to $40.3 million, up from $35.8 million in the second quarter of 2024, and as a percentage of revenue decreased 3.5% highlighting our ability to increase our operating leverage. Sales and marketing expenses as a percentage of total revenue were up less than one percentage point to 42% from 43.1% in the second quarter of 2024. Research and development expenses increased 2.9% to 6.8 million from 6.7 million in the second quarter of 2024. As a percentage of total revenue, research and development expenses were down 1.8% to 12.1% from 13.9% in the second quarter of 2024. General and administrative expenses increased 2.9% to 9.7 million from 9.4 million in the second quarter of 2024. As a percentage of total revenues, general and administrative expenses were down 2.6% to 17.1% from 19.7% in the second quarter of 2024. Net income for the quarter was 0.6 million or one cent per share. compared to a net loss of 1.9 million or 4 cents per share in the second quarter of 2024. Adjusted net income for the quarter was 5.7 million or 12 cents per share, compared to an adjusted net income of 2 million or 5 cents per share in the second quarter of 2024. Adjusted EBITDA for the quarter was 9.3 million compared to an adjusted EBITDA of 5.6 million in the same period last year. As of June 30, our balance of cash, cash equivalents and investments increased 7.8 million to 35.9 million from 28.1 million at the end of the first quarter of 2025. Now turning to our full year financial guidance for 2025. We are raising our revenue growth guidance to at least 17%, a revenue of at least $219 million. We reiterate our gross margin guidance in the range of 73% to 75%, inclusive of one-time costs related to the BLA approval for advanced nerve graft, which are expected to impact gross margin by approximately 1%. As a reminder, these costs will be incurred around the anticipated BLA approval date, currently expected in September. Also, we estimate that two-thirds of those costs relate to the vesting of our BLA milestone-related stock compensation awards and our non-cash. We continue to expect to be net cash flow positive for the year, and we also expect to self-fund our strategic plan with growing cash from operations. In summary, we are pleased with our second quarter performance and the progress we have made. We remain focused on executing strategy, investing in innovation, optimizing our resource allocation, and driving towards profitability. With that, we will now open the lines for questions. Operator?

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Chris Pascal with Nefron Research LLC. Please proceed with your question.

Thanks. You're at the nice results. Mike, I wanted to dig in a little bit more on the progress you've seen in the business through the first six months of the year. The 18% growth this quarter was similar to what you posted in 1Q, but it came against a much tougher comp. So I think arguably it shows some acceleration in underlying trends. We'd just love to know where you think the changes you've implemented are bearing the most fruit here early on, and then maybe juxtapose that with the full year outlook, which does imply a bit of a deceleration in the back half.

Certainly. In terms of the reasons for the growth, it's consistent with what we've described from the very beginning. This is sales management in terms of the application of specific strategies that we think are necessary to grow adoption of nerve care within each of these various clinical application areas. And the basic product value proposition, of course, is advanced. and then in conjunction with the products that complement, that make up what we call the algorithm. And just the focus on that and the accounts that have the greatest potential is the result. So there's really no magic. There's nothing new here. It's exactly what we described going back to our strategic plan in early March. is how do you create a customer and what do you need to manage and measure to ensure that you're making progress? And so we're just doing that in each area. There's nothing particularly different from what was previously described. It really boils down to a good solid execution. The bell curve is pretty tight in terms of the performance and we expect that to continue to come. The opportunity which we continue to try to make manifest to everybody is that the actual treatment and penetration of nerve care across all various disease and presentation scenarios is very, very low. So as you provide people in front of these physicians who deal with these patients, the opportunities are significant. And what we've simply done is try to organize accordingly. I would say in terms of which area is maybe a pleasant surprise, I know surprise is maybe the wrong word, but exceeding expectations is that we're growing faster in our extremities business than was even part of our original internal plan. All other parts of the business are growing as expected. So bottom line, all parts of the business are growing. And even outside of high potential accounts, all of our accounts are enjoying significant growth. So the business is moving in the right direction. Our job is obviously to keep it in that direction. But I hope that answers your question.

Yeah, that's helpful. And then I know the updated guidance calls for at least 17% growth, but anything you'd call out in terms of back half of your dynamics versus first half?

Sure. It's part of the BLA process. Until it's final, it's not. And so we're trying to maintain a level of conservatism, given that there may be some sort of change in terms of how we employ our logistics in providing our product. We planned accordingly, but we think it's prudent until that's completely settled and that we understand exactly what the mechanics will be that we don't get ahead of ourselves.

Great. Thank you. Thank you, Chris.

Our next question comes from Michael Sarcone with Jefferies. Please proceed with your question.

Good morning, and thanks for taking our question. I guess just a follow-up there on Chris's. You have this ramping sales rep productivity factor that's playing out through the year. So when we think about kind of historical seasonality or quarterly cadence, you know, do we expect it to be similar to years past or, you know, we typically see a slight bump in the third quarter? You know, could that be, you know, exacerbated by productivity improvements as you're growing the rep base?

In general, the prior history would be something that I don't think will change. If we kind of go through our various segments, on the extremity side, we typically see an increase in procedures when the weather is good and people are outside and active, which is primarily summer. On the chronic nerve injury side, these are electroprocedures, and we typically see an increase in those kinds of procedures in the last quarter of the year as patients have maximized their co-pays. On the oral, maxillofacial, and head and neck, these are malignant pathologies typically, so we don't see much in the way of seasonality. On the breast, we typically see a slowdown in breast reconstructive procedures during the summer, as many women are caretakers for the kids. And when they're off from school in the summer, they generally prioritize time with family. And so you mix it all together, and I think just given the expansion of the business, I wouldn't I would say that we're still looking at our own seasonality, but those are the key elements that I would describe by clinical application area.

Got it. Thanks, Mike. And then just one, you know, calling out the commercial coverage wins, it seems like you're making pretty good progress there, and that's, you know, prior to the BLA approval. So maybe you could dig in a little and just tell us, you know, what's helping to drive that progress now. And then, you know, is it fair to assume that that can, those coverage expansion wins can accelerate even more post-DLA approval?

Yes. To the latter point, I think you can absolutely expect that. But I'll allow Rick to build on here to my answer. But one of the things that even took me a while to actually appreciate is that the RECON study, while done some years ago, was only published a little more than two years ago. And so the database, the value dossiers that support our products have only recently been updated and then made available to payers and all the third parties who provide opinion and or clarification on our product status from an evidence standpoint and regulatory standpoint. And so as this information is digested and as we engage with those payers, you basically are able to make clear to people that this is a therapy that should be covered. And so then it starts to build upon itself. It's kind of like the snowball effect. And so this isn't going to happen overnight. But the long story short, it's why we've basically said that over the period of our strategic plan, we fully expect to get to nearly complete commercial coverage. It won't happen in one year, but, you know, 5%, 6%, 7%. And it builds on itself. And Rick, do you want to add anything to that?

The thing I'd add to what Mike said is that I've been pleasantly surprised in my first four months is the healthcare climate in the U.S. is sort of changing. And I think practitioners acknowledge that they need to stand up and let their voice be heard. So as we've gone out across some of these regional plans and we're developing ways to engage national payers toward the back end of this year and early next year, clinicians are activated. They're willing to sign letters, they're willing to reach out to payers, and they're willing to advocate for patient access and coverage. And so we expect to see the number of patient appeals and surgeon appeals climb over time. And really, when you break down the coverage landscape in the United States, you know, we report at least 55% of commercially covered lives have access. You guys know this. If three payers flip, that looks pretty good. So You know, we've got really concrete plans in place, and we look forward to moving the mission forward. We think over time our benefit-to-risk value prop is there. This is a really good opportunity for the company, and as patient access improves, you know, it's really going to open up one of the main bottlenecks in our business.

Great. Thank you. Thanks, Mike.

Our next question comes from Caitlin Cronin with Canaccord Genuity. Please proceed with your question.

Hi, congrats on the great quarter. Hi, how's it going? Good. You know, just to start off, you know, how was the interaction during the late cycle BLA meeting? You know, any more color on that? And if there were any, you know, processes that you've had to implement, you know, as you near the expected approval?

Sure. First of all, as it has been throughout the whole process, it's been professional, cooperative, Highly interactive, although it does go in waves, so it might be almost every other day. Sometimes you might go a week at a time between interactions. But unlike, for example, my experience on Class 3 devices, you don't have these finite gates you go through. You go through the same processes, but you don't get a, you don't receive immediate clarity that, okay, this is now done. And so, that all comes together towards the end. So, I can't say that we know with certainty exactly yet, as part of the process, exactly what will be required, other than we fully expect there will be modifications to our quality system in the discussions that we've had with the FDA today.

Got it. Okay. And then as you work through your hiring process for the year, any change to kind of the cadence and level of OPEX spend expected in the back half?

No, not yet, although we are looking at what might be possible in terms of incrementally accelerating our hiring plans. It's not that this is a surprise to us, but it's more and more evident that one of the greatest opportunities we have is simply to scale this footprint. There's lots of needs for nerve care. And while we have a good-sized sales force in terms of some comparisons in the context of nerve repair, it still remains a pretty small footprint. And so our ability to scale that within the context of our ability to fund our operations is what we're looking to do. So we're very encouraged by the progress that we have with the commercial footprint. And so that's on the table. But at the moment, there's no change in our guidance.

Got it. Thanks so much.

Thank you.

Our next question comes from Mike Kratke with B-Rank Partners. Please proceed with your question.

Hi, everyone. This is Sam Bond for Mike. Thanks for taking our questions. So, again, just wanted to dig in on the BLA process a little bit more. You know, are there, like, any specific major milestones to call out remaining in your back and forth with the FDA prior to the expected approval in September? And then I have one follow-up.

Sure. There's no, as I've already mentioned, there's no explicit milestones beyond what we've already shared where you basically get a checkbox. You have an impression. But the final stages that we'll work with the FDA upon is regards to labeling. and then final requirements as part of the quality systems. So those conversations will be ongoing for the next 30 days. And it will be a process that upon complete, obviously we'll update everybody.

Got it. And then just, you know, can you provide a little bit more detail on kind of the specific, you know, manufacturing improvements that you're planning on implementing following the BLA approval in September you know, how quickly can you implement these improvements and kind of drive meaningful operating leverage and, you know, whether this is something that we might see a good deal of in 4Q.

Sure. Excuse me. Pardon me. So much of the improvements that we expect to introduce are our classic continuous improvement processes by virtue of if it takes five steps and you can do it in three, you start to do it in three. And these need to be qualified and verified, but they all basically reduce inefficiencies. And so those are the types of things that we'll be doing. Those will be complemented by electronic systems that we'll be introducing also that by virtue of those will reduce a lot of the manual record keeping that accompanies the current process. So there's nothing particularly remarkable about what we're going to be doing. It's just that we're going to be doing them once we have one system upon which we can run our day-to-day operations. We continuously refine our processes even as they exist, even in the current situation. We enjoy greater yields as a result of that, but there's tremendous opportunity for very basic improvements that will ensue upon the completion of the BLA.

Understood. Thanks, guys. Sure.

Our next question comes from Jason Bedford with Raymond James. Please proceed with your question.

Good morning, and congrats on the progress. Just a few. I guess maybe start with gross margin. What was the biggest change in the 2Q gross margin versus 1Q?

The biggest change was really just savings from our product cost year over year. I mean, the quarter over quarter and the lack of the write-off reduction.

Helpful. It looked like there was a fairly big sequential jump in high potential accounts. I think previously you had identified about 780 high potential accounts. I guess first, is this still the right number? And second, can you reach the 780 by year end?

We don't have a specific goal to do that this year, Jason. Some of this is footprint related. Probably as we enter into the next year, We'll codify more goals specific to how we expand that. So the way it works today is that each individual rep was, as part of the planning process, was required to pick within the survey of high potential accounts which accounts that they believe they had the greatest opportunity. They have also accounts that they manage which are not high potential accounts, so I want to be clear about that. But a good part of compensation in our focus from both a marketing and a sales management standpoint is on those. And so we did not pick all 780 this year, but we will certainly be working towards expanding that target pie as we look into next year, but not this year.

Okay. Okay. And maybe just lastly, I think when you were responding to an earlier question from Chris in the second half cadence, you mentioned leaving some variability for, I forget the exact language, but some sort of change in logistics and mechanics. Can you just elaborate on that comment? I think it was tied to the BLA. Sure.

It primarily involves a trunk stock, so a product that we would have as a component of supply when an unplanned or unscheduled procedure is available. And so as we look forward to post-BLA, it's very unlikely that that will be part of our repertoire. And so this requires us logistically to look at supplying that product differently for some customers. It's not a majority in any way of our business, but it's also not an insignificant element. And so while we have plans in place for that, we're also until that's truly codified and finalized with FDA. We're trying to be prudent to make sure we don't have any disruptions.

Okay. Okay. Thank you. Sure.

Our next question comes from Ross Osborne with Cantor Fitzgerald. Please proceed with your question.

Hi, good morning, and congrats on the quarter. So starting off, I was thinking you provide some more color on where you're seeing above expectation growth within the extremities business.

Well, basically, it's broad-based. So we have internal growth targets that we had for the business, and what I can speak to is that we're exceeding those, and we have been consistently. So we're very pleased with that. And if you ask, well, why? It's a lot of things. So going back for more than a year now, we've, one, stabilized the organization. We've slowly and incrementally added to that. So in terms of tenure, that's deepening even over the last year. And then the focus of the business, the clarity of purpose that everyone has, they're excited to wake up and go to work. And we have... commitments to the future. And so all this together is adding to a more productive, more focused effort on the part of the teams. Also, the focus on high potential accounts can't overemphasize. There's a lot of opportunity in nerve care, but if you want to create enduring, repeatable revenue, you need to build nerve care as part of, as an expectation of care within an individual institution and within the individual physician to practice in that institution. And so all those things combined are what's leading to the greater overall productivity. Got it.

That's helpful. And then would you remind us of how we should be thinking about the time from training a new doc to the company to getting to scale?

I'll ask Jens to comment on that.

Yes. One of the things that we've done this year is really continue to expand our surgeon education and training programs, which is a critical component in activating the surgeons. So once they go through a training, let's pick a breast training program, it typically takes about three quarters for them to get fully productive after they attend a training program. So there is some ramp-up time.

Thank you. Congrats again on the quarter. Thank you.

Our next question comes from Dave Turkley with Citizens. Please proceed with your question.

Hey, good morning. Congrats on the results and the clinical progress. Mike, I just want to clarify one thing. I know you've gone through a bunch of inspections. And I just wanted to ask explicitly, were there any issues raised or any observations from the FDA?

No, I mean, one, we don't provide that level of discrete detail, but no, it's so far so good is the phrase that I utilize. But I think it's important that I just continue to emphasize is that the BLL process, we believe, is on track, and we'll report out on that once it's concluded. Most of the work involved at this point is revolving around the quality systems, which is fully expected. We're moving from a device regulatory scheme quality system to a biologic, and we're the first of its kind. So most of the work mostly comes into play is that we're dealing with human tissue, and that quality system needs to be adapted to literally what an injectable drug would utilize. So as you might imagine, it's not a natural change in process. But that said, we've worked together with the agency, and we think we've got our hands around it.

Thank you for that. And I'm just curious also if you've had any sort of discussions around the labeling. I know I think you're expecting a pretty broad label, but have they made any comments about either like injury type or type of nerve or physical location or anything like that, any discussions about anything, you know, that might be less broad in the later?

We are just engaging. Sorry, yeah, sorry to interrupt you. We're just engaging in that process, and so we fully expect that that will ensue over the next 30 days. So we will not be in a position to provide any kind of guidance until this is completed.

Okay, thank you.

Our next question comes from Frank with Lake Street Capital Markets. Please proceed with your question.

Great, thanks for taking the questions. Congrats on the good quarter. I was hoping to start with a little bit more color on Brest. Sounds like you had a good quarter of hiring. Can you talk about rep ramp up, the quality of the reps you've been able to retain through the hiring process? and then maybe any other underlying trends just in breast in general throughout the quarter would be great to hear.

Sure. In terms of the ramp-up, obviously we got behind the eight ball early in the year, but we've fully caught up and expect to maintain that cadence going forward. In terms of quality, obviously it's in the eyes of the holder, but we have no problems attracting talent. We have Multitudes of candidates who seek the jobs that once we post them across the organization, not just in breast. So we're very, very pleased. So it's an exciting space right now and it's very encouraging in that regard. In terms of the ramp up. We have a multi stage program that we bring the reps represented each representative through for for extremities as well as breast. And in total, It's a program that transpires over about nine months before the rep is finished with their formal training. They're engaged and working before that period is complete, but it is a process that takes time.

Got it. That's helpful. And then I just wanted one more. I'm sorry. Go ahead, Frank. Go ahead. I was just going to ask you the second half of the breast trends question I had.

Really nothing new in trends other than as more breast resensation is done, more physicians basically look at it really from an ethical standpoint that they believe they have the obligation to provide this as an option to their patients. And so once you are introduced to it, that becomes – the desire and the expectation based upon the fact that the data that's available and the experience that's available clearly suggests that you can add value to those patients. And so that's a dynamic. It's not a new dynamic, but it's just one that continues to grow as our footprint grows and as we train more surgeons, establish more sites.

Got it. That's helpful. And then maybe just one last one on gross margin. Lindsay, appreciate the comments of the the step down and write downs quarter over quarter that drove that snapback and gross margins in the quarter. We're just curious how you guys are thinking about that dynamic. Are we kind of through write downs or is there any other future cleanup that you think may occur in future quarters related to write downs?

Yeah, we are going through a process of identifying process improvements and as we transition through the BLA, identifying things. You know, if we identify additional write-offs, we'll take them as we deem necessary. At this moment, we don't, you know, I don't see any, but you never know what will come up. We are thinking that the, well, we will be impacted in the Q3 by the BLA PSUs we've disclosed. And then in Q4, we expect to return back to a little bit normal and then implement those process changes and hopefully get some you know, upside on that as we move forward in 26. Okay.

That's helpful. Thanks for taking the questions. Thank you.

There are no further questions at this time. I would now like to turn the floor back over to Mike Dale, CEO, for closing comments.

Thank you, Operator. On behalf of the Axiostan team, I want to thank everyone for their time and interest in our work to fulfill the promise and potential for all stakeholders in our business purpose to restore health and improve quality of life by making restoration, peripheral nerve function, an expected standard of care. We look forward to updating you on our continued progress and our plans on our earnings call next quarter. Thank you.

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