AxoGen Third Quarter 2016 Results Conference November-02...
Transcript of AxoGen Third Quarter 2016 Results Conference November-02...
AxoGenThirdQuarter2016ResultsConferenceNovember-02-2016
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AxoGen,Inc.2016ThirdQuarterResults
November-02-2016Confirmation#13648210
Operator: Greetings, andwelcome to the AxoGen Incorporated Third Quarter 2016 Results
ConferenceCall.
Atthistime,allparticipantsareinalisten-onlymode.Abriefquestion-and-answersessionwill
followtheformalpresentation.Asareminder,thisconferenceisbeingrecorded.
Iwouldnowliketoturntheconferenceovertoyourhost,Mr.BrianKorb. Pleasebegin,Mr.
Korb.
Mr. BrianKorb: Thank you,Devin, and good afternoon, everyone. Thank you for joiningus
todayfortheAxoGenIncorporatedconferencecalltodiscussthefinancialresultsforthethird
quarterendedSeptember30th,2016.
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Today’s call is being broadcast live by awebcast,which is available on theAxoGenwebsite.
Withinanhour followingtheendof the livecall,a replaywillbeavailableontheCompany’s
websiteatwww.axogeninc.comunder“Investors”.
Beforewegetstarted,I’dliketoremindyouthatduringthecourseofthisconferencecallthe
Companywillmakeprojections and forward-looking statements regarding the future events.
We encourage you to review the Company’s past and future filings with the SEC, including
withoutlimitation,theCompany’sform10-Kand10-Q,whichidentifythespecificfactorsthat
maycauseactualresultsoreventstodiffermateriallyfromthosedescribedintheseforward-
looking statements. These factorsmay include,without limitation, statements regarding the
productacquisitionand/ordevelopment,productpotential,regulatoryenvironment,salesand
marketingstrategies,capitalresourcesoroperatingperformance.
Andwith that, I’d like to turn the call over to Karen Zaderej, President and Chief Executive
OfficerofAxoGen.Karen?
Ms.KarenZaderej:Thanks,Brian,andgoodafternoon,everyone.
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Welcometoourthirdquarter2016conferencecall. JoiningmeonthecalltodayisAxoGen’s
ChiefFinancialOfficer,PeteMariani.
I’d like tobegin today's callwitha reviewofour thirdquarterhighlights, followedbyabrief
company overview and an update on our key strategic initiatives. Pete will then provide a
reviewofourthirdquarterresultsandfinancialguidance,afterwhichtimewe’llopenitupto
Q&A.
Beforewebegin,I’dliketowelcomeAmyWendelltotheAxoGenBoardofDirectors.Amyisa
former Covidien executive and brings us a wealth of market development and operating
leadership. Wearepleased tohave attracted toourBoard someonewithAmy's breadthof
experience.
Now turning to thequarter,weachieved record revenueof11.2million,which isup,uh,37
percentovertheprioryearQ3.Thisnicegrowthisseeninspiteofthe72percentyear-over-
yeargrowthwe saw inQ32015. Wearepleased thatournine-monthyear-to-date revenue
growthis52percentovertheprioryear.
We are executing on our strategic initiatives and our sales efforts continue to deliver solid
results. Wearebuildingawarenessandexpandingusageofourproductswith innovatorand
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early adopter surgeons and are excited to be moving toward developing the early majority
segmentof thenerverepairmarket. Ourrecentequityraiseandtherefinancingofourdebt
providesuswithasolidcapitalstructureaswecontinuetodriveawarenessandgrowthinthe
nerve repair market. With our current capital position, increasing sales team, expanding
customerbaseandgrowingbodyofclinicalevidence,webelieveweareinastrongpositionto
movetowardthebroadermarketopportunityofearlymajoritysurgeonsandcontinuetodrive
ourrevenuegrowth.
OurrevenuegrowthreflectstheexpandingpenetrationandadoptionofAxoGen’sportfolioof
productsintherepairofnerveinjuries.Themajorityofourgrowthwasgeneratedfromactive
accounts,increasingthepenetrationwithinactiveaccountsandincreasingthenumberofactive
accounts. We find surgeons are initially cautious adopters for nerve repair products. They
typicallystartwithafewcasesandthenwaittoseetheirresults.Activeaccountsaretypically
passed thiswait period andhavedeveloped some level of product reorder. These accounts
have typicallygone through thecommitteeapprovalprocess,haveat leastonesurgeonwho
has converted a portion of his or her treatment algorithms of nerve repair to the AxoGen
portfolio,andareorderingAxoGenproductsatleastsixtimesinthelast12months.
Thenumberofactiveaccountshasincreased40percentto200and--excuseme,hasincreased
40 percent to 414, up from 296 in the prior year. The growing number and penetration of
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active accounts is driven by increased adoption of our nerve repair products across the
surgeon's treatment algorithms. Accounts ordering all three of our nerve repair implants
continuetogenerateapproximatelyfivetimesmorerevenuethananaccountorderingjustone
product. Our objective is to continue expanding the treatment algorithms of surgeons to
includeallthreeofournerverepairimplantsacrosstheirfullcontinuumofnerverepair.
For those who you are new to our story, AxoGen is a global leader in innovative surgical
solutionsforperipheralnerveinjuriesandtheonlycompanyfocusedsolelyonthisnerverepair
market.Wecurrentlyhavethreenerverepairimplantsinourportfolio,AvanceNerveGraftis
theonlycommerciallyavailableprocessnerveallograftusedforthebridgingofnervegapsof
fivemillimetersto70millimeters.AxoGuardNerveConnectorisaminimallyprocessedporcine
extracellularmatriximplantforconnector-assistedcoaptationoftransectednerveswithgapsof
five millimeters or less. AxoGuard Nerve Protector is a minimally processed porcine
extracellularmatriximplantforwrappingandprotectinginjuredperipheralnerves.
Along with these core surgical products, we've also recently launched the AcroVal
Neurosensory&MotorTestingSystem.AcroValandourAxoTouchtwo-pointdiscriminatorare
evaluation andmeasurement tools to assist healthcare professionals in detecting changes in
sensation,assessing returnof sensorygripandpinch function,evaluatingeffective treatment
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interventionsandprovidingfeedbacktopatientsonnervefunctionpriortoandfollowingnerve
repair.
Ourproductsareusedprimarilybyplasticsurgeons,handsurgeonsandoralandmaxillofacial
surgeons in a wide variety of nerve repair surgeries, including upper extremity trauma,
iatrogenic injuries from dental procedures, such as third molar extraction, as well as nerve
compression surgeries, including recurrent carpal tunnel syndrome. AxoGen is generating
strongandconsistentrevenuegrowthinanerverepairmarketthatremainslargelyuntapped.
There are approximately 900,000 nerve repair surgeries annually in the U.S., pointing to a
market opportunity of over $1.6 billion for AxoGen’s products. The vast majority of these
proceduresarebeingperformed inapproximately5,100centers. In the thirdquarter414of
thesecenterswereactiveAxoGenaccounts.Mostoftheseaccountsarestillinanearlystageof
penetrationandprovideadditionalopportunitiesforcontinuedgrowth.Asaresult,webelieve
we'rejustscratchingthesurfaceofouravailablemarketpotential.
We are continuing to develop thismarket through the execution of our strategic initiatives,
which we believe will allow us to build long-term sustainable growth. We refer to these
strategicinitiativesasourfivepillarsofgrowth.Theyarebuildingmarketawareness,educating
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surgeons and developing advocates, growing the body of clinical evidence, executing on our
salesplanandintroducingandexpandingnewproductsandmarketsinnerverepair.
I will now comment on our progress over the quarter in each of these areas. First, we’ve
continuedtobuildmarketawarenessofAxoGenandourproductsbyengagingwithsurgeonsat
hospitals,clinicalconferencesandpromotionalevents. We’vedevelopedstrongrelationships
with many well-known surgeons who are innovators and early adopters of our products.
They’vebeenextremelyhelpfulsharingtheirexperiences,usingourproductswiththeclinical
community and publishing the outcomes they've achieved around nerve injuries and repair
solutions.
During the quarter, we presented at the annual American Society for Surgery of the Hand
meeting,wherewesponsoredseveralprogramsthatsupportperipheralnerveeducationand
awareness,includingtheHandFellowspre-courseprogram,theWomeninHandSurgeryevent
and a surgeon led symposium titled Tackling Challenges in Nerve Repair: A Case Based
Discussion.WealsoparticipatedattheAmericanAssociationofOralandMaxillofacialSurgeons
annualmeeting,wherewe led a lecture and lab sessionwith additional sessions and poster
presentations regarding the use of AxoGen’s products. We’re pleased to see the increased
presence of nerve repair topicswithin these societies. We believe this is an indication of a
broadersurgeonawarenessregardingtheimportanceofperipheralnerveinjuriesandrepair.
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Our secondpillar of growth is focusedon surgeoneducation in thedevelopmentof surgeon
advocates.We’veconducted11nationaleducationcoursestodateandexpecttocomplete13
education courses for the full year. These courses are surgeon led and are focused on the
reviewofclinicaldataandemergingbestpracticesinnerverepair,includingtheuseofAxoGen
products. These courses allow surgeons to gain additional confidence in nerve repair best
practicesandtheydriveadoptionandincreaseutilizationofourportfolioproducts.Infact,this
increase utilization is driving average annualized revenue in accounts where surgeons have
completedthesecoursestoincreaseover100percentsixmonthsfollowingcompletionofthe
course.Becauseofthepositivesurgeonresponsetothesecourses,wewillcontinuetoexpand
theseeducationaleffortsthroughout2017.
Ourthirdpillaristogrowthebodyofclinicalevidence.OursponsoredclinicalprojectsRecon
andRangerareactiveandenrolling.Recon,ourPhase3pivotalstudycomparingAvanceNerve
Grafttomanufacturerconduitsanddigitalnerveinjuries,continuestoenrollandisalong-term
studytosupportthetransitionofAvanceNerveGrafttoabiologic.
OursponsoredRangerstudyisthelargestmulti-centerregistryinperipheralnerverepairwith
overathousandAvancenerverepairsenrolledtodate. We’vesupplementedthisstudywith
our MATCH study, which provides contemporary controls of autograft and manufactured
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conduits. These studies continue to produce important data that is being shared at
conferencesandinpeer-reviewedpublications.
AttheSeptemberAmericanSocietyforSurgeryoftheHandmeeting,theRangerinvestigators
presented an abstract titled, Can Process Nerve Allografts Be Used to Repair Nerve Injuries
GreaterThan40MillimeterfortheReturnofCriticalFunctionintheUpperExtremity.Thisstudy
lookedatoutcomesfrombothAvanceNerveGraftandautograftswiththeselargenervegaps.
TheinvestigatorswerepleasedtopresentthatoutcomesforAvanceNerveGraftweresimilar
toautograftwithout theassociatedcost, riskanddonor-sitemorbidity. Theseoutcomesare
consistentwith those reported in thepublished literature forbothAvanceandautograftand
continue to provide evidence to strengthen surgeon confidence in Avance Nerve Graft
outcomes.
In addition to the adoptionwe’re experiencingwith hand surgeons,we continue to see our
portfolioexpandinoralandmaxillofacialsurgery.Assurgeonshavebecomemorecomfortable
with AxoGen’s portfolio in distal trigeminal nerve injuries, they’ve begun to apply the
technologies to more complex injuries. Surgeons now have an option to reconstruct these
nerves, giving patients theopportunity to see returnof function and avoid the social stigma
associatedwithnumbnessofthelip,mouthandchin.
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At two separate conferences we’ve seen three presentations of clinical data on the use of
AxoGen’sportfolioforrestorationoftrigeminalnervefunction.AttheMilitaryHealthSystems
Research symposia in July, a technique presentation focused on the reconstruction of large
segmental nerve defects with the Avance Nerve Graft and AxoGuard Nerve Protectors was
presented.AttheAmericanAssociationofOralandMaxillofacialSurgeonsmeetinginOctober,
two separate clinical presentations were proffered focusing on long segmental nerve
reconstructions. Most of these multi-product procedures required a 70-millimeter Avance
Nerve Graft to bridge the discontinuity, as well as AxoGuard Nerve Protectors at the nerve
coaptationsites.
The meaningful recovery rates in these studies were 86 percent and 94 percent. These
presentationsdemonstratethatwithpropersurgicaltechniques,adequatenervedebridement
andearlyrepair,high levelsofrecoverycanbeachievedeven inthesevery largenervegaps.
We are very encouraged by these early findings and believe this further reinforces the
opportunitytorestorequalityoflifetothesepatients.
Year-to-datetherehavebeen17separatepresentationsofdataonAxoGensurgicalproducts,
eightofwhichare studies from independent investigators. Additionally this year therehave
beensevenpeer-reviewedpublicationsontheAxoGenportfolioofproducts. Wenowhavea
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totalof39separatepeer-reviewedpublications,whichcontinuetoreinforcethegrowingbody
ofevidenceforAxoGen’sproductsinnerverepair.
Our fourth pillar is sales execution. Our growing sales organization is solidly executing on
drivingstrongrevenuegrowth.Wehad414activeaccountsinthethirdquarter,whichisup40
percentcomparedtoayearago.Weendedthequarterwith45directsalesreps,ofwhich33
havenowbeenwithusforatleast12months.Inadditiontoourdirectsalesforce,wehave23
independentdistributionpartners, supporting theexecutionofour sales strategy. Asof this
week,wehave48directsalesrepsonboard,andweexpecttohaveatleast50directsalesreps
intheU.S.byyear-endaswecontinuetofocusonkeyterritories.
Ourfifthpillarofgrowth isthe introductionofnewproductsandmarkets innerverepair. In
the second quarter we announced the launch of AcroVal Neurosensory & Motor Testing
System,anervefunctionevaluationsystemforsurgeonsandotheralliedhealthprofessionals
to electronically measure, map, and monitor patients with peripheral nerve injuries and
conditions,bothpriortoandfollowingnerverepair.
As we’ve stated previously, AcroVal’s direct contribution to AxoGen’s revenue growth is
expectedtoberelativelyminor. However, itstrengthensourposition inprovidingperipheral
nervesolutions.Andwebelieveit’sanimportantsteptosupportthestandardizedevaluation
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and measurement of nerve function to improve patient peripheral nerve outcomes. We
believethereareadditionalopportunitiestoexpandperipheralnerverepair,andwewilllaunch
oneadditionalnerverepairproductyetthisyear.
Although, theupper extremity andoralmaxillofacialmarkets are our prime revenue sources
today, expansion opportunities in nerve repair in breast reconstruction, lower extremity
surgery,headandnecksurgery,urologyandthepainmarketofferAxoGennewandexpanded
revenue opportunities in the future. We’ve identified two specific areaswhere the AxoGen
portfolioofproductscouldbringmeaningfulsolutionstocurrentclinicalchallenges,andwe're
beginning market development activities in these applications. These areas include breast
reconstructionandantigenicinjuriesofnervesassociatedwithtotaljointreplacements.
The opportunity in breast reconstruction allows surgeons to provide neurotization the flap
during the breast reconstruction. Today whenwomen have a breast reconstruction due to
breastcancerorprophylacticmastectomy,they’reprovidedtheshapeofabreastbutnotthe
restorationofsensoryfunction.Wearebeginningtoworkwithreconstructiveplasticsurgeons
toprovidewomentheoptionoftherestorationofsensationintheseprocedures.
Iatrogenic [sp]orthopedic injuries involvedamagetonervesthatmayoccurduringtotal joint
replacement.Webelievethatwecaneducatethesurgicalcommunityontheidentificationof
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thesenerveinjuries,andwehavetheopportunitytodevelopreferralpatternsthatbringthese
patients toour current customerbaseofhand surgeonsandplastic surgeons. We intend to
expandoureffortsintheseapplicationswithanexpectationthatwilllaunchwithatleastoneof
these new markets in late 2017, creating additional revenue opportunities for 2018 and
beyond.
I’m proud to report that the team is successfully executing our strategic initiatives. We’re
pleasedwithourprogresscommercializingourproductsinexistingapplications.Weanticipate
continuedgrowth inourexistingproductapplications inupperextremityandOMS[sp]. This
growth,alongwiththeintroductionofnewproductsandnewmarketapplications,providesthe
foundationforAxoGen’slong-termsustainablerevenuegrowth.
Before I turn thecallover toPete todiscuss the third-quarter results, I’d like toprovideyou
details of our recent equity financing and the refinancing of our debt. OnOctober 13thwe
announcedtheclosingofapublicofferingofcommonstockandtheunderwritersfullexercise
of theiroptiontopurchaseadditionalshares,whichprovidedusnetproceedsof18.6million
after underwriters discounts and estimated offering expenses. We’re pleased with the
opportunity to not only supplement our balance sheet but also attract additional AxoGen
investors.
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Additionally, last weekwe announced that we had refinanced our 25million of debt into a
lower-costfacilitythatwillreduceourannualcashinterestandexpensebyatleast1.5million.
Togethertheseeventsprovideuswithasolidcapitalstructure,whichstrengthensourbalance
sheet and provides us with the opportunity to continue the development of nerve repair
marketsandproducts.
Now,I’llturnthecallovertoPete.Pete?
Mr.PeteMariani:Thanks,Karen.
Thirdquarterrevenuewas$11.2million,a37percentincreaseovertheprioryear.Forthenine
monthsendedSeptember30threvenuewas29.7million,a52percentincreaseovertheprior
year. Thegrowth in revenuewasprimarily the resultof increases inunit volume,aswell as
price.
Asinpriorquarters,themajorityofourrevenuegrowthisdrivenbygrowthinactiveaccounts.
Additionally,wecontinuetoseegrowth inourpipelineofnewaccountsassurgeonsbecome
familiarwithourproductsandbegintoexpandtheirtreatmentalgorithms.
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Grossprofit forthethirdquarterwas$9.5millionand increased41percentcomparedtothe
prior year's thirdquarter. Grossmargin for the thirdquarterwas84.9percent compared to
82.7 percent in the prior year. The year-over-year increase was driven by growth in unit
volume,operationalefficienciesandpriceincreases.
Totaloperatingexpensesinthethirdquarterwere$10.7million,up23percentovertheprior
year. This increase is due to added investment in expanding our sales footprint, increasing
surgeon education, expanding market awareness and developing future products. These
investments are driving growth in the Company's operating expenses, but, importantly, at a
lowerratethansalesgrowth,demonstratingtheoperatingleverageofourbusinessmodel.
Salesandmarketingexpenses in the thirdquarterwere7.1million,up29percentoverprior
year. As a percentage of revenue, sales and marketing expenses improved to 63 percent
comparedto68percentintheprioryear.And,asKarenmentioned,weendedthequarterwith
45directsalesreps,upfrom38inthethirdquarterof2015.Year-to-datewehavecompleted
11nationaleducationcoursesandplantoconducttwomoreforatotalof13ofthesecourses
inthecalendaryear.
R&D spending in the thirdquarterwas $1.1million compared to $936,000 in theprior year.
Research and development costs include product development, as well as additional
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expenditures in our clinical trial efforts, includingourongoingRecon study in support of the
BiologicLicenseApplication,orBLA,fortheadvancednerve--AvanceNervegraft.
Inthethirdquarter,generaladministrativeexpenseswere$2.5million,up12percentoverthe
prior year. As a percentage of revenue, general administrative expenses improved to 22
percent in thequarter compared to27percent in theprioryear. EBITDA loss in thequarter
improved to 1.1million compared to a loss of 1.8million in the prior year. Net loss in the
quarterwas2.3million,or$0.08pershare,comparedtothreemillion,or$0.11pershare, in
the prior year. Andwe ended the third quarterwith $16million in cash compared to 18.3
millionattheendofthesecondquarter.Ournetuseofcashinthequarterimprovedto$2.3
millioncomparedto2.7millioninthesecondquarterof2016.TheimprovementinEBITDAloss
and reduction in the net use of cash in the third quarter demonstrates our ability to drive
toplinerevenuegrowth,whilealsodevelopingefficienciesacrossthebusiness,andweexpect
tocontinuetoseeimprovementsasourrevenueincreases.
Andaswehavepreviouslydisclosed,andsubsequenttotheendofthequarter,weraisedan
additional 18.6million in equity and refinanced our $25million debt facility. Our new debt
facilityiswithMidCapFinancialandprovidesforupto$31millionofdebtcomprisedofa$21
milliontermloanandarevolvinglineofcreditcommitmentofupto$10million.Therevolver
maybeincreasedatalaterdateto$15millionatourrequestandwiththeapprovalofMidCap.
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However, theamountavailableunder therevolver is subject toourborrowingbase,which is
tiedtocertainaccountsreceivableandinventorybalances.Atclosing,ourborrowingbasewas
$5.4million,andwedrewfourmilliondollarsoftherevolverforatotaldebtoutstandingof$25
million.
Thefacilitycarriesa54-monthtermwithinterest-onlypaymentsonthetermloanforthefirst
24months.Theinterestrateonthetermloanis8percentplusthegreaterofLIBORoronehalf
of1percentandattheclosingresultedinarateof8.5percent.Borrowingsundertherevolving
lineofcreditbear interestata rateof4.5percentplus thegreaterofLIBORoronehalfof1
percent,whichattheclosingresultedinrateof5percent.
Annualinterestcostsavingsofthisnewfacilityisestimatedtobeatleast$1.5millioncompared
tothepreviousdebtfacility.Proceedsfromthenewfacilitywereusedtorepayandretireour
previous $25 million term loan and revenue royalty interest agreement with Three Peaks
Capital.Feesandexpensesassociatedwiththisagreementwereapproximately$700,000and
prepayment fees of approximately 2.3 million net of accrued interest were paid from the
Company's own funds. After giving effect of the equity raise and debt refinancing, our
September 30th pro forma cash would have been $31.7 million and pro forma debt would
remain$25million.
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Theequityraiseandthelowercostdebtfurtherstrengthensourbalancesheetaswecontinue
to drive growth in this emerging peripheral nerve repairmarket. Wewill continue tomake
investmentsinourstrategicgrowthinitiativesaswedrivetowardprofitability.
And, finally, uh, wemaintain our full 2000--our full year 2016 revenue guidance of over 40
millionandourfullyeargrossmarginswillexceed80percent.Additionally,weareintroducing
2017 full year guidance. We expect 2017 revenue will be at least 40 percent over 2016
revenuesandgrossmarginswillcontinuetobeabove80percent.
Andwiththat,I’dliketohandthecallbacktoKaren.
Ms.KarenZaderej:Thanks,Pete.
Before we close, I’d like to highlight a few investor events in the comingmonths. We are
lookingforwardtohostingouranalystandinvestoreventonNovember21stinNewYorkCity.
November29thwewillbepresentingatthe28thAnnualPiperJaffrayHealthcareConferencein
NewYorkCity.January9ththroughthe11thwe’llbeattendingtheTroutmanagementaccess
eventinSanFrancisco,whichtakesplaceduringtheannualJ.P.MorganHealthcareConference.
TheinvestoreventinNewYorkCitywill includeareviewofclinicaldataandbestpracticesin
therepairofperipheralnervesfromsurgeonswhousetheAxoGenportfolioofproductsanda
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business review from AxoGen’s leadership team. Information about these events will be
availableontheAxoGenwebsite.
Inclosing,ourefforts inmarketawarenessexpansion,surgeoneducationandsalesexecution
haveenabledustodeliversolidresults.We’repleasedwiththegrowingsurgeonawarenessof
nerve injury and repair at key medical meetings. We’re building awareness and expanding
usage of our products with innovator and early adopter surgeons, and we’re excited to be
movingtowarddevelopingtheearlymajoritysegmentofthenerverepairmarket.Additionally,
we will continue to expand our portfolio of products and develop new market--new nerve
repair markets, where we believe we can bring meaningful solutions to current clinical
challenges.
Beforetakingquestions,Iwanttowelcomeournewinvestorsandthankallthemembersofthe
AxoGenteamfortheircommitmenttohelpingpatientswithnerveinjuries.
Atthispoint,I’dliketoopenupthelineforquestions.Devin?
Operator:Thankyou.Wewillnowbeconductingaquestion-and-answersession.Ifyouwould
liketoaskaquestion,please,pressstar-oneonyourtelephonekeypad. Aconfirmationtone
will indicate your line is in thequestionqueue. Youmaypress star-two if youwould like to
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remove your question from the queue. For participants using speaker equipment itmay be
necessarytopickupyourhandsetbeforepressingthestarkeys. Onemoment,please,while
wepollforquestions.
Our first question comes from the line ofDave Turkalywith JMP Securities. Please proceed
withyourquestion.
Mr.DavidTurkaly:Uh,thanksalot.And,uh,youknow,Ihaven’t--hadn’thadtheopportunity
to attend the--uh, the Hand Society, um, conference. Uh, you know, I thought one of the
interestingthingsweheardwas,uh,aboutsortoftheexpandeduseofAxoGuard.
So, um, particularly in like direct repair, uh, scenarios, I’d love to, you know, just get your
thoughts on that. And then, any comments on sort of, you know, how you’re training your
salesforceorifthat’s,youknow,anareaoffocusahead,becauseIthinkthat'ssomethingnew
thatwehadn’theardinthepast?
Ms.KarenZaderej:Yeah,thanks,Dave.
Um, so, nerves--when nerves are cut, um, we’ve talked a lot about Avance nerve graft for
bridging the gap, but when the gaps are less than five millimetres, uh, AxoGuard Nerve
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Connector isan idealsolutionforthesurgeontoalignthetwonerveendsandtoallowwhat
really is theperfect, very tinygapbetween the twonerve faces [sp],whileat the same time
sealingup thecoaptationso thenerve fibersdon't leakout,essentially, into thesurrounding
tissue.
Andwhatwe’reseeingisthatsurgeonsarereallyexcited.Uh,aswe'vetrainedoursalesteam
and, uh, had some of the clinical conferences present on this concept of connector-assisted
directrepair,we'refindingthatthereisasignificantamountofexcitementaroundsurgeonsin
thinkingaboutthisnewtechnique.It'sjustpartoftheiralgorithmfornerverepair.
And so, in the last, um, fewmonths, I’d say over this year, we've seen, um, actually a nice
adoption of the technique amongst surgeons as they've talked about it amongst themselves
andattheclinicalconferences,andwethinkthatadoptionisonagoodcurveandwillcontinue.
Again, it has its place. When there's a sharp laceration it's not going to replace Avance. It
supplementsAvance,um,asawaytohandleanycoaptationthatisashortcoaptation.
Mr.DavidTurkaly: Great. Andthen, Iguess,youknow,aswe lookatsortof,uh,youknow,
yourmarginsandsomeof thecommentsyoumade,youknow,about the levels, Iguess,uh,
anycoloryoumightgiveusonsortofthemix?Um,IknowtheAxoGuardproductshaveahigh
grossmarginaswell.
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So,maybe for Pete even, um, you have any color as to, you know, sort ofwhere you stand
todaygiventhat,youknow,itseemslikealotofpeoplearegetting--youknow,areusingsome
oftheAxoGuardlinesmorethantheyhadinthepast?
Mr. PeteMariani: Um,well we’re seeing--you know, all of our products are growing, and I
wouldn't say that one product is growing necessarily faster than the other and impacting
margins because of that. I thinkwe're seeing solid growth across all of our brands and our
margins continue to be, um, strong, um, you know, with--you know, mix shift is really not
changing it that much. It’s more just overall unit volume and the impact of the price--the
increasesthatwetakeeveryyear.
Mr.DavidTurkaly:Andjustoneclarification--andthankyouforthe,uh,2017guidance.Uh,is
thatassumingthatyoursalesforcekindofstaysatthenumberthatyouexitthisyearatoris
thereanyexpansion,uh,plannedinthataswell?Thankyou.
Ms.KarenZaderej:Yeah.No,thanksforaskingthatquestion.
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So,we,um,expect toendtheyearwith least50associatesat theendof theyear,andeach
yearwe’veadded,ifyoulookbackhistorically,10to15associates--directsalesassociatesinthe
year.AndI’dexpectustocontinuetodothatthroughnextyear.
Mr.DavidTurkaly:Great,thanks.
Operator:Thankyou.OurnextquestioncomesfromthelineofBruceJacksonwithLakeStreet
Capital.Pleaseproceedwithyourquestion.
Mr.BruceJackson:Hi.Congratulationsonallthe,uh,progressthisquarter.Acoupleof,um,
revenuemodelquestionsifyoudon’tmind.
Um,firstthe--um,therevenuemixbetweenAvanceandAxoGuard,it’sbeen--Avancehasbeen
runningtypicallyinthe50to55percentrange.Isthatstillthecasethisquarter?
Ms.KarenZaderej:Yeah,actuallyourmixisstillapproximatelythesame.AsPetesaid,our,uh-
-alloftheproductshavegrown,and,uh,wetalkedaboutthemarketoverallbeingalittlemore
than half will be from a revenue perspective Avance and the rest will be made up by the
AxoGuard’s,andwestillcontinuetoseeaswe'vegrownwe’reinapproximatelythatsamemix.
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Mr. Bruce Jackson: Okay. And then, um, samequestion for the, uh, sales--direct sales reps
versusthe,uh,distributorsisthatalso,um,stillinthehistoricrange?
Ms.KarenZaderej:Well,aswe’veincreasedthenumberofdirectassociates,wehavecreptup
in the revenuecontribution fromdirectassociates. So,nowourdirectassociates in theU.S.
dueover70percentofourrevenue,um,theremainderfromthedistributors.
Mr.BruceJackson:Okay.Andthen,withthe,um--the,uh,physicianeducationprogramsthat
youdidthisyear,howmanydoctorshavebeenthroughthoseprograms?
Ms. Karen Zaderej: Um,we typically have between 25 and 30 surgeons, uh, in each of the
courses. We’ve completed11 todate. Um,wehaven’tputouta totalnumber, and Idon’t
havethatinfrontofme,butwe’vegenerallybeeninthatrangeof25to30percourse.
Mr.BruceJackson:Okay.Um,that’sitforme.Thankyouverymuch.
Ms.KarenZaderej:Super.Thanks,Bruce.
Operator: Thank you. This concludes our question-and-answer session. I’d like to turn the
floorbackovertoAxoGenforclosingcomments.
AxoGenThirdQuarter2016ResultsConferenceNovember-02-2016
Confirmation#13648210Page25
Ms.KarenZaderej:Thankyou,Devin.AndIwanttothankeveryoneforjoiningusontoday’s
call.Ilookforwardtoseeingmanyofyouinpersonatourupcominganalystandinvestorevent
inNewYorkCity.Wealsolookforwardtospeakingwithyouontheyear-endconferencecallin
Q1.
Operator:Thisconcludestoday’steleconference.Youmaydisconnectyourlinesatthistime.
Thankyouforyourparticipation.