axogen third quarter 2016 results conference november-02...

AxoGenThirdQuarter2016ResultsConferenceNovember-02-2016

Confirmation#13648210Page1

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.



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.



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



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



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



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



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.



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



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.



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



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



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



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.



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.



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



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.



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.



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



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



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



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.



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.



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.



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.



Ms.KarenZaderej:Thankyou,Devin.AndIwanttothankeveryoneforjoiningusontoday’s

call.Ilookforwardtoseeingmanyofyouinpersonatourupcominganalystandinvestorevent

inNewYorkCity.Wealsolookforwardtospeakingwithyouontheyear-endconferencecallin

Q1.

Operator:Thisconcludestoday’steleconference.Youmaydisconnectyourlinesatthistime.

Thankyouforyourparticipation.

axogen third quarter 2016 results conference november-02...

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