Axogen, Inc. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. Axogen develops and sells products for peripheral nerve repair, principally in the United States. Its portfolio includes Avance Nerve Graft, Axoguard products, and Avive Soft Tissue Membrane.
Financial performance
| Metric | FY 2019 | FY 2018 | Change |
|---|---|---|---|
| Revenue | $106.7 million | $83.9 million | Up 27.1% |
| Gross profit / margin | $89.4 million / 83.7% | $71.0 million / 84.6% | Margin down 0.9 percentage points |
| Operating loss | $31.4 million | $20.5 million | Loss widened |
| Net loss / diluted loss per share | $29.1 million / $0.74 | $22.4 million / $0.60 | Loss widened |
| Cash used in operations | $19.9 million | $17.9 million | Use increased |
| Cash, cash equivalents, restricted cash, and investments | $102.5 million | $122.6 million | Down $20.1 million |
| Working capital | $114.1 million | $137.9 million | Down $23.8 million |
Operating expenses rose 32.0% to $120.8 million, outpacing revenue growth. Sales and marketing expense was $72.0 million, R&D $17.5 million, and general and administrative expense $31.3 million. The company recorded $2.5 million of litigation-related expense and $1.9 million of inventory write-downs. Investment income was $2.4 million; interest expense fell to $0.04 million after repayment of the MidCap term and revolving loans in 2018. At year-end, Axogen had no material term or revolving borrowings; reported long-term obligations were primarily lease-related. The company reported an accumulated deficit of $179.9 million.
Fourth quarter: Revenue was $28.2 million, compared with $23.4 million in Q4 2018; net loss was $7.0 million versus $5.2 million, and diluted loss per share was $0.18 versus $0.13.
Changes and business developments
- Revenue growth reflected higher unit volume, price and product-mix effects, and expansion within existing accounts and new accounts. Active accounts reached 797, up 12% from 712 at year-end 2018.
- Gross margin declined modestly, partly due to higher processing costs, inventory write-downs, and additional inventory reserves.
- R&D spending increased 48.8%, principally for Avance’s biologics license application (BLA), clinical studies, and product development.
- Axogen discontinued Acroval system sales in November 2019, while continuing support for existing systems. Axoguard Nerve Cap launched in February 2020.
- Operating cash flow remained negative. Investing activities provided $27.3 million, mainly as short-term investments matured or were sold; financing activities provided $4.0 million, largely from stock-option exercises.
Outlook, risks, and contingencies
- Management stated that existing cash, cash equivalents, and investments were expected to fund operations for at least the next 12 months. The filing provides no clear numeric 2020 revenue or earnings guidance.
- Significant planned investment includes the Ohio processing facility: contractual commitments totaled $43.6 million for the APC, with expected renovation, equipment, validation, and certification costs extending into 2022. A separate Tampa office lease and related improvements were also planned. These commitments compete with ongoing operating cash use.
- Avance Nerve Graft was being distributed under FDA enforcement discretion while Axogen pursued a BLA. RECON, the pivotal study, had an expanded target of 220 subjects; enrollment was expected to be completed by no later than the end of Q2 2020. A negative FDA decision, trial outcome, or manufacturing-compliance finding could prevent continued distribution of Avance.
- Revenue is concentrated in four products, with Avance representing approximately half of revenue. Axogen also relies on Cook Biotech for Axoguard products and on CTS for current tissue processing; the CTS agreement ends December 31, 2021, subject to its terms.
- Other material risks include ongoing operating cash burn, reimbursement and adoption uncertainty, donor-tissue supply and quality, inventory expiration, competition, and regulatory requirements. The Axoguard CE Mark renewal in Europe had taken longer than anticipated, limiting available EU inventory.
- A securities class action alleging misleading disclosures remained pending, with the company disputing the claims; the potential loss could not be reasonably estimated. Two derivative actions were dismissed without prejudice. The auditor and management reported effective internal control over financial reporting as of year-end.
Important facts for investors to verify
- Subsequent revenue growth, gross margin, and the pace of expense growth relative to sales.
- Cash burn, investment balances, and actual costs and timing for the Ohio facility and Tampa commitments.
- RECON enrollment and results, BLA submission progress, and continued FDA authorization to distribute Avance.
- Resolution and financial impact, if any, of the securities litigation.
- Reliability of active-account and revenue measures, product concentration, and supply arrangements with CTS and Cook Biotech.