AxoGen, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; balance-sheet comparisons are to December 31, 2012. Financial statements are unaudited. AxoGen develops and sells peripheral nerve repair products, including Avance Nerve Graft and AxoGuard products.
Financial performance
| Metric | Q1 2013 | Q1 2012 / comparison |
|---|---|---|
| Revenue | $2.143 million | $1.653 million; up 29.6% |
| Gross profit / margin | $1.583 million / 73.9% | $1.214 million / 73.4% |
| Operating expenses | $3.906 million | $3.155 million; up 23.8% |
| Operating loss | $(2.324) million | $(1.941) million |
| Interest expense | $(1.068) million | $(0.125) million |
| Net loss / loss per share | $(3.438) million / $(0.31) | $(2.109) million / $(0.19) |
| Operating cash flow | $(2.651) million | $(2.478) million |
- Revenue growth was attributed to new accounts and increased product use at existing accounts. Gross margin improved with higher sales, manufacturing efficiencies and a March price increase, partly offset by a higher inventory reserve.
- Sales and marketing expense rose 16.3% to $1.894 million, R&D rose 37.5% to $0.407 million, and general and administrative expense rose 30.5% to $1.606 million. Management cited sales-force expansion, hiring, public-company costs and clinical-trial preparation.
- Q1 cash used in investing activities was $57,000; financing activities provided $1,654. Cash declined $2.707 million, from $13.907 million at year-end to $11.200 million at March 31.
Financial position, liquidity and debt
- At March 31, cash was $11.200 million, current assets $15.942 million, and current liabilities $1.419 million. The filing reports working capital of approximately $14.523 million and a current ratio of 11.6, down from $16.8 million and 12.4 at year-end.
- Inventory was $3.420 million, up from $3.151 million. It included a reserve of approximately $459,000, compared with $538,000 at December 31.
- The PDL BioPharma revenue-interest obligation was $22.438 million, up from $21.580 million. The agreement was funded with $20.8 million and provides PDL high-single-digit royalties on specified product net revenues, subject to quarterly minimums beginning in Q4 2014. Interest added to the note was $858,000 in Q1; management said reported interest expense included about $895,000 of noncash expense expected to be paid in the future under the agreement.
- The agreement also includes a PDL put option, a repurchase obligation upon a change of control, collateral/security provisions, equity preemptive rights and PDL board-designee rights. Minimum contractual payments disclosed include $6.781 million for 2015, $9.233 million for 2016 and $9.000 million for 2017, with $25.002 million thereafter; the contract also provides for revenue-based payments.
- Total liabilities were $23.857 million and shareholders’ deficit was $6.005 million. The company had no material capital-expenditure commitments or off-balance-sheet arrangements.
Outlook, risks and other matters
- Management said cash resources should meet liquidity needs for the next 12 months, but noted continuing capital needs and that it was considering equity, debt or other funding. Additional equity could dilute shareholders; funding may not be available on acceptable terms or at all. If necessary, the company could slow sales and marketing expansion, delay regulatory approvals or reduce headcount.
- Management expects expanded sales and marketing efforts to support longer-term revenue growth, while cautioning that near-term revenue growth may lag expense growth. No quantified revenue or earnings guidance was provided.
- Risks include executing growth plans, clinical and product-development activity, future financing needs, and the PDL agreement’s revenue-linked payments and repurchase provisions. The filing reported no material changes to the risk factors in the 2012 Form 10-K.
- No material litigation was reported. Management concluded disclosure controls were effective as of March 31, 2013 and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether revenue growth and the March price increase persist, and whether gross-margin improvement is sustainable.
- Cash burn, working-capital trends and the timing and availability of any additional financing.
- The PDL agreement’s effective cost, future minimum payments, payment mechanics and triggers for put or change-of-control repurchase obligations.
- Clinical-trial progress and related spending, and whether operating expenses continue to outpace revenue growth.
- Share count: 11,127,869 common shares were reported outstanding at March 31; 11,137,869 were outstanding as of April 30, 2013.