Axogen, Inc. — FY2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020; filed March 1, 2021. Axogen develops and sells products for peripheral nerve repair, led by Avance Nerve Graft. Figures below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance and liquidity
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Revenue | $112.3m | $106.7m | +5.2% |
| Gross profit / margin | $90.7m / 80.8% | $89.4m / 83.7% | Profit +1.5%; margin down 2.9 percentage points |
| Operating expenses | $113.9m | $120.8m | −5.7% |
| Operating loss | $(23.2)m | $(31.4)m | Loss narrowed |
| Net loss / diluted loss per share | $(23.8)m / $(0.60) | $(29.1)m / $(0.74) | Loss narrowed |
| Cash used in operations | $9.6m | $19.9m | Use decreased |
| Capital expenditures | $21.9m | $4.7m | Increased, primarily facility projects |
Liquidity: At year-end, cash, cash equivalents, investments and restricted cash totaled $110.8m. Working capital was $122.4m and the current ratio was 6.4. Current liabilities were $22.8m. Management said existing cash, cash equivalents and investments were expected to fund operations for at least 12 months.
Debt: Axogen drew $35m under a seven-year Oberland facility in June 2020; the balance sheet reported $32.0m of long-term debt net of fees and discounts, plus a $2.5m derivative liability. The loan bears interest at 9.5% at year-end, requires quarterly interest-only payments, and matures in 2027. Further tranches of $15m and $25m are conditional; Oberland may put the second tranche to the company. A revenue participation payment, described as approximately 1% annually on outstanding principal, begins in 2021. Debt is secured by substantially all company assets and includes revenue and liquidity covenants; Axogen reported covenant compliance at year-end.
Changes and operating trends
- Revenue growth reflected approximately 2% unit-volume growth and approximately 3% net price and product-mix impact. Active accounts increased 12%, to 893 from 797.
- COVID-19 disrupted procedures, hospital access, tissue processing and clinical research. Revenue recovered as procedures resumed, but access restrictions persisted in some accounts. Quarterly revenue was $24.3m, $22.1m, $33.4m and $32.5m, respectively.
- Gross margin declined due to approximately $2.0m of idle-facility and other period costs during the temporary processing suspension, and $2.2m of inventory write-downs. Management said margins improved sequentially in the second half and expected recovery as revenue and processing volumes increased.
- Lower travel and in-person education costs and reduced litigation expenses helped lower operating expenses; higher sales commissions and compensation partly offset the reductions. R&D expense was $17.8m, slightly above $17.5m in 2019.
- Net cash used in operations improved, but remained negative. Financing cash flow included the $35m Oberland draw; investing cash outflow reflected capital spending, including the Ohio processing center and Tampa facilities.
Outlook, risks and notable items
- Outlook: Axogen suspended its 2020 financial guidance because of COVID-19 and provided no quantified 2021 guidance in the filing. Management expected sales and marketing costs to rise as pandemic restrictions normalize, BLA-related costs to increase, and clinical activity to recover. It planned substantial completion of the Ohio processing center in 2021 and anticipated transitioning processing by late 2022. The CTS processing agreement was subsequently extended through December 31, 2023.
- Regulatory risk: Avance Nerve Graft is distributed under FDA enforcement discretion and a transition plan, not an approved biologics license application (BLA). The RECON Phase 3 study completed enrollment in July 2020; outcome data were not available. Failure to meet FDA conditions or obtain BLA approval could prevent continued distribution of Axogen’s largest revenue product.
- Other material risks: COVID-19 and procedure volumes; reimbursement and payor coverage; reliance on five products and third-party tissue supply, processing and Cook Biotech; facility transition and execution; competition; and continued negative operating cash flow and financing needs. Management estimates the U.S. addressable market at $2.7bn; this is a company estimate, not realized sales.
- Legal matters: A securities class action was pending, with a motion to dismiss argued in February 2021; the company disputes the allegations and said potential loss could not be reasonably estimated. Derivative shareholder complaints were also disclosed, several dismissed without prejudice; another had not been served. These allegations are not findings of wrongdoing.
- Unusual items: Axogen repaid a $7.8m Paycheck Protection Program loan in May 2020. It reported a $2.2m inventory write-down. The company also implemented an approximately 10% workforce reduction, a hiring freeze and temporary salary reductions during 2020. The independent auditor issued an unqualified opinion on the financial statements and internal controls; inventory valuation was identified as a critical audit matter.
Key facts for investors to verify
- Progress, results and timing of the RECON study and Avance BLA, including FDA feedback and compliance with the transition plan.
- Quarterly revenue, active-account productivity, pricing and product mix as COVID-related procedure and hospital-access restrictions change.
- Gross-margin recovery and inventory expiration/write-down trends after the 2020 processing interruption.
- Ohio processing-center construction, validation, regulatory readiness, total spending and transition timing; confirm the extended CTS contract’s effect on continuity.
- Oberland facility terms, revenue participation payments, covenant headroom, potential additional tranches and the company’s ability to fund ongoing losses and capital commitments.
- Developments and potential exposure in the securities and derivative litigation, and the status of commercial payor coverage and reimbursement.