Axogen, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Axogen develops and sells products for peripheral nerve repair. Amounts below are in millions of dollars unless otherwise noted.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $33.580 | $22.116 | $64.617 | $46.377 |
| Gross profit | $26.488 | $16.511 | $52.353 | $35.956 |
| Gross margin | 78.9% | 74.7% | 81.0% | 77.5% |
| Operating loss | $(7.154) | $(8.254) | $(13.374) | $(16.763) |
| Net loss | $(7.898) | $(8.105) | $(14.558) | $(16.297) |
| Loss per share, basic and diluted | $(0.19) | $(0.20) | $(0.36) | $(0.41) |
- Revenue grew 52% in Q2 and 39% in the first half. Management attributed first-half growth to approximately 31% higher unit volume and an approximately 8% combined impact from price and product mix. Q2 growth reflected approximately 40% higher volume, 8% product mix and 4% pricing.
- Operating expenses were $33.642 million in Q2 and $65.727 million for the first half. First-half stock-based compensation was $6.499 million, versus $2.778 million a year earlier.
- Six-month operating cash use was $11.515 million, compared with $15.081 million in the prior-year period. Investing activities used $3.287 million; financing provided $18.604 million. Capital expenditures for property and equipment were $10.924 million.
- At June 30, cash and cash equivalents were $53.078 million, restricted cash $6.333 million, and investments $46.839 million. Working capital was $120.167 million and the current ratio 6.6x. Management said it expected available cash resources to cover at least the next 12 months, based on expected operations.
- Long-term debt, net of financing fees, was $46.081 million; the Oberland Facility principal drawn was $50 million. Lease obligations totaled approximately $22.133 million. The Oberland debt bears a stated 9.5% interest rate as of June 30, plus revenue-participation payments expected to add approximately 1% annually to interest costs.
Material changes and notable items
- Growth and improved gross margin were compared with 2020 periods affected by COVID-19-related procedure declines and cost-mitigation measures. Operating losses narrowed, while net loss remained substantial.
- Axogen drew a second $15 million Oberland tranche on June 30, 2021. A further $25 million tranche may be available subject to conditions, including revenue thresholds. The facility is secured by substantially all company assets and includes revenue covenants, a liquidity alternative, and potential make-whole payments.
- The company suspended market availability of Avive Soft Tissue Membrane effective June 1 while discussing its regulatory classification with the FDA. Management said the suspension was not due to safety or product concerns, but could not estimate if or when sales might resume. Avive historically represented approximately 5% of revenue. The suspension prompted a $1.429 million inventory and related production-cost charge in Q2.
- Construction resumed on the Axogen Processing Center (APC). Project costs recorded to date were $27.390 million; additional renovation, equipment, validation and certification costs were estimated at $13.6 million. Management anticipated spending up to approximately $20.4 million over the next 12 months and expected processing transition to begin in late 2022. Grant funding of up to $2.685 million is subject to job-creation milestones and clawbacks.
- Revenue remains concentrated: Avance Nerve Graft accounts for approximately half of revenue, and four products generate substantially all revenue. The company relies on external processing at Community Tissue Services while the APC is developed, and on Cook Biotech for Axoguard products.
Outlook, risks and contingencies
- The filing provides no formal revenue or earnings guidance. Management cited continued uncertainty from possible COVID-19 resurgences, capital needs, product-development and regulatory timelines, and the possibility that additional financing may not be available on acceptable terms.
- Management is pursuing a biologics license application for Avance Nerve Graft and development of a next-generation Avance product. R&D spending and clinical activity increased as programs restarted or expanded.
- A securities class action dismissed with prejudice in March 2021 was on appeal; the company disputed the allegations, intended to defend itself, and said potential loss could not be reasonably estimated. Other derivative matters were dismissed or remained pending; management said outcomes were uncertain.
- The company reported compliance with Oberland covenants at June 30 and said disclosure controls were effective. It reported no material changes to risk factors from its 2020 Form 10-K.
Important facts for investors to verify
- FDA discussions, regulatory requirements and any path or timing for returning Avive to market.
- Revenue growth durability, product and customer concentration, and the impact of COVID-19 on procedure volumes.
- APC construction costs, completion and validation timing, expected transition to in-house processing, and grant milestone obligations.
- Oberland debt economics, covenant compliance, revenue-participation payments, repayment terms and availability of the additional tranche.
- Liquidity and cash burn against planned capital spending and management’s stated 12-month liquidity expectation.
- The status and possible financial consequences of the securities appeal and other legal proceedings.
- The MD&A expense table reports first-half R&D of $11.485 million and G&A of $17.018 million, while the financial statements report $11.471 million and $17.032 million, respectively; investors should verify the figures. Total operating expenses are $65.727 million in both presentations.