Axogen Inc

Previous wording

•Avive+ Soft Tissue Matrix™, a multi-layer amniotic membrane allograft used to protect and separate tissues in the surgical bed during the critical phase of tissue repair.

Current wording

•Avive+ Soft Tissue Matrix™, a multi-layer amniotic membrane allograft used to protect and separate tissues in the surgical bed during the critical phase of tissue healing.

Previous wording

Revenue from the distribution of our nerve repair products, Avance® Nerve Graft, Axoguard Nerve Connector®, Axoguard Nerve Protector®, Axoguard HA+ Nerve Protector™, and Axoguard Nerve Cap®, in the United States ("U.S.") is the main contributor to our total reported sales and have been the key component of our growth to date.

Current wording

Revenue from the distribution of our nerve repair products, Avance® Nerve Graft, Axoguard Nerve Connector®, Axoguard Nerve Protector®, Axoguard HA+ Nerve Protector™, Axoguard Nerve Cap®and Avive+ Soft Tissue Matrix™, in the United States ("U.S.") is the main contributor to our total reported sales and have been the key component of our growth to date.

Previous wording

In the first quarter, we initiated a limited market release of Avive + Soft Tissue Matrix. We believe Avive + will not require a BLA and will fall under the criteria set forth in 21 CFR 1271.10(a) for regulation solely under Section 361 of the Public Health Service Act and the regulations in 21 CFR Part 1271. We seek to fully launch Avive+ in June 2024. Products regulated solely under Section 361 of the Public Health Service Act are a product category under close scrutiny by the FDA for compliance with the regulatory requirements and potentially subject to regulatory change in the future. Failure to comply with applicable regulatory requirements could expose us to potential compliance actions by the FDA or state regulators and could risk the commercial availability of the product.

Current wording

On June 24, 2024, we announced the full launch of Avive+ Soft Tissue Matrix. Avive+ is processed and distributed in accordance with U.S. Food and Drug Administration ("FDA") requirements for Human Cellular and Tissue-based Products (HCT/P) under 21 CFR Part 1271 regulations and U.S. State regulations as a 361 human tissue product. Products regulated solely under Section 361 of the Public Health Service Act are a product category under close scrutiny by the FDA for compliance with the regulatory requirements and potentially subject to regulatory change in the future. Failure to comply with applicable regulatory requirements could expose us to potential compliance actions by the FDA or state regulators and could risk the commercial availability of the product.

Previous wording

We have observed that surgeons are initially cautious adopters of nerve repair products. Surgeons typically start with a few cases and then wait and review the results of these initial cases. Active accounts are usually past this wait period and have developed some level of product reorder. These active accounts have typically gone through the Value Analysis Committee approval process, have at least one surgeon who has converted a portion of his or her treatment algorithms of peripheral nerve repair to our portfolio and have ordered our products at least six times in the last twelve months. As of March 31, 2024, we had 1012 active accounts, an increase of 1.8% from 994 as of March 31, 2023, and an increase of 0.6% from 1,006 compared to December 31, 2023. Active accounts account for approxim ately 85% of our revenue. The top 10% of these active accounts continue to represent approximately 40% of our revenue.

Current wording

We have observed that surgeons are initially cautious adopters of nerve repair products. Surgeons typically start with a fewcases and then wait and review the results of these initial cases. Active accounts are usually past this wait period and have developed some level of product reorder. These active accounts have typically gone through the Value Analysis Committee approval process, have at least one surgeon who has converted a portion of his or her treatment algorithms of peripheral nerve repair to our portfolio and have ordered our products at least six times in the last twelve months. As of June 30, 2024, we had 1,042 active accounts, an increase of 7.0% from 974 as of June 30, 2023, and an increase of 3.0% from 1,012 compared to March 31, 2024. Active accounts account for approxim ately 85% of our revenue. The top 10% of these active accounts continue to represent approximately 40% of our revenue.

Previous wording

Core accounts are defined as accounts that have purchased at least $100,000 in the past twelve months. As of March 31, 2024, we had 400 core accounts, an increase of 14.3% from 350 as of March 31, 2023, and an increase of 6.4% from 376 compared to December 31, 2023. These core accounts represented approximately 65% of our revenue in the quarter.

Current wording

Core accounts are defined as accounts that have purchased at least $100,000 in the past twelve months. As of June 30, 2024, we had 412 core accounts, an increase of 18.7% from 347 as of June 30, 2023, and an increase of 3.0% from 400 compared to March 31, 2024. These core accounts represent approximately 65% of our revenue in the quarter.

Previous wording

•Revenues were $41,378 for the quarter ended March 31, 2024, an increase of $4,714 or 12.9%compared to the quarter ended March 31, 2023.

Current wording

•Revenues were $47,912 for the quarter ended June 30, 2024, an increase of $9,757 or 25.6%compared to the quarter ended June 30, 2023.

Previous wording

•Gross profit was $32,620 for the quarter ended March 31, 2024, an increase of $4,128 or 14.5% compared to the quarter ended March 31, 2023.

Current wording

•Gross profit was $35,345 for the quarter ended June 30, 2024, an increase of $5,693 or 19.2% compared to the quarter ended June 30, 2023.

Previous wording

•We had 115 and 116 direct sales representatives as of March 31, 2024, and December 31, 2023.

Current wording

•We had 117 and 116 direct sales representatives as of June 30, 2024, and December 31, 2023.

Previous wording

•In February 2024, we completed a productive pre-BLA meeting with FDA where we gained alignment on the content on the modules for submission. We received approval of our rolling submission proposal and anticipate the BLA filing to be completed in the third quarter of 2024. We believe the submission timeline will allow for a potential approval in the middle of 2025.

Current wording

•In May 2024, we submitted to FDA the complete non-clinical data package for the BLA of Avance® Nerve Graft. We anticipate the rolling submission proposal of the BLA to be completed in the third quarter of 2024. We believe the submission timeline will allow for a potential approval in mid- 2025.

Previous wording

•We are pleased with the adoption of Axoguard HA+ Nerve Protector™ across multiple applications. In the first quarter we initiated a limited market release of Avive+ Soft Tissue Matrix and have completed the first implant. We expect to drive continued growth within the nerve protection category following the full launch of Avive+ Soft Tissue Matrix in June of 2024.

Current wording

•We are pleased with the adoption of Axoguard HA+ Nerve Protector across multiple applications. We expect to drive continued growth within the nerve protection category following the full launch of Avive+ Soft Tissue Matrix in June of 2024.We continue to see strong interest in and adoption of the Resensation® neurotization techniques for autologous and implant-based breast reconstructions driven by expanding surgeon education and patient activation.

Previous wording

Revenues for the three months ended March 31, 2024, increased $4,714 or12.9% to $41,378 as compared to $36,664 for the three months ended March 31, 2023. The increase in revenue was driven by anincrease in product mix of 5.3%, unit volume of 4.9%, and a 2.6% increase in prices.

Current wording

Revenues for the three months ended June 30, 2024, increased by $9,757 or 25.6% to $47,912 as compared to $38,155 for the three months ended June 30, 2023. The increase in revenue was driven by anincrease in, unit volume of 15.6%, product mix 6.8% and a 3.2% increase in prices.

Previous wording

Total costs and expenses increased $1,347 or 3.8% to $37,180 for the three months ended March 31, 2024, as compared to $35,833 for the three months ended March 31, 2023. The net increase in total costs and expenses was primarily the result of increased compensation costs of $1,207 and professional services of $860 partially offset by a decrease in royalty fees of $835.

Current wording

Total costs and expenses decreased by $781 or 2.1% to $35,773 for the three months ended June 30, 2024, as compared to $36,554 for the three months ended June 30, 2023. Thenet decrease in total costs and expenses was primarily the result of a reduction in R&D projects of $1,371 and royalty fees of $867, partially offset by an increase in professional services of $1,055, compensation costs of $359 and other costs of $54.

Previous wording

Sales and marketing expenses increased $369 or 1.9% to $19,815 for the three months ended March 31, 2024, as compared to $19,446 for the three months ended March 31, 2023. This increase was primarily attributable to compensation costs of $1,245 and professional services of $142, partially offset by a decrease in royalty fees of $835.

Current wording

Sales and marketing expenses increased by $838 or 4.4% to $19,698 for the three months ended June 30, 2024, as compared to $18,860 for the three months ended June 30, 2023. This increase was primarily attributable to compensation costs of $1,685 and occupancy costs of $113 partially offset by a decrease in royalty fees of $867 and other costs of $116.

Previous wording

Research and development expenses increased $1,083 or 17.1% to $7,409 for the three months ended March 31, 2024, as compared to $6,326 for the three months ended March 31, 2023. The increase was primarily due to product development and clinical expenses. Product development costs include spending in a number of specific programs including the non-clinical expenses related to the BLA for Avance Nerve Graft. Product development expenses represented approximately 59% and 55% of total research and development expense for the three months ended March 31, 2024, and 2023, respectively. Clinical trial expenses represented approximately 41% and 45% of total research and development expense the three months ended March 31, 2024, and 2023, respectively.

Current wording

Research and development expenses decreased $486 or 6.8% to $6,658 for the three months ended June 30, 2024, as compared to $7,144 for the three months ended June 30, 2023. The decrease was primarily due to product development, clinical expenses as well as non-clinical expenses related to the the BLA for Avance Nerve Graft. Product development expenses represented approximately 52% and 58% of total research and development expense for the three months ended June 30, 2024, and 2023, respectively. Clinical trial expenses represented approximately 48% and 42% of total research and development expense the three months ended June 30, 2024, and 2023, respectively.

Previous wording

General and administrative expenses decreased by $105 to $9,956 for the three months ended March 31, 2024, as compared to $10,061 for the three months ended March 31, 2023. The decrease was primarily due tocompensation costs of $922, partially offset by an increase in professional services of $465 and other items administrative in nature of $350.

Current wording

General and administrative expenses decreased by $1,133 to $9,417 for the three months ended June 30, 2024, as compared to $10,550 for the three months ended June 30, 2023. Thedecreasewas primarily due tocompensation costs of $2,295, partially offset by an increase in professional services of $877, occupancy related cost of $204 and other costs of $80.

Previous wording

Other expense, net increased $2,342 or 877% to $2,075 for the three months ended March 31, 2024, as compared to other income, net of $267 for the three months ended March 31, 2023. The net increase in other expense was due to an increase in interest expense of $2,310 and change in the fair value of the derivative of $249, partially offset by the decrease in investment income of $256.

Current wording

Other expense, net increased by $1,735 or 717% to $1,493 for the three months ended June 30, 2024, as compared to other income, net of $242 for the three months ended June 30, 2023. The net increase in other expense was due to an increase in interest expense of $2,037, partially offset by the decrease in other expenses of $279 and the change in the fair value of the derivative of $32.

Previous wording

Interest expense increased $2,310 to $2,326 for the three months ended March 31, 2024, as compared to $16 for the three months ended March 31, 2023. The increase was primarily due to capitalizing of interest expense related to the Credit Facility for the three months ended March 31, 2024. We recognized total interest expense of $2,303 and $2,147 in connection with the Credit Facility for the three months ended March 31, 2024, and 2023, respectively, of which $0 and $2,147 of this interest was capitalized to the construction costs of the APC Facility during the first quarter of 2024 and 2023, respectively.

Current wording

Interest expense increased by $2,037 to $2,185 for the three months ended June 30, 2024, as compared to $148 for the three months ended June 30, 2023. The increase was due to the completion of the APC facility in 2023 resulting in no interest expense being capitalized for that facility. We recognized total interest expense of $2,162 and $2,184 in connection with the Credit Facility for the three months ended June 30, 2024, and 2023, respectively, of which $0 and $2,049 of this interest was capitalized to the construction costs of the APC Facility during the second quarter of 2024 and 2023, respectively.

Previous wording

Gross profit for the three months ended March 31, 2024, increased $4,128 or 14.5% to $32,620 as compared to $28,492 for the three months ended March 31, 2023. Gross margin was 78.8% and 77.7% for the three months ended March 31, 2024, and 2023, respectively.

Current wording

Gross profit for thesix months ended June 30, 2024, increased by$9,820 or 17% to 67,964 as compared to$58,144 for thesix months ended June 30, 2023. Gross margin was 76.1% and 77.7% for thesix months ended June 30, 2024, and 2023, respectively.

Previous wording

Investment income decreased $256 to $293 for the three months ended March 31, 2024, as compared to an investment income of $549 for the three months ended March 31, 2023. This change was primarily due to a decrease in total interest-bearing cash and investments as of March 31, 2024 compared to March 31, 2023.

Current wording

Investment income decreased by$264 or 34% to $520 for thesix months ended June 30, 2024, as compared to investment income of$784 for thesix months ended June 30, 2023. This change was primarily due to the decrease in investments.

Previous wording

Effective as of the first quarter for 2024, we voluntarily changed our accounting policy for shipping and handling costs. Although the prior method of accounting continues to be an accepted alternative, the new accounting policy is more widely used in the industry and provides improved comparability of the Company’s financial statements to its peers. Accordingly, the financial information for prior periods has been reclassified to reflect retrospective application of the new policy. Effective as of the first quarter of 2024, we ceased allocating certain costs to and from certain departments. Previously such costs had been allocated based on our estimate of the proportionate share of total expense to each line item. We determined that these changes would better reflect industry practice and would provide more meaningful information as well as increased transparency of our operations. See “Note 2 – Summary of Significant Accounting Policies” for additional discussion.

Current wording

Effective as of the first quarter of 2024, we voluntarily changed our accounting policy for shipping and handling costs. Although the prior method of accounting continues to be an accepted alternative, the new accounting policy is more widely used in the industry and provides improved comparability of the Company’s financial statements to its peers. Accordingly, the financial information for prior periods has been reclassified to reflect retrospective application of the new policy. Effective as of the first quarter of 2024, we ceased allocating certain costs to and from certain departments. Previously such costs had been allocated based on our estimate of the proportionate share of total expense to each line item. We determined that these changes would better reflect industry practice and would provide more meaningful information as well as increased transparency of our operations. See “Note 2 - Summary of Significant Accounting Policies” for additional discussion.

Previous wording

As of March 31, 2024, our principal sources of liquidity were our cash and cash equivalents and investments totaling $17,634. Our cash equivalents are comprised primarily of a money market mutual fund and our investments consist of U.S. Treasuries. Our cash and cash equivalents and investments decreased $13,390 from $31,024 at December 31, 2023, primarily as a result of operating activities.

Current wording

As of June 30, 2024, our principal sources of liquidity were our cash and cash equivalents and investments totaling $21,133. Our cash equivalents are comprised primarily of a money market mutual fund and our investments consist of U.S. Treasuries. Our cash and cash equivalents and investments decreased by$9,891 from $31,024 at December 31, 2023, primarily as a result of operating activities.

Previous wording

We had working capital of $55,731 and a current ratio of 3.4x at March 31, 2024, compared to working capital of $57,574 and a current ratio of 2.9x at December 31, 2023. The decrease in our working capital at March 31, 2024, as compared to December 31, 2023, was primarily due to cash used in operations. Based on current estimates, we believe that our existing cash and cash equivalents and investments, as well as cash provided by sales of our products will allow us to fund our operations through at least the next 12 months from the date of the accompanying financial statements.

Current wording

We had working capital of $58,847 and a current ratio of 3.5x at June 30, 2024, compared to working capital of $57,574 and a current ratio of 2.9x at December 31, 2023. The increase in our working capital at June 30, 2024, as compared to December 31, 2023, was primarily due to a decrease in accounts payable and accrued expenses. Based on current estimates, we believe that our existing cash and cash equivalents and investments, as well as cash provided by sales of our products will allow us to fund our operations through at least the next 12 months from the date of the accompanying financial statements.

Previous wording

Net cash used in operating activities was $12,266 and $7,423 during the three months ended March 31, 2024, and 2023, respectively. The unfavorable change in net cash used in operating activities of $4,843, or 65%, is due to the net unfavorable change of $7,376 in working capital accounts partially offset by the decrease in the net loss of $439.

Current wording

Net cash used in operating activities was $8,101 and $7,131 during the six months ended June 30, 2024, and 2023, respectively. The unfavorable change in net cash used in operating activities of $970, or 14%, is due to the net unfavorable change of $9,400 in working capital accounts partially offset by the decrease in the net loss of $5,178 and noncash changes of $3,252.

Previous wording

Net cash used in investing activities for the three months ended March 31, 2024, was $3,251 as compared to net cash used in investing activities of $786 for the three months ended March 31, 2023, an increase of $2,465, or 314%. The increase of net cash used in investing activities is principally due to the decrease in the net proceeds from the sale and purchase of investments totaling $5,681, and increase in purchases of intangible assets of $164 offset by the reduction in purchases of property and equipment of $3,380 during the three months ended March 31, 2024.

Current wording

Net cash used in investing activities for the six months ended June 30, 2024, was $4,484 as compared to net cash provided by investing activities of $13,536 for the six months ended June 30, 2023, an increase of $18,020, or 133% of net cash used in investing activities. The increase of net cash used in investing activities is principally due to the decrease in the net proceeds from the sale and purchase of investments totaling $24,682, and the increase in purchases of intangible assets of $223, partially offset by the reduction in purchases of property and equipment of $6,885 during the six months ended June 30, 2024.

Previous wording

Net cash provided by financing activities was $204 and $633 for the three months ended March 31, 2024, and 2023, respectively, a decrease of $429. The unfavorable change in net cash provided by financing activities was primarily due to the decrease in proceeds from the exercise of stock options of $427 during the three months ended March 31, 2024.

Current wording

Net cash provided by financing activities was $748 and $1,531 for the six months ended June 30, 2024, and 2023, respectively, a decrease of $783. The unfavorable change in net cash provided by financing activities was primarily due to the decrease in proceeds from the exercise of stock options of $791 during the six months ended June 30, 2024.

Previous wording

As of March 31, 2024, we had $50,000 outstanding in indebtedness under a credit facility: $35,000 maturing on June 30, 2027, and $15,000 maturing on June 30, 2028. Quarterly interest only and revenue participation payments are due through each of the maturity dates. Interest is calculated as 7.5% plus the greater of three-month SOFR plus 0.1% ("Adjusted SOFR") or 2.0% (12.93% as of March 31, 2024). Revenue participation payments are calculated as a percentage of our net revenues, up to $70,000 in any given year, adding approximately 1.0% per year of additional interest payments on the outstanding indebtedness. Upon each maturity date or upon such date earlier repayment occurs, we will repay the principal balance and provide a make-whole payment calculated to generate an internal rate of return to the lender equal to 11.5%, less the total of all quarterly interest and revenue participation payments previously paid. See Note 8 - Long-Term Debt, Net of Debt Discount and Financing Fees and Note 12 - Commitments and Contingencies.

Current wording

As of June 30, 2024, we had $50,000 outstanding in indebtedness under a credit facility $35,000 maturing on June 30, 2027, and $15,000 maturing on June 30, 2028. Quarterly interest only and revenue participation payments are due through each of the maturity dates. Interest is calculated as 7.5% plus the greater of three-month SOFR plus 0.1% ("Adjusted SOFR") or 2.0% (12.90% as of June 30, 2024). Revenue participation payments are calculated as a percentage of our net revenues, up to $70,000 in any given year, adding approximately 1.5% per year of additional interest payments on the outstanding indebtedness. Upon each maturity date or upon such date earlier repayment occurs, we will repay the principal balance and provide a make-whole payment calculated to generate an internal rate of return to the lender equal to 11.5%, less the total of all quarterly interest and revenue participation payments previously paid. See Note 8 - Long-Term Debt, Net of Debt Discount and Financing Fees and Note 12 - Commitments and Contingencies.

Previous wording

(2)Calculated at 12.93%, the interest rate as of March 31, 2024.

Current wording

(2)Calculated at 12.90%, the interest rate as of June 30, 2024.

Previous wording

(4)Includes CEO's 2024 Salary, 2024 bonus to paid in March of 2025, accrued PTO through January 4, 2025, nine months of senior advisory fees, and eighteen months of COBRA payments. Actual timing of payments are subject to the determination of the end of CEO Term per the Transition and Separation Agreement. See Note 12 - Commitments and Contingencies in Part I, Item 1 in this Form 10-Q.

Current wording

(4)Includes CEO's 2024 Salary, 2024 bonus to paid in March of 2025, accrued PTO through January 4, 2025, nine months of senior advisory fees, and eighteen months of COBRA payments. Actual timing of payments is subject to the determination of the end of the CEO Term per the Transition and Separation Agreement. See Note 12 - Commitments and Contingencies in Part I, Item 1 in this Form 10-Q.