axgn-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to______________

Commission file number: 001-36046

Axogen, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Minnesota

(State or other jurisdiction of

incorporation or organization)

13631 Progress Blvd., Suite 400 Alachua, FL

(Address of principal executive offices)

41-1301878

(I.R.S. Employer

Identification No.)

32615

(Zip Code)

386-462-6800

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.01 par value	AXGN	The Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 1, 2023, the registrant had 43,043,606 shares of common stock outstanding.

Table of Contents


Part I - Financial Information
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 (Unaudited)	3
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022 (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 (Unaudited)	5
	Condensed Consolidated Statements of Changes in Shareholders' Equity for the three and nine months ended September 30, 2023 and 2022 (Unaudited)	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27

Item 4.	Controls and Procedures	28

Part II - Other Information

Item 1.	Legal Proceedings	29

Item 1A.	Risk Factors	29

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31

Item 3.	Defaults Upon Senior Securities	31

Item 4.	Mine Safety Disclosures	31

Item 5.	Other Information	31

Item 6.	Exhibits	32

	Signatures	33

Forward-Looking Statements

From time to time, in reports filed with the U.S. Securities and Exchange Commission (the “SEC”) (including this Quarterly Report on Form 10-Q), in press releases, and in other communications to shareholders or the investment community, Axogen, Inc. (including Axogen, Inc.’s wholly owned subsidiaries, Axogen Corporation, Axogen Processing Corporation and Axogen Europe GmbH, the “Company,” “Axogen,” “we,” “our,” or “us”) may provide forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, concerning possible or anticipated future results of operations or business developments. These statements are based on management's current expectations or predictions of future conditions, events, or results based on various assumptions and management's estimates of trends and economic factors in the markets in which the Company is active, as well as its business plans. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “projects,” “forecasts,” “continue,” “may,” “should,” “will,” “goals,” and variations of such words and similar expressions are intended to identify such forward-looking statements.

The forward-looking statements in this Form 10-Q include, but are not limited to the following:

•Our intention not to pursue regulatory approval for Avive and to focus efforts on Avive+ Soft Tissue MatrixTM ("Avive+");

•Our expectations regarding the timing of manufacturing of Avive+, our expectation to launch Avive+ in the first quarter of 2024, our ability to market Avive+, and our expectations that Avive+ will, and will continue to, be regulated solely under Section 361 of the Public Health Service Act;

•Our expectation that a Pre-BLA meeting with the FDA will occur in early first quarter 2024;

•Our expectation that our request to the Food and Drug Administration ("FDA") for a rolling biologics license application ("BLA") submission for Avance Nerve Graft will occur in the first quarter of 2024;

•Our expectation that the initial BLA submission for Avance Nerve Graft, if approved by the FDA, will begin, in the first quarter of 2024 with completion of the full submission by the second quarter of 2024;

•Our expectation that the BLA will be approved in the first half of 2025, subject to the rolling submission process being approved by the FDA;

•Our expectation that we will have have more than 30 teams trained in implant-based Resentation by the end of the year;

•Our expectation that we will reduce our utilization of Community Blood Center's ("CTS") clean rooms, storage, and office space for Avance in 2023, and continue to utilize CTS beyond 2023 for Avive+;

•Our belief 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;

•Our belief that any losses resulting from any claims, lawsuits, and proceedings are adequately covered by insurance or indemnified and are not expected to result in a material adverse effect on the Company’s financial condition, results of operation, or cash flow; and

•Our estimates concerning the mix of scheduled procedures and emergent trauma procedures and our belief that the growth in scheduled procedures will continue to outpace emergent trauma procedure growth and continue to become a larger mix of our revenue over time.

The forward-looking statements are and will be subject to risks and uncertainties, which may cause actual results to differ materially from those expressed or implied in such forward-looking statements. Forward-looking statements contained in this Quarterly Report on Form 10-Q should be evaluated together with the many risks and uncertainties that affect the Company’s business and its market, particularly those discussed in the risk factors and cautionary statements set forth in the Company’s filings with the SEC, including as described in “Risk Factors” included in Item 1A and "Risk Factor Summary" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022. Forward-looking statements are not guarantees of future performance, and actual results may differ materially from those projected. The forward-looking statements are representative only as of the date they are made and, except as required by applicable law, the Company assumes no responsibility to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or otherwise.

PART 1 — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

Axogen, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

(In thousands, except share and per share amounts)


	September 30, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	31,094	$	15,284
Restricted cash	6,002		6,251
Investments	1,494		33,505
Accounts receivable, net of allowance for doubtful accounts of $319 and $650, respectively	23,263		22,186
Inventory	23,019		18,905
Prepaid expenses and other	2,567		1,944
Total current assets	87,439		98,075
Property and equipment, net	89,030		79,294
Operating lease right-of-use assets	13,873		14,369

Intangible assets, net	4,288		3,649

Total assets	$	194,630	$	195,387

Liabilities and shareholders’ equity
Current liabilities:
Accounts payable and accrued expenses	$	25,550	$	22,443
Current maturities of long-term lease obligations	1,096		1,310
Total current liabilities	26,646		23,753

Long-term debt, net of debt discount and financing fees	46,378		45,712
Long-term lease obligations	19,927		20,405
Debt derivative liabilities	3,869		4,518

Total liabilities	96,820		94,388

Commitments and contingencies - see Note 12

Shareholders’ equity:
Common stock, 0.01 par value per share; 100,000,000 shares authorized; 43,039,399 and 42,445,517 shares issued and outstanding	430		424
Additional paid-in capital	374,783		360,155
Accumulated deficit	(277,403)		(259,580)
Total shareholders’ equity	97,810		100,999
Total liabilities and shareholders’ equity	$	194,630	$	195,387

See notes to condensed consolidated financial statements.

Axogen, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

(In thousands, except share and per share amounts)


	Three Months Ended				Nine Months Ended
	September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022

Revenues	$	41,271	$	36,959	$	116,090	$	102,420
Cost of goods sold	8,043		6,176		21,980		18,006
Gross profit	33,228		30,783		94,110		84,414
Costs and expenses:
Sales and marketing	21,429		19,792		63,885		60,349
Research and development	6,989		7,050		21,032		20,347
General and administrative	8,835		8,796		27,461		27,817
Total costs and expenses	37,253		35,638		112,378		108,513
Loss from operations	(4,025)		(4,855)		(18,268)		(24,099)
Other income (expense):
Investment income	367		186		1,151		172
Interest expense	(827)		(61)		(992)		(664)
Change in fair value of derivatives	402		469		649		1,155
Other expense	(6)		(57)		(363)		(97)
Total other (expense) income, net	(64)		537		445		566
Net loss	$	(4,089)	$	(4,318)	$	(17,823)	$	(23,533)

Weighted average common shares outstanding — basic and diluted	43,022,328		42,220,519		42,821,284		42,008,013
Loss per common share — basic and diluted	$	(0.10)	$	(0.10)	$	(0.42)	$	(0.56)

See notes to condensed consolidated financial statements.

Axogen, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(In thousands)


	Nine Months Ended
	September 30, 2023		September 30, 2022
Cash flows from operating activities:
Net loss	$	(17,823)	$	(23,533)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	2,660		2,182
Amortization of right-of-use assets	826		1,303
Amortization of intangible assets	214		198
Amortization of debt discount and deferred financing fees	666		667
(Recovery of) provision for bad debt	(311)		566
Provision for inventory write-down	1,841		1,381
Change in fair value of derivatives	(649)		(1,155)
Investment (gains) loss	(660)		44
Stock-based compensation	13,091		11,437
Change in operating assets and liabilities:
Accounts receivable	(766)		(3,695)
Inventory	(5,955)		(3,804)
Prepaid expenses and other	(623)		(828)
Accounts payable and accrued expenses	3,012		(870)
Operating lease obligations	(1,012)		(1,320)
Cash paid for interest portion of finance leases	(2)		(1)
Contract and other liabilities	(14)		—
Net cash used in operating activities	(5,505)		(17,428)

Cash flows from investing activities:
Purchase of property and equipment	(12,409)		(13,456)

Purchase of investments	(10,203)		(24,607)
Proceeds from sale of investments	42,874		37,100
Cash payments for intangible assets	(732)		(1,028)
Net cash provided by (used in) investing activities	19,530		(1,991)

Cash flows from financing activities:






Cash paid for debt portion of finance leases	(7)		(9)
Proceeds from exercise of stock options and ESPP stock purchases	1,543		990
Net cash provided by financing activities	1,536		981
Net increase (decrease) in cash, cash equivalents, and restricted cash	15,561		(18,438)
Cash, cash equivalents, and restricted cash, beginning of period	21,535		39,007
Cash, cash equivalents, and restricted cash, end of period	$	37,096	$	20,569

Supplemental disclosures of cash flow activity:
Cash paid for interest, net of capitalized interest	$	325	$	—
Supplemental disclosure of non-cash investing and financing activities:
Acquisition of fixed assets in accounts payable and accrued expenses	$	853	$	2,090
Obtaining a right-of-use asset in exchange for a lease liability	$	366	$	920
Obtaining of property and equipment in exchange for a lease liability	$	—	$	22

Acquisition of intangible assets in accounts payable and accrued expenses	$	420	$	177

See notes to condensed consolidated financial statements.

Axogen, Inc.

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(unaudited)

(In thousands, except share amounts)


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Shareholders' Equity
	Shares	Amount
Three Months Ended September 30, 2023
Balance at June 30, 2023	42,979,541	$	430	$	370,036	$	(273,314)	97,152
Net loss	—	—		—		(4,089)		(4,089)
Stock-based compensation	—	—		4,747		—		4,747
Issuance of restricted and performance stock units	59,858	—		—		—		—

Balance at September 30, 2023	43,039,399	$	430	$	374,783	$	(277,403)	$	97,810

Nine Months Ended September 30, 2023
Balance at December 31, 2022	42,445,517	$	424	$	360,155	$	(259,580)	$	100,999
Net loss	—	—		—		(17,823)		(17,823)
Stock-based compensation	—	—		13,091		—		13,091
Issuance of restricted and performance stock units	356,236	4		(4)		—		—

Exercise of stock options and employee stock purchase plan	237,646	2		1,541		—		1,543
Balance at September 30, 2023	43,039,399	$	430	$	374,783	$	(277,403)	$	97,810

Three Months Ended September 30, 2022
Balance at June 30, 2022	42,134,504	$	420	$	351,117	$	(249,847)	$	101,690
Net loss	—	—		—		(4,318)		(4,318)
Stock-based compensation	—	—		3,849		—		3,849
Issuance of restricted and performance stock units	55,934	1		(1)		—		—
Exercise of stock options and employee stock purchase plan	81,785	2		222		—		224
Balance at September 30, 2022	42,272,223	$	423	$	355,187	$	(254,165)	$	101,445

Nine Months Ended September 30, 2022
Balance at December 31, 2021	41,736,950	$	417	$	342,765	$	(230,632)	112,550
Net loss	—	—		—		(23,533)		(23,533)
Stock-based compensation	—	—		11,437		—		11,437
Issuance of restricted and performance stock units	315,275	3		(3)		—		—
Exercise of stock options and employee stock purchase plan	219,998	3		988		—		991
Balance at September 30, 2022	42,272,223	$	423	$	355,187	$	(254,165)	$	101,445

See notes to condensed consolidated financial statements.

Axogen, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

(In thousands, except share and per share amounts)

1.Nature of Business

Axogen, Inc. (together with its wholly-owned subsidiaries, the “Company”) was incorporated in Minnesota and is the leader in the science, development and commercialization of the technologies used for peripheral nerve regeneration and repair. The Company's products include Avance® Nerve Graft, Axoguard Nerve Connector®, Axoguard Nerve Protector®, Axoguard HA+ Nerve Protector, Axoguard Nerve Cap® and Axotouch® Two-Point Discriminator. The Company is headquartered in Florida. The Company has processing, warehousing, and distribution facilities in Texas and Ohio.

The Company manages its operations as a single operating segment. Substantially all of the Company's assets are maintained in the United States. The Company derives substantially all of its revenues from sales to customers in the United States.

2.Summary of Significant Accounting Policies

Please see Note 2 to the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission ("SEC") on March 14, 2023, for a description of all significant accounting policies.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company as of September 30, 2023, and December 31, 2022, and for the three and nine months ended September 30, 2023, and 2022. The Company’s condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and; therefore, do not include all information and footnotes necessary for a fair presentation of consolidated financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States ("U.S. GAAP") and should be read in conjunction with the audited financial statements of the Company for the year ended December 31, 2022, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

The interim condensed consolidated financial statements are unaudited, and in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of results for the periods presented. The results of operations for the three and nine months ended September 30, 2023, are not necessarily indicative of the results to be expected for the full year due primarily to the impact of the continued uncertainty of general economic conditions that may impact the Company's markets for the remainder of fiscal year 2023. All intercompany accounts and transactions have been eliminated in consolidation.

Cash and Cash Equivalents and Concentration

Cash and cash equivalents consist of short-term, highly liquid investments with original maturities of three months or less from the date of acquisition. Certain of the Company's cash and cash equivalents balances exceed Federal Deposit Insurance Corporation ("FDIC") insured limits or are invested in money market accounts with investment banks that are not FDIC-insured. The Company places its cash and cash equivalents in what they believe to be credit-worthy financial institutions. As of September 30, 2023, $30,344 of the cash and cash equivalents balance was in excess of FDIC limits.

Restricted Cash

Amounts included in restricted cash represent those required to be set aside to meet contractual terms of a lease agreement held by the Company. See Note 8 - Long-Term Debt, Net of Debt Discount and Financing Fees - Other Credit Facilities.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the condensed consolidated balance sheets that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows:


(In thousands)	September 30, 2023		December 31, 2022
Cash and cash equivalents	$	31,094	$	15,284
Restricted cash	6,002		6,251
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	37,096	$	21,535

Property and Equipment, Net

Property and equipment, net are stated at historical cost less accumulated depreciation and amortization. Additions and improvements that extend the lives of the assets are capitalized, while expenditures for repairs and maintenance are expensed as incurred. Leasehold improvements are amortized on a straight-line basis over the shorter of the asset’s estimated useful life or the remaining lease term. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets ranging from three to thirty-nine years.

Gains or losses on the disposition of property and equipment are recorded in the period incurred and recorded in general and administrative expenses on the condensed consolidated statements of operations.

Capitalized Interest

The interest cost on capital projects, including facilities build-outs, is capitalized and included in the cost of the project. Capitalization begins with the first expenditure for the project and continues until the project is substantially complete and ready for its intended use. For the three and nine months ended September 30, 2023, and 2022, the Company capitalized $1,043 and $1,450, respectively, and $5,240 and $4,474, respectively, of interest expense into property and equipment.

Shipping and Handling

All shipping and handling costs, including facility and warehousing overhead, directly related to bringing the Company’s products to their final selling destination are included in sales and marketing expense. Shipping and handling costs included in sales and marketing expense were $952 and $1,330, for the three months ended September 30, 2023, and 2022, respectively, and $3,693 and $3,863, for the nine months ended September 30, 2023, and 2022, respectively.

Recent Accounting Pronouncements

All other Accounting Standards Updates ("ASU's") issued and not yet effective as of December 31, 2022, and through the date of this report, were assessed and determined to be either not applicable or are expected to have minimal impact on the Company’s current or future financial position or results of operations except for the following:

Accounting Pronouncements Recently Adopted

In December 2022, the Financial Accounting Standards Board issued ASU 2022-06 - Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 ("ASU 2022-06"). ASU 2022-06 amended Accounting Standards Codification 848 Reference Rate Reform and ASU 2020 - 4, Reference Rate Reform. The amendment in ASU 2022-06 defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”), or another reference rate expected to be discontinued due to reference rate reform. The Company early adopted ASU 2022-06 in the second quarter of 2023 and the adoption of this accounting standard did not have an impact on the Company's condensed consolidated financial statements.

3. Inventory

Inventory consists of the following:


(in thousands)	September 30, 2023		December 31, 2022
Finished goods	$	14,981	$	12,651
Work in process	1,030		1,026
Raw materials	7,008		5,228
Inventory	$	23,019	$	18,905

The provision for inventory write-down is as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2023		2022		2023		2022
Provision for inventory write-down	$	789	$	452	$	1,841	$	1,381

4. Property and Equipment, Net

Property and equipment, net consist of the following:


(in thousands)	September 30, 2023		December 31, 2022
Land	$	731	$	731
Building	58,688		—
Leasehold improvements	15,482		15,482
Processing equipment	12,135		4,227
Furniture and equipment	8,697		5,316
Projects in process	6,122		63,703
Finance lease right-of-use assets	131		131
Property and equipment, at cost	101,986		89,590
Less: accumulated depreciation and amortization	(12,956)		(10,296)
Property and equipment, net	$	89,030	$	79,294

Depreciation expense is as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2023		2022		2023		2022
Depreciation expense	$	1,154	$	764	$	2,660	$	2,182

5. Intangible Assets, Net

Intangible assets consist of the following:


	September 30, 2023						December 31, 2022
(in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortizable intangible assets:
Patents	$	4,629	$	(763)	$	3,866	$	3,792	$	(621)	$	3,170
License agreements	1,101		(1,086)		15		1,101		(1,014)		87
Total amortizable intangible assets	5,730		(1,849)		3,881		4,893		(1,635)		3,258

Unamortized intangible assets:
Trademarks	407		—		407		391		—		391
Total intangible assets	$	6,138	$	(1,849)	$	4,288	$	5,284	$	(1,635)	$	3,649

Amortization expense is as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2023		2022		2023		2022
Amortization expense	$	70	$	66	$	214	$	198

As of September 30, 2023, future amortization of patents and license agreements is as follows:


Year Ending December 31,	(in thousands)
2023 (excluding the nine months ended September 30, 2023)	$	56
2024	223
2025	223
2026	221
2027	218
Thereafter	2,940
Total	$	3,881

License Agreements

The Company has various license agreements that require the payment of royalty fees.

Royalty fee expense included in sales and marketing expense is as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2023		2022		2023		2022
Royalty fee expense	$	930	$	848	$	2,628	$	2,287

6. Fair Value Measurement

The following tables present the Company's fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2023, and December 31, 2022:


	September 30, 2023
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Assets:
Money market funds	$	24,752	$	—	$	—	$	24,752
U.S. government securities	1,494		—		—		1,494

Total assets	$	26,246	$	—	$	—	$	26,246

Liabilities:

Debt derivative liabilities	$	—	$	—	$	3,869	$	3,869
Total liabilities	$	—	$	—	$	3,869	$	3,869

SEC Form 10-Q filed by Axogen Inc.