Axogen, Inc. (AXGN) May 13, 2026 Conference Transcript

Good morning. I'm Ray Tan, and I'm part of the MedTech research team here at Bank of America, and it's my pleasure to be hosting Axiogen today. From Axiogen, we have Michael Dale, President and CEO, and Lindsay Hartley, CFO. Welcome, Mike and Lindsay, and thank you for coming. Thank you.

Thank you for the opportunity.

To start, Mike, you joined Axiogen as CEO roughly 20 months ago, and the company's trajectory has clearly shifted.

When you look back at what you walked into versus where the business stands today what were the two or three most important changes you made what do you think was most broken or underappreciated when you arrived so first of all the biggest question so why did i choose oxygen um and i i do my best to convey whenever the question's asked uh the criteria that um i was trained on many years ago and i've tried to use as a basic starting point and the first and foremost is what's the purpose of the business why does it exist is it fundamentally credible is it emotive and so when you start to think about peripheral nerve function it's very quick it's very easy to quickly conclude that yes this is a very credible health condition that if you can solve for makes a difference second is that particular situation that the business is focused upon numerous enough to justify the allocation of people capital and time and then finally and most important of all do you actually have a distinctive solution that is advantaged relative to other existing standard of care options and so if you have those three things everything else is a functional exercise that you can adapt adjust or build further upon to bring that value proposition forward and when I When I first approached and learned about Oxygen, I was able to quickly conclude that the purpose of the business was highly credible. It was a very numerous problem, grossly underserved, complex by virtue of the various care pathways, but nonetheless clear in terms of the opportunity to treat patients. And then finally, Avance, as a platform, as a foundation for the business, is one of those unique value propositions that's advantage. It's a solution that, based upon benefit versus risk as compared to existing options, is genuinely superior. And so with that, those are the kind of projects that have always attracted me. And I believe that functionally what we need to do is simply to decide how to make the most of that. And what we engaged in, there was nothing esoteric, a traditional strategic planning process to take a good look at ourselves, re-evaluate and clarify a purpose at the highest level and then within each individual function and then to bring that plan to bear and so that kind of focus and the process itself is one you can only complete properly if you include every single employee and every single stakeholder which we did and so the plan that we we have today that we posted publicly is literally the plan so there's not like three plans or two plans or 2.5 plans there's one plan so it's the same thing we discuss at the board level same thing we discuss with every employee same thing we discuss with our with our customers that we serve uh and then obviously to to this community as as investors uh and we believe this is a business that um based upon the the the important import of peripheral nerve function is one that um will be able to add value for all stakeholders for years to come.

Great. Turning to your business, you recently received some significant reimbursement wins. How do you see that affecting your revenue for the rest of 2026 and beyond?

We are in the process of trying to digest, to quantify it, because as you might appreciate, it's a question that's on everyone's mind, including ours. And I know this is a trite answer. We know it's all going to be good, but to explicitly describe the cadence and objectively how that's going to affect the business, we're still trying to figure out. So when these good events transpire, the first thing that happens is socialization of the news with all of the providers of health care. They then need to negotiate their individual contracts with their payers based upon the new coverage decision. And so it starts to pick up momentum, but it rarely is a light switch to use that expression. So it's a non-answer to your question. We know it's going to be good, but we haven't quantified it yet.

Got it. And then maybe thinking about the remaining payers after Cigna and Elevance, what is the timeline for Aetna? And what does near universal commercial coverage mean in practice for the business?

Sure. So Aetna is the last significant payer that has not yet made a decision. Each payer has their own criteria, their own annualized schedule for reviews, known process for whether to even conduct a review. And so we are aware of each of those, and we have formally engaged in those processes by a payer and made our submissions and requests for a response. and evaluation. So what we've seen recently is obviously Elevance and Cigna respond to that. We are now awaiting to see the same from Aetna. Based upon their schedule, we would hope to hear something from Aetna by the end of June. There's no guarantee. They have no obligation to respond. But generally speaking, when you satisfy all the requirements, Aetna will make their decision known in that time frame.

Got it. Maybe stepping back a little bit, Elevance has a gap length restriction. Could you maybe walk us through that? How significant is the practical impact? And what is your path to getting the policy corrected?

Sure. We've already engaged with them immediately upon seeing that. As for the impact, we truly don't know. It could be a complicating factor or it could be a non-event. So we don't know whether it is a decision that was simply an oversight as part of the review process because they don't reference the other clinical studies. They don't reference the biologics approval status from the FDA. They only reference the RECON study, which was the level one study done by Vance in extremities. It also requires a pre-approval requirement, which is a practical impossibility given that these are procedures that are emergent and present. You don't know what the gap link is until you're actually doing the procedure. So we don't know that it's going to be an issue. We have not seen any issues thus far, but it's too early to say.

Got it. That's very helpful. The CMS outpatient reimbursement reclassification that took effect January 1st, 2026 produced roughly a 40% rate increase. Why did that not show up in Q1 results and when should investors expect it to flow through?

Because nerve procedures were economically unattractive in those settings, there is not a large activity base already allocated. so now that there is a positive um economic situation allowing for such procedures to happen there it will it will happen um but it's but it's literally beginning as we speak so just like with commercial coverage payment when a positive reimbursement situation transpires uh it needs to be socialized so in other words no in other words example is oxygen knows because we got it but guess what um all the hospitals have no idea that that that happened so we need to make them aware and then once they're aware then the hospital needs to make a decision to then speak to their their payers and negotiate the contracts for that site of service and then they need to logistically decide which physicians are going to allow them to move cases into those settings so we know this is going to be a site of service in the future but just like with commercial payments it's going to take a little time for it to take root and for people to make their own decisions as to where they move that it's all positive again it comes back to the issue can we quantify it by quarter when it's going to happen the answer is no not yet but towards the end of the year we would expect to have some clarity as to where these procedures are moving in that regard great so a little uncertainty but positive outlook i guess on that note um you reported uh your q1 financial results uh two weeks ago you grew 27 in q1 but guided to at least 20 percent for the full year how should investors think about the second half growth rate and what explains the implied deceleration sure um so for uh first of all the plan in terms of what drove the growth uh is is all the elements that we previously publicly described there's no one single factor um so the business has simply continued to build off its prior historical basis um uh with regards to the implied deceleration with it's obviously not how we look at it but it's important to note that you know q1 is a natural comparable that's a that's a that's easier as compared to the other quarters the middle of the year is is the largest volume of activity in our world uh we expect that to continue to be so it's a bigger base to build upon uh and we're always mindful that we're continuing to expand a platform and activities uh and uh trying to be prudent about not getting ahead of ourselves because we each quarter we got to prove it. And so we're confident about the future, but just trying to be prudent in terms of what that growth will be. And that's why we have always stated from the beginning in our strategic plan is that you should look at Oxygen as an asset vehicle, as a market development exercise over a period of three to five years that will be able to generate continuous double-digit growth. And there's no change whatsoever in our viewpoint in that regard.

Got it. Recognizing that more clarity will probably be gained over time. What visibility do you have on BLA transition flowing through your gross margin currently? And how should investors model the 74 to 76% guidance range on a quarterly basis? Yeah.

So in Q2, we expect to see an influx of more expensive product that we will be selling as a result of our transition from a tissue product to a BLA in Q4 of last year. With this, we should see our Q2 be kind of our bottom per se. And then we should continue to increase from there in gross margin. Q2 should be at the low end of our guided range for the entire year. then we should see increases from there and then in 2027 we expect to see additional improvements as a result of certain initiatives we have going on at our facility we have a lot of lean initiatives yield initiatives as well as new system implementations and this gives us confidence and that our gross margin can improve over time because right now we know what our costs are as processing as a biologic and all these improvements that we're putting in, doing things faster, more efficient, will only improve where we are today on top of our growth and increasing production, so economies of scale.

Great. I guess in the last couple of minutes, looking ahead, you're expecting clinical data in the second half. What are the key clinical endpoints for your prostate nerve repair pilot and how should investors think about what a positive data readout actually looks like entering Q3? What does success look like to you?

So the data set that we are currently collecting is not a controlled study. It's important to emphasize that. This is work that's being done in partnership with various key opinion leaders, highly experienced robotic prostate surgeons. and the effort is based upon the primary measures of erectile function and incontinence. We're looking at those very broadly. And so each person is going to have their own data set. We're working with them to do the follow-ups. This will not be a published experience. This is going to be a collection of activity that, based upon the numbers, will allow us to take a look at this and then compare and contrast that with what we see in our other nerve applications and draw the conclusion as to whether or not the procedure is teachable. The basic premise is that biologically is a nerve is a nerve is a nerve. And the prostate nerve is a little shorter. So it doesn't have as long a distance as for example, some other nerves have to traverse. And then secondly is a larger nerve. So there's more axons, to use the expression, more shots on goal so in principle biologically this should work very well in the prostate setting the caveat to that is you still need to do a good surgical procedure do anastomosis so this data set is intended to give us a glimpse as to whether or not we can truly teach the procedure as we need to and if it can be performed well by the end of the this year we're going to have a clinical data set in terms of trajectory, which would allow us to make that judgment. If that judgment suggests that we can teach this procedure well, we will then begin to develop a go-to-market exercise that will make public. So that's what's underway with that data set.

I guess in the last couple of minutes, I would turn it to you for any closing remarks.

First of all, thanks again for the opportunity. People always ask, well, how should I judge you going forward? Same way you've been judging this the last several quarters. This is a market development exercise. The clinical pathways that we're working are common only insofar as they involve peripheral nerve. Completely different, very heterogeneous in terms of the physicians involved, the care pathways involved. And so we work each of these with distinct business models. What's common to all of them is underservice. And the other element that's common is our value proposition has one of the most profound benefit versus risk equations that I've seen in my entire career. We offer a great potential for improvement in quality of life and basic health at extremely low cost to almost no cost with regards to risk. And so to that end, that's one of the reasons why we're so bullish that this will be a space that will develop each year in significant ways and someday be a very, very large contribution to health care.

Thank you very much.