Axogen, Inc.: Form 10-Q for the period ended Jun 30, 2025

The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes thereto appearing elsewhere in this report and our consolidated financial statements for the year ended December 31, 2024, included in our 2024 Annual Report on Form 10-K. All dollar amounts in the discussion and analysis, unless noted otherwise, are presented in thousands.

Unless the context otherwise requires, all references in this report to “Axogen,” the “Company,” “we,” “us” and “our” refer to Axogen, Inc., and its wholly owned subsidiaries Axogen Corporation (“AC”), Axogen Processing Corporation, Axogen Europe GmbH and Axogen Germany GmbH.

Overview

We are the leading company focused specifically on the science, development and commercialization of technologies for peripheral nerve regeneration and repair. We are passionate about providing the opportunity to restore nerve function and quality of life for patients with peripheral nerve injuries. We provide innovative, clinically proven and economically effective repair solutions for surgeons and healthcare providers. Peripheral nerves provide the pathways for both motor and sensory signals throughout the body. Every day people suffer traumatic injuries or undergo surgical procedures that impact the function of their peripheral nerves. Physical damage to a peripheral nerve or the inability to properly reconnect peripheral nerves can result in the loss of muscle or organ function, the loss of sensory feeling, or the initiation of pain.

Product Portfolio

Our platform for peripheral nerve repair features a comprehensive portfolio of products, including:

• Avance® Nerve Graft, a biologically active off-the-shelf processed human nerve allograft for bridging severed peripheral nerves without the comorbidities associated with a second surgical site.
• Axoguard Nerve Connector®, a porcine (pig) submucosa extracellular matrix (“ECM”) coaptation aid for tensionless repair of severed peripheral nerves.
• Axoguard Nerve Protector®, a porcine submucosa ECM product used to wrap and protect damaged peripheral nerves and reinforce the nerve reconstruction while minimizing soft tissue attachments.
• Axoguard HA+ Nerve Protector™, a porcine submucosa ECM base layer coated with a proprietary hyaluronate-alginate gel, a next-generation technology designed to enhance nerve gliding and provide short- and long-term protection for peripheral nerve injuries.
• Axoguard Nerve Cap®, a porcine submucosa ECM product used to protect a peripheral nerve end and separate the nerve from the surrounding environment to reduce the development of symptomatic or painful neuroma.
• 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.

Our portfolio of products is currently available in the U.S., Canada, Germany, the United Kingdom, Spain, South Korea and several other countries.

We derive substantially all of our revenues from sales of our nerve repair products to customers in the U.S.

Our strategy remains focused on deepening our presence in high-potential accounts, specifically Level 1 trauma centers and academic-affiliated hospitals with a high number of trained microsurgeons. We will drive growth in these accounts through targeted expansion of nerve repair indications and driving deeper adoption of our nerve repair algorithm across multiple surgical specialties.

Business Outlook

We are subject to risks and exposures from the evolving macroeconomic environment, including financial market volatility, geopolitical tensions and escalating trade disputes with U.S. trading partners. While our direct exposure to current tariffs is limited, risk lies in the potential for these disputes to cause a broader trade war, resulting in general economic instability and uncertainty that could cause our net revenue to fluctuate. We are actively assessing steps to mitigate potential adverse effects; however, if these measures are not effective in addressing wider economic disruption, our business, financial condition, results of operations and liquidity could be materially adversely affected.

On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (“OBBBA”). The OBBBA makes permanent key elements of the Tax Cuts and Jobs Act of 2017, including 100% bonus depreciation, domestic research cost expensing, and the business interest expense limitation. We are currently evaluating the impact of the OBBBA.

Summary of Operational and Business Highlights

• Revenues were $56,662 for the quarter ended June 30, 2025, an increase of $8,750 or 18.3% compared to the quarter ended June 30, 2024.
• Gross profit was $42,018 for the quarter ended June 30, 2025, an increase of $6,673 or 18.9% compared to the quarter ended June 30, 2024.
• Expanded coverage and reimbursement for nerve repair for peripheral nerve injuries using synthetic conduits or allografts by an estimated approximately 10 million new covered lives during 2025; bringing the total new lives covered in 2025 to an estimated approximately 17 million which brings coverage amongst private payers to more than 55%.
• The FDA accepted the filing of the Company’s Biologics License Application (“BLA”) for Avance® Nerve Graft on November 1, 2024, and assigned a Prescription Drug User Fee Act goal date of September 5, 2025. During the second quarter of 2025, we completed the following regulatory milestones to support our anticipated approval in September 2025: the late-cycle meeting with the FDA, pre-licensing inspection, and sponsor inspection under the FDA’s Bioresearch Monitoring program.

Results of Operations

Comparison of the Three Months Ended June 30, 2025 and 2024

The following table sets forth, for the periods indicated, our results of operations expressed as dollar amounts and percentage of total revenue:

(dollars in thousands)

21

Revenues

Revenues for the three months ended June 30, 2025 increased $8,750, or 18.3%, to $56,662, as compared to $47,912 for the three months ended June 30, 2024. The increase in revenues was driven by an increase in unit volume of approximately 12.2%, as well as the net impact of changes in price and product mix of approximately 3.1% and 3.0%, respectively.

Gross Profit

Gross profit for the three months ended June 30, 2025 increased $6,673, or 18.9%, to $42,018, as compared to $35,345 for the three months ended June 30, 2024. Gross margin as a percentage of revenues was 74.2% and 73.8% for the three months ended June 30, 2025 and 2024, respectively. Higher margins, driven by lower inventory write-offs and shipping costs on products sold, increased gross margin by 0.9%, partially offset by higher product costs that lowered gross margin by 0.5%.

Costs and Expenses

Following is a summary of the change in costs and expenses for the three months ended June 30, 2025:

(dollars in thousands)

(1) Product development costs and expenses represented approximately 53% and 52% of total research and development costs and expenses for the three months ended June 30, 2025 and 2024, respectively. Clinical trial costs and expenses represented approximately 47% and 48% of total research and development costs and expenses for the three months ended June 30, 2025 and 2024, respectively.

Other Expense, Net

Other expense, net for the three months ended June 30, 2025 decreased $400, or 26.8%, to $1,093, as compared to $1,493 for the three months ended June 30, 2024. The decrease in other expense, net was primarily due to increases of (i) $178 in other income and (ii) $16 in the change in fair value of the debt derivative liabilities and a decrease of $208 in interest expense.

Income Taxes

We had no income tax expense or benefit during the three months ended June 30, 2025 and 2024 due to the incurrence of fiscal year net operating losses in both periods, the benefits of which have a full valuation allowance. From time to time, we receive notices of examination of prior tax filings from federal and state authorities. The Internal Revenue Service is currently examining our 2021 federal income tax return. We do not believe that there are any material additional tax expenses or benefits.

Comparison of the Six Months Ended June 30, 2025 and 2024

The following table sets forth, for the periods indicated, our results of operations expressed as dollar amounts and percentage of total revenue:

(dollars in thousands)

Revenues

Revenues for the six months ended June 30, 2025 increased $15,933, or 17.8%, to $105,222, as compared to $89,289 for the six months ended June 30, 2024. The increase in revenues was primarily driven by an increase in unit volume of approximately 11.8%, as well as the net impact of changes in price and product mix of approximately 3.0% and 2.5%, respectively.

Gross Profit

Gross profit for the six months ended June 30, 2025 increased $8,987, or 13.2%, to $76,951, as compared to $67,964 for the six months ended June 30, 2024. Gross margin as a percentage of revenues was 73.1% and 76.1% for the six months ended June 30, 2025 and 2024, respectively. Lower margins on products sold, driven by higher product costs, lowered gross margin by 2.8% and an increase in inventory write-offs lowered gross margin by 0.5%. These decreases were partially offset by an increase of 0.4% from lower shipping costs on products sold.

Costs and Expenses

Following is a summary of the change in costs and expenses for the six months ended June 30, 2025:

(dollars in thousands)

(1) The decrease in research and development costs and expenses was primarily due to product development and clinical expenses. Product development costs include spending for a number of specific programs, including the non-clinical expenses related to the BLA for Avance Nerve Graft. Product development costs and expenses represented approximately 56% and 57% of total research and development costs and expenses for the six months ended June 30, 2025 and 2024, respectively. Clinical trial costs and expenses represented approximately 44% and 43% of total research and development costs and expenses for the six months ended June 30, 2025 and 2024, respectively.

Other Expense, Net

Other expense, net for the six months ended June 30, 2025 decreased $302, or 8.5%, to $3,266, as compared to $3,568 for the six months ended June 30, 2024. The decrease in other expense, net was primarily due to decreases of (i) $285 in interest expense and (ii) $247 in other expense. These decreases were partially offset by decreases of (i) $207 in the change in fair value of the debt derivative liabilities and (ii) $23 in investment income.

Income Taxes

We had no income tax expense or benefit during the six months ended June 30, 2025 and 2024 due to the incurrence of net operating losses in both periods, the benefits of which have a full valuation allowance. From time to time, we receive notices of examination of prior tax filings from federal and state authorities. The Internal Revenue Service is currently examining our 2021 federal income tax return. We do not believe that there are any material additional tax expenses or benefits.

Critical Accounting Estimates

In preparing our financial statements in accordance with generally accepted accounting principles, there are certain accounting policies, which may require substantial judgment or estimation in their application. We believe our accounting policies for Inventories, Derivative Instruments and Stock-based Compensation, as well as the others set forth in Note 2 - Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements in our 2024 Annual Report on Form 10-K, are critical to understanding our results of operations and financial condition. See Critical Accounting Estimates in our 2024 Annual Report on Form 10-K. Actual results could differ from our estimates and assumptions, and any such differences could be material to our results of operations and financial condition. During the quarter covered by this report, there have been no material changes to the accounting estimates and assumptions previously disclosed.

Liquidity and Capital Resources

As of June 30, 2025, our principal sources of liquidity were our cash and cash equivalents and investments totaling $29,922. Our cash equivalent is comprised of a money market mutual fund and our investments consist of U.S. Treasuries. Our cash and cash equivalents and investments decreased $3,560 to $29,922 from $33,482 at December 31, 2024, primarily as a result of paying annual bonuses and the expenses incurred in connection with conducting our national sales meeting in the first quarter of 2025, partially offset by collections of receivables and proceeds from the exercise of stock options.

On June 30, 2025 and December 31, 2024, our current assets exceeded our current liabilities by $78,439 and $68,607, respectively, and we had a current ratio of 4.1x and 3.2x, respectively. 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 twelve months from the date of issuance of the accompanying financial statements.

Cash Flow Information

The following table presents a summary of cash flows from operating, investing and financing activities for the periods indicated:

(in thousands)

Net Cash Used in Operating Activities

Net cash used in operating activities was $5,449 and $8,101 during the six months ended June 30, 2025 and 2024, respectively. The decrease in net cash used in operating activities of $2,652, or 32.7%, was due a decrease in net loss of $5,301, partially offset by the net unfavorable change of $2,588 in working capital accounts and noncash charges of $29.

Net Cash Used in Investing Activities

Net cash used in investing activities for the six months ended June 30, 2025 was $5,608 compared to $4,484 for the six months ended June 30, 2024. The unfavorable change in net cash used in investing activities of $1,124 was primarily due to the purchase of $7,837 of investments, offset by the sale of $4,000 of investments during the six months ended June 30, 2025, compared to purchases of $1,911 of investments during the six months ended June 30, 2024, and the decrease in purchases of property and equipment of $856.

Net Cash Provided by Financing Activities

Net cash provided by financing activities was $3,539 and $748 for the six months ended June 30, 2025 and 2024, respectively, an increase of $2,791 due primarily to the increase in proceeds from the exercise of stock options.

Credit Facilities

As of June 30, 2025, we had $50,000 outstanding in indebtedness under the Credit Facility with $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 the forward-looking term rate based on the secured overnight financing rate as set by the Federal Reserve Bank of New York plus 0.10% (“Adjusted SOFR”) or 2.0% (11.90% as of June 30, 2025). 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 13 - Commitments and Contingencies in the Notes to the Condensed Consolidated Financial Statements in this Form 10-Q.

Sources of Capital

Our expected future capital requirements may depend on many factors including expanding our customer base and sales force and timing and extent of spending in obtaining regulatory approval and introduction of new products. Additional sources of liquidity available to us include issuance of additional equity securities through public or private equity offerings, debt financings or from other sources. The sale of additional equity may result in dilution to our shareholders. There is no assurance that we will be able to secure funding on terms acceptable to us, or at all. The increasing need for capital could also make it more difficult to obtain funding through either equity or debt. Should additional capital not become available to us as needed, we may be required to take certain actions, such as slowing sales and marketing expansion, delaying regulatory approvals, or reducing headcount.

Contractual Obligations and Commitments

(1) See Note 8 - Long-Term Debt, Net of Debt Discount and Financing Fees and Note 13 - Commitments and Contingencies in the Notes to the Condensed Consolidated Financial Statements in this Form 10-Q.

(2) Calculated using the forecasted interest rates used in the valuation of the debt derivative liabilities. See Note 6 - Fair Value Measurements in the Notes to the Condensed Consolidated Financial Statements in this Form 10-Q.

(3) See Note 8 - Long-Term Debt, Net of Debt Discount and Financing Fees in the Notes to the Condensed Consolidated Financial Statements in this Form 10-Q.

(4) See Note 7 - Leases in the Notes to the Condensed Consolidated Financial Statements in this Form 10-Q.

(5) See Note 13 - Commitments and Contingencies in the Notes to the Condensed Consolidated Financial Statements in this Form 10-Q.

For a discussion of our market risks, refer to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” included in our 2024 Annual Report on Form 10-K.

We have interest rate exposure as a result of the Credit Facility. As of June 30, 2025, the outstanding principal amount of our loans under the Credit Facility was $50,000. Interest on our loans under the Credit Facility is calculated as 7.5% plus the greater of Adjusted SOFR or 2.0% (11.90% at June 30, 2025); provided that the interest rate shall never be less than 9.5%. Changes in the Adjusted SOFR rate may therefore affect our interest expense associated with the Credit Facility. An increase of 100 basis points in interest rates would increase interest expense by approximately $500 annually based on the amounts currently outstanding and would not materially affect our results of operations.

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission (the “SEC”)’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, and Board of Directors, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance of achieving the desired objectives, and we necessarily are required to apply our judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.

Our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2025, and concluded that our disclosure controls and procedures were effective.

Changes in Internal Controls Over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended June 30, 2025 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(d) or 15d-15(f) of the Exchange Act).

There have been no material changes to the risk factors disclosed in our 2024 Annual Report on Form 10-K. Any investment in our business involves a high degree of risk. Before making an investment decision, you should carefully consider the information we include in this Quarterly Report on Form 10-Q, including our unaudited interim condensed consolidated financial statements and accompanying notes, our Annual Report on Form 10-K for the year ended December 31, 2024, including our financial statements and related notes contained therein, and the additional information in the other reports we file with the SEC. These risks may result in material harm to our business and our financial condition and results of operations. In this event, the market price of our common stock may decline, and you could lose part or all of your investment. Additional risks that we currently believe are immaterial may also impair our business operations. Our business, financial condition and future prospects and the trading price of our common stock could be harmed as a result of any of these risks.