Monday, November 6, 2017

A current AIM Program Small Cap Equity Holding: AxoGen, Inc. by Jacob Schwister


AxoGen, Inc. (AXGN, $19.46): “Axo Gen(eral) of the Industry
By: Jacob Schwister, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Summary

AxoGen, Inc. (NASDAQ:AXGN) is a medical technology company focused on the science, development, and commercialization of peripheral nerve regeneration technologies. 

• AXGN maintains and develops a portfolio of nerve repair technologies that cover all surgical peripheral nerve reconstruction aspects and needs. They are the only company competing in the field.

• For FY 2016, the company had sales of $41.1M, EBIT of -$8.1M, and a net loss of $13.8M, mainly attributed to increasing SG&A expenses.

• In July 2017, the company hired Jon Gingrich as Chief Commercial Officer. Gingrich has an extensive resume including 20 years of experience in medical device sales and marketing.

• The company is continuing to attend conferences and build awareness of their products as much as possible.

Key points: AxoGen, the sole company providing peripheral nerve repair technology, has been seeing annual revenue growth from 40-60% over the past five years, and the large $2B untapped peripheral nerve repair market provides AXGN with a significant opportunity to continue capitalizing. Their portfolio of products covers all needs of the peripheral nerve repair market.

At the end of 2Q 2017, AxoGen’s products were used in 510 hospitals and surgical centers across the US, which is a 36% increase from the 2Q 2016. There are over 5,000 accounts in the United States, and the company has continued its focus on sales and marketing to continue adding new accounts to grow revenues. The growth of accounts is limited because most surgeons are cautious when it comes to using nerve repair products. They usually start out with a few cases and review the results before they fully adopt the products.
With the $2.0B market opportunity on the horizon, AXGN could see continued revenue growth of 30% well into the future. They also have been maintaining gross margins greater than 80%, which should help them reach profitability in the next few years. Profitability will be determined by the company’s ability to grow the customer base at a significant level and maintain SG&A expenses. The product portfolio is well positioned and there are significant barriers to enter the market, thus creating an optimistic future for AXGN.

If AXGN can put all the pieces of the puzzle together and continue capturing the market the company will continue to grow. With the addition of Jon Gingrich, the companies new Chief Commercial Officer, AXGN is better positioned to grow marketing and sales objectives. They are spreading the word about their products through Healthcare conferences and surgeon meetings.

What has the stock done lately?

Over the past month Axogen has been floating between $18 and $19.72 per share. The stock has increased $0.95 or 5.14% over the past month. AXGN reached its 52-week high of $19.72 on October 13, 2017. Of the analysts covering the stock, five recommend AXGN as a buy and one recommends a hold rating.

Past Year Performance: Over the past year, AXGN has performed extremely well increasing 124.20%, or $10.83 in value. The stock price’s increasing trend has been fairly steady with only one short period of decline at the end of July. Despite AXGN’s lack of earnings growth, the stock has grown steady showing investors’ confidence.

Source: FactSet

My Takeaway

Currently, AxoGen is not facing competition in a market they believe to be near $2B. They have a successful portfolio of products that they plan to continue capturing the market with. With the right strategic direction and continual marketing at healthcare conferences and surgeon meetings, they have the potential to grow their product base to more hospitals and surgical centers. The stock has seen strong growth over the past year, and this is attributed to strong revenue growth in the untapped market. It will be important to watch how potential healthcare reform could affect this company in regards to its growth in the market.



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