By: Kyran Young, 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) produces
and markets products to surgically repair peripheral nerve damage (damage to the
central nervous system). Their range of products are available in the United
States, Canada, the United Kingdom, and several other European countries.
•
AXGN’s number of active accounts increased from 452 at the end of 2016 to 591
at the end of 2017, representing a 31% increase. “AxoGen defines an ‘active
account’ as an account that has ordered one or more of AxoGen’s surgical
products six or more times in the last twelve months”[1]
•
AXGN has a 5-year compounded annual revenue growth rate of 40.73%. They
currently operate in a net loss; however, this is largely due to high sales and
marketing expenses. As they continue to educate and train doctors about their
product, those expenses will decrease and they will begin to experience greater
profitability.
•
AxoGen’s primary driver is the superiority of their products compared to other autografts
and nerve conduits. Compared to other products, their Avance nerve graft uses
the patient’s own cells to regenerate damaged nerves. In addition, Avance does
not require additional surgeries to repair injured nerves.
•
Management expects revenues to grow by another 40% and gross margin to remain
above 80% in 2018.
Key points: AxoGen’s four main products (Avance Nerve
Graft, AxoGuard Nerve Connector, AxoGuard Nerve Protector, and Avive Soft
Tissue Membrane) are mainly used by reconstructive plastic surgeons, hand
surgeons, and maxillofacial surgeons. From 2016 to 2017, AXGN’s sales and
marketing expenses increased by 32.4%. They hope to increase surgeons’ understanding
of nerve repair and expand the usage of their products. As a result of this
increased spending, their active accounts have increased by 31% from 2016 to
2017. In addition, they have recently expanded their product portfolio to help
with breast reconstruction nerve transfers and oral and maxillofacial surgeries,
which increases their overall accessible market to $2.2 billion.
AXGN’s
products have a significant competitive advantage over their competitors. According
to clinical data, AXGN’s products have an 87% to 94% success rate compared to a
57% to 80% success rate in nerve autografts. AxoGen has displayed this success
rate in both simple nerve injuries as well as more complex injuries, such as
nerve gaps up to 70 millimeters. Given these results, surgeons are inclined to
be more receptive of using their products.
AXGN
had a strong performance in 2017. Revenue increased to $60.4 million,
representing a 47% increase, and gross margin increased from 84.3% to 84.6%. They
continue to penetrate the market and educate doctors regarding their product.
In 2017, they presented 15 national educational programs and hope to present 18
in 2018. On February 27, 2018, DecisionWise International named them the
Employee Engagement Best Practices Award Winner. Given AXGN’s past performance
and that they are just beginning to scratch the surface in this market, their
stock is positioned to climb to new 52-week highs in 2018.
What has the stock done
lately?
Over
the past month, AXGN is up ~30% and is currently trading at $32.95. This is
largely attributable to the 4th quarter earnings release. AXGN beat
EPS by $0.01 and revenue by $1.06 million. In addition, they most recently
released their annual report for 2017, in which management portrayed optimism
moving forward.
Past Year Performance:
AXGN
has increased ~240% over the past year. AXGN has consistently grown the past
couple years, and they are positioned well to continue to grow and penetrate
their market as they proceed to educate surgeons and provide clinical data
proving the superiority of their products to other competitors.
Source: FactSet
My Takeaway
Karen
Zaderej has served as the president and CEO of AxoGen, Inc. since September
2011. Ms. Zaderej has effectively and efficiently grown AXGN since 2011. Looking
forward, it will be important to see how their new breast reconstruction
neurotization and their oral and maxillofacial procedures perform. With the
introduction of these new procedures, their market has increased from about
$1.6 billion to $2.2 billion. The high growth and success of their products
have contributed to their large stock price increase. Despite this dramatic
increase over the past year, a “buy” is still recommended as AXGN is poised to
continue to grow as they become a dominant player in the market.
Source: FactSet
