Thank you all for joining us today. My name is Caroline Borowski, and I'm a team member here at the J.P. Morgan Healthcare Group. It is my pleasure to introduce Karen Zaderej, the Chairman, CEO, and President of AxoGen. Here we also have Peter Mariani, the Executive Vice President and CFO, as well as Ed Joyce, Director of IR.
Thank you, and thank you for inviting me to speak today. I'm here to tell you a little bit about AxoGen. AxoGen is a company that's entirely focused in the area of peripheral nerve repair. We find peripheral nerves are impacted in many ways across many stages of life, and we wanna be able to provide solutions to patients to have a better quality of life by fixing those issues. A lot of people don't really think about peripheral nerves or know what they do, so we like to do the analogy that nerves are like the wires of your body. They carry signals to allow you to have muscle function, to know to move your muscles, or to give you feedback from the environment. Things like sensation, vibration, temperature. Those are all things that are carried on signals through your peripheral nerves.
Just like a wire, if that nerve is cut, it no longer carries the signal, so you lose the function of that nerve. Nerves can also be affected in other ways. They can be affected by compression, so pressure on a nerve alters the signal conduction, and you can end up with things like loss of strength or pain as a result of that. You're probably familiar with that with carpal tunnel syndrome. Carpal tunnel syndrome is an example where there's compression on a nerve and that ends up with weakness in these fingers and thumb. That concept is true of any nerve in the body. Pressure is something that's not friendly to nerves and a problem that needs to be solved for patients.
Finally, nerves at times are cut in surgery where they're not repaired, and they're left like a live wire in the body. In this case, the nerve will try to form some function. Nerve fibers will spring out and look for a distal target. Not finding that, they'll get tangled up in a scar that's called a neuroma. That scar can send aberrant signals back to the brain that can cause pain. You're, again, familiar with this in things like an amputation with phantom limb pain. It is that neuroma that is sending the signals back to an amputee that says their foot hurts, but they don't have a foot. That's because the nerve that used to go to the foot is now sending these aberrant signals.
That neuroma can be managed by removing the neuroma, that removes the signals that are causing the pain, and then the nerve itself needs to be managed in some way so it doesn't form a neuroma again. That leads to the solutions that AxoGen has built. AxoGen has a suite of products really working with surgeons to solve all of those issues. When a nerve is cut, the nerve needs to be brought back together in a surgical procedure and allow regeneration of the nerve all the way to the distal target. That may have a difference for the surgeon depending on whether there's a gap in the nerve or not. One thing that's different about nerves than other types of tissue is that they don't heal well under tension.
If there's a gap in the segment of the nerve, the surgeon cannot just bring the two nerve ends together. They've got to do something to bridge the gap. That's what our flagship product, Avance Nerve Graft, provides, is a way that surgeons can bridge that gap without creating tension on the nerve to allow restoration of function. There are other times when nerves are cut, and it's a sharp laceration. There's no loss of any segment of the nerve. This might be a traumatic injury, like a kitchen knife injury when you're working in the kitchen, sharp transection. In that case, you can bring the nerves together with our AxoGuard Nerve Connector.
AxoGuard Nerve Connector is a way to approximate the two nerve ends in a tension-less way, seal up the coaptation, and allow a healing to occur across that direct transection. As I mentioned, compression can also be an issue, our AxoGuard Nerve Protector allows a tunnel to be formed around the nerve with the nerve freely gliding within that tunnel. It keeps the surrounding tissue up and off of the nerve and helps to reduce that pressure on the nerve that can cause that compression issues. Finally, our AxoGuard Nerve Cap, our newest product, is for managing those neuromas at the end of a nerve when it can't be repaired and preventing that symptomatic or painful neuroma.
It is this suite of solutions that we work with surgeons across a variety of specialties to help them solve their patients' needs with peripheral nerve injuries. As I mentioned, nerves are injured in lots of ways. We've actually narrowed our focus to a select set of areas that we focus on today, but I'll show you some of the areas of opportunity for expansion in the future. Today we focus on traumatic injuries. These are injuries that present into the emergency department and then are referred to the operating room to be repaired by either a hand surgeon or a plastic surgeon. This is our largest opportunity and has been a place where nerves have historically been repaired.
The gold standard that surgeons have been an autograft, taking a nerve from somewhere else in the patient's body and moving it to repair that injured site. In this case, again, we're offering the opportunity to not have the patient have a deficit somewhere else in the body, but to be able to be repaired with an off-the-shelf solution that gives them an equivalent outcome. We added into this market area of trauma, a couple areas that are based in oncology. Conceptually, if you think about any time that you remove a tumor or remove tissue, there are nerves that may be transected. In that reconstruction, we think it gives the best opportunity for quality of life to repair those nerves as a part of the reconstruction. An example of this is in the oral and maxillofacial market.
These are the nerves that are right here in the jaw. If you're familiar with these nerves, when you go to the dentist and they numb your mouth, those are the nerves that they numb up. Unfortunately, if that nerve is transected, that becomes a permanent condition for you. Obviously, it's difficult to chew, it's difficult to talk. It becomes a really uncomfortable situation as you present yourself to the world where you can't feel a part of your face. We are able to restore that function by repairing the nerve in either a tumor reconstruction or when these nerves are accidentally injured in dental procedures. We added into that breast reconstruction. Traditionally, when women have a reconstruction at following a mastectomy, they have not had the nerves repaired.
The woman may look normal with that reconstruction, but she does not feel normal. She can't feel her children when she hugs them. She might not feel her clothing or water running on her body, not the skin sensation. Those are sensations that allow you to feel normal again following this episode of cancer. We've developed the Resensation technique to help women be restored back to more normalcy with sensation as a part of their reconstruction. Finally, while it's an area that's emerging, we think the surgical treatment of pain is a substantially under-diagnosed area, that these neuromas form frequently when surgery happens and nerves are left unended or unmanaged.
By managing those neuromas and removing the painful stimuli and then repairing the nerve, we have the opportunity to keep people out of pain management, off of medications to manage that pain, and actually solve the problem rather than managing the symptoms. We're happy to see that we're returning to some strong growth. We had a year where we had the beginning of the year start out with some challenges with staffing in hospitals, being very disruptive to getting ORs consistently operating, emergency departments to be consistently staffed. That has really turned the corner here in the middle of the year, allowing us to turn to more consistency in our growth as well.
We completed the fourth quarter with 16% growth for the year, 12% growth, and are seeing some continued improvement as we go through go forward as hospitals start to manage these staffing challenges and have a much more predictable staffing that allows procedures to happen in a consistent way. Everything we're doing is really about a market development strategy. We're transferring surgical techniques that surgeons have been trained on many years, like the autograft, or raising awareness where nerves weren't repaired at all, like in the breast neurotization. We do this through what we call these five pillars of our market development strategy. The first is really built around building awareness. We see key stakeholders in many areas.
It's the surgeons, of course, who need to understand that there's a new set of technologies and techniques that they can use. We also see patients as important drivers here as they can be activated as advocates for their own care. This is particularly important in areas like the breast neurotization area, where women need to decide, is this important to them as a part of their reconstruction? If it is, we want them to go to a surgeon who's trained on the Resensation technique. We've been very active in social media, working with the breast advocacy groups to raise awareness about the opportunity for sensation and see that as a key driver to growth in this area.
We also, of course, wanna continue to raise awareness also with payers and hospitals in general and seeing this as a big opportunity for them to improve the overall care for their constituents. We work with surgeons significantly with education. These are techniques that we need to continue to teach and advance the care in nerve repair. We've developed a series of programs that are quite advanced in training both fellows and in fact, 75% of the fellows in our sent to the AxoGen program for peripheral nerve repair as their, as their education in nerve repair. We work with attendings and others at different levels. We have specialty programs like in Resensation and advanced programs for those surgeons who wanna really specialize in nerve repair as they continue to grow their practice.
All of that education is supported with clinical data. We have 7 sponsored studies that we are currently in some stage of. We're actually winding down. I'll talk about RECON 'cause that one we've done our top-line data readout. We continue to see data as an important part of changing this market. Today, there are 215 peer-reviewed publications on clinical results using the AxoGen portfolio of products, both our sponsored studies as well as many investigator-initiated studies. All this happens in the marketplace with a field sales team, and we've built a strong commercial engine with 115 direct reps here in the United States, supplemented with some independent agencies so that we have a good reach to trauma centers across the United States.
We're building our business focused initially on building an active account. An active account is an account that has at least 6 orders in the last 12 months. That's our definition of it. Essentially, it means it's a place that we can start converting the business. It's a place now that has gone typically through the value analysis committee. There's at least one surgeon who started to change their algorithm. We hope to build that active account then into a core account. A core account has $100,000 in trailing revenue. Typically, this is one reasonably well-converted surgeon at that account. We certainly have a lot of room to continue to grow core accounts, and that's our highest priority, is going deeper in our existing accounts.
That's where the fastest revenue and the most productive sales effectiveness comes from, is now expanding this footprint that we've built with over 300 core accounts that we can go deeper into. I mentioned there's opportunities to continue to expand. As I said, nerves are all over the body, and there are many ways that they're injured and impacted. We see a long opportunity to continue to develop new techniques and new areas of expanding peripheral nerve repair over time that will continue to improve and impact patient care. RECON was our pivotal study in changing Avance Nerve Graft from a human tissue regulatory classification to a biologic. This was a many-year study that we've worked on, a randomized multicenter prospective study comparing Avance Nerve Graft to conduits in digital nerve repair.
These are the fingers, the nerves that give you sensation in the fingers. I'm happy to say that we met the primary endpoint of this study with our top-line data readout that we did in the middle of this past year. We also had some secondary endpoints that I think are gonna be very impactful for surgeons as they look at the impact and the data quality here. We demonstrated that Avance shows superiority compared to conduits as the gaps get longer in the fingers.
That's something that we've seen in other data sources as well that we continue to show a superiority by providing both the microarchitecture and structure of a native nerve while providing the biochemical cues that help to guide regeneration, as compared to a conduit which is hollow and not providing that support system. We also showed that, and this was a little bit of a surprise in this study, that Avance demonstrated faster recovery as compared to conduits, that it generated up to 3 months earlier, return to normal sensation than what we see in conduits. It's a pretty meaningful time difference for patients to go back to, again, a normal level of function. Finally, from a safety standpoint, we noted that there were lower incidences of persistent pain.
Those would be neuromas that are formed when Avance is used as compared to conduits. We think all of these are meaningful endpoints that will help surgeons in their adoption process. As we look ahead to 2023, we have several big milestones that we're looking forward to hitting. One is the completion of our AxoGen Processing Center. This is a state-of-the-art biologics processing center that we've been building in Dayton, Ohio. The construction is now complete. We're in the final stages of validating it as a tissue, then we'll transfer our manufacturing here in the first part of the year. We will run 2 facilities for a period of time, just belt and suspenders to be conservative in the transition, we should be transitioned over by mid part of the year fully into the APC center.
Excuse me. We'll then do a validation as a biologic, and this is the final component for our completion of our BLA application, which we will plan to submit by the end of the year, this year. A big milestone for us, one that we've been working on for a long time. I did wanna touch on, well, what's the benefit of a BLA? Why are we making this transition happen? It really is, first of all, based in the science of Avance that we provide biological cues to the regenerative nerve fibers that helps to aid in the recovery and return to normal sensation. It also from a business standpoint provides significant barriers to entry for others who might wanna follow us in this space. A BLA, first of all, is a higher regulatory challenge.
It takes a higher level of data. Typically it's gonna require a Phase I, Phase II, Phase III clinical study, which, in our estimate, if somebody was to run at a dead run on this, it would probably be 8 years of clinical work. It actually took us a little longer than that to get our study done. It gives us a moat for somebody trying to follow us as a biologic. There's another pathway that companies might choose to do, and that's as a biosimilar. Those who are not familiar with that's the generics of biologics. In the regulations for biosimilars, there's a 12-year exclusivity for the first mover called the reference product into a category.
We believe, of course, we'll be the reference product in processed nerve allograft as we're the only one available and in the marketplace. Ultimately, this helps to create a moat. We're developing these markets, we wanna continue to raise awareness, increase essentially the size of the pie here, and allows us to do that without having a lot of other competitors that we're ending up needing to compete against. One other piece of data that's recently come out, actually just this past week, we announced, is a meta-analysis looking at nerve repair compared to autograft. Especially as we move from these early adopters in our core accounts to middle adopters or middle adopter surgeons who may not be as interested in the research and interested in speaking on the podium, interested in doing their own research.
What they really want to understand is that they're doing the right thing for their patients. We've created here a dataset looking at 35 publications that shows a comparison of our processed nerve allograft, Avance Nerve Graft, as compared to autograft. Again, that's taking a nerve out of the patient's body and transplanting it. What we've shown is that allograft and autograft are statistically equivalent in all types of repairs, so sensory nerves, both short and long gap, motor nerves, both short and long gap. We provide that without the patient having to create a deficit and lose function in one part of their body to fix something somewhere else. That's what an autograft always means, is that you lose something to fix something. With our processed nerve allograft, you can get equivalent results without having to lose function.
One of the other questions that we often get from surgeons is, "But wait, is an autograft free? I take it straight out of the patient, so is that just a free tissue that I can use versus having to buy a processed nerve allograft?" In addition, in this study, we did a Medicare claims analysis showing that an allograft and an autograft procedure in both an inpatient and an outpatient setting are approximately the same in cost. An autograft takes 30 to 90 minutes of additional time. There are additional supplies. It's its own separate procedure while not being reimbursed separately. It is part of the repair. So it isn't free. In fact, it's about the same as what our using our product in one of those repairs would be.
In addition, autograft has additional risk that creates a risk for the hospital in preventable errors, things like a surgical site infection. We can say definitively that you will not get a surgical site infection in a leg to take out a donated nerve if you don't cut the leg. We reduce the risk profile for the hospitals for those preventable errors. It's a good economic decision as well as a good clinical decision for those hospitals. We've updated our guidance for this year to be a hundred and thirty-eight and a half million dollars in revenue. We continue to give our guidance that the gross margin is expected to remain above 80%. Ultimately, we look at AxoGen as the preeminent nerve repair company, that we have a foundation that we've built now for long-term sustainable growth.
We have over 75,000 advanced nerve grafts that have been implanted to date. Significant barriers to entry with all of the clinical data, regulatory work that we've done, and have the experienced team that we need to be able to execute and continue to build this market and impact both patient care and the creation of the peripheral nerve space. With that, I'd like to open up for questions.
Thank you. Maybe we can touch a little bit more on the performance in 2022 and growth prospects in the long term. Can you maybe talk a little bit more about the major milestones that you're expecting in 2023?
Sure. Well, as I mentioned, 2023 is a really big year for us. We're excited about getting this new APC manufacturing facility up and have our full processing transferred there. Of course, it'll be inspected by the FDA as a part of our BLA submission. We expect that actually in early 2024. We also will be submitting our BLA in the end of this coming year. To give you an idea, we have worked on this BLA since 2010. This has been a milestone that's been a long time in coming. There's a tremendous amount of work that's gone into it, and I'm very proud of our team for the rigor of the science that we've put in place in completing this BLA.
It's exciting to get that, communicated and in with the FDA.
I guess just touching upon that a little bit more, your RECON results were announced in 2022. Do you mind maybe talking a little bit more in detail, you just mentioned a little bit more about the BLA and, like, how excited you are about it?
Sure. The RECON results are, I think, impactful for 2 things. 1, of course, is they're a big contributor to the BLA. Your pivotal study is always a critical part of that submission process. It's also impactful to surgeons. At the end of the day, we have a really unique situation in that we have the same product with the same claim that is commercially available today as a tissue product, and we're transitioning it to be a biologic. We're really focused on changing surgeons' practices and the way they think about nerve repair. RECON is an important part of that, especially for middle adopters. We've worked predominantly up to this point with early adopters and those innovators in nerve repair.
As we move into our core accounts and go deeper into those core accounts, middle adopters are really looking for the validation that they can do the right thing for their patients. We believe an FDA-regulated trial of this rigor of data is very impactful for the decision-making of those middle adopters. We continue to be very optimistic about our growth, especially as we see hospitals getting more predictable and stable with staffing.
I think there's a question over there. Oh, do you mind hitting that microphone?
There's a mic if you wanna talk into the mic.
I was just wanting to know what the capital cost of that new manufacturing facility was.
Yeah. The capital cost of the new. Great. It's including the interest that we included in, it'll be at the end about $65 million. We've completed most of the capital expenses. We'll have, like, $3 million-$4 million here that'll trail into Q1. We're basically through the capital expenditures there. We also, in our early release, released our cash flow for, or an estimate of our cash position. We had about $5.3 million capital in the building in Q4 as we were finishing up construction, but we were $900,000 positive in operating expense.
Was there any that $65 million, because it was divided over many quarters?
I'm sorry. It's hard to hear you.
Was it weighted towards any quarter, that $65 million? Was it weighted toward any quarter? No.
Yeah, it's been.
Three years.
No, it's not just one quarter. We've been doing the construction-
Three years.
... sort of 3 years. We bought the building. It's actually been spread out pretty far.
Maybe as we actually transition into kind of talking about the new processing facility in Dayton, Ohio, do you mind talking a little bit about the rationale and benefits for it specifically?
One simple rationale is you need capacity. We've grown a lot over the years, this is actually the fourth time we've moved manufacturing, I'm done moving manufacturing. What we really built this facility for was a mind towards how can we now expand without having to move again. This facility is built with a set of clean rooms, but it's stubbed in to double the clean rooms again. We can double that again with an addition onto the building. We can vastly expand our capacity by staying still in this same site. It was really built first around how do we shore up the supply for the long term here. The second was thinking about from a biologic standpoint, let's make sure that we've controlled our own destiny.
Up to this point, we've leased space. It's always been a very good relationship with our leaseholders, but that means they control the environment, we manage the room. As a biologic, we wanna control the environment. In a biologics processing with the clean rooms that we have, it's just like an operating room. Everything that goes in is sterilized, and then you manage the waste streams coming out. We built this with the flow that the FDA would expect in a biologics processing center again, it just allows us to control our own destiny to make sure that that's always of the highest standard of care. So that was the decision of why we wanted to do it.
We decided to put it in Dayton, Ohio, honestly, because we lease space today in Dayton, Ohio, and we have a very skilled team who are processing these nerve grafts. This is a tough job. They wear the full gowns up of being in a clean room, and nerves are tiny, so they do it wearing loops, like a jeweler's loops. It takes a very skilled team to have the manual dexterity to do that, and work with the nerves. We wanted to keep a very well-trained team, so we built the facility near where we currently lease space.
Question regarding the BLA. Do you think that'll impact reimbursement once the BLA is gained?
Yeah, good question. Today, I don't believe it will. The reimbursement for products used in surgery no longer get an add-on reimbursement as a biologic. They're covered under the DRG. Having said that, the CPT codes and DRGs are sufficient to manage the cost of our implants. We don't see that as a constraint.
You recently announced, the publication of the independent meta-analysis. Can you maybe touch a little bit more on the importance of the data to support surgeon decisions specifically with that?
Sure. Again, this is the announcement that just was published in PRS this past week. This is the biggest data set that's been published to date and done by a leading set of authors from across some of the biggest academic centers in the U.S. A very thorough review of the data and still showing, again, autograft and allograft are comparable and statistically equivalent in results. Both crush the commercially available conduits, again, that's not a surprise. It's the same sort of data we saw in our RECON data. We're, we're pleased to see that it's showing good supporting information across all types of nerve repairs so that surgeons can make the right decisions for their patients. It's also our first publication for that economic buyer.
Continuing to be able to show from our responsibilities from an economic standpoint to manage healthcare costs, I think is important and will be very helpful as we continue to grow and expand.
Can you speak a little bit about, sort of like a human capital element? You spoke about these key skill sets from some of your team members, sort of how you're retaining talent, ensuring that you're retaining talent, rather?
Yeah. Yeah. Great. A growing company, it is always fueled by talent and we actually made a decision several years ago. We, our origins were out of the University of Florida, and so we started in Gainesville, Florida, which is a great small college town. Lots of infrastructure to support a small company. As we grew and needed to attract talent, we actually did a nationwide search of where to move the company so that we could be in the best position to attract talent, and we moved to Tampa, Florida. I don't necessarily wanna make this an advertisement for Tampa, but it's a great place to recruit talent. So that turned out to be a fabulous decision.
I'm personally a believer that it is important for people to be together, to have that collision of thought and opportunity to create innovation. What we do is a creative process. So we are on a hybrid schedule so that we're in the office three days a week. We do have flexibility, a couple days for people to work from home. We found that Tampa is just a great quality of life to attract the talent that we need. We've been very happy with that decision. We did move in October of 2020, which was a little bit challenging in the world of things. But it's really worked out to be a good decision for the company.
Thank you.
Are there any other questions? One last one, just being as we think about 2023, what are you kind of, looking forward to most and anything else that you would like to share with investors and everyone here today?
Well, we haven't given guidance yet, but we're optimistic about 2023. We think this will be a good year as we continue to grow and change the nerve repair market. We've seen and proven that we can really activate patients in the area of breast reconstruction, and we're now piloting those tools and moving them over into the pain segment to see the impact that we can have on patients suffering from chronic pain. We'll continue to see growth in our trauma and our oral maxillofacial segment. We think we're well-poised for an exciting year.
Great. Thank you very much for the time today.