All right, great. Thank you everyone for coming. Next up we have Axogen. Please, we have Mike Dale, CEO, and Lindsey Hartley, CFO. I guess for both of you guys, I've been covering you a long time. You know, the BLA took a long time, but you have it now. Maybe just your thoughts on sort of the label you got and getting through that process. You know, certainly changes a lot, I think, for the long term, but high level, what are your thoughts sort of? Maybe to speak to like the breadth of the label that you received, if you can.
Sure. Starting with the label, the ultimate scope of work that we can continue with is exactly what we were doing previously.
Correct.
There's no diminution of our ability to serve patients with regards to sensory nerve versus motor and mixed nerve. All elements were allowed to continue to serve in terms of nerve discontinuities. The label itself is agnostic to the application insofar as what it basically says is that this is an approved biologic that's safe and effective for as a therapeutic for the treatment of nerve discontinuities. We are able to continue to develop the markets and establish nerve care as standard of care consistent with that label.
In terms of, you know, we wrote a lot about sort of the runway that that gives you being a reference product, but you know, 12 years of sort of exclusivity, I guess. Just comment on, you know, that and have you seen anything like that before? I guess the agencies, you know, the, and the documents you received is, it's probably crystal clear that that is the case, correct? Like there's no other allograft product that can come into this market.
That is correct as we understand it. That's what we've been advised from outside consultants and counsel as well. To be honest, even if the FDA did not provide for that, there is a practical barrier of at least a decade, if not more. If someone were to say today, regardless of their resources, that I want to enter into the nerve care market, assuming they even knew exactly what they wanted to do from an invention standpoint, the time it would take to one, build your plant, satisfy the quality systems, to conduct the clinical trials for each application of interest, would be a minimum of a decade.
What it really speaks to is what we talk about quite often is that nerve care is just becoming top of mind in terms of its credibility and the reasons for why it should be part of care pathways in terms of treatment. Heretofore people have not focused on that from an intervention standpoint, and that's why de facto in part why we enjoy this exclusivity that we do.
It's pretty unique. You know, I've followed the sector for a long time. I don't think I've seen that before, so congrats on that. At your Investor Day, you know, you talked about insurance coverage being around 50%. I think you updated that to 64% more recently. You've talked about it not being a light switch, but I know there's some chatter about there being potentially, you know, new ones coming on board and new insurance companies that is, and I think there's three or so that are still out there. Maybe give us your thoughts on those and maybe the timing or the potential timing of when they could come through.
Sure. There are three primary commercial insurers that at present do not have coverage, do not provide coverage for Avance. The last requirement that was necessary to satisfy was establishing a codified benefit risk proposition under the regulatory framework. Because heretofore we had been operating under discretionary approval, which in some payers' minds positions the product as experimental. With the achievement of the Biologic License Approval, we're able to satisfy that last objection. There were other elements that these payers also required in terms of updated evidence dossiers and advocacy within the provider groups that they insured for.
All of the requirements necessary to provide coverage in accordance with each payer has now been satisfied from a technical perspective. What we are in the process of doing is doing the formal submissions and requests for reconsideration of their positions. Those have all been made. Throughout this year, based upon those payers' annual review processes, we will hear back as to whether or not they agree or whether they're silent on the subject or have a specific response otherwise. What we can say is that technically we have satisfied all the requirements for coverage, and now we're waiting.
I've heard March, April timeframe is sometimes, you know, when that is likely. I guess fingers crossed that could still happen maybe for one or more this year.
It is certainly possible. That's, as you might appreciate, what we have not predicted, timing.
Right.
Simply because those are the things that we just don't have control over. What we can control is satisfying the requirements. That we have done, and formally made manifest to the individual payers.
Recently you commented on sort of CMS reimbursement. I think it was mostly in ASC, in the outpatient setting, but then it increased a lot, and I was wondering if you had any thoughts about, like, exactly why that happened, and I think it said 40% or something to that magnitude, but.
You don't typically see that. I think you had said something like it might've been not related to the BLA, but potentially somebody maybe that had some impact. I would love to just get your thoughts on.
Sure. No, it's actually a great lesson for any companies in this space. CMS is, I genuinely believe, a good steward. They have a very rigorous process, but if you follow the process and the applications, they will respond in an objective manner, where there's discrepancies or things that don't fit. Again, I'm generalizing, but that's been our experience.
To the credit of the coverage and payment team led by Rick Ditto that joined us a little more than two years ago, he has looked at all elements of coverage and payment to include CMS as well as private payer, and he's been leading the way in terms of formalizing all the efforts to satisfy these various bureaucracies in terms of their requirements. CMS, in terms of the outpatient setting, what he observed was that the payments were very uneconomical because nerve care had been bundled with other procedures which had nothing to do with nerve care, which were also very numerous procedures that had very low levels of cost. The average global payment which nerve care resided in for outpatient work wasn't appropriate.
It wouldn't cover the necessary costs. There is a formal appeals process which you can submit to CMS. Rick engaged in that process with CMS. CMS did their own evaluation and ultimately came back and concurred that indeed that was an inappropriate bundling. They separated that out. They created a dedicated nerve code and established payments that were appropriate to the procedure, and that's why these changes have resulted. Good work on the part. Bottom line, there was a credible discrepancy that was now rectified. In the future going forward, that setting will be another opportunity for practicing nerve care. Another obstacle down, a barrier removed for those who want to do nerve care in that setting.
As a setting, you know, much of nerve care is still gonna reside in the inpatient environment due to the severity and the significance of the procedures. For many upper extremity less care intense procedures, you will see some of those eventually move to that setting and probably a lot of chronic follow-up will probably move to that setting, but not everything, though.
Would you, I mean, I don't know the answer to this, but in terms of inpatient today, is it over 50%? I don't
Oh, inpatient, well over 50%.
Would this change? Could that shift somewhere?
You know, we don't know yet, honestly. We're watching it. This is all literally new. Hospitals, some hospitals aren't even aware that the payment rate has changed. A lot of socialization of the changes needs to take place. Hospitals need to evaluate their own through their contracted payers. They need to evaluate, "Okay, now what do we wanna do?" Invariably, people are gonna move certain work into that setting. Right now we don't have any details.
Yeah, I think a 40% increase might help that to happen over time.
Exactly.
Another thing you brought, you know, was a high potential account strategy. The company had others in the past, but, you know, that's sort of been, you know, something that you kind of pioneered and talked about. I guess if as you look at that, and I think you're primarily focused on Level I and Level II, like sort of trauma centers, do you have any, like what penetration do you have into those? And I mean, how fast do you think you can continue to add new ones given where the company stands today?
We think there's years of growth left ahead, because there's not just the physical footprint of the hospital involved, of which there's still many that we can more fully develop, but there's also the practitioners in nerve care. That is still grossly underserved in terms of the number of physicians who need to be trained and then made aware, and then the patient chain of custody. Depending upon how the nerve insult presents is whether it be trauma or whether it be some other procedure, one of the biggest gaps that exist is awareness that there's even solutions to nerve care or that the nerve might even be involved.
There's a lot of very basic education that's ongoing all the time in all these hospitals. Because the breadth of opportunity was so large, the high potential account strategy was just a logical conclusion of saying, "Hey, wait. Can't go everywhere. So where can we stay focused, where we can have the greatest return on our time?" It was the high potential accounts, which are really it's just a filter of the acuity scoring in terms of volume and historical coding, then secondly, academic affiliation, and then thirdly, some prior nerve care training association, where we know we have someone who knows something about nerve care that we can build upon.
Another way it's referred to as classic beachhead strategy. You know, like plop, we'll start here, and then we'll build from there. That's what we're doing. That has proven to be extremely productive. Again, logical reason. You stay in one place, you make sure you completely support people, you educate them completely on the algorithm, and then if they got one buddy, you find another buddy, and you build out from there.
I think you said it was like 61% of your revenues, but in terms of your penetration into some of those larger centers, I would think of given the length of time that the product's been out, that you might have hit like 50% of some of those, but I don't know. Are you-
You know, it's a very important question. Yeah, Axogen has a long history. This may sound kinda odd, but I think you just need to ignore the chronological history. Because market development has specific gameplays and elements that you need to touch upon in order to make progress. Ultimately, if you have novelty by definition, it doesn't exist in the system. The question you have is what is the cause and effect that will now make it part of the system, as part of the care pathway? That's coverage and payment. That's education awareness. That's adoptability.
A good part of this is care guidelines, in other words, where there's an expectation that says, "If patient presents with A, you should be doing B, or you should at least consider B." All the stuff needs to be developed, doesn't happen through osmosis. It's a concrete market execution work stream. It happens over years. Historically, Axogen did not engage in that kind of work. The business as a result from a growth and particularly relative to standard of care status, it didn't progress the way you might expect over that period of time. Begs the question, what's different today? Well, very simple.
We're just following the textbook in terms of market development and being as rigorous and as diligent and focused as we can in the care pathways we've decided to prioritize and say, "Our objective is standard of care status." Yes, we wanna grow, but the growth will come as we make progress on standard of care status. That's what's in play right now. This game will play out for years because there's that much work to do. In the end, as the business grows, nerve care becomes ever more common. It builds on itself. You know, there's the old saying, "Success breeds success." It absolutely does. Care is no different.
Thank you for that. Maybe we'll spend a minute or two on the four target markets. Now, extremities, obviously the one that's been around the longest. I think you guys said that you wanna add 13 reps and train 200 surgeons this year. I guess your thoughts on how the year started and are those still realistic? You know, obviously, the reps there, the sales force is the biggest. Maybe if you can comment just on the size of it today prior to the 13.
Size of what?
The sales force.
The sales force. The sales force today for extremities-
Extremities
is 118. We're gonna move those to about 130. We may go faster, but that's the minimum. As we talked about, as mentioned here, success breeds success. That group, while it was the original area of focus, they're killing it. They're doing great.
Where do you find the people mostly? Like, where are you recruiting from?
You know, it's right now when we open up a job. We have a significant interest that follows. Again, in that world, people are looking for exciting things to sell where they can make a good income, feel good about themselves every day, be the cool kid in school. Honestly, that's where Axogen is right now. We get people from a variety of places. I don't wanna out anybody, but
Med tech companies.
Yeah.
other med tech.
Med tech companies and anyone who's even adjacent knows about the company these days.
I don't think I've asked you this in a while, but you may or may not wanna comment on it, but when you look at Avance for sort of AxoGuard mix today, specifically in that extremity or trauma kinda area, my guess would be, you know, Avance is still slightly larger, but I don't know. Any color on the-
Avance is still larger and is expected to remain so long into the future. Why? Because Avance is obviously the flagship, but more than that, it's an expression of people doing nerve care. The other parts are also growing in parallel because if you're doing nerve care, you wanna give, whether it be an Avance or whether it be an autograft, you wanna give that nerve the best possibility for healing, because healing is commensurate with regeneration. Those wound beds are very inflamed. Then if they're left unprotected, they can scar over on top of the nerve that you've just done repair work on. That can then further impede the ultimate regeneration potential. You need to protect those nerves.
That's part of the algorithm, the AxoGuard, and the variations on AxoGuard. The connectors that you use to make those connectors. We expect to see both parts of these just continue to grow, in parallel, with Avance leading the way proportionally.
Maybe moving on to breast. Again, you put out some pretty, you know, specific goals for the year. I still think it's interesting that the, you know, the training involves the surgeon pairs. Maybe you could, like, talk about that. You know, 'cause it's different than any other area that you're looking at. 75 surgeon pairs, I guess, you know, how realistic is that to get to this year?
I think it's very realistic. I had a chance to attend one of the breast education courses here recently. It was notable because the year before when I first started, one of the first education courses I attended was a breast course. That was very positive. You could see people engaged. The level of education was clearly well done, and people were mesmerized and totally engaged. Same thing this year. The difference was the vibe, how people were talking about why they're there at that course. No one wants to be the person who's not doing this kind of work once they're approached. There's a excitement, maybe not the right word, but maybe it's partially excitement.
Those are genuine desires, like I, "I need to know this and I need to be part of this.
Would you say the recon folks or the oncology folks? Is there one that's more-
Both, because it's very important work, and people recognize this is not going away, this is only gonna get bigger. I'm generalizing, but that's how they look at it. Again, the high ground you always hold and when you have a nerve care discussion is no one argues with you about whether or not your peripheral nerve function is a necessary capability. You don't have any esoteric arguments or say, "Well, you know, it's really not that important. You don't need peripheral nerve function." No one says that, okay. The only question is, well, do you have any evidence that this works? That's a very legitimate question. If I'm gonna do this, what evidence do I have that it works?
There's almost all the evidence trends in the direction of, "Yeah, this works." Then people have their own patient experiences. There's still a need for evidence that settles the question unequivocally in the form of controlled studies, and that's what we're adding. There's people today who do it themselves, they now consider it completely unethical not to offer this to their patients. That's where the market is in development. More evidence needs to be generated, but the train has left the station and people are, they want to do this work, and so they realize they have to learn how to do it well. That's why we have surgeon pairs. The oncologist, their job is to remove the tissue of concern where the cancer may reside.
Our job is to help prepare them so that when they do the job that they have to do, they do it in such a way that you leave a nerve ending, intercostal nerves, at such a length that allows the plastic surgeon, the reconstructive surgeon, to graft to those, so that they have a chance to provide that allograft so that nerves can regenerate. There's technique involved, and so we teach them how to do that part of the mastectomy in a way that supports ReSensation, reestablishing peripheral sensory function. The plastic surgeon, they already have microsurgical skills, so if they're not already nerve trained, they can quickly learn what needs to be learned in order to do that work together.
There's no competition between the two and they want to do this kind of work, and hence the pairing works very well. I was actually surprised when I first joined. I said, "Surgeons cooperating? That never happens." In this instance, it actually happens regularly and routinely with no issues.
That's great to hear. Maybe just moving on to oral and maxillofacial, head and neck. Sort of same thing. You know, I know there's procedures that you've been involved with there for a long time. You've also set some goals for that setting. I guess your thoughts on, you know, that as a driver ahead. I would assume that breast might be more exciting or larger, but I don't know, maybe I'm wrong. Tell me your thoughts on sort of that segment.
Head and neck, oral and maxillofacial, your upper body torso is nerve rich, so that's where the vast majority of your peripheral nerve system expresses itself, if you had to look at nerves per square centimeter. Anytime there's an intervention in that part of the body, peripheral nerves are affected. It's also ironically certain specialties who know the least about AxoGen. So it's not at all uncommon to meet someone and they say, "AxoGen, what is that?" They literally don't know you. Which means they don't certainly don't know anything about Avance. But there's a lot of work up here, the reconstructive work that often takes place.
It's very important, but oftentimes, the nerve is not always dealt with for a variety of reasons. What we're again doing there is trying to help them say, "Hey, you're doing all this work to reconstruct this person's face," or whatever the situation is. Again, the purpose is to give them back what God gave them before they had the need for this intervention. Let's do our best to restore that peripheral nerve function as well. That's kind of the nature of the conversation and we do work to help support that. There's also other areas where they're very nerve centric, and they do nerve surgery, but they just haven't heard about Avance. We work with them to educate them about Avance.
I would say that the oral and maxillofacial, head and neck is the area where people know the least about us, and where we have the most to prove in terms of our efficacy. There's still a lot of autograft-centric users who are skeptical because they just are unaware, and just plenty of selling to do. It's a very big procedure environment. Breast, getting to that question. Breast is gonna be big. It's just that we have to scale into that. We have now 20 people. We're gonna expand that group to about 30 this year. Ultimately, we probably need something close to 60. We'll see how the relationships and the service requirements play out over time.
The current guess is that we'll need, over time at least, 60 people to fully service breast mastectomy.
Now, the little time left, I'm gonna ask you one, Lindsey, if I could. You know, again, I get asked this from time to time, like capacity. I know you have the new facility in Dayton that was open a couple of years ago. Your gross margin guidance is still pretty consistent to where you've been. Given all the stuff that's happening, do you have ample capacity to go after all these?
Absolutely.
Yeah.
Yes. At least through our long-term plan, you know, there may come a day where we want to build a redundant plant just, you know.
Right?
For stability of the company and business continuity, but we have plenty of capacity.
Excellent. Well, thank you. Thanks for coming.
You bet. Thank you for the opportunity.
Thanks.