Good morning, everyone, and welcome to Axogen's Prostate Nerve Reconstruction Investor Event. Joining me on today's call is Michael Dale, Axogen's President and Chief Executive Officer, Lindsey Hartley, Chief Financial Officer, Jens Kemp, Chief Marketing Officer, and Erick DeVinney, Chief Scientific Officer. We are also pleased to be joined by Dr. David Lee, Professor of Urology at the UC Irvine School of Medicine and Director of the UCI Health Comprehensive Prostate Cancer Program. We will follow with a question-and-answer session. Today's call and presentation is being broadcast live via webcast, which is available on the Investors section of Axogen's website. Following the end of the live call, a replay will be available on the Investors section of the company's website at www.axogeninc.com.
Before we begin, please note that today's discussion will include forward-looking statements regarding the potential clinical benefits of nerve reconstruction and protection in radical prostatectomy, our market development plans, and the market opportunity. These statements involve risks and uncertainties that could cause actual results to differ materially, including those described in our most recent Form 10-K, subsequent Forms 10-Q, and other SEC filings. Forward-looking statements speak only as of today, and Axogen undertakes no obligation to update them, except as required by law. Additionally, guest surgeons are paid consultants to Axogen Inc. Their statements reflect their personal views and clinical experience. They do not necessarily represent the views of Axogen, UCI Health, UC Irvine, or any affiliated institution. While the early clinical experience that will be discussed today is encouraging, further evaluation is needed to validate the reproducibility across additional clinical settings. Individual results may vary.
Now, I will turn the call over to Michael. Michael, please go ahead.
Thank you, operator, and good morning, everyone. As part of our third quarter earnings release and conference call, we informed the public we had concluded our prospective multicenter clinical experience was positive and that based on the clinical outcomes, we would move forward with market development for the treatment of nerve discontinuities secondary to prostate surgery. Prostate cancer is one of the most common cancers in men, and robotic-assisted radical prostatectomy is considered one of the most effective treatments for localized cancer control. Over the last 20 years, robotic-assisted radical prostatectomy surgery has transformed how these procedures are performed and is widely considered to be standard of care. But for many men, treating the cancer still comes at a significant personal cost, the loss of erectile function, and for some, persistent incontinence. These complications happen because the nerves responsible for these functions run alongside the prostate.
Based on the extent and location of a person's cancer in the prostate, surgeons, as part of removing the prostate, may be required to also remove some or all of these nerves. Despite advances in robotics and technique, heretofore, there has been no solution for reconnecting these nerves. Offering solutions to nerve discontinuities is precisely the kind of problem Axogen exists to solve. Our business purpose is to restore health and improve quality of life by making restoration of peripheral nerve function an expected standard of care. We have made significant progress towards that mission in extremities, oral and maxillofacial, head and neck surgery, and breast reconstruction. In prostate, we will apply the same science and commitment to nerve repair best practices to this large and underserved patient population. When we began this program, we set out to answer four questions before committing ourselves to market development. First, clinical need.
Is the need real and meaningful to patients? Second, market opportunity. Is the market substantial enough to warrant allocating people and capital? Third, surgical execution. Can we develop a reconstruction technique that can be standardized, integrated easily and efficiently into surgical workflow, and scaled in robotic surgery? Fourth, and most importantly, do clinical outcomes demonstrate a positive benefit-to-risk signal? Today, you will hear our answers to these four questions, drawing on our work with 15 nationally and internationally recognized urologists and men's sexual health thought leaders. This collaboration included leading academic centers and surgeons in the United States and more than 220 patients who underwent reconstruction with Avance. The early clinical outcomes and experience from this work form the basis of our decision to commence commercial market development for the treatment of nerve discontinuities secondary to prostate surgery. With that, I will turn the call over to Jens.
Thank you, Mike. Every prostatectomy surgeon aims to achieve a clinical trifecta, effective cancer control while preserving continence and erectile function. Our research shows that roughly 60% of the 110,000 prostatectomy cases performed annually are generally nerve-sparing. Of the remaining 40%, roughly half require sacrificing the nerve bundle on one side, and half require wide resection of nerve bundles on both sides. When nerves on both sides are removed, the likelihood of natural recovery is minimal. To understand the impact to patients, we worked with two independent research firms and surveyed more than 450 patients across the prostate cancer journey, including those treated with surgery, radiation, and those on active surveillance. Three findings stood out. First, patients told us quality of life is as important as cancer control, and that changes in erectile function had affected their quality of life.
Most patients said their doctors should do everything possible to preserve or restore erectile function. Second, fear of side effects shapes decisions. 82% of patients told us they avoided or delayed treatment over concern about erectile dysfunction or incontinence. That means the side effects of surgery are not simply a quality of life consideration, it's a barrier to care. We also learned that patients choose prostatectomy primarily for cancer control, and surgery is generally viewed as the most definitive option. Patients choose alternative treatments or active surveillance out of fear of side effects. Third, and most important for Axogen, patients told us they would act if presented with a better surgical option. 88% said they would ask their surgeon about nerve reconstruction. Among patients who had already undergone other treatments, such as radiation, many said surgery would be back on the table if nerve reconstruction was available.
Many would switch surgeons or hospitals to access it, and would pay out of pocket if it wasn't covered. In addition to our patient research, we surveyed 100 hospital and urologist administrators to understand adoption potential, especially in a situation with limited commercial coverage. This research confirmed the importance of improving prostatectomy outcomes at the facility level. 84% rated improved erectile functional recovery as very or extremely important, and that a meaningful erectile functional improvement can justify pre-coverage adoption. Large, high-volume hospitals appear particularly receptive, with 83% of large 750-bed hospitals supportive of adoption before coverage. In summary, our market research validates not only the unmet need, but the potential market response to our nerve reconstruction technique. Patients want better options, surgeons want better solutions, and many hospitals are willing to adopt in a pre-coverage environment when meaningful clinical benefit can be demonstrated.
Our market research also validated the number of potential procedures, the distribution between nerve-sparing versus non-nerve-sparing procedures, and confirmed our estimated $754 million TAM opportunity. With that, I'll turn it over to Erick.
Thank you, Jens. That data clearly establishes the need. I'll address the next two questions. Can the procedure be done reliably and at scale? And most importantly, does it help the patients? We approached this the way we approach all nerve repair. Start with the anatomy, apply nerve repair best practices, and partner with leading surgeons in the field to integrate our technology into patient care. Over the past 20 months, we've worked with urologists and sexual health experts to refine the grafting techniques and to follow their early clinical experiences. In addition, we worked with early adopters to evaluate long-term outcomes for recovery of erectile function. As Mike mentioned, the nerves that control erectile function and contribute to continence run along both sides of the prostate. They are often referred to as the neurovascular bundles. Because these nerves are so important, surgeons make every effort to preserve them.
So why aren't they spared every time? Depending on the location and the severity of the tumor, cancer control may require the surgeon to remove one or both of the bundles along with the prostate. That resection leaves a nerve gap. Based on our experience across the body and other applications, we know that these nerves can regenerate and re-innervate the original target tissue when they have the appropriate path to follow. Avance provides that path, offering a structural scaffold and biological support to bridge the gap. Our first priority was a technique any skilled robotic surgeon could adopt. We learned from the prior work of Davis et al. in 2009, which looked at sural nerve autograft in open prostatectomy procedures, that visualization, identification of the targets, and matching the size of the nerve defect were critical challenges that would need to be addressed.
There are two key developments that have come a long way since Davis' original work and make this possible now. Robotics provides the visualization and precision that open surgery lacked, and Avance provides an appropriately sized graft to fit the discontinuity without the limitations of small sural nerve autografts. Because we're working within an established robotic workflow, we focused on three technical goals: identifying the tissue structures that contain the nerves, appropriately handling of the graft, and implanting it robotically. In 2015, we completed a technical feasibility study in collaboration with Vanderbilt University. We used those learnings as the foundation to build a technique that allows the robotic urologist to identify the proximal and distal nerve targets and repair those with Avance. We evaluated this technique across a diverse group of surgeons, and we believe this procedure is trainable, reproducible, and scalable.
A few key additional learnings from this work are that this technique is compatible with multi-port and single-port systems, and it does not require the latest generation robot. It fits well into the robotics workflow, and surgeons estimate it adds under 10 minutes to the overall procedure time. Manuscripts describing this technique have been submitted for publication. Turning to outcomes. More than 220 patients have been reconstructed with Avance to date across the 15 clinical experience sites. Within our surgeon experience study, 117 patients have at least six months of follow-up, 86 grafted on one side and 31 grafted on both sides. Surgeons reported that at six months, approximately 80% of the patients had better-than-expected erectile function, and continence recovery was reported in more than 95% of patients.
Erectile function was assessed using SHIM, a validated erectile function questionnaire, and continence was evaluated based on pad usage and pad-free continence rates. To be clear, these are surgeon-reported assessments of their own patients based on their own clinical experience, not controlled trial endpoints. Still, when experienced surgeons independently report similar outcomes as measured upon common endpoints, we believe the clinical signal can be considered a meaningful reflection of the procedure. For a more quantitative view, Dr. Tung Shu at Vanguard Urology in Houston retrospectively analyzed 38 of his patients using SHIM, where a score of 15 or higher generally reflects erection sufficient for sexual activity. Among bilateral patients in his study, more than 60% reached the threshold, versus 13% recovery reported in historical controls without reconstruction. Among unilateral repair patients, approximately 80% recovered erection sufficient for sexual activity, versus the 33%-56% reported in unilateral non-nerve-sparing historical controls.
Additionally, the results from Dr. Shu's study are consistent with our 2015 Vanderbilt feasibility study, which reported 70% return of erectile function after unilateral reconstruction, and the preliminary results from an ongoing clinical study being conducted by Drs. Sanjay and Shirin Razdan in Miami, which is currently reporting an 80% rate of recovery of erectile function at six months. We believe these three independent data points provide a meaningful signal of clinical benefit, and it is especially encouraging in the most challenging patients. Men who lose both nerve bundles historically have little chance of meaningful erectile recovery. To see 60% of these men achieving erection sufficient for sexual activity is remarkable. Our sites continue to follow their patients. Data have been submitted for presentation at upcoming conferences, and we intend to build the level of evidence required to support guidelines and coverage. Data only tells part of the story.
The best people to describe what this looks like in practice are the surgeons who perform these procedures. I am pleased to welcome Dr. David Lee of University of California, Irvine Health, one of the most experienced robotic prostatectomy surgeons in the country, to share his experience. Regrettably, Dr. Schwen had an unplanned scheduling conflict and is not able to join us today. Dr. Lee, thank you for joining us.
Thank you. Great to be here.
Great. Dr. Lee, I'd like to start with a few questions this morning. You've performed more than 7,500 robotic prostatectomies and built robotics programs at UCI, UPenn, and in Texas. Looking back over time, what has robotic surgery solved for patients, and what hasn't it solved?
Yeah, great question. I think the big benefit that robotic surgery has provided for patients and the surgeons who are performing these operations is that the recovery time after surgery to get back to all your usual activities, like getting back to work, playing tennis, playing golf, that's dramatically improved. Postoperative pain is much less, hospital stay is much shorter, and in fact, we do these surgeries as outpatients now. The blood loss is dramatically better, quicker return to work, shorter catheter time. But all of these factors are just really one aspect. The main outcomes for robotic prostatectomy are really cancer control, continence, and potency. As was addressed in the prior discussion, continence and potency are especially important to patients. And as surgeons, we try to do the best operation that we can in order to provide men with these really important outcomes.
But we can't be perfect all the time for patients, because of this balancing act that exists between cancer margins, which will improve as we do a wider resection around the prostate, but then the critical aspects of nerve sparing, where that requires us to get very close to the edge of the prostate. Robotics helps us to get into the spot that we want to, but the cancer doesn't always allow us to get there. The most frustrating gap is erectile function because these nerves live closest to the prostate. Then the other aspect that's important to note is that no matter how perfectly we feel a nerve-sparing is done, because of the sensitive nature of the nerves, not all men have return of erectile function. And so nerve-sparing has helped, but number one, it isn't always possible, and number two, the nerves don't always bounce back.
Great. Thank you for that. Which patients have you historically had the hardest conversations with, and what could you offer them for?
Yeah. This really falls in line with what we've just been talking about. When men have a more aggressive prostate cancer, typically it's larger because we don't catch it as early, because the cancer grows more quickly, and then when it does, it can grow outside the edge of the prostate and into the nerve bundles. Then in this situation, we need to get as wide a margin as possible to get all of the cancer out, but then knowing that, we know that many of these men aren't going to get erection function back. And so, the cancer only lets us do what we can do, but it's a hard thing for patients to get their head around because when men are detected with prostate cancer, often they have no symptoms.
They're really feeling fine and going about their lives, and then they're diagnosed, and then they have to face all of these difficult things. But then when guys have loss of erection function because the nerves have to be removed, there are options that can help, which help to bypass the nerve function. But in these cases, the erectile function pills like Viagra and Cialis don't work, and so we really rely on injection medication, and then ultimately penile implants, but nothing has addressed the nerve itself.
Thank you. What made you decide to start grafting, and can you share your experience so far?
Yeah, happy to. I think this really fills this unmet need. These patients where they really don't have another good option, you feel really like you can't offer the patients what they need. I think this idea of nerve grafting really helps us to fill this possibility. I feel like this can be really helpful now that we've started doing it and have a really reliable technique of performing the nerve graft. We can talk to our patients about the possibility of replacing these nerves. I have in the past done autologous sural nerve grafting, but when we ask our neurosurgeons to harvest the nerve and then we take that nerve and place it into the bed of where the nerve used to be, I was always struck by how very flimsy that nerve looked.
The Axogen product looks so much different than the autologous nerve that we used to work with, so it's a much more robust-looking product, and it has a lot of other biologically favorable aspects to it, including the scaffolding, which is nice and clean for regrowth. The other really appealing aspect of the product is that really there's minimal downside risk. I don't think there's any real possibility of having a reaction to the graft, and simply if it doesn't work, it doesn't work. I don't think it's an impediment to healing. I think it only has potential benefit. It really, as was mentioned, is a very easy part of the operation to incorporate. It really takes us only about 10 minutes of added time.
The graft itself does require some preparation, but I can have some of our other team members prepare the graft while I'm continuing to work at the robot, and then the passing of the nerve graft in and then placing it into the bed is very straightforward. It really doesn't change the operation as far as how we can do it in order to get a good cancer margin, and in fact, can possibly provide us with some advantages. It's been very pleasantly surprising how easy the graft is to work with.
Excellent. Thank you for sharing that experience. Given your experience, where do you see nerve reconstruction fitting into prostatectomy today, and where do you see it going five years from now?
Yeah. Oh, that's great. Great question. Today, I think, again, it fills this unmet need where men who are faced with the options for high-risk prostate cancer, and we have to remove the nerves, this can be a really great solution. In the longer term, I think it does require us to have more careful study. Our preliminary work so far has been very positive as far as the earlier recovery and having what looks like better blood flow into the penis. But the balancing act between cancer and nerve function will be an ongoing question. Another aspect which I think is important to explore is, as I talked about before, when we do bilateral nerve sparing or a partial nerve spare on one side, not a complete resection, and then a really good nerve sparing on the other side, again, not all men get erection function back.
It could be possible that even in a nerve-sparing situation, that the nerve grafts may be helpful. We will begin looking at men who might benefit in these situations. Then, I think another aspect which is important to explore is that when men do have high-risk prostate cancer, surgery all by itself may not be the total answer as far as eliminating or eradicating the prostate cancer. We require a multidisciplinary approach between surgery, radiation, oncology, and medical oncology in order to provide men with high-risk prostate cancer the best possible outcomes. If we do nerve grafting for these men, will they possibly do better than men without nerve sparing at all? Even in the face of treatment afterwards, will it help men to do better that way? I think these are all important questions to be answered.
Thank you, Dr. Lee. Hearing from surgeons who provide this care to their patients is exactly why we are confident with moving this program forward. With that, I'd like to turn it back to you, Mike, to bring us to our next section.
Thank you, Erick and Jens, and thank you sincerely, Dr. Lee. Hearing directly from the surgeons who serve these patients and perform these procedures is indeed the most credible and meaningful way to understand the opportunity for all stakeholders. We set out to answer four questions. Is the need real? Jens showed that patients value quality of life as much as cure, that fear of side effects is delaying treatment, and that patients would actively seek a reconstruction option. Can this be done at scale? We have developed a standard technique that works across robotic platforms, fits into the existing workflow, and can consistently be implemented to achieve an appropriate reconstruction. Does it help patients?
Our early experience across more than 220 patients, consistent surgeon reports, our original 2015 experience, and Dr. Shu's data in the most challenging bilateral cases gives us confidence we can offer patients a better benefit versus risk value proposition. Based on these findings, we will initiate prostate nerve reconstruction market development in 2027. Our planning process is well underway, with a focus on awareness development, evidence generation, coverage and reimbursement, professional education, and patient education. We look forward to introducing the plan in detail during our March 2027 Investor Day. We believe nerve reconstruction in prostatectomy can become a meaningful long-term growth driver for Axogen, and more importantly, a new standard of care for men facing prostate cancer surgery. With that, we will now open the line for questions. Operator?
Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment while we pull for questions. Our first question is from Larry Biegelsen with Wells Fargo. Please go ahead with your question.
Good morning. Thanks for taking the question. Congrats on the progress and the data here. Maybe to start, Dr. Lee, thanks for all that helpful commentary. I would love to hear from you how you see adoption of nerve reconstruction with Avance in the non-nerve-sparing patients based on the initial clinical data, or do you think we need a second study before seeing widespread adoption? How is Avance going to be paid for? Will providers absorb the cost, or will they ask patients to pay out of pocket? Talk about your practice going forward. Thanks.
Yes, sure. Great question. I think there is another hurdle that we have to get across. This early phase nerve grafting with autologous sural nerve graft, I think, put in the minds of a lot of urologists that nerve grafting doesn't work wonderfully well. I think Avance is a totally different concept, and so far, my early results are much better than what I've seen before. This gives me a lot of encouragement. I think there are other urologists who will feel like, "Do we really know that it works?" So I think we will need to have a bigger study, maybe a prospective randomized trial or a case control trial. Once the data gets out there of these trials, I think the adoption could be really pretty rapid because of the technical ease of use.
Your second point is very important. How is this going to get paid for? Right now, at our center, and probably at a lot of centers across the country, the margin of prostatectomy is actually pretty solid, and the number of patients who really need a nerve graft right now is relatively small, because we can do nerve sparing for a pretty high number of these patients. As we get more data and it becomes more attractive to a larger number of patients, we're just operating on the margin of our hospital right now to provide this for patients. I think once word gets out there, then I can't see how this isn't going to get insurance coverage at some point once all the steps are taken, because it's really applicable to many patients, and it will provide this unmet need.
It just makes a whole lot of sense. In the interim, based on how long it takes, I think a self-pay model could work really well. I think that's a really good intermediate step in order to make this more widely available.
That's super helpful. Mike, just a second for me. What's the plan to publish the pilot data, either in totality or individual sites, and the plan for that second study that Dr. Lee mentioned? Thanks for taking the questions.
Sure. I will ask Erick [inaudible] to go ahead and address that question.
Thank you, Mike. Each of the individual centers that have participated in this initial work have submitted abstracts or are working on their own manuscripts. Each center from the experience study will be presenting and publishing their data. We are in the design phase of a larger clinical study, and we anticipate to have that design completed by the end of 2027.
In addition, Larry, we still have follow-up to do, full follow-up, which can be out to at least 18 months based upon best practice. A final definitive plan for publishing in totality all the data together is still in the works. That is correct.
Thank you so much.
But we will do that.
Yep. Got it.
Next we will hear from Michael Sarcone with Jefferies. Please go ahead.
Hey, thank you, and thank you for hosting this, Dr. Lee. Thanks for your time. I guess just to start, Dr. Lee, I would like to hear about how in your practice, what is the split among your patients between the percentage that can have, where you can spare both nerves versus non-nerve sparing and unilateral? How does that split out?
Yeah. That's a great question. I think that unfortunately, we are seeing more high-risk prostate cancer these days. The other aspect of this is that even when you have high-risk prostate cancer, not all guys have good erection function going into the surgery, so it's not a factor that's important for all guys. Because of preexisting comorbidities, they may not have good function. Then we'll do a wider margin resection for those guys.
But then, for my patients, I think it's about two-thirds of the guys that we do a really full bilateral nerve sparing for. Then it's probably another 20% of those guys get a full nerve sparing on one side and then a partial nerve sparing on the other side. Then another 10%-15% where it's a full resection on one side and nerve sparing on the other side. Then only about 5% where we have to really do a wide resection. Fortunately, we can catch it relatively early enough. On the other hand, though, I think the potential application of the technology is much bigger than the 20% of guys, because even with a really full nerve sparing, we don't always see great results.
Another aspect of this, which I think is really pertinent, is that if you have a guy who's 70 years old and his erection function is kind of so-so to begin with, then a lot of those guys with just the prostatectomy injury that occurs, they don't get good erection function back. So, I think the question remains, if we do nerve grafting for those guys, maybe we can really optimize function even in the face of bilateral nerve sparing. So, I think there's a lot of really interesting questions that remain unanswered.
Okay. That's helpful. Then my follow-up, again for you, Dr. Lee. Is there also an opportunity here to use something like a nerve wrap, even in cases where maybe you're transecting one nerve and grafting it? Then maybe you kind of wrap that nerve and the other nerve that you haven't transected because you want to protect it from inflammation in the surrounding tissue? I guess, how do you think about the opportunity to add on some of the other parts of the nerve protecting algorithm?
Yeah, absolutely. I think that's, again, another really interesting and I think still relatively unanswered question. When I do the nerve grafts right now, I do protect that side with a nerve wrap. I do not standardly do that for my bilateral nerve-sparing patients. Do I know for sure that it's not going to work? I do not know. There are some studies which are out there which suggest that it does. That, I think, cost can be prohibitive because even the nerve wraps are quite expensive. To do that for all patients, I think most urologists would feel like they need more data, and I certainly fall into that camp. When we have to fully resect the nerve, I feel like that puts us into different territory where those patients definitely need something else.
Yeah, it's a great point. When I put the nerve graft in, I definitely feel like I want to protect that as much as possible, so we are doing that nerve wrap for those patients.
Okay, great. Thanks, Doctor.
Yeah, sure.
Next we'll move to Chris Pasquale with Barclays. Please go ahead.
Thanks. One question for Dr. Lee. Do you know ahead of time whether the procedure's going to be nerve-sparing or not, just based on the analysis of the cancer? Or is this something you find out into procedure? It sounded like in the answer to the last question, you thought there might be a case for nerve grafting even in patients who have technically had a nerve-sparing procedure. Could you just confirm that, talk a little bit more about that use case? Thank you.
Yeah. Yeah, great question. We have a plan. Going in based on somebody's biopsy, including what their Gleason score is, volume of disease on biopsy, their MRI findings, their PET scan findings, and there are some other AI tools that are starting to be used, which I'm really interested in, which can help us to understand predictively what the margin is going to look like. We already have a really firm idea of whether we're going to do a nerve graft or not. But, yeah, there are cases which take us by surprise and we have to do a wider resection. We already have the nerve graft in the hospital, and so we can use that even in an unplanned case, which I think provides us some advantages. But, yeah, we already have a pretty good idea of what we're going to do.
Yeah, but if I could say that when I did a bilateral nerve sparing for a patient and I felt 100% confident that all of these guys get erection function back, that's just not true. Every time we do a prostatectomy, and even though I've done so many cases, I'm still always concerned, and we're always trying to do the best possible nerve-sparing operation for every single guy who has erection function, good erection function going in. Part of what drives that is that I know that not all the guys are going to get erection function back, unfortunately. Can Axogen even fill that gap? I think it's a really interesting question and something that I'm looking forward to hopefully helping to figure out that answer.
Great. Then one follow-up, maybe for Erick. We know that nerves regrow at a certain pace. Given the length of gaps involved in these procedures, is six months enough time to really have complete recovery in these cases, or is it possible that these recovery rates could improve as you go out and follow these patients for the full 18 months?
Yeah. We know that this recovery occurs over the first or it begins to regenerate right away. You start to see the signs of erectile functional recovery at around that five- to six-month mark, but it continues to mature over time. What we've seen from our longer-term studies are it can go out to 18 months. You tend to plateau around that 18-month time. But we know that this will continue to advance over time.
Yeah, just to provide some context that way, what we see clinically for guys who have bilateral nerve sparing versus partial nerve sparing, the range of time that it takes guys to get erection function back, there's some guys that I do surgery for who even a week or two later, they feel like their erection function is already like 80%, 90% of pre-op. So, when we do a really good nerve sparing, that can happen. But then I've also had guys as long as 30 months after the surgery finally regain erection function. Yeah, that time course is different for everybody, and depending on what kind of nerve sparing that you do, that matters. But can we optimize these results so that all guys get erection function back who are going to within 6- 12 months?
That would be great to be able to provide and understand.
Next, we will hear from Ravi Misra with Truist Securities. Please go ahead.
Hey, good morning. I appreciate you taking the time to host this call. Thanks for your time, Dr. Lee. I just wanted to get into the concept that you were mentioning around kind of the cancer margin versus nerve reconstruction that you evaluate for your patients. Is this something kind of, as we look at your existing population set, is kind of the adoption of Avance in these procedures tied to a need to kind of get patients earlier on the disease spectrum, or can you maybe talk about the applicability or how that would affect in your population as that occurs? Then I just have one follow-up on reimbursement.
Yeah. No, I think this is, to me, a kind of more fundamental underlying public health question. Prostate cancer is one of these diseases that we can screen for. When we screen, the more we screen, the earlier we catch it. Unfortunately, it is still a relatively large minority of guys who do not get PSA screened at all in the U.S., and so we do see higher grade, more extensive disease. At the level at which I work, we have guys with a whole range of different presentations. Guys with higher risk prostate cancer, we need to do a more extensive resection on, and guys that we catch really early, we are doing more active surveillance for those guys. Yeah, there is other technologies like focal therapy and then radiation therapy. A lot of older guys will choose that.
But yeah, it is nice to have a lot of different tools in our toolbox in order to take care of all of these different presentations. But there is this specific set of guys where we are at a deficit for what we can do as far as helping them to optimize their erection function, and really, they end up sacrificing that in certain cases. For these guys, those are the ones that we want to provide this nerve grafting for.
Great. Thanks. On the payer argument, you mentioned some of your patients could take up to 30 months. This data here is pretty strong. It looks like at least at six months, and you are talking about a secondary trial. Maybe help us think about what are the endpoints that you think a payer longer term is going to look for as you build this evidence, and how do you plan to layer those into your clinical follow-ups? Thanks.
Oh, yeah. Sure. Yeah, we really need a trial that is going to look at 12 months at least, and I think 18 months will be more ideal because that really is a timeframe for guys where, if I do a really good nerve sparing for them, that I am very hopeful that between nine and 18 months is when they will see whether in the long run they will get erection function back. That will cover 97%, 98% of the guys as far as their recovery goes. Yes, I think that is what follow-up needs to look like. But certainly, it is not necessary to go out that long if we see at six months that 90% of the guys are getting erection function back with the help of the nerve graft versus only 40%.
The degree of difference will make a difference, but when we want to capture that whole picture of what the recovery looks like, it is going to take a longer trial.
Next we will hear from Caitlin Roberts with Canaccord Genuity. Please go ahead.
Great. Thanks for taking the questions. Just within your own clinical work, of the 117 patients and the 80% that achieved better than expected recovery, what was the difference in the study between unilateral and bilateral graft patients?
Erick?
Yep. In that work, what we saw were that in the bilateral cases from Dr. Shu's work, 60% of those patients recovered erectile function as compared to in the unilateral group, 80% of those patients recovered erectile function. In the surgeon experience report, we haven't analyzed them separately yet. That will come in one of our next steps of analysis.
Understood. I think you guys noted earlier about 10 minutes added per procedure. Is that for a unilateral graft? Maybe just speak to the surgeon learning curve there.
Yeah. That's the blended average for the reconstruction across those sites. As surgeons do this more and more, the amount of time that it takes goes down. That's roughly the amount of time it would take for a bilateral with an experienced surgeon.
Yeah. Hi, it's Dr. Lee. I echo that comment. The process is very straightforward, so I think you can, once you do a few of them, in 10 minutes, you can do a bilateral graft.
Great. Thank you.
We'll move on to Jayson Bedford with Raymond James. Please go ahead.
Good morning. Maybe for Dr. Lee, I'd love to get your thoughts on what you think the biggest obstacle is to broader adoption of the technology. Is it payer pushback? Is it a need for additional data? Is it getting in the hands of less experienced physicians? I guess the other kind of follow-on question is, do you anticipate, for any reason outside of cost, I guess, is there a reason why a patient wouldn't want this performed? Thanks.
Yeah, no, great question. I think you hit the nail on the head right away. It is really just having that bigger study with more long-term follow-up. That will be the key because that will help make the case to payers and then help make the case to urologists to get them to want to do it. From a patient perspective, there has not been a patient that I have talked to about this who has not been like, "Oh, that sounds super awesome. I definitely want to do that." There is no question about it. From a patient point of view, it is a clear winner.
Is there any patients that you would not suggest that they get the procedure?
From my perspective, if I have to do more than 80% removal of the nerve or even, yeah, like more than two-thirds removal of the nerve, yeah, no, I do not see a reason why you would not want to do this.
Thank you.
Thanks.
And we'll move on to Anthony Petrone with Mizuho Group.
Thank you. And one for, couple for Dr. Lee, one for Mike and team. Dr. Lee, maybe when you look at the various different populations, active surveillance, being a big patient pool, but within active surveillance, you have various different risk profiles of those patients. What percent of lower risk or any intermediate risk active surveillance, do you think you would recommend coming off the sidelines, or do you think that would come off the sidelines if we have Avance with 12 or 18-month data out there and available? As a follow-up, what percent of radiation patients do you think presented with this option actually over time would flip over? I got one follow-up for Mike and team. Thanks.
Yes, thanks. That's a great question. I think for guys that we talk with about doing surveillance, it's the criteria for doing that is pretty tight, meaning we base whether somebody is a good candidate for surveillance just by what their cancer looks like. I think the number of guys who would come off surveillance if they had a much more positive outlook on nerve sparing is relatively small, because one of the things that I definitely tell the guys that I'm talking about active surveillance versus surgery at the outset is that, if they're younger and they have good erection function at the start, then the more it makes sense that they do surgery when they're younger because their outcomes are going to look better as far as recovery of erection after nerve sparing. Yeah, no, I think the radiation question, that's super pertinent.
I do feel like there's a lot of guys who choose- Especially in the group of guys who are good nerve-sparing candidates or partial nerve-sparing candidates, that they choose radiation versus surgery because there's this, I think, false belief out there that radiation can be a little bit gentler on the nerve. From my experience, I really don't think that it is. I think, at least in my hands, when I do a nerve-sparing for the guys, they do just as well, if not better than if they do radiation. The little caveat there is when we're looking at guys with high-risk prostate cancer and they have invasion outside the edge of the prostate and they have a Gleason 8, if they choose to do radiation, then they're going to do external beam radiation, probably plus two years of hormone therapy.
When the guys have that kind of outlook, that is not going to do their sexual function any favors in that regard. In those cases, then I think a lot of guys may lean more towards surgery at the outset, just because we have the possibility of leaving them without two years of hormone therapy. But, yeah, I think when I see those guys now and I offer them a nerve graft, they are very enthusiastic about that outlook. But, yeah, no, I think a potential big market is these guys who are looking at radiation and have relatively lower risk disease and they only need four to six months of hormone therapy. Then, yeah, I think if we had a broader adoption of nerve grafting, a lot more guys would choose surgery than radiation.
That is helpful. Maybe for Mike and Erick, just when you think of market development in 2027, just from a commercial standpoint, just wondering what is in store there. How many folks you think you will add early on here ahead of a study? What should we be planning for R&D burden? Thanks again and congratulations.
Sure. We are going to hold off with the concrete details on that because some of it is still in play in terms of final decision-making. But what we are trying to settle on is what is a sufficient footprint in order to test the hypothesis of what is possible based upon the limitations that we have discussed, for example, lack of evidence. But we feel very confident that from a, as we described, from a procedure workflow, ethically, from a benefit versus risk, we feel very confident. Feel very confident in terms of what patient interest and demand is. So there is a lot of reasons why you could argue that this is the right thing to do with respect to the system as well as patients. But there is the unknown as it relates to reimbursement, coverage and reimbursement. Medicaid populations have opportunities. There are some payers. So it is not universal, no.
We also know there is a self-pay pathway. But how all this comes together in terms of what the actual sales cycle would be and the conversion rate to actual procedures, this is still a bit of an unknown. That said, we are looking at this positively, but we want to test the hypothesis. So the footprint we are going to put in place in the first year will probably be something along the lines of at least 10, but we will confirm that in the first quarter.
We'll move on with Frank Takkinen with Lake Street Capital Markets. Please go ahead, Frank.
Great. Thank you for taking the questions. Dr. Lee, I was hoping you could talk with us a little bit about some of the other alternative treatment options out there, such as Focal One or TULSA. Obviously, their objective is aimed at a lot of the same challenges that the Avance nerve procedure could solve related to erectile function and urinary incontinence. Just curious where an Avance procedure might fit in the treatment paradigm versus a Focal One or a TULSA, and why this might be or might not be adopted as much as those technologies. Thanks.
Yeah. Great question. I think those buckets are very separate. The focal therapy, an ideal candidate in my mind for focal therapy is a guy with Gleason 3+4, relatively small amount of cancer, really confined to an area of the prostate, which also correlates to their MRI PI-RADS lesion. Meaning they have a small cancer and you have an MRI target for it. Then you can apply the technology like IRE or HIFU or focal cryo to burn or freeze just that part of the prostate. This is very different than the guys that we're needing to do a nerve resection on. These guys are the guys who have really aggressive Gleason 8, 9, 10 disease, and their MRI shows a big bulky lesion that's growing through the edge of the prostate.
Yeah, those guys are the guys historically who I would say, "Sorry, unfortunately, we're not going to be able to do a good nerve sparing for you. Our goal is just to get the cancer out." Yeah, so then these groups are very different. But there is obviously focal therapies. The whole idea of it stems from the idea of trying to preserve as much tissue as possible, so you preserve as much function as possible. But because these are different buckets, I feel like the questions that are asked are different and then require different answers in the long run. I think this whole focal therapy world is very different than this world of nerve resection and reconstruction. Yeah, but it's a really interesting marketplace. Yeah, I've started thinking about offering focal therapy in my practice too.
I'm very surgery heavy, but there are not a whole lot of guys who fit into this ideal focal therapy candidate bucket, unfortunately. There are unfortunately more and more guys who are falling into this side of needing a wider resection, unfortunately. I think it's a result of diminished screening in the U.S. of prostate cancer. But yeah, no, it may just be part of my practice that I just see more of those patients. But yeah, it's a lot of interesting stuff.
Got it. Very helpful. Maybe just one last quick one, and thank you again for the time. On the 10-minute mark of incremental time, Dr. Lee, in your opinion, is that an acceptable amount of incremental time to support broad-based adoption of this technology, or do we really need the coverage to support that incremental time the procedure might take before it's-
Oh, yeah.
Thanks.
No, thank you for asking that question. I like that because prostate cancer is actually, fortunately, prostate cancer surgeries are very standard procedure, so our timing of doing this falls into very kind of nice time intervals. People who do a lot of prostate cancer surgery, they are actually really bothered by stuff that is going to take too long, and it's too tedious, and it's too difficult, and just makes their workflow a lot harder, especially when it doesn't seem like it's going to be a big benefit. This, for me, really hits the sweet spot where I feel like I'm offering something very potentially beneficial to my patients with a really minimal time investment. Yeah, the question I think is going to be finances. But with the early results that I'm seeing and for the guys that I've done this for, I'm very encouraged.
I can totally see that this is going to drive things really well for reimbursement later on.
Got it. Thanks so much.
Yeah. Thanks.
Michael Sarcone with Jefferies will have our next question.
Hey, thanks again. Just one quick follow-up for me, Doctor. I just wanted to ask it directly. You talked about patients being pretty enthusiastic when you describe this to them. I guess, what percentage of patients do you feel like would be more than willing to pay out of pocket to get something like this?
Yeah, I think 90% +. I think the only patients who would feel like they wouldn't want to do it is if it's just financially too much of a burden for them. Yeah, but if they have the capacity to pay for it, there's no question that they would pay for it.
Understood. Thanks again.
Yep.
There are no further questions at this time. I would now like to turn the floor back to Mr. Dale for closing remarks.
Thank you, operator. On behalf of the Axogen team, I want to thank Dr. Lee for joining us today, and everyone for their time and interest in our work to fulfill our business purpose, which is to restore health and improve quality of life by making restoration of peripheral nerve function an expected standard of care. We look forward to updating you on our continued progress on our fourth quarter earnings call. Thank you very much.
Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.