AxoGen, Inc. (AXGN)

[MissionIR]

AXGN Poised For Strong Growth In Regenerative Medicine

Nerve damaging injuries and surgeries can lead to a life of despair for the patient, leaving them with limited, or no, ability to move or even experience the feeling of touch. Recent advances in the field of regenerative medicine are giving hope to those suffering the debilitating effects of nerve injuries. As an emerging player in the area, AxoGen Inc. (AXGN) is poised to significantly contribute to this cutting-edge science.

Regenerative medicine enables the repair, restoration or replacement of tissue or organ systems of the body. Peripheral nerves provide the pathways for both motor and sensory signals between the central nervous system and target organs, regulating movement and touch. Traditionally, when peripheral nerves are damaged, patients have been presented with few medical options that offer meaningful recoveries.

AxoGen's proprietary products give surgeons new alternatives to repair damaged peripheral nerves. The company's products include AxoGuard® Nerve Connector, AxoGuard® Nerve Protector and Avance® Nerve Graft. AxoGuard® Nerve Connector is a coaptation aid to reconnect severed nerves, and AxoGuard® Nerve Protector protects nerves as the body heals after surgery. Avance® Nerve Graft, which is regarded as the first and only commercially available processed nerve allograft, bridges nerve gaps in severed nerves.

Hundreds of peripheral nerve injuries occur every day as a result of car crashes, power tool accidents and military combat. AxoGen's products position it to be able to tap into this large and growing peripheral nerve repair market.

Ladenburg Thalmann & Co., Inc. analyst Jeffrey Cohen stated, "We would currently estimate that there are approximately 140,000 to 180,000 annual [autograph] procedures of the sural nerve in the United States. Coupled with other potential indications for usage, we believe that the market size for Avance in the U.S. to be approximately $500 million. The market for the rest of world could potentially double the size of the market."

Patients who suffer from these types of injuries, which number more than 700,000 a year, have had few options for a meaningful recovery. These challenging injuries have traditionally been repaired by surgeons who transplant a healthy nerve from another area in the patient's body to the nerve repair site. This creates an additional procedure that can lead to scarring, potential loss of feeling and pain in the area from which the nerve was removed. AxoGen's products do away with these issues.

The Avance® Nerve Graft was recently the topic of a clinical study led by The Buncke Clinic in San Francisco. Called the RANGER study, it included 12 centers and 25 surgeons making it the largest multi-center study in peripheral nerve reconstruction. The findings were published in the January 2012 issue of study.

The principal investigator for the study was Dr. Darrell Brooks, a plastic surgeon with The Buncke Clinic. Calling the clinical study results a 'paradigm shift,' Brooks noted that the information he now uses to counsel his patients before their surgeries will change.

"It is commonly accepted among surgeons who do peripheral nerve repair that success of surgery depends on the type of injury, length of nerve discontinuity, the patient's age and the type of nerve," Dr. Brooks has stated. "Our study findings show that with processed nerve allograft, patients can have meaningful recovery regardless of these factors."

There were no reported implant complications, tissue rejections or adverse events related to the use of the processed nerve allografts. Trial participants included subjects from Level 1 trauma centers, academic medical centers, military medical centers and community medical centers.

To further boost its presence in the regenerative medical field, AxoGen last year merged with LecTec. Although there were increased expenses as a result of the merger that contributed to an operating loss of $9.2 million for 2011, the company's revenues and gross profit increased. Revenues increased 61% to $4.9 million in 2011 compared to 2010. The company's gross profit increased 49% to $2.4 million for the same period.

AxoGen is poised to continue to improve its financial results. It has committed to specific growth areas, including investing in its sales force and expanding clinical and scientific data regarding the performance of its products.

Moving forward, the company intends to use its capital resources to continue to improve shareholder value with focused commercialization strategies to increase awareness and adoption of the new regenerative medicine technologies for peripheral nerve repair.

Jeffrey Cohen initiated coverage on AxoGen shares with a BUY rating and a target price of $4.50 in January 2012. That price is based on a discounted fiscal 2013 Enterprise Value to Revenue (EV/R) multiple compared to several of AxoGen's peers.

As of the time of writing, the company was trading at $2.70.

Over a series of articles, the impact of AxoGen's products will be examined. This includes the story of a 10-year old boy who suffered nerve damage to his arm after an ATV accident.