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1. S A H
Healthcare
Update
MAY 15, 2012
Outlook
Positive Record 1Q Sales; Nerve Regeneration Gaining AxoGen, Inc.
Traction OTCBB AXGN.OB
Summary and Recommendation Analysts
We reiterate our positive outlook on AxoGen, Inc. (AXGN.OB) shares Price Target* $5.25
given the company’s level of execution and progress demonstrated
Analysts Rating* BUY
within sales and marketing. The company reported record 1Q12
Current Px $3.79
revenues of $1.7 million, which was ahead of consensus estimates of
$1.6 million. 52-Week High $4.00
52-Week Low $1.10
AxoGen, Inc. is an emerging regenerative medicine company focused Shares Out. (mm) 11.06
on the commercialization of its portfolio of proprietary products and Float (mm) 4.40
technologies for peripheral nerve reconstruction and regeneration. Market Cap (mm) $41.9
Total Debt (mm) $5.0
The company’s portfolio of regenerative technology for peripheral Cash (mm) $5.6
nerve repair provides it an opportunity to participate in a market EV (mm) $42.5
estimated to be $1 billion. FYE Dec
1Q12 revenue growth demonstrate increased penetration
AxoGen reported record revenues of $1.7 million, an increase of 47% 2011 2012E* 2013E*
over 1Q11 revenues of $1.1 million and ahead of FirstCall consensus Revenues (mm) $4.8 $9.3 $20.4
estimates of $1.6 million. Increased penetration into the companies
Gross Profit (mm) $2.4 $6.6 $17.1
key accounts attributed to higher results. The company also
Gross Margin 51% 71% 84%
continues to expand its sales force, which increased to 16 direct
representatives and 21 independent sales representatives. From all EPS ($2.8) ($0.68) ($0.23)
indications, it is apparent that AXGN has begun to yield the benefits *All estimates including price target and rating are
associated with a maturing sales force that is garnering traction in the based on FirstCall analyst consensus.
market place - evidenced by increased volumes and revenues.
Gross profit increases 50% on improved operating efficiencies
The company also reported improved gross profit and margins of $1.2
million and 73%, respectively, which is an increase of 50% and 300
bps, respectively. The company indicated that the higher profits were
the result of lower labor and manufacturing costs in conjunction with
start-up costs during the first quarter of 2011 that did not occur during
the first quarter of 2012.
Expansion of market presence will prove upside potential
AxoGen continues to expand its market presence nationally and
internationally. The company recently announced expanding into the Contact:
Austrian market, which should provide incremental upside to its Rich Cockrell
rich.cockrell@thecockrellgroup.com
existing installed base. According to the company, it will selectively
continue its global expansion throughout Europe during the year. AJ Igherighe
aj@thecockrellgroup.com
1230 Peachtree Street
19th Floor
Atlanta, GA 30309
P 404.942.3369
cockrellgroup.com
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2. COCKRELL GROUP RESEARCH
Tuesday, May 15, 2012
S A H
In a market by itself; AxoGen’s Avance technology 30-Day Peer Price Performance
AxoGen’s proprietary Avance technology is a first-in-class,
human tissue, nerve allograft product that is the only
marketed nerve graft product currently available. This well
positions the company to address a $1 billion dollar market
opportunity that is currently being treated by autograft
procedures.
ortunity exceeds $1B
Autograft is historic goldProcedure
Market Opportunity Autograph
standard
ential
Autograft (sural nerve)
umber of
32%
• Harvest of healthy nerve increases 16-Apr 18-Apr 20-Apr 24-Apr 26-Apr 30-Apr 2-May 4-May 8-May 10-May 14-May
Trauma
OR time, medical expenses
Expansion
49%
tion • Patient loses function at the donor
Trauma
otential site 5% AXGN ONVO BONE KNSY
Oral
ostrate and • 27% complication rate (infection, CYTX NVIV MDXG
14%
wound healing, chronic pain)1
Compression
• Limited size and length available
Recent acquisition points to increased interest in
regenerative medicine
The regenerative medicine space continues to be a sector
Autograft
Autograft procedures, the current “Gold Standard” (shown of increasing interests to the Medical Technology and
www.ivis.org
above) treatment for peripheral 19" nerve discontinuities, is a Biotechnology industries. Companies with innovative and
procedureal, Am J Surg 1993 the patients nerve is retrieved from
1. Rappaport et whereby commercially viable technologies continue to be cherry
another part of its body and is used to replace damaged picked by mega-cap conglomerates such as Johnson and
nerves. Complications stemming from these procedure Johnson (JNJ), Shire Pharmaceuticals (SHPGY) and Royal
8"
generally leaves the patient without function and sensation DSM (DSM).
at the harvested site. Furthermore, the procedure creates
a secondary surgery on the patient to harvest the nerve. Kensey Nash (KNSY), a medical device company primarily
This can lead to chronic pain and wound healing focused on regenerative medicine utilizing a proprietary
complications as a result of infection. AxoGen’s Avance collagen and synthetic polymer technology, entered into a
technology mitigates these complications. definitive agreement with Royal DSM (RDSMY.PK) to be
acquired for $38.50 per share in cash. This represented a
Current share price below analysts price targets 33% premium and nearly 4.0 times 2012 revenue
AxoGen shares closed at $3.79, which is below the analyst consensus estimates.
consensus of $6.25 and represents a 64% premium.
AxoGen’s one-month performance is +49%, which is We expect M&A activity in this space to continue as
significantly higher than its regenerative medicine peer companies with FDA cleared and approved technologies
group, (BONE) -29%, ((KNSY) +36%, (ONVO) +28%, continue to demonstrate strong commercial growth.
(CYTX) +28%, (NVIV.OB) -7% and (MDXG.OB) +7%.
I
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3. COCKRELL GROUP RESEARCH
Tuesday, May 15, 2012
Disclosure Section
COCKRELL GROUP does and seeks to do business with companies covered in COCKRELL GROUP Research. As a result,
investors should be aware that the firm may have a conflict of interest that could affect the objectivity of COCKRELL GROUP
Research. Investors should consider COCKRELL GROUP Research as only a single factor in making their investment
decision.
Certification
The following analysts hereby certify that their views about the companies and their securities discussed in this report are
accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for
expressing specific recommendations or views in this report.
Unless otherwise stated, the individuals listed on the cover page of this report are research analysts
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