ALACHUA, FL – Regenerative medicine firm Axogen Inc. priced an underwritten offering of 6 million shares of common stock at $3 apiece, seeking to raise $18 million to expand product commercialization and marketing efforts for its portfolio of peripheral nerve repair products and to expand its product pipeline. The firm granted underwriters a 30-day option to purchase up to 900,000 additional shares of stock to cover overallotments.
In connection with the offering, Axogen received approval to upgrade its common stock listing from the OTCQB to Nasdaq, where it began trading Friday under the ticker symbol “AXGN.”
Predictably, the company’s shares fell below the offering price, slumping 87 cents, or 22.6 percent, to close at $2.98. But the decline didn’t dampen the spirits of Greg Freitag, Axogen’s chief financial officer, who said the move to Nasdaq was part of the company’s strategic plan to boost institutional action in its stock.
“We have been looking at this and doing what we needed to do” to move into a more attractive trading market, Freitag said.
With respect to the share price, which fell from an assumed price of $4.30 per share stated in the company’s S-1A filing to $3 as the deal emerged, “it was a discount,” he conceded, “but we did not have to provide any warrants. [Considering] the market for this size of transaction, we believe we did this with very good terms.”
Axogen is the surviving entity of a 2011 merger with Texarkana, Texas-based Lectec Corp., a publicly held intellectual property licensing and holding company headed by Freitag that held domestic and international patents based on hydrogel patch technology. Prior to the merger, Lectec sold most of its patent portfolio to Endo Pharmaceuticals Inc., a unit of Endo Health Solutions Inc., of Chadds Ford, Pa.
Axogen also has a relationship with PDL Biopharma Inc., of Incline Village, Nev., which provided the regenerative medicine firm with a $20.8 million structured financing in October 2012 in exchange for royalties on certain Axogen revenues. According to the S-1A, the royalty contract has a term of eight years, with PDL entitled to payments based on a 9.95 percent royalty rate on net revenues, including minimum quarterly payments of approximately $1.3 million to $2.5 million beginning in the fourth quarter of 2014.
The royalty contract also contains certain call provisions and grants PDL a right to designate a representative to Axogen’s board. The arrangement was struck after Axogen could not obtain traditional debt financing and believed the cost of capital was prohibitive for an equity transaction, according to the filing.
‘We’ve Done What We Set Out to Do’
Axogen plans to use much of the financing to bulk up the sales force for its portfolio of three commercial peripheral nerve repair products: the flagship Avance nerve graft product as well as the Axoguard nerve connector and Axoguard nerve protector. Avance – a decellularized extracellular matrix processed from human peripheral nerve tissue in lengths of 5 mm to 70 mm – is the only commercial allograft product of its type addressing the peripheral nerve market, according to Freitag.
The product is designed to prevent surgical patients from providing an autograft – often from the sural nerve in the back of the calf – “so they’re not robbing from Peter to pay Paul” by trading numbness in the foot for restored nerve function elsewhere, he explained. The product can be used for small repairs, such as small cuts from glass shards, as well as more extensive injuries resulting from major trauma. The company also is pursuing oral maxillofacial applications that involve peripheral nerve damage from wisdom tooth extractions and other dental procedures.
The Axoguard nerve connector is a tubular, multilaminar extracellular matrix designed to bridge gaps of less than 5 mm when repairing nerves, while the Axoguard nerve protector – fabricated from the same material – is used to shield intact nerves, particularly following surgery, from abrasion or irritation during the healing process.
Axogen completed its product line in 2010 with the launch of the Axoguard products, Freitag said, enabling the company to offer surgeons soup to nuts options in peripheral nerve damage repair and restoration.
In 2012, the products generated $7.7 million in revenues, with steady quarter-over-quarter growth, according to Freitag. For example, Axogen reported $2.9 million in sales during the second quarter of 2013, putting the company in position to exceed $12 million in revenues this year. In its prospectus, the company reported cash and equivalents of $8.7 million as of June 30.
“We believe that the market in the U.S. for the portfolio for nerve repair is around $1 .6 billion,” he toldBioWorld Today. “We don’t have to do anything else, other than keep selling this portfolio.”
Although the Avance nerve graft is approved in a half-dozen European countries, the financing will largely boost the company’s U.S. marketing effort. Axogen currently has 70 employees and plans to expand the sales and marketing staff “quarter by quarter,” Freitag said, declining to provide specifics.
The company also is evaluating opportunities to grow its product pipeline, both through line extensions and in-licensing, with a focus on development and launch rather than early stage research. “You know that you’re not just going to dump money down a black hole and not know your outcome,” Freitag explained.
The company’s burn rate of approximately $850,000 per month is gradually declining as sales increase, he added, so the financing gives Axogen a runway of more than a year and takes the management focus off raising cash.
“This financing makes us incredibly financially stable,” Freitag said. “We’ve done what we set out to do.”
Axogen expects to have 17.1 million shares outstanding following the offering, according to its prospectus.
JMP Securities LLC is acting as the sole book-running manager for the offering, with Ladenburg Thalmann & Co. Inc. serving as co-manager. The offering is expected to close on Aug. 14.