Note: The Cockrell Group receives compensation to perform investor relations services for its clients and increase investor awareness for AxoGen, Inc.
Selecting equities of companies in the healthcare industry that serve a niche market is a popular strategy among investors. Medical technology companies have historically offered some upside within healthcare, but have been languishing recently due to uncertainties with overall healthcare spending. A subsector that has been on the rise within medical technology has been the regenerative medicine sector. Regenerative medicine essentially enables the repair, restoration or replacement of tissue or organ systems of the body.
While there are a number of privately held companies that operate in this space, several publicly traded companies offer an opportunity for investors to participate in this growing industry. Some include MiMedx (NASDAQ:MDXG), Organovo (NYSEMKT:ONVO), Bacterin (BONE) and AxoGen (NASDAQ:AXGN). And, while some of these companies are small in terms of market capitalization, their cutting-edge technologies and large market opportunities offer solid, potential upside.
AxoGen, Inc. is one of our clients whose products and technologies are on the cutting edge of regenerative medicine. We've chosen to highlight it as an emerging growth company that should be of interest to investors who are looking for up and coming companies in this field.
AxoGen is focused on the commercialization of its portfolio of proprietary products and technologies for peripheral nerve reconstruction and regeneration. 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 has three proprietary technologies that are specifically designed to repair damaged peripheral nerves. Those technologies are: Avance® Nerve Graft, AxoGuard® Nerve Protector and AxoGuard® Nerve Connector.
The Avance® Nerve Graft is a processed nerve allograft used to bridge nerve discontinuities, or gaps created when the nerve is severed. Recently, the first results of the company's ongoing clinical study, led by The Buncke Clinic in San Francisco, were published in the January 2012 issue of Microsurgery.
AxoGen's products and technologies position it to be able to tap into a large and growing market of patients needing nerve repair. Injuries that damage these nerves run the gamut from car and power tool accidents to wounds military soldiers suffer during combat. Patients who suffer from these types of injuries, which number more than 700,000 a year in the United States alone, have had few options for a meaningful recovery.
It is estimated that there are between 140,000 to 180,000 autograft procedures in the U.S. alone. This gives AxoGen a potential market size of about $500 million, according to Ladenburg Thalmann & Co., Inc. Ladenburg initiated coverage of AxoGen with a BUY rating and a target price of $4.50 earlier this year. Ladenburg also noted that AxoGen's focus on the peripheral nervous system positions it well to drive further clinical data, sales growth, products, and business development going forward.
Like many of the comparables in this sector, AxoGen faces specific challenges. This includes demonstrating to the medical community that its technologies are an option to the current gold standard autograft procedure (removing a person's own nerve from another part of their body to repair the damaged nerve).
Another strong indicator of the value proposition that AxoGen offers to investors stems from the fact that there is limited competition. In gaps from 0 to 20 mm there are only three other companies that offer non-regenerative nerve conduit products: Integra Life Sciences (NASDAQ:IART), Stryker (NYSE:SYK) and Baxter (NYSE:BAX). According to the company, these products have suboptimal surgical handling properties and their efficacy begins to diminish when the nerve gap extends to longer ranges. In nerve gaps above 20mm, the autograft procedure is the option currently used by most physicians. AxoGen's Avance® Nerve Graft is the only nerve regenerative technology alternative to the current autograft procedure.
AxoGen is clearly demonstrating traction in the market place. According to the company's recent earnings announcement, for fiscal 2011, the company Microsurgery a 61% increase in revenues to $4.85 million. That compares to $3 million it reported for fiscal 2010. The company credits this growth to increased penetration into key accounts as a result of its direct sales force and independent distributor expansion.
Also, the company was able to increase its gross profit by 49% to $2.42 million in fiscal 2011, despite an $0.83 million impact associated with inventory and raw materials write-offs, as well as higher processing, travel, and temporary labor costs related to manufacturing start-up.
Moving forward, officials intend to use company financial resources to increase shareholder value. This includes continuing to expand its presence nationally and to focuses on targeted geographies internationally. Commercialization strategies to increase technology adoption and optimization of its manufacturing processes are also focus areas. This is a priority to help the company improve its cash flows, which are not projected to be positive over the next two years, according to Ladenburg Thalmann.
AxoGen is one of several investment opportunities in this growing market of regenerative medicine on which investors should keep watch. It is the only company offering a complete portfolio of technology to address peripheral nerve repair and reconstruction; a market that, according to the company, is estimated to be more than $1 billion in the United States.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: The COCKRELL GROUP receives compensation to perform investor relations services for its clients and increase investor awareness for AxoGen, Inc. The information presented is provided for informational purposes only and is not to be treated as advice to make any specific investment. The content included in this article is based on factual information obtained from public filings and other sources.