axgn-20201231

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________________________________________

Form 10-K

____________________________________________________________________________

(Mark One)

For the fiscal year endedDecember 31, 2020

For the transition period from TO

Commission File Number:001-36046

AXOGEN, INC.

(Exact name of registrant as specified in its charter)

Minnesota

(State or other jurisdiction of

incorporation or organization)

13631 Progress Blvd., Suite 400Alachua,FL

(Address of principal executive offices)

41-1301878

(I.R.S. Employer

Identification No.)

32615

(Zip Code)

Registrant’s telephone number, including area code: (386) 462-6800

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol(s) Name of exchange on which registered

Common Stock, $0.01 par value AXGN The Nasdaq Stock Market

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐No☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Non-accelerated filer ☐

Accelerated filer☒

Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of June 30, 2020, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant was approximately $216,633,232 based upon the last reported sale price of our common stock on the Nasdaq Capital Market.

The number of shares outstanding of the Registrant’s common stock as of February 22, 2021 was 40,736,714 shares.

DOCUMENTS INCORPORATED BY REFERENCE

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Portions of the Registrant’s definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the end of the Registrant’s fiscal year are incorporated by reference into Part III of this Form 10-K.

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TABLE OFCONTENTS

Page

PART I

Item 1. Business 7

Item 1A. Risk Factors 40

Item 1B. Unresolved Staff Comments 60

Item 2. Properties 60

Item 3. Legal Proceedings 61

Item 4. Mine Safety Disclosures 63

PART II

Item 6. Selected Financial Data 64

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 76

Item 8. Financial Statements and Supplementary Data 78

Item 9A. Controls and Procedures 110

Item 9B. Other Information 111

PART III

Item 10. Directors, Executive Officers and Corporate Governance 112

Item 11. Executive Compensation 112

Item 14. Principal Accounting Fees and Services 112

PART IV

Item 15. Exhibits, Financial Statement Schedules 113

Exhibit Index 114

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FORWARD-LOOKING STATEMENTS

From time to time, in reports filed with the U.S. Securities and Exchange Commission (the “SEC”) (including this Annual Report on Form 10-K), in press releases, and in other communications to shareholders or the investment community, Axogen, Inc. (including Axogen, Inc.’s wholly owned subsidiaries, Axogen Corporation, Axogen Processing Corporation and Axogen Europe GmbH, the “Company”, “Axogen”, “we”, “our”, or “us”) may provide forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, concerning possible or anticipated future results of operations or business developments. Words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “projects”, “forecasts”, “continue”, “may”, “should”, “will”, “goals”, variations of such words and similar expressions are intended to identify such forward-looking statements. The forward-looking statements may include, without limitation, statements regarding our assessment of our internal controls over financial reporting, our growth, the impact of COVID-19, product development, product potential, financial performance, sales growth, product adoption, market awareness of our products, data validation, and our visibility at and sponsorship of, conferences and educational events. The forward-looking statements are and will be subject to risks and uncertainties, which may cause actual results to differ materially from those expressed or implied in such forward-looking statements. Forward-looking statements contained in this Form 10-K should be evaluated together with the many uncertainties that affect the Company’s business and its market, particularly those discussed in the risk factors and cautionary statements set forth in the Company’s filings with the SEC, including as described in “Risk Factors” included in Item 1A of this Form 10-K and “Risk Factor Summary” included on this Form 10-K. Forward-looking statements are not guarantees of future performance, and actual results may differ materially from those projected. The forward-looking statements are representative only as of the date they are made and, except as required by applicable law, the Company assumes no responsibility to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or otherwise.

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RISK FACTOR SUMMARY

Below is a summary of our risk factors. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Risk Factors” and should be carefully considered, together with other information in this Form 10-K and our other filings with the SEC before making an investment decision regarding our common stock.

Risks Related To The Company

•Our revenue growth depends on our ability to increase distribution and sales to existing customers and develop new customers, domestically and abroad, and expand our sales force, and there can be no assurance that these efforts will result in significant increases in sales.

•Our revenue depends primarily on five products.

•Our success will be dependent on continued acceptance of our products by the medical community.

•We have not consistently experienced positive cash flow from our operations, and the ability to achieve consistent, positive cash flow from operations will depend on increasing revenue from distribution of our products, which may not be achievable.

•We are highly dependent on the continued availability of our facilities and could be harmed if the facilities are unavailable for any prolonged period of time.

•Technological change and competition for newly developed products could reduce demand for our products.

•We must maintain high quality processing of our products.

•Our revenue depends upon prompt and adequate reimbursement from public and private insurers and national health systems.

•Negative publicity concerning methods of donating human tissue and screening of donated tissue may reduce demand for our products and negatively impact the supply of available donor tissue.

•Delays, interruptions or the cessation of production by our third-party suppliers of important materials or delays in qualifying new materials may prevent or delay our ability to manufacture or process the final products.

•The failure of third parties to perform many necessary services for the commercialization of our products would impair our ability to meet commercial demand.

•We are dependent on our relationships with independent agencies to generate a material portion of our revenue.

•If we do not manage product inventory in an effective and efficient manner, it could adversely affect profitability.

•There may be significant fluctuations in our operating results.

•We may be unsuccessful in commercializing our products outside the U.S.

•We incur costs as a result of operating as a public company, and our management is required to devote substantial time to compliance initiatives.

•The COVID-19 pandemic has and could continue to materially and adversely affect our ability to operate, results of operations, financial condition, liquidity, and capital investments.

Risks Related to the Regulatory Environment in which the CompanyOperates

•Our business is subject to continuing regulatory compliance by the FDA and other authorities, which could result in negative effects on our business.

•The use, misuse or off-label use of our products may harm our reputation, the image of our products, result in injuries leading to product liability suits, which could be costly to our business, or result in FDA sanctions.

•Our Avance Nerve Graft product is currently allowed to be distributed pursuant to a transition plan with the FDA and a change in position by the FDA would have a material adverse effect on us.

•Our business is subject to continuing compliance to standards by various accreditation and registration bodies.

•Our Axoguard and Avive products are subject to FDA and other regulatory requirements.

•Defective products could lead to recall or other negative business conditions.

•Our operations must comply with FDA and other governmental requirements.

•Clinical trials can be long, expensive and results are ultimately uncertain which could jeopardize our ability to obtain regulatory approval.

•We will rely on third parties to conduct our clinical trials and they may not perform as required or expected.

•U.S. governmental regulation could restrict the use of our Avance Nerve Graft and Avive Soft Tissue Membrane product, restrict our procurement of tissue or increase costs.

•Our Axotouch product is subject to FDA and other regulatory requirements.

•Healthcare law and policy changes may have a material adverse effect on us.

•We could be subject to civil or criminal penalties if we are found to have violated laws protecting the confidentiality of health information.

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Risks Related to Our Intellectual Property

•Failure to protect our intellectual property rights could result in litigation and our loss of any potential competitive advantage.

•Future protection for our proprietary rights is uncertain.

•The patent protection for our products may expire before we are able to maximize their commercial value.

•Others may claim an ownership interest in our IP which could expose us to litigation and have a significant adverse effect on our prospects.

•We depend on the maintenance of exclusive licenses.

•Our trademarks are valuable, and our business may be adversely affected if not adequately protected.

Risks Related to Our Common Stock

•An active trading market in our common stock may not be maintained.

•The price of our common stock could be highly volatile due to a number of factors.

•We do not anticipate paying any cash dividends in the foreseeable future.

•Anti-takeover provisions in Minnesota law may deter acquisition bids for us that you might consider favorable.

Risks Related to Financing Our Business

•Our credit facility with Oberland Capital contains operating and financial covenants that restrict our business and financing activities, requires cash payments over an extended period of time, and is subject to acceleration in specified circumstances.

•We may need to raise additional funds to finance our future capital or operating needs, which could have adverse impacts on our business, results of operations, and the interests of our shareholders.

General Risk Factors

•Legal proceedings could adversely affect our business operations or financial condition.

•We may be subject to future product liability litigation which could be expensive, and our insurance coverage may not be adequate.

•Loss of key members of management, could adversely affect our business.

•Our business and financial performance could be adversely affected by natural or man-made disasters or other similar events.

•Changes in U.S trade policy, threats of international tariffs, and changes to the U.S. political landscape may adversely affect our business.

•Our results of operations could be negatively affected by potential fluctuations in foreign currency exchange rates.

•Our failure to protect our technology systems and comply with data protection laws and regulations could lead to government enforcement actions and significant penalties against us, and adversely impact our business, results of operations, financial condition and prospects.

•We are dependent on internal information and telecommunications systems, and any failure of these systems, including system security breaches, data protection breaches or other cybersecurity attacks, may negatively impact our business and results of operations.

•Our management has broad discretion in the use of our cash and cash equivalents and, despite management’s efforts, cash and cash equivalents may be used in a manner that does not increase the value of shareholders’ investments.

•Our business and stock price may be adversely affected if our internal controls are not effective.

•Our operating results could be adversely impacted if we are unable to effectively manage and sustain our future growth or scale our operations.

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PART I

ITEM 1. BUSINESS

General

Axogen is the leading company focused specifically on the science, development, and commercialization of technologies for peripheral nerve regeneration and repair. We are passionate about providing the opportunity to restore nerve function and quality of life for patients with peripheral nerve injuries. We provide innovative, clinically proven and economically effective repair solutions for surgeons and health care providers. Peripheral nerves provide the pathways for both motor and sensory signals throughout the body. Every day, people suffer traumatic injuries or undergo surgical procedures that impact the function of their peripheral nerves. Physical damage to a peripheral nerve, or the inability to properly reconnect peripheral nerves, can result in the loss of muscle or organ function, the loss of sensory feeling, or the initiation of pain.

Axogen’s platform for peripheral nerve repair features a comprehensive portfolio of products, including Avance® Nerve Graft, a biologically active off-the-shelf processed human nerve allograft for bridging severed peripheral nerves without the comorbidities associated with a second surgical site; Axoguard® Nerve Connector, a porcine submucosa extracellular matrix (“ECM”) coaptation aid for tensionless repair of severed peripheral nerves; Axoguard® Nerve Protector, a porcine submucosa ECM product used to wrap and protect damaged peripheral nerves and reinforce the nerve reconstruction while preventing soft tissue attachments; Axoguard® Nerve Cap, a porcine submucosa ECM product used to protect a peripheral nerve end and separate the nerve from the surrounding environment to reduce the development of symptomatic or painful neuroma; and Avive® Soft Tissue Membrane, a processed human umbilical cord intended for surgical use as a resorbable soft tissue conduit. Along with these core surgical products, Axogen also offers Axotouch® Two-Point Discriminator, used to measure the innervation density of any surface area of the skin. The Axogen portfolio of products is available in the United States, Canada, Germany, United Kingdom, Spain, South Korea, and several other countries.

Nerves can be damaged in several ways. When a nerve is cut due to a traumatic injury or inadvertently during a surgical procedure, functionality of the nerve may be compromised, causing the nerve to no longer carry the signals to and from the brain to the muscles and skin thereby reducing or eliminating functionality. The loss of function can impact a person’s ability to work and perform daily tasks, their ability to properly be aware and respond to their environment (e.g., heat, cold or other dangers), and negatively impact their ability to experience and enjoy life.

Nerve damage or transection of this type generally requires a surgical repair. Traditionally, the standard has been to either suture the nerve ends together directly without tension or to bridge the gap between the nerve ends with a less important nerve surgically removed from elsewhere in the patient’s own body, referred to as nerve autograft. Nerves that are not repaired or heal abnormally may result in a permanent loss of function and/or sensation. Additionally, abnormal healing can form a neuroma which may send altered signals to the brain that may result in the sensation of pain. This abnormal section of the nerve can, under certain circumstances, be surgically cut out and the resulting gap repaired.

In addition, compression on a nerve, blunt force trauma or other physical irritations to a nerve can cause nerve damage that may alter the signal conduction of the nerve, result in pain, and may, in some instances, require surgical intervention to address the resulting nerve compression. Finally, when a patient undergoes a mastectomy due to breast cancer or prophylactically due to a genetic predisposition for breast cancer, the nerves are cut to allow the removal of the breast tissue. This can result in a loss of sensation, the potential risk of a symptomatic neuroma, as well as negatively impact the patient’s quality of life. When a patient chooses an autologous breast reconstruction after a mastectomy, sensation and quality of life can, in certain cases, be returned through surgical nerve repair.

In order to improve the options available for the surgical repair and regeneration of peripheral nerves, Axogen has developed and licensed regenerative medicine technologies. Axogen’s innovative approach to regenerative medicine has resulted in first-in-class products that it believes are redefining the peripheral nerve repair market. Axogen’s products are used by surgeons during surgical interventions to repair a wide variety of physical nerve damage or transection throughout the body, which can range from a simple laceration of a finger to a complex brachial plexus injury (an injury to the network of nerves that control the movement and sensation of the shoulder, arm, and hand) as well as nerve injuries caused by dental, orthopedic, and other surgical procedures.

Avance Nerve Graft is processed from donated human nerve tissue and provides surgeons an implant that retains the natural micro-architecture, and biologic cues of the human nerve. The Avance Processing technique preserves this natural structure and removes inhibitors, which allow for bridging nerve gaps or transections up to 70mm in length. Additionally, Avance Nerve Graft has product and distribution synergies with Axoguard Nerve Protector, Axoguard Nerve Connector, Axoguard Nerve Cap, and Avive Soft Tissue Membrane. Axoguard products provide the unique features of pliability, suturability, and semi-translucence for visualization of the underlying nerve, while also allowing the extracellular matrix to

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remodel utilizing the patient’s own cells. Avive Soft Tissue Membrane is a processed human umbilical cord intended for surgical use as a resorbable soft tissue conduit.

Regenerative Medical Products Industry

Regenerative medical products enable the repair, restoration, replacement or regeneration of tissue or organ systems of the body. Regenerative medical products are becoming common in various medical arenas because they have been shown to be effective repairing injured or defective tissues, such as bone, tendons, dermis, and other tissues of the body. Surgeons utilize regenerative medical products because they can provide the complex structure required for implant integration and regeneration in the body.

Axogen believes the primary driver of sustained growth in the regenerative medical product market is continued favorable efficacy as compared to autograft tissue and synthetic medical products, and a wider understanding of this advantage by practitioners. Repair with nerve autograft requires a secondary recovery procedure to remove tissue from another location of the patient’s body to repair the injured area and results in loss of function at the site of donation. Further, nerve autograft may also be costly and time consuming and may result in complications at the second surgical site such as infection. In addition to processed nerve allograft (Avance Nerve Graft), alternatives to nerve autograft include hollow-tube synthetic or collagen-based medical products that are designed to provide a protective channel to allow for nerve fiber regeneration, but may be limited by mechanisms of action and/or biocompatibility with the body. Regenerative medical products often provide more desirable conditions for reconstruction and regeneration of tissue, creating a superior solution for patients and physicians. Axogen follows this trend, providing regenerative medical products for peripheral nerve repair.

Regenerative medicine products typically consist of and rely on:

i.A scaffold or ECM to support the cells and/or provide the architecture of the tissue;

ii.Cells to regenerate or remodel the scaffold; and/or

iii.Biologic mechanisms to support regeneration.

Axogen’s Avance Nerve Graft, Axoguard Nerve Protector, Axoguard Nerve Connector, and Axoguard Nerve Cap are ECM scaffolds, and utilize the patient’s own cells to remodel or regenerate these scaffolds.

Peripheral Nerves and Their Regeneration

The peripheral nervous system, or PNS, consists of nerves that either extend outside of, or reside outside of, the central nervous system (primarily the brain and spinal cord). Peripheral nerves provide the pathway for signals between the central nervous system and target organs, regulating movement (motor nerves) and touch (sensory nerves). Therefore, if a peripheral nerve is crushed, severed, or otherwise physically damaged, its ability to deliver signals to or from the target organs is eliminated, or significantly reduced, and could result in a loss of sensation and/or motor functionality. The axon portion of the nerve cell, consisting of cell cytoplasm and resembling a hair-like fiber, carries signals between the cell body and the target organ. Axons can be quite long, even exceeding one meter, but are only a few micrometers in diameter. A typical nerve consists of hundreds of axons that lie within long, thin tubes (endoneurial tubes). Analogous to a wiring cable, these endoneurial tubes are bundled together in groups called fascicles, and each nerve may contain numerous fascicles. This sheath structure provides protection for the axons and support for regeneration in the event of damage or transection. Nerve damage or transection occurs when a sufficient number of axons have been crushed or transected (severed), thereby disrupting signals to or from the target motor or sensory organ.

Given the right conditions, peripheral nerves have the ability to regenerate. Regenerating axons require the proper environmental conditions, including structure and guidance of axons in a tension and compression free environment. In an untreated severe crush injury or transected nerve, errant axons that are not guided by the nerve sheath structure or other mechanism can form painful and ineffective nerve proliferation (neuromas). This condition can require revision surgery to relieve pain or bring back sensory and/or motor functionality. Therefore, the surgical treatment of peripheral nerves due to damage or transection is typically focused on restoring nerve functionality by providing guidance to regenerating axons, minimizing the formation of neuromas and protecting the nerve to alleviate compression.

Peripheral Nerve Regeneration Market Overview

Peripheral nerve injury (“PNI”) through damage or transection is a major source of physical disability impairing the ability to move muscles or to feel normal sensations. Failure to treat peripheral nerve damage or transection can, in severe cases, lead to full loss of sensation and/or function, pain and, sometimes, amputation. Many peripheral nerve patients who receive

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treatment do not optimally recover. They may suffer from both reduced, or no, muscle strength, and reduced, or no, sensitivity and pain.

Patients suffer traumatic bodily injuries every day that may result in damage or transection to peripheral nerves severe enough to require surgical treatment, including injuries from motor vehicle accidents, power tool injuries, gunshot wounds, dislocations, fractures, lacerations, or other forms of penetrating trauma. The peripheral nerves commonly damaged or transected from these traumas include the digital, median, ulnar, radial, facial, spinal accessory, and brachial plexus nerves. The “Trauma” portion of the Total Addressable Market (as defined below) encompasses the traumatic PNI described above, but excludes the Oral Maxillofacial, (“OMF”), Upper Extremity Compressions, and Breast (as such terms are defined below) portions of the Total Addressable Market.

Beyond the physical damage or transection to peripheral nerves resulting from traumatic bodily injuries described above, peripheral nerve damage or transection also occurs due to surgical intervention. For example, nerve damage or transection can occur during dental and oral Maxillofacial surgery procedures, such as third molar extractions, placement of dental implants, removal of tumors, orthognathic surgery, and mandibular resection during which one or more sections of the trigeminal nerve can be damaged or transected. This can result in numbness in certain areas of the face and mouth.

Breast reconstruction neurotization (“Breast”) is another portion of the Total Addressable Market. Currently, when a patient undergoes autologous breast reconstruction after a mastectomy, the patient receives the shape of a natural breast, but oftentimes experiencing little to no return of sensory feeling. This forfeiture of sensation can have a profound effect on the patient’s quality of life. In certain cases, sensation can be returned to the breast area with the use of the Company’s products through an innovative surgical technique we call Resensation®. The Company believes that the ideal breast reconstruction should restore breast size, shape, symmetry, and softness as well as sensation, without the potential risks and co-morbidity associated with autograft. The Company believes the Resensation technique incorporates a patient’s desire for the opportunity to return sensation in their breasts with a reproducible and efficient surgical approach for reconstructive plastic surgeons.

Peripheral nerves are also damaged due to compression injuries. For instance, severe and recurrent carpal and cubital tunnel cases may result in complications and damage to the peripheral nerve that requires surgical intervention and protection of the peripheral nerve. PNI caused by recurrent carpal tunnel syndrome and cubital tunnel syndrome constitutes the “Upper Extremity Compression” portion of the Total Addressable Market.

Peripheral nerves are also a source of chronic pain. One of the causes of neuropathic pain is called a neuroma, a tangled mass of disorganized nerve and fibrous tissue resulting in aberrant nerve signals which the brain interprets as pain. Traditionally these neuromas have been treated using pain management methods, including pharmacological agents which do not address the anatomical cause of the pain. The surgical treatment of such pain involves a procedure to remove the painful neuroma and repair of the resulting nerve gap or termination of the nerve end.

In the cases where a peripheral nerve is severed and the gap between its two ends is extremely small, the surgeon may be able to reconnect the peripheral nerve without tension through direct suturing as a coaptation aid (“Primary Repair”). When the gap in the nerve tissue is more than a few millimeters in length, the surgeon typically needs to use material to bridge the gap between the peripheral nerve ends to ensure a tension-free repair (“Gap Repair”). Historically for a Gap Repair surgeons have relied on a nerve autotransplantation (autologous nerve grafting or nerve autograft). In nerve autograft procedures, surgeons remove peripheral nerve from another part of the patient’s body, frequently the sural nerve from the back of the lower leg, to repair the damaged nerve. Nerve autografting is often effective in repairing a damaged peripheral nerve, but it presents a tradeoff as the surgeon can attempt to fix the damaged nerve, but must create an additional nerve deficit at another location in the body. For example, a patient may opt to get movement and feeling back in their finger while losing some sensation in their foot. Additionally, Axogen believes the secondary surgery to obtain the needed nerve autograft may increase operating time by ~90 minutes based upon literature and the CMS 2020 Physician Fee Schedule reports autograft intra service work time to be 61-147 minutes longer than allograft (Capek L, Clarke H M, Zuker R M. Endoscopic sural nerve harvest in the pediatric patient. Plast Reconstr Surg. 1996 Oct; 98(5): 884–888; 2020 Physician Fee Schedule, https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/PhysicianFeeSched/PFS-Federal-Regulation-Notices-Items/CMS-1715-F; and 2017 RUC recommendations, https://www.ama-assn.org/sites/ama-assn.org/files/corp/media-browser/public/rbrvs/feb-2017-RUC-recommendations-FINAL.pdf). Operating room expenses associated with longer procedure times are estimated to increase $2 thousand to $4 thousand, depending on case complexity, for each additional 30 minutes of operating time based on Cleveland Clinic 2019 Patient Price Information List (https://my.clevelandclinic.org/-/scassets/files/org/locations/price-lists/main-campus-hospital-patient-price-list.ashx). The nerve harvest necessary in autograft nerve repair may also result in a 27% complication rate due to surgical site infection, delayed wound healing, and chronic pain (Rappaport WD, Valente J, Hunter GC, Rance NE,et al. Clinical utilization and complications of sural nerve biopsy. Am J Surg. 1993 Sep; 166(3): 252-256). Further, in the case of extreme trauma where multiple peripheral nerves need to be repaired, it may not be possible to recover enough nerve

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from the patient to complete the Gap Repair; and nerve autograft tissue may not provide an appropriate diameter match with the diameter of the injured nerve stump, an important factor in a successful repair outcome.

Drawbacks of repair with autograft nerve eventually led to the development of hollow tube conduits, or hollow tube nerve cuffs for Primary Repair and Gap Repair made of, for instance, bovine collagen or polyglycolic acid. The hollow tube nerve cuff is typically an absorbable hollow tube that, unlike natural peripheral nerve, does not have internal microarchitecture and endoneurial tubes to support and guide regenerating axons; as a result, it is deficient in the qualities that natural peripheral nerve possesses to support nerve regeneration across a gap. Hollow-tubes may also lack pliability and structural integrity needed when used around joints and may be difficult to use in a confined space. Clinical data has demonstrated that hollow tubes are most effective when used in very short gaps, what Axogen defines as Primary Repair, and the reliability of successful nerve recovery diminishes as gap length increases with a 34% to 57% failure rate for hollow tube conduits in repairs with a greater than 5mm gap (Weber RA, Breidenbach WC, Brown RE, Jabaley ME, Mass DP. A randomized prospective study of polyglycolic acid conduits for digital nerve reconstruction in humans. Plast Reconstr Surg. 2000 Oct;106(5):1036-45; discussion 1046-8 and Wangensteen KJ, Kalliainen LK. Collagen tube conduits in peripheral nerve repair: a retrospective analysis. Hand (N Y). 2010 Sep;5(3):273-7. doi: 10.1007/s11552-009-9245-0. Epub 2009 Nov 24).

Conduits filled with an inner matrix have been announced by competitors. The availability of such filled tube conduits for purchase in the United States is not clear at this time. These filled conduits are purported to have greater ability to regenerate after peripheral nerve injury than a hollow tube conduit, but we believe there is very limited data supporting this position. See - “Competition”.

The shortcomings of hollow-tubes for peripheral nerve repair limit where they may be used effectively. Thus, Axogen believes the peripheral nerve repair market needs an alternative off-the-shelf product that offers other features such as a natural ECM scaffold and three-dimensional structure of a typical nerve for bridging nerve transections without the comorbidities of an additional surgical site required for harvest of autograft nerve tissue. Axogen believes its Avance Nerve Graft and Axoguard Nerve Connector products address the market needs for both Gap Repair and Primary Repair.

Compression on a peripheral nerve or blunt force trauma can also cause nerve damage that may require surgical intervention. In these cases, the peripheral nerve is not severed and thus does not create the need for a Primary Repair or Gap Repair. However, the surgeon may want to protect and isolate the peripheral nerve during the healing process. In these situations, peripheral nerve protection is provided by wrapping the nerve (“Nerve Protection”).

Axoguard Nerve Protector is a porcine submucosa extracellular matrix used for Nerve Protection and Avive Soft Tissue Membrane is a processed human umbilical cord used as a resorbable soft tissue conduit. Other Nerve Protection products are usually made from bovine collagen or polyglycolic acid and are typically absorbable. Axoguard Nerve Protector provides the unique features of pliability, suturability, and translucence for visualization of the underlying peripheral nerve, while also allowing the patient’s own cells to incorporate into the extracellular matrix to remodel and separate the peripheral nerve from the surrounding tissue.

We estimate the United States PNI has a potential total addressable market for our current product portfolio in Trauma, OMF, Breast and Upper Extremity Compression of $2.7 billion (the “Total Addressable Market”). Estimating the Total Addressable Market for nerve repair is challenging as there is not a simple data source for the incidence of peripheral nerve issues. This is further complicated by the fact that nerves can be injured in many traumatic and surgical injuries and can be impacted from the head to the toe of a patient. In addition, we believe nerves are often one of many structures injured in a trauma (i.e. amputation) or in surgery and the incidence of these nerve injuries are often not coded or tracked. Quantifying the procedures involving nerve repair may also be challenging. While selected trauma and surgical procedures are dedicated to the repair of nerves (i.e. a pediatric brachial plexus procedure), most of the incidence of nerve repair is a step in a larger trauma (i.e. digital replant) or surgical procedure (i.e. mandible reconstruction). CPT codes exist for surgeons to code for nerve repair; however, we believe the data substantially underestimates the total number of nerves repaired. Physicians are encouraged to document all steps of procedures. Open trauma often involves many surgical steps, including wound debridement, skin closure and one or more repairs of tendons, bone or joints, nerves, veins, and arteries. CPT codes may be inclusive of each other and may not be documented or reported in billing records. As a result, we believe CPT coding underrepresents the total number of nerve repairs performed in trauma. Because we believe CPT claims are not fully representative of the true volumes of nerve repair surgery, we follow an “empirical” methodology to estimate the Total Addressable Market – using published clinical literature and procedure databases to make what we believe are the most objective assumptions.

We estimate that the Trauma portion of the Total Addressable Market is approximately $1.9 billion based upon epidemiological studies regarding the general number of trauma patients, clinical literature review reporting PNI incidence, and physician interviews. There are almost 137 million emergency department visits in the U.S. each year of which approximately 30 million are related to traumatic injuries (2015 National Hospital Ambulatory Medical Care Survey, Publication of U.S.

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Department of Health & Human Services). We believe that this injury population includes more than 1.4 million patients suffering damage or transection to peripheral nerves resulting in over 700,000 nerve repair procedures (Noble, et al. J of Trauma Injury Infection and Critical Care 1998; Portincasa et al: Microsurgery 27:455-462, 2007). We have estimated the portion of these nerve repair procedures due to trauma that would require Gap Repair, Primary Repair and/or Nerve Protection and applied, as we believed was appropriate in each procedure segment, the number of units and average sales price of Avance Nerve Graft and the average market price for nerve connectors, nerve protectors, and soft tissue membrane products to determine the probable Total Addressable Market.

We estimate that the OMF portion of the Total Addressable Market is approximately $300 million annually, based upon research indicating that approximately 56,000 PNI occur in the U.S. each year related to third molar surgeries, anesthetic injections, dental implants, orthognathic surgery, and mandibular resection procedures. (Shih-Yun Wu, et al.: Systematic Review and Meta-Analysis on Incidence of Altered Sensation of Mandibular Implant Surgery - PLoS ONE 11(4): e0154082; Nguyen., et al.: Risk Factors for Permanent Injury of Inferior Alveolar and Lingual Nerves During Third Molar Surgery; J. Oral Maxillofac Surg. 2014 Dec;72(12); Cheung LK, Leung YY, Chow LK, et al. Incidence of neurosensory deficits and recovery after lower third molar surgery: a prospective clinical study of 4338 cases. Int. J. Oral Maxillofac Surg. 2010;39:320–6.; Transparency Market Research: Dental Implant Market - Global Industry Analysis and Forecast 2016 – 2024; Cha. et al., Maxillofacial Plastic and Reconstructive surgery (2016) 38:19 - Frequency of bone graft in implant surgery; Miloro ed. 2012: Text Book on trigeminal nerve injuries; Pogrel, et al.: J Am Dent Assoc. 2000 Jul;131(7):901-7: Permanent nerve involvement resulting from inferior alveolar nerve blocks; Agbaje, et al.: Int. J. Oral Maxillofac. Surg. 2015; 44: 447-451, J.O Systematic review of the incidence of inferior alveolar nerve injury in bilateral sagittal split osteotomy (BSSO) and the assessment of neurosensory disturbance). We have applied the average sales price of the Avance Nerve Graft, Axoguard Nerve Connector, and Axoguard Nerve Protector that address such PNI in order to derive the OMF portion of the Total Addressable Market.

In 2017, there were 106,295 breast reconstruction procedures in the U.S. as reported in the 2017 plastic surgery statistic report published by the American Society of Plastic Surgery. The report details 19,316 of these reconstructions procedures were autologous flap reconstruction, and that 66.2% of the reconstructions were bilateral. Removing those procedures that are not appropriate for neurotization, and based upon the Company’s assumption that approximately 50% of women may elect to have a dual neurotization for each flap, we estimate that the Breast portion of the Total Addressable Market is approximately $250 million. (2017 ASPS Plastic Surgery Statistics Reports, Includes TRAM, DIEP, and “Other Flaps”, Distribution based on 2017 ASPS Data).

We estimate that the carpal and cubital tunnel revision portion of the Total Addressable Market is approximately $270 million, or 130,000 procedures. Extrapolating the 2016 Medicare National HCPCS Aggregate Summary Table to the total U.S. population, we estimate that there are approximately 488,000 primary carpal tunnel and 95,000 primary cubital tunnel relief surgeries performed annually in the U.S. For carpal tunnel, we believe that our addressable procedure is the estimated 20% of carpal tunnel surgeries that require a revision procedure to address the recurrence of symptoms (Sotereanos, et al., Techniques in hand and Upper extremity surgery 1(1):35-40, 1997). From the 95,000 primary cubital tunnel surgeries, we estimate that our addressable procedure potential comprises a small proportion of primary interventions and all revisions (J. Seradge, et al., Hand Surg. 1998; 23A:483-491; Papatheodorou, et al., J. Hand Surg. Am. 2015;40(5):987e992). As a result, we estimate that approximately 97,500 carpal tunnel revision surgeries and 32,400 total cubital tunnel procedures are addressable each year in the U.S. to mitigate the recurrence of symptoms. These revision and primary surgeries are required due to compression of the peripheral nerve associated with soft tissue attachments from the surrounding tissue or tissue infiltration entrapping the nerve. To prevent additional recurrences, surgeons will opt for a Nerve Protection which includes a product such as the Axoguard Nerve Protector. In order to derive the carpal and cubital tunnel revision portion of the Total Addressable Market, we multiplied the average market sales price of Axoguard Nerve Protectors by the number of estimated procedures.

Although distribution and sales of products in the Trauma, OMF, Breast and Extremity Compression portions of the Total Addressable Market constitute our primary revenue sources today, market expansion opportunities in lower extremity surgery, head and neck surgery, urology and the surgical treatment of pain offer us expanded revenue opportunities. The Company has begun an expansion into the surgical treatment of pain with an initial focus on traumatic injuries, including amputation and orthopedic surgeries such as total hip arthroplasty, total knee arthroplasty, knee arthroscopy, Morton’s neuroma, foot and ankle procedures, and wrist arthroscopy. The size of the pain market opportunity is challenging to identify as the cause of the chronic pain is often not diagnosed and there has not historically been a surgical treatment to resolve the cause of the pain. The Company believes the market opportunity is sufficient to apply selected resources to the opportunity and there is a significant patient and societal need to reduce the use of pharmacologic solutions, including opioids. Axogen developed Axoguard® Nerve Cap to protect a peripheral nerve end and separate the nerve end from the surrounding environment to reduce the development of symptomatic or painful neuromas (“Neuroma Management”). An example application for Axoguard Nerve Cap is in a digital amputation whereby the severed nerves may form a painful neuroma if the nerve end is not properly terminated or capped. We conducted user evaluations and a post-market clinical study of neuroma revision using Axoguard Nerve Cap and launched the product in February of 2020.

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Axogen’s Product Portfolio

Overview of Axogen’s Products

The Axogen surgical solution product portfolio provides surgeons off-the-shelf products for a wide variety of peripheral nerve damage or transection. The Company’s proprietary products and technologies are designed to overcome fundamental challenges in peripheral nerve repair. Axogen’s Avance Nerve Graft is the alternative to autografts and other off-the-shelf peripheral nerve repair products for nerve gaps up to 70mm in length. Axoguard Nerve Connector is a coaptation aid for transected peripheral nerves. Axoguard Nerve Protector is a protective wrap for peripheral nerves damaged by compression, or where the surgeon wants to protect and isolate the peripheral nerve during the healing process after surgery. Avive Soft Tissue Membrane provides a resorbable covering to keep tissue structures apart while providing the beneficial properties of a placental membrane. Axoguard Nerve Cap is a uniquely designed nerve termination device which provides a protective environment for the nerve end to reduce the development of painful neuroma.

Functional measurements play an important role in the evaluation of peripheral nerve function by assisting the healthcare professionals in detecting changes in sensation or muscle strength, assessing return of sensory or motor function, establishing effective treatment interventions, and providing feedback to the patients. Evaluation and measurement of peripheral nerve function is also an important part of identifying nerve damage or transection and determining treatment outcomes. Axogen’s functional measurement product is the Axotouch Two-Point Discriminator tool for sensory function.

Avance Nerve Graft

Avance Nerve Graft is a biologically active nerve implant with more than ten years of comprehensive clinical evidence and more than 50,000 implants since launch.Avance Nerve Graft is intended for the surgical repair of peripheral nerve transections to support regeneration across the defect (a gap created when the nerve is severed). It is intended to act as a structural bridge in order to guide and support axonal regeneration across a peripheral nerve gap caused by traumatic injury or surgical intervention. Avance Nerve Graft is decellularized and sterile processed human peripheral nerve tissue. Axogen developed the Avance Nerve Graft by following the guiding principle that the human body created the optimalperipheral nerve structure. Axogen, through its licensing efforts and research, developed the Avanceprocess, a proprietary method for processing recovered human peripheral nerve tissue in a manner that preserves the essential structure of the ECM while cleansing away cellular and noncellular debris. Avance Nerve Graft provides the natural peripheral nerve structure of a nerve, including the native laminin to guide the regenerating nerve fibers. The nerve ECM is additionally processed to remove a natural inhibitor to regeneration called chondroitin sulphate proteoglycan (“CSPG”).

Axogen believes that Avance Nerve Graft is the first off-the-shelf human nerve allograft for bridging nerve transections. Avance Nerve Graft is comprised of bundles of small diameter endoneurial tubes that are held together by an outer sheath called the epineurium. Avance Nerve Graft has been processed to remove cellular and noncellular factors such as cells, fat, blood, and axonal debris, while preserving the three-dimensional laminin lined tubular bioscaffold (i.e. microarchitecture), epineurium and microvasculature of the peripheral nerve. After processing, Avance Nerve Graft is flexible and pliable, and its epineurium can be sutured in place allowing for tension-free approximation of the proximal and distal peripheral nerve stumps. During the healing process, the body revascularizes and gradually remodels the graft into the patient’s own tissue while allowing the processed peripheral nerve allograft to physically support axonal regeneration across the peripheral nerve transection. Avance Nerve Graft does not require immunosuppression for use.

With lengths up to 70 mm and diameters up to 5 mm, Avance Nerve Graft allows surgeons to choose and trim the implant to the correct length for repairing the relevant peripheral nerve gap, as well as to match the diameter to the proximal and distal end of the severed peripheral nerve. Avance Nerve Graft is stored frozen and utilizes packaging that maintains the graft in a sterile condition. The packaging is typical for medical products so the surgical staff is familiar with opening the package for transfer of Avance Nerve Graft into the sterile surgical field. Such packaging also provides protection during shipment and storage and a reservoir for the addition of sterile fluid to aid in thawing the product. Avance Nerve Graft thaws in less than 10 minutes, and once thawed, it is ready for implantation.

Avance Nerve Graft provides the following key advantages:

•A three-dimensional bioscaffold for bridging a peripheral nerve gap;

•A biologically active nerve therapy with more than 10 years of comprehensive clinical evidence;

•No patient donor-nerve surgery, therefore no comorbidities associated with a secondary surgical site;

•Available in a variety of diameters up to 5mm to meet a range of anatomical needs;

•Available in a variety of lengths up to 70mm, to meet a range of gap lengths;

•Decellularized and cleansed extracellular matrix;

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•Implanted without the need for immunosuppression, remodels into patient’s own tissue;

•Structurally supports the body’s own regeneration process;

•Handles similar to an autograft, and is flexible and pliable;

•Alleviates tension at the repair site;

•Three-year shelf life; and

•Supplied sterile.

Axoguard Nerve Connector

Axoguard Nerve Connector is a coaptation aid used to align and connect severed peripheral nerve ends in a tensionless repair. The product is in a tubular shape with an open lumen on each end where the severed peripheral nerve ends are placed. It is typically used when the gap between the peripheral nerve ends is 5mm or less in length. Axoguard Nerve Connector is made from a processed porcine ECM which allows the body’s natural healing process to repair the peripheral nerve while its tube shape isolates and protects the transected nerves during the healing process. During healing, the patient’s own cells incorporate into the extracellular matrix product to remodel and form a tissue similar to the outermost layer of the peripheral nerve (nerve epineurium). Axoguard Nerve Connector is provided sterile, for single use only, and in a variety of sizes to meet the surgeon’s needs.

Axoguard Nerve Connector can be used:

•As an alternative to direct suture repair;

•As a peripheral nerve coaptation; Connector-Assisted Repair®;

•To aid coaptation in direct repair, grafting, or cable grafting repairs; and

•To reinforce the coaptation site.

Axoguard Nerve Connector has the following advantages:

•Processed intact porcine extracellular matrix with an open, porous structure that allows for cell infiltration and remodeling;

•Designed as a coaptation aid for tensionless repair of transected or severed peripheral nerves;

•Alleviates tension at the repair site;

•Remodels into the patient’s own tissue;

•Reduces the number of required sutures (versus direct repair with suture) (Boeckstyns, Jhand Surg. 2013;38:2405-2411);

•Allows surgeon to move sutures away from the repair site which may minimize inflammation and aid nerve regeneration;

•Reduces potential for fascicular mismatch;

•Allows visualization of underlyingperipheral nerve ends;

•Available in seven different diameters and two different lengths to address a variety of nerve repair situations;

•Strong and flexible, easy to suture; and

•Stored at room temperature with a minimum of 18-month shelf life.

Axoguard Nerve Protector

Axoguard Nerve Protector is a product used to protect and wrap damaged peripheral nerves and reinforce reconstructed nerve gaps while preventing soft tissue attachments. It is designed to protect and isolate the peripheral nerve during the healing process after surgery by creating a barrier between the nerve tissue and the surrounding tissue bed. The product is delivered in a slit tube format allowing it to be wrapped around peripheral nerve structures. Axoguard Nerve Protector is made from a processed porcine ECM. During healing, the ECM remodels allowing the protector to separate the peripheral nerve from the surrounding tissue. Axoguard Nerve Protector competes against off-the-shelf biomaterials such as reconstituted collagen as well as the use of the patient’s own tissue such as vein and hypothenar fat pad wrapping. Axoguard Nerve Protector is provided sterile, for single use only, and in a variety of sizes to meet the surgeon’s needs.

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Axoguard Nerve Protector can be used to:

•Separates and protects the nerve from the surrounding tissue during the healing process;

•Minimize risk of soft tissue attachments and entrapment in compressed peripheral nerves;

•Protect peripheral nerves in a traumatized wound bed; and

•Reinforce a coaptation site.

Axoguard Nerve Protector has the following advantages:

•Processed porcine submucosa extracellular matrix used to reinforce a coaptation site, wrap a partially severed peripheral nerve or protect peripheral nerve tissue;

•Creates a protective layer that isolates and protects the peripheral nerve in a traumatized wound bed;

•Remodels into the patient’s own tissue;

•Easily conforms and provides 360 degree wrapping of damaged peripheral nerve tissue;

•Allows the body's natural healing process to repair the nerve;

•Minimizes the potential for soft tissue attachments and peripheral nerve entrapment by physically isolating the nerve during the healing process;

•Allows peripheral nerve gliding;

•Strong and flexible, plus easy to suture;

•Is available in five different widths and two different lengths to address a variety of peripheral nerve repair situations; and

•Stored at room temperature with a minimum of 24-month shelf life.

Avive Soft Tissue Membrane

Avive Soft Tissue Membrane is processed human umbilical cord membrane that may be used as a resorbable soft tissue covering to separate tissues in the surgical bed.

We believe, the medical community has for decades realized the beneficial qualities of human amniotic membrane and continues to utilize this natural tissue in applications across the body. Avive Soft Tissue Membrane offers a resorbable anatomical covering separate tissues. Avive Soft Tissue Membrane is provided sterile and in a variety of sizes to meet the surgeon’s surgical needs.

Avive Soft Tissue Membrane can be used to separate tissues in the surgical bed as a permeable membrane.

Avive Soft Tissue Membrane has the following advantages:

•Umbilical cord amniotic membrane that is naturally resorbable;

•Is non-immunogenic;

•Processed to preserve the natural properties of umbilical cord amniotic membrane;

•Comprised of umbilical cord amniotic membrane which is up to eight times thicker than placental amniotic membrane alone;

•Long lasting (in animal studies, stays in place for at least 16 weeks);

•Easy to handle, suture or secure during a surgical procedure;

•Conforms and stays in place at the application site;

•Chorion free (reducing the likelihood of immune response); and

•Room temperature storage with a two-year shelf life.

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Axoguard Nerve Cap

Axoguard Nerve Cap is a proprietary porcine submucosa ECM product used to protect a peripheral nerve end and separate the nerve from the surrounding environment to reduce the development of symptomatic or painful neuroma.

Nerves are often cut in a variety of surgeries, including orthopedic procedures to repair or replace joints, hernia and other thoracic cavity procedures, and bone fracture revisions. Every nerve that is cut and not reconstructed forms an entangled mass of disorganized nerve and fibrous tissue that could cause debilitating pain called a symptomatic neuroma. Neuromas are the main cause of pain for those patients who complain of post-surgical pain, including in amputees which may lead to an inability to use their prosthesis. Despite more than 30 different treatment methods, it is our belief that neuromas continue to be an unresolved problem in microsurgery. We believe the Axoguard Nerve Cap can address these painful neuroma and better address nerve pain than other methods, including pharmacotherapy and chemical injections, among others.

Axoguard Nerve Cap can be used to reduces the development of symptomatic or painful neuroma formation.

Axoguard Nerve Cap has the following advantages:

•Separates the nerve end from surrounding tissue, neurotrophic factors and mechanical stimulation;

•Reduces painful neuroma formation;

•Allows for anchoring of a nerve end or stump to nearby tissue structure;

•Material gradually remodels into the patient’s own tissue to protect the nerve end; and

•Semi-translucence allows for visualization of nerve ends or stumps and easy visualization for suture placement.

Acroval Neurosensory and Motor Testing System

To pursue our mission most effectively, we have made a strategic decision to place our full focus on innovations within our surgical solutions portfolio. Effective November 2019, Axogen discontinued all sales of the Acroval Neurosensory and Motor Testing System. We continue to provide service and support for the existing systems in the marketplace.

Axotouch Two Point Discriminator

The Axotouch Two-Point Discriminator tool can be used to measure the innervation density of any surface area of the skin. The discs are useful for determining sensation after damage to a peripheral nerve, following the progression of a repaired peripheral nerve, and during the evaluation of a person with possible peripheral nerve damage, such as compression.The Axotouch Two-Point Discriminator is a Class 1 510(k) exempt medical device.

The Axotouch Two-Point Discriminator tool is a set of two aluminum discs each containing a series of prongs spaced between two to 15 millimeters apart. Additionally, 20 and 25 millimeter spacing is provided. A circular depression on either side of the disc allows ease of rotation. The discs can be rotated between a single prong for testing one-point and any of the other spaced prongs for testing two-point intervals.

Axotouch Two-Point Discriminator has the following advantages:

•Capable of measuring the innervation density of any skin surface;

•Portable and easy to use;

•Strong aluminum design is resistant to bending;

•Bright colors allow for clear discrimination between discs;

•Clear numbering allows users to interpret results; and

•Reusable carry case protects discs.

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Tissue Recovery and Processing for Avance Nerve Graft and Avive Soft Tissue Membrane

Avance Nerve Graft Processing Overview

Axogen has developed the Avance Process, an advanced and proprietary technique to process Avance Nerve Graft from donated human peripheral nerve tissue.The Avance Process requires special training over several months for each manufacturing associate who processes Avance Nerve Grafts.The processing and manufacturing system for Avance Nerve Graft has required significant capital investment, and we seek to continually improve our manufacturing and quality assurance processes and systems.Axogen’s Avance Process is depicted as follows:

Avance Nerve Graft and Avive Soft Tissue Membrane Processing

Axogen’s Avance process and processing of Avive Soft Tissue Membrane consists of several steps, including peripheral nerve tissue, in the case of Avance, and umbilical cord, in case of Avive, recovery/acquisition and testing, donor medical review and release, processing, packaging, and sterilization to meet or exceed all applicable U.S. Food and Drug Administration (the “FDA”), state, and international regulations and American Association of Tissue Banks (“AATB”) standards. We have a number of contracts with recovery and acquisition agencies to supply peripheral nerve tissue and umbilical cord and believe these contracts, and the ability to enter into additional contracts, will provide us with the tissues we require for our Avance and Avive implants. As an FDA registered tissue establishment, Axogen utilizes both its own personnel and a variety of subcontractors for recovery/acquisition, storage, testing, processing and sterilization of the donated peripheral nerve and umbilical cord tissue. Additionally, independent GMP and GLP complaint laboratories have been contracted by Axogen and its subcontractors to perform testing from donor eligibility through release. The safety of Avance Nerve Graft and Avive Soft Tissue Membrane is supported by donor screening, process validation, process controls, and validated terminal sterilization methods. The Axogen Quality System has built in redundancies that are meant to control the release of each product for implantation only after such product meets our stringent quality control and product requirements.

Avance Nerve Graft and Avive Soft Tissue Membrane Tissue Recovery/Acquisition and Processing Facility

Axogen partners with other FDA registered tissue establishments and AATB accredited recovery/acquisition agencies or recovery/acquisition agencies in compliance with AATB standards for human tissue recovery. After consent for donation is obtained, donations are screened and tested in detail for safety in compliance with the federal regulations and AATB standards on communicable disease transmission. Axogen processes and packages Avance Nerve Graft and Avive Soft Tissue Membrane using its employees and equipment pursuant to a License and Services Agreement, as amended (the “CTS Agreement”) with Community Blood Center (d/b/a Community Tissue Services) (“CTS”), Dayton, Ohio. CTS is an FDA registered tissue establishment and an AATB accredited organization.

The current CTS Agreement terminates December 31, 2022, subject to earlier termination by either party at any time for cause (subject to the non-terminating party’s right to cure, in certain circumstances), or without cause upon 6 months prior notice whereby notice cannot be provided prior to March 1, 2021. Under the CTS Agreement, Axogen pays CTS a facility fee for clean room/manufacturing, storage and office space. CTS also provides services in support of Axogen’s manufacturing such

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as routine sterilization of daily supplies, providing disposable supplies, microbial services and office support. The service fee is based on a per donor batch rate. The CTS facility provides a cost effective, quality controlled and licensed facility. Axogen’s processing methods and process controls have been developed and validated to ensure product uniformity and quality. Pursuant to the CTS Agreement, Axogen pays license fees on a monthly basis to CTS. See – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements - Footnote 15 - Commitments and Contingencies - Service Agreements.

Axogen is renovating a property located near the CTS facility and comprised of an 107,000 square foot building on approximately 8.6 acres of land. It is expected that renovations will be completed by the termination date of the CTS Agreement to provide a new processing facility that can be included in our Biologics License Application (“BLA”) for Avance Nerve Graft. The capacity of the property once operational, along with the ability for expansion, is expected to provide processing capabilities that will meet our intended sales growth. Axogen believes it can obtain certain economic incentives from state and local authorities associated with the renovations and additional employment at the facility; however, such incentives are not expected to be a material offset to the cost of the project as a whole. See – Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements - Footnote 15 - Commitments and Contingencies - Service Agreements.

Avance Nerve Graft and Avive Soft Tissue Membrane Packaging

After processing, the packaging operation is performed in a controlled environment at CTS. Each Avance Nerve Graft and Avive Soft Tissue Membrane is visually inspected and organized by size into finished product codes. The tissue implant is then packaged in primary packaging. The outer pouch acts as the primary sterility and moisture barrier.

Avance Nerve Graft and Avive Soft Tissue Membrane Sterilization and Labeling

After being processed and packaged, Avance Nerve Graft and Avive Soft Tissue Membrane are then terminally sterilized and shipped to Axogen’s Burleson, Texas distribution facility (the “Distribution Facility”). There the products receive their final labels and are released following a final stringent technical and quality review. Orders for Avance Nerve Graft and Avive Soft Tissue Membrane are placed with Axogen’s customer care team and the products are packaged and shipped from the Distribution Facility.

Avance Nerve Graft and Avive Soft Tissue Membrane Product Release

Axogen has established quality procedures for review of tissue recovery, relevant donor medical record review and release to processing that meet or exceed FDA requirements as defined in 21 CFR Part 1271, state regulations, international regulations and AATB standards. The Axogen Quality System meets the requirements set forth under 21 CFR Part 1271 for Human Cells, Tissues and Cellular and Tissue-Based Products, including Good Tissue Practices (“GTP”) and is compliant with the 21 CFR Part 820 Quality System Regulations (“QSR”). Furthermore, Axogen utilizes validated processes for the handling of raw material components, environmental control, processing, packaging, and terminal sterilization. In addition to ongoing monitoring activities for product conformity to specifications and sterility, shipping methods have been validated in accordance with applicable industry standards.

Manufacturing of Axogen Products Other Than Avance Nerve Graft and Avive Soft Tissue Membrane

Manufacturing for the Axoguard Product Line

The Axoguard product line is manufactured by Cook Biotech Incorporated, West Lafayette, Indiana (“Cook Biotech”), which was established in 1995 to develop and manufacture implants utilizing porcine extracellular matrix technology (“ECM”). Axogen decided to expand its portfolio of products and felt that the unique ECM material offered by Cook Biotech provided the combination of properties needed in nerve reconstruction. Cook Biotech’s ECM material is pliable, capable of being sutured, translucent and allows the patient’s own cells to incorporate into the extracellular matrix to remodel and form a tissue similar to the nerve’s epineurium. Cook Biotech has its own source of the raw material for the ECM material and manufactures Axoguard products from such sources.

In August 2008, Cook Biotech entered into an agreement, amended in March 2012 and February 26, 2018 (the “Distribution Agreement”), with Axogen to distribute its ECM technology in the form of the Surgisis® Nerve Cuff, the form of a nerve wrap or patch, or the form of any other mutually agreed to configuration. The Surgisis products were rebranded under Axogen’s Axoguard name and consist of the Axoguard Nerve Connector and Axoguard Nerve Protector. Axogen’s distribution rights are worldwide in the field of the peripheral and central nervous system, but excluding use of the products in the oral cavity for endodontic and periodontal applications and OMF surgery solely as they relate to dental, soft or hard tissue repair, or

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reconstruction. We believe the exclusion does not limit our identified OMF market, but expansion into certain additional OMF market areas could be limited to the Avance Nerve Graft.

Axogen developed, patented, and obtained regulatory approval on the Axoguard Nerve Cap which in its current configuration is made with Cook Biotech’s ECM material. Pursuant to the Nerve End Cap Supply Agreement dated June 27, 2017 (the “Supply Agreement”), Cook Biotech is the exclusive contract manufacturer of the Axoguard Nerve Cap and both parties have provided the other party the necessarily licenses to their technologies for operation of the Supply Agreement. With respect to the license from Cook Biotech, Axogen is able to sell the Axoguard Nerve Cap worldwide in the field of the peripheral and central nervous system, but subject to the same exclusions as Axoguard Nerve Connector and Protector.

The Distribution Agreement terminates on June 30, 2027. Although the agreement requires certain minimum purchases, through mutual agreement, the parties have not established such minimums and to date have not enforced such provision, and also establishes a formula for the transfer cost of the Axoguard Nerve Connector and Axoguard Nerve Protector. The Supply Agreement has a term through August 27, 2027, provided, however, that after June 27, 2022, either party may terminate the Supply Agreement upon 90 days written notice. Under both the Distribution and Supply Agreements, Axogen provides purchase orders to Cook Biotech, and Cook Biotech fulfills the purchase orders.

Manufacturing for the Axotouch Two Point Discriminator

The Axotouch Two Point Discriminator is contract manufactured by Viron Technologies, doing business as Cybernetics Research Laboratories (“CRL”), Tucson, Arizona. CRL supplies the Axotouch unpackaged and they are packaged at Axogen’s distribution facility in Burleson, Texas. We believe CRL has capacity to support any future volumes of Axotouch.

Sales and Marketing

Overview

Axogen is focused on developing the peripheral nerve repair and regeneration market, is committed to improving awareness of new surgical peripheral nerve repair options and is building additional scientific and clinical data to assist surgeons and patients in making informed choices with respect to the repair of peripheral nerve injuries. Axogen believes that there is an opportunity to improve current approaches to peripheral nerve repair and that its approach will solidify its position as a leader in the field of peripheral nerve repair products. The following provides the key elements of Axogen’s sales and marketing strategy.

Increase Awareness of Axogen’s Products

Prior to the introduction of Axogen’s portfolio of peripheral nerve repair products, surgeons had a limited number of options available to surgically repair damaged or transected peripheral nerves. Axogen entered the market to improve the standard of care for nerve injury patients. Axogen intends to increase market penetration and share by increasing awareness of the impact of nerve damage on quality of life, and improving the adoption of nerve repair techniques and Axogen’s products through the continued use of educational conferences and presentations, surgical resident and fellow training, scientific publications, digital communication, and a knowledgeable and professional sales team. Axogen works to increase the use of its products within active accounts as well as expand the overall customer base by adding new active accounts. Axogen defines an “active account” as an account that has typically gone through the committee approval process, has at least one surgeon who has converted a portion of his or her treatment algorithms for peripheral nerve repair to the Axogen portfolio and has ordered Axogen products at least six times in the last 12 months. Axogen is focused on plastic reconstructive surgeons and orthopedic and plastic hand surgeons who perform surgeries on patients suffering traumatic nerve damage or transection, on oral and maxillofacial surgeons who repair damaged oral nerves, and on plastic reconstructive surgeons who perform autologous flap breast neurotization.

Expand Clinical and Scientific Data Regarding the Performance of Axogen Products

Generating clinical data is an important component of Axogen’s marketing strategy. As of December 31, 2020, Axogen had over one hundred and forty five peer reviewed clinical papers. Certain of these publications contain data on multiple products. Axogen will continue to accept patients, for which there are more than 2,300 Avance nerve repairs enrolled to date, in its RANGER® clinical study (defined below in “Government Regulations”), a utilization registry of Avance Nerve Graft. An additional arm of the RANGER study has been initiated tracking neurotization outcomes in breast reconstruction (Sensation-NOW®). Eight of the above mentioned publications and more than 70 scientific conference presentations have been generated to date from the registry. A multicenter prospective randomized comparative pilot study of hollow tube conduits and Avance Nerve Graft has completed subject enrollment and outcome follow-up and has been published (Means, et al.). Case series in digital nerve repair have been published from the Mayo Clinic, Georgetown University Medical Center and Philadelphia Hand

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Center and a case series in OMF have been published from UT Southwestern and University of Illinois-Chicago. A number of additional investigator initiated case reports, studies, and publications have been completed, including breast neurotization, mandible reconstruction, compressive neuropathies, and the surgical treatment of pain. Case series in brachial plexus, neurotization of breast reconstruction and the surgical treatment of pain are also being developed. Axogen also supports outside research and will continue to work with investigators working on grants with a translational focus.

Commitment to the Education of Best Practices in Peripheral Nerve Repair

Axogen has established educational conferences and presentations and surgical resident and fellow training that we believe has positioned us as a leader in providing peripheral nerve repair best practices. In 2020, we trained more than three-quarters of hand and microsurgery surgeon fellows in the U.S. through such courses and training, including the use of virtual education programs necessitated by the COVID-19 pandemic. The Company has historically provided education on peripheral nerve repair through in person national programs (“National Programs”), including its “Advances and Best Practices in Nerve Repair” as well as local and regional educational events. In calendar years 2017, 2018, and 2019, we conducted 15, 18, and 26 National Programs, respectively. Due to the COVID-19 pandemic, we transitioned in April 2020 largely to a virtual platform for surgeon education offering multiple educational webinars. In 2021, we expect to again offer multiple educational webinars with the possibility of returning to in person surgeon education programs later in the year. Our education efforts also continue to include online tools and discussion forums such as Nerve Matters, an online community of peripheral nerve surgeons where the surgeons can ask questions, present cases and share findings in the area of peripheral nerve repair.

Focused on developing deeper penetration with our existing surgeon customers through development of long-term users of the Avance Nerve Graft in our largest market opportunity of extremity trauma

Axogen provides full sales and distribution services through both a direct sales force and independent sales agencies. As of December 31, 2020, Axogen had 111 direct sales professionals and 23 independent sales agencies in the U.S. In 2020, approximately 87% of global product revenue came from the direct channel. In late 2019, we adjusted our commercial strategy to focus on deeper penetration of our existing surgeon customers through the development of long-term users of Avance in our largest market opportunity of extremity trauma. Throughout the pandemic, we kept the sales team and broader commercial organization intact and took the opportunity to provide extensive sales training. The team developed new skills and shared best practices around remote case support where hospital access has been restricted. We believe this remote support has been appreciated by customers and has expanded the sales team’s ability to support surgeons during COVID-19 and beyond. We believe that near-term growth can be supported first through expanded productivity of our existing sales force as they go deeper with existing surgeons and accounts and then by adding additional surgeons and accounts. We expect the number of direct sales professionals to increase over time. Additionally, we have successfully utilized a hybrid commercial approach that includes the use of independent agencies in more remote geographies in order to provide appropriate local support for surgeons, without the travel time required of a direct sales representative. We anticipate that it will continue to add to the number of independent sales agencies as it continues to drive higher productivity and efficiency with its direct sales force.

Our products are available and sold in 16 countries outside the U.S. through a number of independent in-country distributors. We provide support and resources for independent agencies and distributors both within and outside the U.S. We provide our products to hospitals, surgery centers and military hospitals, calling on surgeons, including plastic reconstructive surgeons, orthopedic and plastic hand surgeons, and certain oral and maxillofacial surgeons to review the benefits of our products. While surgeons make the decision to implant our products in appropriate patients, hospitals make the decision to purchase the products from us. In today’s budget constrained environment, hospital committees review new technologies for cost effectiveness as well as quality. We believe that we have been successful in meeting the needs of these hospital committees by demonstrating the cost/benefit of its products and providing a fair value to the hospital.

Expand the Product Pipeline and Applications in Peripheral Nerve Repair

Axogen has developed and continues to develop new and next generation products to support surgeons in their needs for repairing damaged or transected peripheral nerves. Axogen believes additional opportunities exist to develop or acquire complementary products in peripheral nerve repair. In addition, there are opportunities to expand the existing portfolio of products in new applications of peripheral nerve repair in lower extremity surgery, head and neck surgery, urology, and the surgical treatment of pain.

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Axogen Strengths

Axogen believes that it has the following strengths in the field of peripheral nerve repair and regeneration:

Established Peripheral Nerve Repair Expertise

Axogen has made a significant investment in understanding peripheral nerve anatomy and surgical peripheral nerve repair and regeneration. This has been accomplished through interaction with leading academic centers throughout the U.S. and by striving to build an outstanding internal team of technical and clinical experts.

Tissue collection, processing, and controls

Commitment to the Promotion and Education of Best Practices in Peripheral Nerve Repair

Axogen has established surgeon educational conferences, presentations, webinars, and surgical resident and fellow training that we believe has positioned us as the leader in providing peripheral nerve repair best practices. Axogen has developed the programs and speakers to train surgeons currently in practice as well as surgical fellows.

Clinical Data

Axogen is developing a body of clinical evidence of its implants in real world situations that surgeons face when treating their patients with peripheral nerve injuries. This data provides support for surgeons in their clinical decision making and providing treatment options to their patients.

A pivotal multicenter prospective randomized comparative study (RECONSM) of hollow tube conduits and Avance Nerve Graft to support the transition of Avance to a biological product has completed enrollment and is in follow-up See “Government Regulations – Clinical Trials”. A multicenter, prospective, randomized and subject blinded study of Axoguard Nerve Cap as compared to neurectomy for the treatment of symptomatic neuroma (REPOSESM) is currently enrolling. A registry study of Avive Soft Tissue Membrane in acute trauma (ASSISTSM) has completed follow-up of all enrolled subjects. Sensation-NOWSM, a RANGERSM expansion study arm for breast neurotization continues to enroll as does the additional expansion arm RANGER (MATCHSM), a contemporary cohort control which provides reference controls for nerve autograft and manufactured conduits from participating registry centers.

Surgical Implant Commercialization Experience

The Axogen commercialization team consists of sales, marketing, and customer care professionals with backgrounds in the medical device and biotechnology industries. The team has strong experience in the introduction of technologies and has been instrumental in beginning to establish Avance Nerve Graft, Axoguard product lines, and Avive Soft Tissue Membrane as a new standard of care for the surgical treatment of peripheral nerve damage or transections in our core markets. Axogen believes it can leverage these capabilities to expand the commercial success of the current Axogen products, future peripheral nerve products and opportunities in new peripheral nerve surgical applications.

Avance Nerve Graft Performance

Axogen has worked with leading institutions, researchers, and surgeons to support innovation in the field of surgical peripheral nerve repair. We believe Axogen’s RANGER study (defined below in the section entitled “Government Regulations”) is the largest multi-center clinical study conducted in peripheral nerve gap repair. Axogen is also conducting a Multicenter, Prospective, Randomized, Subject, and Evaluator Blinded Comparative Study of Nerve Cuffs and Avance Nerve Graft Evaluating Recovery Outcomes for the Repair of Nerve Discontinuities (“RECON”). This study is a phase 3 trial to support its BLA for the Avance Nerve Graft. See “Government Regulations”. The January 2012 edition of Microsurgery and November 2012 edition of The Journal of Hand Surgery, June 2015 edition of Journal of Reconstructive Microsurgery and January 2017 edition of HAND each contain an article summarizing the RANGER study results. The Brooks, et al. publication reported on 55 Avance Nerve Graft nerve repairs and resulted in meaningful motor and sensory recovery in 87% of nerve transections between 5 and 50 mm. Additionally, no implant related adverse events were reported. (Brooks, D. N., Weber, R. V., Chao, J. D., Rinker, B. D., Zoldos, J., Robichaux, M. R., Ruggeri, S. B., Anderson, K. A., Bonatz, E. E., Wisotsky, S. M.,

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Cho, M. S., Wilson, C., Cooper, E. O., Ingari, J. V., Safa, B., Parrett, B. M. and Buncke, G. M. (2012), Processed nerve allografts for peripheral nerve reconstruction: A multicenter study of utilization and outcomes in sensory, mixed, and motor nerve reconstructions. Microsurgery, 32: 1—14. doi: 10.1002/micr.20975 and Cho, et al. 2012, J. Hand Surg. Am 37(11):2340-9). In the March 2019 the Journal, Plastic and Reconstructive Surgery Global Open, Safa, et al. reported on a cohort of the RANGER Registry focused functional motor recovery after repair with Avance Nerve Graft. In the 22 repairs, the authors found that meaningful motor recovery was observed in 73% of the repairs and no safety concerns were identified. (Safa, Bauback MD; Shores, Jaimie T. MD; Ingari, John V. M; Weber, Renata V. MD; Cho, Mickey MD; Zoldos, Jozef MD; Niacaras, Timothy R. MD, PhD; Nesti, Leon J. MD, PhD; Thayer, Wesley P. MD, PhD; Buncke, Gregory M. MD. (2019)), Recovery of Motor Function after Mixed and Motor Nerve Repair with Processed Nerve Allograft. Plastic and Reconstructive Surgery – Global Open: March 2019 - Volume 7 - Issue 3 - p e2163 doi: 10.1097/GOX.000000000000216. In the February 2020 edition of the journal Microsurgery, Safa, et al. published updated results from the RANGER registry. The publication included 385 subjects with 624 nerve repairs. Overall, 82% meaningful recovery (MR) was achieved across sensory, mixed, and motor nerve repairs up to gaps of 70 mm. No related adverse events were reported. Safa B., Jain S., Desai MJ, Greenberg JA, Niacaris TR, Nydick JA, Leversedge FJ, Megee DM, Zoldos J., Rinker BD, McKee DM, MacKay BJ, Ingari JV, Nesti LJ, Cho M, Valerio IL, Kao DS, El-Sheikh Y, Weber RV, Shores JT, Styron JF, Thayer WP, Przylecki WH, Hoyen HA, Buncke GM. Peripheral nerve repair throughout the body with processed nerve allografts: Results from a large multicenter study. Microsurgery. 2020 Jul;40(5):527-537. doi: 10.1002/micr.30574. Epub 2020 Feb 26. PMID: 32101338 The Journal of Hand Surgery published in their December 2020 edition the findings from the MATCH Conduit arm of RANGER. The study included 113 Avance Nerve Graft repairs and 49 conduit repairs. Meaningful recovery was reported in 61% of the conduit group, compared with 88% in the PNA group. In the group with a 14-mm or less gap, conduit and PNA outcomes were 67% and 92% meaningful recovery, respectively. In the 15- to 25-mm gap length group, conduit and PNA outcomes were 45% and 85% meaningful recovery, respectively (Fraser J Leversedge, Jozef Zoldos, Jason Nydick, Dennis S. Kao, Wesley Thayer, Brendan MacKay, Desirae McKee, Harry Hoyen, Bauback Safa, Gregory M Buncke A Multicenter Matched Cohort Study of Processed Nerve Allograft and Conduit in Digital Nerve Reconstruction. J. Hand. Surg. Am. 2020 Dec;45(12):1148-1156. doi: 10.1016/j.jhsa.2020.07.016. Epub 2020 Oct 1). At the 2020 American Society for Surgery of the Hand Annual Conference, the RANGER Investigator Team presented on the preliminary findings from the MATCH Autograft arm of RANGER. The team reported that allograft sensory and motor meaningful recovery rates were found to be comparable to those for nerve autograft.

Additionally, at the American Society for Surgery of the Hand Annual Conference, Styron and colleagues presented on the Hospital Index Procedure Costs for nerve allograft and nerve autograft. The study found that costs for nerve allograft and autograft were comparable.

International Opportunity for Revenue

Axogen currently focuses primarily on the U.S. market, with additional foreign distribution and sales in Canada, Germany, United Kingdom, Spain, South Korea, and certain other countries. The need for the surgical repair of damaged or transected nerves is a global opportunity. Through its revenue outside the U.S., Axogen has demonstrated the capability to take its current peripheral nerve repair surgical portfolio into new geographical markets. Axogen does not currently have European Union (“E.U.”) wide approval for Avance Nerve Graft as human tissue is approved in each individual country. Cook Biotech received the renewal of the CE Mark for Axoguard Nerve Connector and Axoguard Nerve Protector in March 2020. Avance Nerve Graft has been granted marketing authorization in Germany and commercial operations will begin in 2021. Currently, Avive Soft Tissue Membrane, Axoguard Nerve Cap and Axotouch Two Point Discriminator are only available in the U.S., but Axogen is taking action to introduce Avive Soft Tissue Membrane internationally, which introduction is subject to meeting the appropriate regulatory standards of a particular country and any appropriate E.U. wide regulation or directive. In addition to regulatory approval, reimbursement approval is necessary to achieve material product adoption in most countries. Avance Nerve graft has achieved NICE approval in the UK for digital nerve repair and reimbursement approval in South Korea for repairs up to 50mm in length. To date, revenue from international distribution and sales have not been material, there are no material risks associated with foreign operations and we do not have dependencies as to international revenue. See Risk Factors – Our operations must comply with FDA and other governmental requirements.

Research and Development

Axogen believes it provides the most extensive product portfolio for peripheral nerve injuries available. Our current development focus is to expand clinical data in both traumatic peripheral nerve repair and other surgical applications and to develop product line extensions of the Avance and Axoguard products. Other peripheral nerve repair technologies may also be developed. In this regard, Axogen introduced: (1) an Axoguard Connector line extension in winter 2014 by providing a new longer 15mm product; (2) Axotouch in the fall of 2014; (3) Avive Soft Tissue Membrane launched in November 2016; and (4) Axoguard Nerve Cap fully released in the U.S. in February 2020.

Axogen works with academic institutions in the expansion of treatments for peripheral nerve and is involved in a number of grants from government agencies related to nerve repair or use of our products and/or technologies. For the years ended

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December 31, 2020, 2019, and 2018, Axogen recognized grant revenue of approximately $390,000, $301,000, and $195,000, respectively. For the years ended December 31, 2020, 2019 and 2018, Axogen spent approximately $17.8 million, $17.5 million, and $11.8 million, respectively, on total research and development expenses for product and clinical development.

Competition

The medical device and biotechnology industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. As such, Axogen cannot predict what products may be offered in the future that may compete with Axogen’s products. In the peripheral nerve repair market, Axogen competes primarily against all transected and non-transected peripheral nerve repair approaches, including direct suture repair, autograft, and hollow-tube nerve conduits and materials used to wrap and protect damaged peripheral nerve tissue. Finally, there are numerous companies that offer amnion products in a variety of formats, primarily in the area of wound care, which could be competitive with Axogen’s Avive product.

Because the requirements of the biomaterials used in peripheral nerve repair can vary based on the severity and location of the damaged nerve, the size and function of the nerve, surgical technique and patient preference, Axogen’s peripheral nerve repair products compete against both autograft materials (nerve in the case of a bridging repair and vein or fat in the case of a nerve protection repair), and a limited number of off-the-shelf alternatives for grafting and protecting. Competitive aspects of our products focus on the overall value proposition of our products and their suitability for specific applications and can include composition and structure of the material, ease of use, clinical evidence, handling, and price. Axogen’s major competitor for off-the-shelf repair options in hollow-tube conduits and bio-absorbable wraps are:

•Integra LifeSciences Holding Corporation (Nasdaq: IART) (“Integra”). Integra offers NeuraGen®, a hollow tube product made from reconstituted bovine collagen and NeuraWrapTM, a reconstituted bovine collagen biomaterial used for nerve wrapping and has announced they will launch NeuraGen 3D Nerve Guide Matrix which we believe is the NeuraGen hollow tube collagen conduit filled with a porous inner matrix comprised of collagen and glycosaminoglycan (chondroitin-6-sulfate);

•Baxter International, Inc. (NYSE: BAX) (“Baxter”). Baxter acquired Synovis which offers Neurotube, a hollow tube made of polyglycolic acid and announced distribution of Nerbridge, a hollow tube filled with porous collagen that according to “A Clinical Multi-Center Registry Study On Digital Nerve Repair Using A Biodegradable Nerve Conduit Of PGA With External And Internal Collagen Scaffolding Hirohisa Kusuhara, Md, Phd; Yu Sueyoshi, Md; Noritaka Isogai, Md, Phd Kindai University, Osaka-Sayama, Japan” the conduit and inner collagen had the greater ability to regenerate after peripheral nerve injury than hollow Nerbridge®”. In 2018, Synovis licensed Neurocap Nerve Capping Device and Vivosorb Polymer Film from Polyganics; and

•Stryker Corporation (NYSE: SYK) (“Stryker”). Stryker offers the NeuroMatrix and Neuroflex products, both of which are hollow tubes derived from reconstituted bovine collagen and NeuroMend, a reconstituted bovine collagen biomaterial used for nerve wrapping. All of these products are manufactured by Collagen Matrix Inc.

Axogen believes that surgeons use Avance Nerve Graft because it provides them an off-the-shelf solution with the natural three-dimensional structure and familiar handling characteristics of a typical peripheral nerve for bridging peripheral nerve transections (severed peripheral nerves) without the comorbidities and additional surgical site of an autograft as well as confidence in the performance of the product as a result of the growing body of clinical literature. Axoguard Nerve Protector and Axoguard Nerve Connector provide the unique features of pliability, suturability and translucence for visualization of the underlying nerve while also allowing the patient’s own cells to incorporate into the extracellular matrix to remodel. Axogen believes its Avive Soft Tissue Membrane, a resorbable soft tissue covering to separate tissues has favorable handling and absorption properties, and Axoguard Nerve Cap is a uniquely designed nerve termination device which provides a protective environment for the nerve ends to reduce the development of painful neuroma.

Axogen believes any current or future competitors face the following important barriers to market entry as it relates to its peripheral nerve repair products. Axogen’s intellectual property (“IP”), and that of its partners, including patents, patents-pending, trade secrets, and know how, is believed to be an important barrier for its Avance Nerve Graft and Axoguard products. Axogen has developed knowledge and experience in understanding and meeting FDA regulatory requirements for Avance Nerve Graft, including having made a substantial investment in conducting the preclinical and clinical testing necessary to support a submission for an FDA BLA. Additionally, Axogen believes the ability to offer a portfolio of products focused on peripheral nerve repair provides a unique competitive position versus other entities that do not have this breadth of product offering. However, due to its limited resources, its smaller size and its relatively early stage, Axogen believes it may face competitive challenges from larger entities and market factors that could negatively impact Axogen’s growth, including competitors’ introduction of new products and competitors’ bundling of products to achieve pricing benefits.

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Intellectual Property

Overview

Axogen protects its IP through a combination of patents, trademarks, trade secrets, and copyrights. In addition, Axogen safeguards its trade secrets and other confidential know-how, and carefully protects these and other IP rights when engaging with third parties. For example, Axogen requires vendors, contract organizations, consultants, advisors, and employees to execute confidentiality and nondisclosure agreements, and to appropriately protect any information disclosed to them by Axogen so as to preserve its confidential and/or trade secret status. Axogen also requires consultants, advisors, and employees to assign to Axogen their rights to any IP arising out of their relationship with Axogen.

License Agreements

Axogen has entered into license agreements with University of Florida Research Foundation (the “UFRF”) and the University of Texas at Austin (“UTA”). Under the terms of these license agreements, Axogen holds exclusive worldwide licenses to underlying technologies used by Axogen in its Avance Nerve Graft. The license agreements include both the right to issued patents and patents pending in the U.S. and international markets. The effective term of the license agreements extends through the term of the related patents. Currently, Axogen pays royalties to UFRF and UTA specific to the licensed technologies related to the Avance Nerve Graft.

Patents

As of the date of this Form 10-K, Axogen owns or is the exclusive licensee of about thirty issued U.S. patents, more than twenty pending U.S. patent applications (including those for which Axogen has received a notice of allowance) and more than ninety five international patents and patent applications with regard to its peripheral nerve products and other related technologies.

With respect to our Avance Nerve Graft, we have patent protection through at least September 2023 in the U.S. In addition we also expect Avance Nerve Graft will receive Biosimilar Protection that would provide 12 years of data exclusivity. Finally, Axogen has Enforcement Discretion from FDA allowing continued distribution under controls applicable to Human Cellular and Tissue-based Products (“HCT/P”) with an agreed transition plan to a Biologic Product under a BLA. We believe a competitive processed peripheral nerve allograft would need to successfully complete BLA Phase I, II and III clinical studies prior to clinical release, the completion of which we believe would take at least 8 years.

Because of the length of time and expense associated with bringing new products through development and the governmental approval process, medical technology companies have traditionally placed considerable importance on obtaining and maintaining patent protection for significant new technologies, products, and processes. Axogen’s policy is to seek patent protection for, or where strategically preferable, maintain as trade secret, the inventions that it considers important to its products and the development of its business. Axogen has sought, and will continue to seek, patent protection for select proprietary technologies and other inventions emanating from its R&D, including with respect to uses, methods, and compositions, in an effort to further fortify its IP stronghold in areas of importance to the company and its growing product portfolio. In instances that patent protection is not possible, product value to Axogen’s portfolio can still be derived.

Trademarks, Trade Secrets and Copyrights

Axogen holds a significant portfolio of hundreds of registered and applied-for trademarks in the U.S. and worldwide. Protection of our trademarks allows Axogen to prevent competitors from, for example, using the same or a confusingly similar company name, or the same or confusingly similar product names within identified classes of goods which could otherwise wrongfully allow such competitors to capitalize on the Axogen brand, reputation, and goodwill, and thereby improperly bolster their sales or reputations through, for example, consumer confusion, a false indication of Axogen’s endorsement, or of a false indication of corporate or contractual relationship with Axogen. Axogen polices and enforces its marks.

Axogen possesses trade secrets and material know-how in the following general subject matters: nerve and tissue processing, nerve repair, product testing methods, and pre-clinical and clinical expertise. Axogen has registered copyrights for training tools and artistic renderings.

Additionally, Axogen entered into the Cook Biotech Distribution Agreement and Supply Agreement for the Axoguard products. Cook Biotech believes it has know-how and trade secrets with respect to its ECM technology that provides certain competitive obstacles.

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Government Regulations

U.S. Government Regulation Overview

Axogen’s products are subject to regulation by the FDA, as well as other federal and state regulatory bodies in the U.S. and comparable authorities in other countries. In addition, its Avance Nerve Graft and Avive Soft Tissue Membrane must comply with the standards of the tissue bank industry’s accrediting organization, the AATB.

Axogen distributes for Cook Biotech the Axoguard Nerve Connector and Axoguard Nerve Protector and Cook Biotech is the contract manufacturer for our Axoguard Nerve Cap. Cook Biotech is responsible for the regulatory compliance of the Axoguard Nerve Connector and Axoguard Nerve Protector and Axogen is responsible for the regulatory compliance of Axoguard Nerve Cap. Axoguard products are regulated as medical devices and subject to premarket notification requirements under section 510(k) of the Federal Food, Drug, and Cosmetic Act (the “FD&C Act”), 21 CFR Part 820 (“Quality System Regulation”), and related laws and regulations. Cook Biotech has obtained a 510(k) premarket clearance for AxoguardNerve Connector from the FDA for the use of porcine (pig) small intestine submucosa for the repair of peripheral nerve transections where gap closure can be achieved by flexion of the extremity. Cook Biotech has also obtained a 510(k) premarket clearance for AxoguardNerve Protector for the repair of peripheral nerve damage in which there is no gap or where a gap closure is achieved by flexion of the extremity. We sell the 510(k) cleared device under the trade names Axoguard Nerve Protector and AxoguardNerve Connector.

Axogen also sells the Axoguard Nerve Cap. This device, manufactured for Axogen by Cook Biotech and distributed from our Burleson facility, is a Class II device. The Axoguard Nerve Cap was cleared for market under 510(k) K163446. It is classified by FDA under 21 CFR 882.5275 (Nerve Cuff, product code: JXI).

Axogen is responsible for the regulatory compliance of Avive Soft Tissue Membrane. Avive Soft Tissue Membrane is processed and distributed in accordance with FDA requirements for Human Cellular and Tissue-based Products (361 HCT/P) under 21 CFR Part 1271 regulations, U.S. regulations and the guidelines of the AATB. The FDA guidance Regulatory Considerations for Human Cells, Tissues, and Cellular and Tissue-Based Products: Minimal Manipulation and Homologous Use (issued July 2020) could have potential implications on the regulatory status of Avive. Enforcement discretion described in the guidance effectively ends on May 31, 2021. Axogen is in discussions with FDA on the regulatory classification for Avive Soft Tissue Membrane and we believe Avive will meet the requirement to remain a 361 HCT/P. We are prepared to move forward to transitioning Avive to a 351 HCT/P if required by the FDA.

Axogen also distributes Axotouch Two-Point Discriminator. This device is manufactured for Axogen and distributed from the Burleson Facility is a Class I device (general controls) that is exempt from premarket notification and the Quality System Regulation requirements except for the Recordkeeping and Complaint file requirements. It is classified by FDA under 21 CFR 882.1200 (Two-point discriminator, product code: GWI).

In 2007, Axogen began to process and distribute its Avance Nerve Graft pursuant to Section 361 of the PHS Act and 21 CFR Part 1271 Human Cells, Tissues, and Cellular and Tissue Based Products controls. Such action was based on Axogen’s good faith belief that Avance Nerve Graft product was an HCT/P tissue product regulated solely under Section 361. From October 2008 through early 2010, Axogen was in communication with the FDA concerning the regulatory status of the Avance Nerve Graft product. In April 2010, in response to a Request For Designation filed by Axogen, the FDA determined that Avance Nerve Graft was a biological product that would be reviewed and regulated by the U.S. FDA Center for Biologics Evaluation and Research (“CBER”) under the requirements of Section 351 of the PHS Act. Section 351 requires, among other things, an approved license to market a biological product.

Axogen met with CBER in July 2010 and, between July 2010 and November 2010, provided information to CBER that resulted in the FDA issuing a letter stating the agency’s intent to exercise enforcement discretion with respect to the continued introduction or delivery for introduction into interstate commerce of Avance Nerve Graft assuming that certain conditions are met relating to the transition of Avance Nerve Graft from regulation as an HCT/P under Section 361 to a biological product under section 351 of the PHS Act. Specifically, the FDA is permitting Avance Nerve Graft to be distributed, subject to FDA enforcement discretion, provided that:

•Axogen transitions to compliance with Section 501(a)(2)(B) of the FD&C Act, the current Good Manufacturing Practice, or cGMP, regulations in 21 CFR Parts 210 and 211 and the applicable regulations and standards in 21 CFR Parts 600-610 prior to initiation of a phase 3 clinical trial designed to demonstrate the safety, purity, and potency of Avance Nerve Graft.

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◦Axogen has performed several gap analyses of its quality system for compliance with 21 CFR Parts 210/211 and 600-610 regulations. The gap analyses have identified areas in which our quality system could improve with respect to compliance to the regulations. The transition is in process and we periodically review the 21 CFR Parts 210/211 and 600-610 regulations to ensure that we create and implement appropriate changes, including new quality procedures. Through our internal auditing process, we periodically assess our compliance to the regulations. As Axogen completes the phase 3 clinical trial and eventual BLA submission, we will retain an external audit firm with experience in auditing to 21 CFR Parts 210/211 and 600-610 regulations to verify quality system compliance to the regulations.

•Axogen conducts a phase 3 clinical trial to demonstrate safety, purity, and potency of Avance Nerve Graft under a Special Protocol Assessment (“SPA”).

◦Axogen and the FDA agreed to the SPA in August 2011 and in accordance with FDA regulations in 21 CFR Part 312, Axogen submitted an Investigational New Drug Application (“IND”) to the FDA in April 2013. The IND was approved and became effective in March 2015 and the phase 3 clinical trial was initiated in the second quarter of 2015. The study completed initial enrollment in January 2019. As required by the SPA and agreed to by FDA and Axogen, an independent statistical analysis was conducted to determine if greater study enrollment is appropriate to maintain the planned statistical power of the trial. As part of that review, the targeted enrollment was increased to 220 subjects, and the number of participating centers was increased to up to 25. The study completed initial subject enrollment in July 2020. No outcome data is available at this time.

•Axogen continues to comply with the regulations and standards under 21 CFR Part 1271.

◦Axogen was audited by the FDA at its processing facility in March 2013, March 2015 and October 2016, and its Distribution Facility in October 2015. The quality system was found to be in compliance with 21 CFR Part 1271 and no FDA Form 483 observations were issued.

◦In February 2018. Axogen was audited by the FDA with respect to its Medical Device Quality System under 21 CFR Part 820 and its Human Tissue Quality System under 21 CFR Part 1271. Such audit resulted in two Form 483 observations on general procedures on the Medical Device regulations and no Form 483 observations as to the Human Tissue Quality System. Axogen has taken corrective action to correct these observations and the FDA has accepted the corrective action plan.

◦In November 2018, Axogen was audited by the FDA with respect to its Human Tissue Quality System under 21 CFR Part 1271. Such audit resulted in one Form 483 observation on tissue tracking. Axogen has taken corrective action to correct this observation and the FDA has accepted the corrective action plan.

•Axogen continues to exercise due diligence in executing its requirements under the transition program.

Axogen is working to ensure compliance with the applicable regulations through ongoing discussions with the FDA regarding the transition of the quality system to 21 CFR Parts 210/211 and 600-610 compliance with the FDA and through audits for compliance to 21 CFR Part 1271 and amendments to the IND providing updates to the phase III clinical trial. The final determination of regulatory compliance will be made by the FDA during the pre-license inspection as part of the BLA review. If the FDA does not find Axogen to be in compliance, or if Axogen is unable to meet the required standards for preclinical studies, clinical studies and Chemistry, Manufacturing, and Controls (“CMC”), the approval of the BLA would be delayed or denied.

The FDA will end the period of enforcement discretion upon a final determination of Axogen’s future BLA submission or if prior to the BLA submission, the FDA finds that Axogen does not meet the conditions for the transition plan, or is not exercising due diligence in executing the transition (e.g., study completion, or BLA submission is neither timely nor adequate). If final action on the BLA is negative or Axogen is found to not meet the conditions for the transition plan or its execution, Axogen will not be able to continue to distribute the Avance Nerve Graft. Axogen continues to work diligently to execute the transition plan, including maintaining regular communication with the FDA, and, in this context, continues to distribute Avance Nerve Graft.

The BLA application of Avance Nerve Graft, if approved, will require a potentially substantial user fee payment to the FDA, although certain exemptions, waivers and discounts of the user fees may apply, including certain waivers or discounts for small businesses.

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FDA Reauthorization Act, referred to herein as FDARA (Public Law 115-52), which was signed into law on August 18, 2017, amended the FD&C Act. FDARA includes the Prescription Drug User Fee Amendments of 2017, amended the FD&C Act. FDASIA includes the Prescription Drug User Fee Amendments of 2012 which authorizes the FDA to continue to collect the following user fees from applicants who submit certain new drug and biological product applications and supplements:

•Application Fee: Each new BLA has a fee required at the time of submission. For Axogen fiscal year 2021 (through September 2021 – FDA resets the fee starting in October of each year), this fee for a BLA requiring clinical data is approximately $2.9 million. The fee is adjusted each year so we cannot provide an accurate estimate of what our fee will be upon submission of our BLA. For small companies (fewer than 500 employees and no other approved biologic product on the market) submitting its first application, a waiver of the application fee is available.

•Axogen Program Fee: A program fee is assessed for each strength or potency in which the approved (non-revoked, non-suspended) product is manufactured in final dosage form. The program fee is based on an estimate of the number of products that would be subject to, and for which the companies would pay, program fees. The program fee is determined by dividing the adjusted total fee revenue from program fees by the number of estimated products (based on previous year’s program fees) subject to the program fee (excluding program fee waivers and reductions granted by the FDA). For Axogen fiscal year 2021 (through September 2021– FDA resets the fee starting in October of each year), the program fee has been established at $0.3 million. Axogen may have to pay a program fee after BLA approval.

The current version of PDUFA expires October 1, 2022. New user fee amounts could be negotiated during the reauthorization process expected to take place starting in 2020. The future version of PDUFA is unknown at this time

and we cannot provide an accurate description on how the future version of PDUFA will have on our BLA submission.

In September 2018, the FDA granted a Regenerative Medicine Advanced Therapy (RMAT) designation for Avance Nerve Graft. A regenerative medicine therapy is eligible for the designation if it is intended to treat, modify, reverse or cure a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the product has the potential to address unmet medical needs for such a disease or condition. The RMAT designation provides access to a streamlined approval process for regenerative medicine technologies and ensures continued informal meetings with the FDA in support of the BLA for Avance Nerve Graft.

The Company believes that any future, competitive peripheral nerve allograft would be required to follow the standard pathway for biologic licensing, which typically entails multiple clinical trials and takes many years. The FDA provided updated guidance, Regulatory Considerations for Human Cells, Tissues, and Cellular and Tissue-Based Products: Minimal Manipulation and Homologous Use in November 2017 (revised in July 2020), which made clear that any processing that alters the biological characteristics of peripheral nerve tissue would be considered more than minimal manipulation, and therefore require a BLA prior to marketing.

The Company has maintained a collaborative dialogue with the FDA and will continue to work closely with the FDA as it progresses towards its BLA submission. Upon BLA approval, Avance Nerve Graft we believe we will have 12 years of data exclusivity with regard to potential biosimilars with Avance Nerve Graft being designated as the Reference Product.

FDA — General

FDA regulations govern nearly all the activities that Axogen performs, or that are performed on its behalf, to ensure that medical products distributed domestically or exported internationally are safe and effective for their intended uses. The activities the FDA regulates include the following:

•product design, development, and manufacture;

•product safety, testing, labeling, and storage;

•pre-clinical testing in animals and in the laboratory;

•clinical investigations in humans;

•premarketing clearance, approval, or licensing;

•record-keeping and document-retention procedures;

•advertising and promotion;

•the import and export of products;

•product marketing, sales, and distribution;

•post-marketing surveillance and medical device reporting, including reporting of deaths, serious injuries, communicable diseases, device malfunctions, or other adverse events; and

•corrective actions, removals and recalls.

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Failure to comply with applicable FDA regulatory requirements may subject Axogen to a variety of administrative or judicially-imposed penalties or sanctions and/or prevent it from obtaining or maintaining required approvals, clearances or licenses to manufacture and market its products. Such failure to comply with the applicable FDA requirements may subject Axogen to stringent administrative or judicial actions or sanctions, such as agency refusal to approve pending applications, warning letters, product recalls, product seizures, total or partial suspension of production or distribution of products, injunctions, or civil or criminal prosecution.

FDA’s Premarket Clearance and Approval Requirements - Medical Devices

Unless an exemption applies, each medical device distributed commercially in the U.S. requires either a 510(k) premarket notification submission or a Pre-Market Approval (“PMA”) Application to the FDA. Medical devices are classified into one of three classes—Class I, Class II, or Class III—depending on the degree of risk, the level of control necessary to assure the safety and effectiveness of each medical device and how much is known about the type of device. For devices first intended for marketing after May 28, 1976, pre-market review and clearance by the FDA for Class I and II medical devices is accomplished through the 510(k) pre-market notification procedure by finding a device substantially equivalent to a legally marketed Class I or II device, unless the device is exempt. The majority of Class I medical devices are exempt from the 510(k) premarket notification requirement. Devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices for which Class II controls are inadequate to assure safety or effectiveness, and novel devices, including devices deemed not substantially equivalent to a previously cleared 510(k) device, are placed in Class III. Class III devices generally require an approved PMA prior to marketing.

A PMA must be supported by extensive data, including, but not limited to, technical, preclinical, clinical trials, manufacturing and labeling to demonstrate to the FDA’s satisfaction, and the safety and effectiveness of the device.

FDA’s Premarket Approval Requirements - Biologic Products

Biological Product License Application (BLA) Pathway

Biological products subject to BLA requirements are approved under the Public Health Service Act. Biological products require FDA approval of a BLA to be marketed. In order to be approved, a BLA must demonstrate the safety, purity, and potency of the product candidate based on results of preclinical studies and clinical trials. A BLA must also contain extensive CMC and other manufacturing information, and the applicant must pass an FDA pre-approval inspection of the manufacturing facility or facilities at which the biologic product is produced to assess compliance with the FDA’s cGMP. Satisfaction of FDA approval requirements for biologics typically takes several years and the actual time required may vary substantially based on the type, complexity, and novelty of the product. Axogen cannot be certain that any BLA approvals for its products will be granted on a timely basis, or at all.

The steps for obtaining FDA approval of a BLA to market a biologic product in the U.S. include:

•completion of preclinical laboratory tests, animal studies, and formulation studies under the FDA’s good laboratory practices regulations;

•submission to the FDA of an IND, for human clinical testing, which must become effective before human clinical trials may begin and which must include independent Institutional Review Board, or IRB, approval at each clinical site before the trials may be initiated;

•performance of an adequate and well-controlled clinical trial in accordance with Good Clinical Practices to establish the safety and efficacy of the product for each indication;

•submission to the FDA of a BLA, which contains detailed information about the CMC for the product, reports of the outcomes and full data sets of the clinical trials, and proposed labeling and packaging for the product;

•satisfactory review of the contents of the BLA by the FDA, including the satisfactory resolution of any questions raised during the review;

•satisfactory completion of an FDA Advisory Committee review, if applicable;

•satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to assess compliance with cGMP regulations, to assure that the facilities, methods, and controls are adequate to ensure the product’s identity, strength, quality, and purity; and

•FDA approval of the BLA, including agreement on post-marketing commitments, if applicable.

Preclinical tests include laboratory evaluations of product chemistry, toxicity, and formulation, as well as animal studies. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information and analytical data, to the FDA as part of the IND. Some preclinical testing may continue after the IND is submitted. The IND must become effective before human clinical trials may begin. An IND will automatically become effective 30 days after receipt by the FDA, unless

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before that time the FDA raises concerns or questions about issues such as the conduct of the trials and or supporting preclinical data as outlined in the IND. In that case, the IND sponsor and the FDA must resolve any outstanding FDA concerns or questions before clinical trials can proceed. In other words, submission of an IND may not result in the FDA allowing clinical trials to commence.

Biosimilar Biological Products

A regulatory approval pathway for biosimilars was established by The Biologics Price Competition and Innovation Act (“BPCIA”), as part of the Patient Protection and Affordable Care Act of 2010. An important component of the legislation specified that a manufacturer of a reference biological product would be granted 12 years of non-patent data exclusivity before a biosimilar could be approved for marketing in the U.S. An application for a biosimilar product may not be submitted to FDA until four years after the approval date of the BLA for the reference biological product. BPCIA provides for an abbreviated licensure process for a biosimilar, i.e., a biological product that is highly similar to an FDA-approved biological product, known as a reference product, and has no clinically meaningful differences compared to the reference product in terms of safety, purity, and potency. At its discretion, the FDA can waive a requirement for any required element in an application for a biosimilar product. In addition, the legislation distinguished approval of a biosimilar from approval of such a product as a substitute for the reference biological products. Where a product is approved as a biosimilar and additionally approved as a substitute for the reference biologic, it is considered an interchangeable product. Approval as interchangeable requires that the product is biosimilar and can be expected to produce the same clinical results as the reference product in any given patient, and if intended for repeat dosing, a demonstration that the risk in terms of safety or diminished efficacy of alternating or switching between the use of the interchangeable and reference product is not greater than the risk of using the reference product without such alternating or switching. Interchangeable products can be substituted for a reference product without intervention of the prescribing healthcare provider. Most states have enacted or are considering laws that regulate the use and substitution of biosimilar and interchangeable products. For example, Virginia requires licensure as interchangeable by the FDA for a pharmacist to dispense a biosimilar in place of a prescribed biological product (Virginia § 54.1-3408.04).

FDA’s Pre-Approval and Pre-Licensing Requirements

Before approving a BLA, the FDA generally inspects the facility or the facilities at which the product is manufactured. The FDA will not approve the product if it finds that the facility does not appear to be in cGMP compliance. If the FDA determines the application, manufacturing process or manufacturing facilities are not acceptable, it will either not approve the application or issue a complete response letter to indicate that the review cycle for an application is complete and that the application is not ready for approval. The letter will describe specific deficiencies and, when possible, will outline recommended actions the applicant might take to get the application ready for approval. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

The testing and approval process requires substantial time, effort, and financial resources, and each may take several years to complete. Data obtained from clinical activities are not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. The FDA may not grant approval on a timely basis, or at all. Axogen may encounter difficulties or unanticipated costs in its efforts to secure necessary governmental approvals, which could delay or preclude it from marketing its products. The FDA may limit the indications for use or place other conditions on any approvals that could restrict the commercial application of the products. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and approval.

Post-Approval Requirements

After regulatory approval of a product is obtained, Axogen will be required to comply with a number of post-approval requirements. For example, as a condition of approval of a BLA, the FDA may require post marketing testing and surveillance to monitor the product’s continued safety or efficacy. In addition, holders of an approved BLA are required to keep extensive records, to report certain adverse reactions and production problems such as biologic deviation reports to the FDA, to provide updated safety and efficacy information and to comply with requirements concerning advertising and promotional labeling for their products. Also, quality control and manufacturing procedures must continue to conform to cGMP regulations as well as the manufacturing conditions of approval set forth in the BLA. The FDA periodically inspects manufacturing facilities to assess compliance with cGMP regulations, which impose certain procedural, substantive, and recordkeeping requirements. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.

Future FDA inspections may identify compliance issues at Axogen’s facilities or at the facilities of its contract manufacturers that may disrupt production or distribution, or require substantial resources to correct and prevent recurrence of

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any deficiencies. In addition, discovery of problems with a product or the failure to comply with applicable requirements may result in restrictions on a product, manufacturer or holder of an approved BLA, including withdrawal or recall of the product from the market or other voluntary, FDA-initiated or judicial action that could delay or prohibit further marketing. Newly discovered or developed safety or effectiveness data may require changes to a product’s approved labeling, including the addition of new warnings and contraindications. Finally, new government requirements, including those resulting from new legislation, may be established that could delay or prevent regulatory approval of Axogen products that are currently under development or regulatory activity.

The FDA has broad regulatory compliance and enforcement powers. If the FDA determines that Axogen failed to comply with applicable regulatory requirements, it can take a variety of compliance or enforcement actions, such as issuing a FDA Form 483 notice of inspectional observations, warning letter, or untitled letter, imposing civil money penalties, suspending or delaying issuance of approvals, requiring product recall, imposing a total or partial shutdown of production, withdrawal of approvals or clearances already granted, and pursuing product seizures, consent decrees or other injunctive relief, and criminal prosecution through the U.S. Department of Justice (the “DOJ”). The FDA can also require Axogen to repair, replace or refund the cost of devices that it manufactured or distributed. If any of these events were to occur, it could materially adversely affect Axogen’s business.

Clinical Trials

Clinical trials are required to support a BLA or PMA and are sometimes required for 510(k) clearance. Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators. Clinical trials are conducted under strict requirements to ensure the protection of human subjects participating in the trial and under protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring and safety, and the effectiveness criteria to be evaluated. Clinical trials for biological products require the submission and FDA acceptance of an IND and clinical trials for medical devices require the submission and FDA approval of an Investigational Device Exemption application, or IDE, unless the device regulations provide for an exemption from the IDE requirement. Clinical trials for significant risk devices may not begin until the IDE is approved by the FDA and the Institutional Review Board (IRB) overseeing the particular clinical trial. If the product is considered a non-significant risk device under FDA regulations, the trial must only be approved by an IRB prior to its initiation. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND or IDE, for significant risk devices. In addition, for these studies, an IRB at each site at which the study is conducted must approve the protocol, subject consent form and any amendments for each site at which the study is conducted. All research subjects must be informed, among other things, about the risks and benefits of the investigational product and provide their informed consent in writing.

Clinical trials under an IND typically are conducted in three sequential phases, but the phases may overlap or be combined. In Axogen’s case, Axogen believes that the Phase 3 clinical trial study for the Avance Nerve Graft represents the only new clinical data that will be required to evaluate safety and effectiveness. Phase 1 clinical trials usually involve the initial introduction of the investigational product into a small group of healthy volunteers (e.g., 10 to 20) to evaluate the product’s safety (dosage tolerance and pharmacokinetics if a biologic product) and, if possible, to gain an early indication of its effectiveness. Phase 2 clinical trials usually involve controlled trials in a larger but limited patient population (e.g., a few hundred) to:

•evaluate dosage tolerance and appropriate dosage;

•identify possible adverse effects and safety risks; and

•provide a preliminary evaluation of the efficacy of the product for specific indications.

Phase 3 clinical trials usually further evaluate clinical efficacy and test further for safety in an expanded patient population (e.g., a hundred to several thousand). Phase 3 clinical trials usually involve comparison with placebo, standard treatments, or other comparators. Usually at least one well-controlled large Phase 3 or pivotal clinical trial demonstrating safety and efficacy is required to support a BLA. These trials are intended to establish the overall risk-benefit profile of the product and provide an adequate basis for physician labeling. Phase 3 trials are almost always larger, more time consuming, complex and costly than Phase 1 and Phase 2 clinical trials. Phase 1, Phase 2, and Phase 3 clinical testing may not be completed successfully within any specified period, if at all. Furthermore, the FDA or Axogen may suspend or terminate clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk, have experienced a serious and unexpected adverse event, or that continued use in an investigational setting may be unethical. Similarly, an IRB can suspend or terminate approval of research if the research is not being conducted in accordance with the IRB’s requirements or if the research has been associated with unexpected serious harm to patients.

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Investigational New Drug Application

For a biologic product, an IND must be submitted prior to the initiation of the clinical study. The IND application must contain information in three broad areas:

•Animal Pharmacology and Toxicology Studies - Preclinical data to permit an assessment as to whether the product is reasonably safe for initial testing in humans. Also included are any previous experiences with the product in humans (often foreign use).

•Manufacturing Information - Information pertaining to the composition, manufacturer, stability, and controls used for manufacturing of the drug substance and the drug product. This information is assessed to ensure that the company can adequately produce and supply consistent batches of the drug.

•Clinical Protocols and Investigator Information - Detailed protocols for proposed clinical studies to assess whether the initial-phase trials will expose subjects to unnecessary risks. Also, information on the qualifications of clinical investigators—professionals (generally physicians) who oversee the administration of the experimental compound—to assess whether they are qualified to fulfill their clinical trial duties. Finally, commitments to obtain informed consent from the research subjects, to obtain review of the study by an IRB, and to adhere to the investigational new drug regulations.

Once the IND is submitted, the sponsor must wait 30 calendar days before initiating any clinical trials. During this time, the FDA has an opportunity to review the IND for safety to assure that research subjects will not be subjected to unreasonable risk.

Axogen Clinical Trials

Axogen has an active clinical research program to gather data on Avance Nerve Graft. Axogen has completed two clinical studies and is performing two ongoing clinical studies and has plans to initiate further clinical studies. The ongoing studies are “A Multicenter Retrospective Study of Avance Nerve Graft Utilization, Evaluations, and Outcomes in Peripheral Nerve Injury Repair (“RANGER”)” and “A Multicenter, Prospective, Randomized, Patient and Evaluator Blinded Comparative Study of Nerve Cuffs and Avance Nerve Graft Evaluating Recovery Outcomes for the Repair of Nerve Discontinuities (“RECON”)”. Completed studies are “A Multicenter, Prospective, Randomized, Comparative Study of Hollow Nerve Conduit and Avance Nerve Graft Evaluation Recovery Outcomes of the Nerve Repair in the Hand (“CHANGE”)” and a pilot study to evaluate the use of Avance Nerve Graft in the reconstruction of nerves following prostatectomy.

Axogen will continue to accept patients in the RANGER clinical study, a utilization registry of Avance Nerve Graft. As of December 31, 2020, eight publications and more than 70 scientific conference presentations have been generated to date from the registry. The RANGER Study is an observational study currently in enrollment. RANGER is designed to allow up to 2500 subjects. An additional 500 subjects are allowed to be enrolled in Addendum 1 (“MATCHSM”) and 2000 enrolled in Addendum 2 (“Sensation-NOWSM”).

The follow-up for the RANGER Study is standard of care with a target of up to 36 months post peripheral nerve repair. At the time of BLA submission for Avance Nerve Graft, Axogen will provide Real World Evidence (“RWE”) based primarily on Real World Data (“RWD”) from the RANGER study data for the enrolled subjects. In 2013, a Matched Autograft and Tube Conduit Case Control Cohort Arm of RANGER (“MATCHSM”) comparative arm was added. Subjects treated with Avance Nerve Graft were matched to the peripheral nerve autograft or tube conduit treated groups based on size of gap length. This study is designed to enroll up to 500 repairs with peripheral nerve autograft and/or tube conduit in the comparative arm.

Axogen created an additional RANGER Study arm called Sensation Neurotization Outcomes for Women (“Sensation-NOW”). This registry cohort is designed to assess breast sensation following reconstruction with or without neurotization. Axogen placed the study on an enrollment hold in 2020 as part of its COVID response plan. Subject follow-up continued during this time. Axogen intends to restart enrollment in 2021 at select centers. The study is designed to enroll up to 2,000 subjects who have undergone mastectomy and breast reconstruction.

The RANGER Study database is also utilized to monitor different nerve repair techniques. As part of this, Axogen utilizes the database to support additional clinical evidence submissions for Axoguard products and Avance Nerve Graft.

Axogen has worked with leading institutions, researchers, and surgeons to support innovation in the field of surgical peripheral nerve repair. Axogen believes that RANGER is currently the largest multi-center observational clinical study conducted in peripheral nerve gap repair. Axogen’s ongoing RECON study will also continue our clinical work, providing a new multi-center, prospective, randomized, clinical study on Avance Nerve Graft. The January 2012 edition of Microsurgery, November 2012 edition of The Journal of Hand Surgery June 2015 edition of Journal of Reconstructive Microsurgery, the January 2017 edition of HAND, and the March 2019 edition of Plastic and Reconstructive Surgery Global, each contain an

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article summarizing RANGER study results (Brooks, et al. Processed nerve allografts for peripheral nerve reconstruction: A multicenter study of utilization and outcomes in sensory, mixed, and motor nerve reconstructions. Microsurgery, 2012 Jan; 32(1): 1-14; and Cho, et al. Functional outcome following nerve repair in the upper extremity using processed nerve allograft. J Hand Surg. Am. 2012 Nov; 37(11):2340-9 and Rinker, et al. Outcomes of short-gap sensory nerve injuries reconstructed with processed nerve allografts from a multicenter registry study. J. Reconstr. Microsurg. 2015 Jun; 31(5):384-90). Brooks, et al. reported on 55 Avance Nerve Graft nerve repairs and resulted in meaningful motor and sensory recovery in 87% of nerve transections between 5 and 50 mm and no safety concerns were identified. Cho, et al. showed that Avance Nerve Graft provided 89% meaningful recovery for digital nerve injuries, and 80% meaningful recovery for motor function in mixed and motor nerve injuries and no safety concerns were identified. An expanded data milestone was presented at the 5th Vienna Symposium on Surgery of Peripheral Nerves in June 2014 and such expanded RANGER data provides that of the injuries repaired with the Avance Nerve Graft 90%, 80%, and 87% achieved meaningful recovery for gap lengths of 5-14 mm, 15-29 mm and 30-65 mm, respectively. Rinker, et al. reported on a subgroup from the RANGER registry on sensory recovery of short-gap digital nerve repairs between 5-15 mm using Avance Nerve Graft. The study cohort included 24 subjects with 37 digital nerve repairs. Outcomes analysis demonstrated meaningful levels of sensory recovery. No implant related adverse experiences were reported in any of such reports. In a second publication, Rinker, et al. reported on a subgroup from RANGER with nerve gaps >25 mm. They found that in the population of 28 subjects, meaningful sensory recovery was reported in 86% of the repairs and no safety concerns were reported. Isaacs and Safa reported on a subgroup of subjects with large diameter nerve injuries repaired with Avance Nerve Graft. The study included 15 nerve repairs with 4-5 mm diameter Avance Nerve Grafts. Outcomes analysis found that meaningful levels of sensory and motor function were achieved and no safety concerns were reported. Safa, et al. 2019., reported on functional motor recovery after repair with Avance Nerve Graft. The study is a cohort of the RANGER Registry Program, and included 22 nerve repairs with sufficient follow up time to assess the motor function associated with the injured nerve. The authors found that 73% of the repairs returned meaningful motor function and no safety concerns were identified. In the February 2020 edition of the journal Microsurgery, Safa, et al. published updated results from the RANGER registry. The publication included 385 subjects with 624 nerve repairs. Overall, 82% meaningful recovery (MR) was achieved across sensory, mixed, and motor nerve repairs up to gaps of 70 mm. No related adverse events were reported. Safa B, Jain S, Desai MJ, Greenberg JA, Niacaris TR, Nydick JA, Leversedge FJ, Megee DM, Zoldos J, Rinker BD, McKee DM, MacKay BJ, Ingari JV, Nesti LJ, Cho M, Valerio IL, Kao DS, El-Sheikh Y, Weber RV, Shores JT, Styron JF, Thayer WP, Przylecki WH, Hoyen HA, Buncke GM. Peripheral nerve repair throughout the body with processed nerve allografts: Results from a large multicenter study. Microsurgery. 2020 Jul;40(5):527-537. doi: 10.1002/micr.30574. Epub 2020 Feb 26. PMID: 32101338. At the 2020 American Society for Surgery of the Hand, Safa and colleagues presented on the preliminary findings from the MATCH Autograft study. The study of 156 nerve repairs found meaningful recovery rates for Avance Nerve Graft were comparable to autograft for both sensory and motor function.

The Journal of Hand Surgery published in their December 2020 edition the findings from the MATCH Conduit arm of RANGER. The study included 113 Avance Nerve Graft repairs and 49 conduit repairs. Meaningful recovery was reported in 61% of the conduit group, compared with 88% in the PNA group. In the group with a 14-mm or less gap, conduit and PNA outcomes were 67% and 92% meaningful recovery, respectively. In the 15- to 25-mm gap length group, conduit and PNA outcomes were 45% and 85% meaningful recovery.

The following describes available clinical outcomes data from published papers on the leading synthetic and collagen conduit. Published papers on the leading synthetic collagen conduit by Weber, et al., 2000 and Wangensteen and Kalliainen, 2009, showed meaningful improvement: 74% in sensory nerves and 43% in sensory, mixed and motor nerves, respectively, of cases bridging a gap in the particular type of nerve. A paper published by Haug, et al., 2013 on the leading synthetic and collagen conduit showed meaningful improvement in 40% sensory nerves using the static 2-point discrimination test. Autograft studies where autograft and direct repair or direct suture were tested by Weber, et al., 2000, Kim and Kline 2001-2006, Frykman and Gramyk, 1991, Frykman and Gramyk, 1991 and Kallio, 1993, as interpreted by Brooks, et al. 2012, reported meaningful recovery: 86% in sensory nerves, 67-86% in sensory and mixed nerves, 80% in sensory nerves, 75-78% mixed nerves and 70% sensory nerves, respectively, of cases bridging a gap in the particular type of nerve. Published papers by Kim and Kline 2001-2006 and Frykman and Gramyk, 1991 reported successful recovery in 75% and 78% of mixed and motor nerves, respectively. A study by Kallio, et al., 1993 showed recovery in 67% of mixed and motor nerves where recovery was defined as results indicating a classification of useful or better motor and sensory recovery.

The RECON study is a prospective, randomized, controlled, patient and evaluator blinded, comparative study of Avance Nerve Graft and Collagen Nerve Cuffs in the repair of peripheral nerve transections. The study is a non-inferiority study designed to assess the outcome of peripheral nerve repair originally in approximately 170 subjects in up to 20 centers. Subjects will be followed over the course of 12 months to assess safety and efficacy outcomes with assessments being performed at various defined intervals up to 12 months. The study completed initial subject enrollment in January 2019. As required by the SPA and agreed to by FDA and Axogen, an independent statistical analysis was conducted to determine if greater study enrollment is appropriate to maintain the planned statistical power of the study. As part of that review, the targeted enrollment

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was increased to 220 subjects, and the number of participating centers was increased to up to 25. Enrollment was completed in July of 2020. Subject follow-up is anticipated to be complete in October of 2021.

CHANGE was a prospective randomized controlled pilot study of nerve cuffs and Avance Nerve Graft for the reconstruction of peripheral nerve transections in male and female subjects that sustained injury to at least one nerve in the hand, distal to the superficial palmar arch that after resection resulted in a nerve gap of >5 mm and ≤20 mm. The study results were published by Means, et al. in the June 2016 edition of HAND. The authors randomized 23 participants with 31 digital nerve injuries. Sixteen participants with 20 repairs had at least six months of follow-up while 12-month follow-up was available for 15 repairs. There were no significant differences in participant and baseline characteristics between treatment groups. The average static two-point discrimination (s2PD) for the Avance Nerve Graft was 5 ± 1 mm (n = 6) compared with 8 ± 5 mm (n = 9) for hollow conduits. All injuries randomized to processed nerve allograft returned some degree of s2PD as compared with 75% of the repairs in the conduit group. The authors concluded that in this pilot study, patients whose digital nerve reconstructions were performed with processed nerve allografts had significantly improved and more consistent functional sensory outcomes compared with hollow conduits.

A pilot study on the repair of the cavernous nerves in prostate cancer patients at Vanderbilt with 24-month follow-up has been completed. A total of 12 subjects were enrolled in this single center study. The primary objective of this study was to assess the technical feasibility of using Avance Nerve Graft for neurovascular bundle (NVB) reconstruction during Robotic Assisted Laparoscopic Prostatectomy (RALP). The secondary objective of the study was to assess the long-term safety and efficacy of NVB reconstruction by assessing quality of life and erectile function through validated questionnaires 24 months post-repair.

ASM-CP-001 is a registry study to evaluate the role of Avive Soft Tissue Membrane in the management of nerve injury following acute trauma. The study is designed to collect safety, functional and healthcare economic outcomes data in a select set of acute trauma injuries. The study is designed to enroll up to 200 subjects has enrolled an initial tranche of the planned subjects. All initial pilot subjects completed follow-up in December 2020.

Axogen is conducting a multicenter, prospective, randomized and subject blinded study of Axoguard Nerve Cap as compared to neurectomy for the treatment of systematic neuroma (REPOSE). REPOSE is a two-phase study comparing standard neurectomy to Axoguard Nerve Cap, a porcine small intestine submucosa-based nerve termination cap, which leverages Axogen’s chambered technology to aid in the management of symptomatic neuromas. The first phase, a non-randomized pilot has completed enrollment and one-year follow-up. The second phase, a prospective, randomized controlled study, is actively enrolling. Overall enrollment is designed to target 101 subjects with 15 in the first pilot phase followed by up to 86 in the randomized, comparative phase. The study will assess pain scores, quality of life and health outcomes over a 12-month follow-up period.

In addition to these clinical research programs, Axogen is developing additional clinical trials in peripheral nerve repair, including mixed and motor nerve repair, breast neurotization and pain.

Clinical trials are subject to extensive recordkeeping and reporting requirements. Axogen’s clinical trials must be conducted under the oversight of an IRB for the relevant clinical trial sites and must comply with FDA regulations, including but not limited to, those relating to good clinical practices. Axogen is also required to obtain the patients’ written informed consent in form and substance that complies with both FDA requirements and state and federal privacy and human subject protection regulations. Axogen, the FDA or the IRB may suspend a clinical trial at any time for various reasons, including a belief that the risks to study subjects outweigh the anticipated benefits. Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safety and efficacy of the biological product or device, or may otherwise not be sufficient to obtain FDA approval to market the product in the U.S. Similarly, in Europe, the clinical study for a medicine product must be authorized by the Competent Authority in each Member State in which the clinical trial is to be conducted, and must receive a favorable opinion from an ethics committee. See Risk Factors - Clinical trials can be long, expensive and results are ultimately uncertain, which could jeopardize our ability to obtain regulatory approval and continue to market our Avance Nerve Graft product.

Pervasive and Continuing Regulation

There are numerous regulatory requirements that apply after a product is cleared or approved. For medical devices, these include, but are not limited to: the FDA’s regulations for device labeling (21 CFR Part 801), medical device reporting (21 CFR Part 803), reporting of corrections and removals (21 CFR Part 806), establishment registration and device listing requirements (21 C.F.R. Part 807); and compliance with the Quality System Regulation (“QSR”) per 21 CFR Part 820. Distribution of medical devices is also subject to license/registration requirements in some states. For tissue and biologic products, the regulatory requirements include: the FDA’s registration and listing requirements, donor eligibility requirements and compliance

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AXGN US Equity

AXGN · 10-K · period ended 2020-12-31

ITEM 1. BUSINESS

AXGN US Equity☆

AXGN · 10-K · period ended 2020-12-31

ITEM 1. BUSINESS

AXGN US Equity