Q2 2023 AxoGen Inc Earnings Call
Greetings and welcome to the Axa journey reports second quarter 2023 financial results Conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the call. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded at this time I would like to hand, the call over to Dana Alexander Investor Relations consultant. Thank you you may begin.
Thank you Danielle good evening, everyone. Joining me on today's call is Karen Battery, Axa Jones, Chairman and Chief Executive Officer, and President and Pete Mariani, Executive Vice President and Chief Financial Officer.
Cary will discuss the quarter and our outlook for the year and Pete will provide an analysis of our financial performance and guidance followed by a question and answer session.
Today's call is being broadcast live via webcast, which is available on the investors section of oxygen is web site. Following the end of the live call a replay will be available for any of the investors section of the company's website at www Dot Axa Gen eight dotcom.
Before we get started I'd like to remind you that during this conference call. The company will make projections and forward looking statements, including our 2023 financial outlook and longer term revenue and growth expectations tiny little tiny of our BLA submission anticipated growth for revenue category penetration of core accounts.
Marketing opportunities with Nov applications associated with merchant trauma breast well enough and the surgical treatment of pain and new products timing for the start of processing at our APC facility launch of our 80 plus protector optima.
Optimism associated with key strategic pillars, and our balance sheet.
Forward looking statements are based on current beliefs and assumptions and are not guarantees of future performance and are subject to risks and uncertainties, including without limitation, the risks and uncertainties reflected in the company's annual and periodic reports such as hospital staffing issues regulatory process and approvals.
Did you see renovation timing and expense, especially on product adoption and market awareness of our products.
The following sorry, the forward looking statements.
That is only as of the date, they were made and except as required by applicable law, yes, you'll notice, possibly to publicly update or revise any forward looking statements.
In addition, or weaken affiliation of the non-GAAP measures included including adjusted core active account numbers.
Excluding the impact of Avaya purchases. Please reference today's press release and our corporate presentation on the investors section of the company's website now I'd like to turn the call over to Karen Karen.
Thank you Donna.
And thank you all for joining us today as we discuss our second quarter 2023 financial results.
We're pleased to report another quarter of solid performance and growth.
Our revenue for the quarter came in at $38 2 million, representing an 11% increase compared to last year's second quarter.
As we begin today's comments I wanted to share some additional insights on our revenue and growth.
Pat will review today and continue to provide going forward.
Our business was originally anchored and emergent trauma.
And over the past several years, we've introduced a number of new nerve repair applications that utilize our dance and Axa got product line.
These new applications share common characteristics that lead us to think about our business along two primary categories scheduled non trauma procedures.
And emergent trauma procedures.
Scheduled procedures are generally characterized as procedures, where a patient is seeking relief of a condition caused by a nerve defect or surgical procedure.
Include breast reconstruction selling them affecting me.
Theres reconstruction following a surgical removal of painful neuroma orland.
Oral and maxillofacial procedures and nerve decompression.
The nature of scheduled procedures affords patients the opportunity to actively search for treatment options and advocate for solution. They may improve quality of life following the procedure.
For example in breast reconstruction. This may include prioritizing nerdy station as a part of their treatment plan.
These procedures lend themselves to standardization of surgical techniques and more consistent nerve repair algorithms.
In addition, these patients are likely to engage and extended follow up evaluations with their physicians.
Emergent procedures generally result from injuries that initially present into an emergency room.
These procedures are typically referred to an treated by a specialist either immediately or within a few days following the initial injury.
Given the emergence and diverse nature of traumatic injuries, the required repair algorithm and procedures scheduling can be highly variable.
And follow up evaluations are generally inconsistent.
Well the various applications can have unique surgeon customers. The procedures are often performed in the same accounts and use the same family of oxygen products.
Scheduled procedures typically have a higher value of accident products used per procedure as compared to routine trauma.
And given the planned nature of these procedures, there's a higher level of predictability.
In addition, these procedures are generally additive to our sales rep productivity.
Reporting by application is challenging.
And generate improved estimates of our revenue by application.
Our estimates are based on available data received from hospitals and sales reps and assumptions regarding specific surgeon practice and account information and as such are subject to the limitations of the data received and our assumptions.
Currently revenue from scheduled procedures represents approximately half of total revenue.
During the quarter, we estimate that this category grew over 20% versus the prior year.
The growth in our scheduled category is reflective of the opportunity to provide improved quality of life outcomes for patients.
We have built the success with compelling solutions backed by clinical data and supported by effective patient activation programs to educate patients and connect them with trained surgeons.
Strength in our scheduled procedures is continuing to deliver on the company's underlying goals of gaining deeper surgeon adoption.
And expanded use cases of our products across our core and active accounts.
Revenues from emergent procedures also currently represents approximately half of total revenue.
During the quarter, we estimate that revenue from these procedures grew in the low single digit percent range versus the prior year.
Although we saw a high single digit sequential growth in the category. We continue to see near term headwinds as hospitals continue to prioritize resources and address the operating challenges.
More recently.
We continue to focus on improving profitability. We're also seeing an increasing interest in moving routine nerve repair procedures into more cost efficient ambulatory surgery center settings.
The near term transition of these procedures creates gaps in procedure predictability.
However, we believe that this transition will be a net positive for oxygen nerve repair procedures over time as we work closely with surgeons accounts and private payers to improve procedure logistics and economics in this care setting.
Furthermore, we believe that recent publications demonstrating the clinical effectiveness cost and surgical time efficiencies of allograft nerve repairs will support continued surgeon adoption and expansion of the trauma category.
We expect to return to more normalized revenue growth rates are high single digits to low double digits in the trauma category overtime.
Our growth continues to be driven through the improved penetration of our active and core accounts.
As a reminder, active accounts are those that have ordered at least six times in the last 12 months and may still be in the early stages of adoption.
Core accounts represent more penetrated accounts defined as those with greater than $100000 in revenue in the trailing 12 months.
Core accounts have had to increase to 347 this quarter, an increase of 16% year over year and down 1% sequentially.
Approximately 60% of our revenue is derived from core accounts, which usually consists of at least one surgeon who has adopted the accident and nerve repair algorithm for a significant portion of the nerve injury patient.
Our focus is on leveraging the success of these early searching of doctors with our products to gain more cases within that account and to encourage additional surgeons to adopt our products.
We continue to believe that our greatest opportunity for growth life with deepening our penetration in our core accounts.
The number of our active accounts increased to 974 in the quarter representing growth of 4% year over year and down 1% sequentially.
Revenue from the top 10% of active accounts represents approximately 35% of total revenue.
We ended the second quarter was 115 direct sales representatives down one from the end of the first quarter and a year ago.
We believe our revenue growth can continue to be driven primarily by increased productivity of our sales force and we will evaluate and add additional sales reps and their territories approach targeted levels.
Our direct sales force is supplemented by independent sales agencies that represent approximately 10% of our total revenue.
Yeah.
Last quarter, we were pleased to provide an update on our key strategic pillar of product and procedure innovation.
And we expect that this will continue to be a driver of long term growth.
As a summary, we announced three specific innovations across our offering including an expansion of our recent station technique for women, who choose an implant based reconstruction, which we believe could apply to an additional 10% to 15% of all breast reconstruction patient.
We continue to see strong surgeon interest in offering recent station in implant basically constructions to their patients and we're on track to exceed our goal of training at least 20 surgical teams this year.
Most of our trained teams have begun completing procedures and we have additional training sessions scheduled in the second half of this year and early 'twenty 'twenty four.
We also announced the innovation in our nurse protection portfolio.
The category of nerve protection covers a wide range of injuries and defects, including compression crush injuries and complex traumatic injuries.
We believe that the diversity of these entry types and their anatomical locations present unique challenges.
Optimizing outcomes for these patients requires targeted solutions to adequately address the specific aspects of the injury and healing process.
We're happy to announce we successfully initiated the pilot launch of the first of these new products Axa Guard H E plus nerve protector and will fully launched this extension of our nerve protection platform later this month.
Initial surgeon feedback from usage in multiple applications and anatomical locations across their targeted surgical specialties has been positive.
Given the positive feedback we believe Axa guard atria plus will continue to expand the adoption of nerve protection products and help more patients with nerve injuries.
Additionally, we also announced last quarter that we expect to have a resorbable nerve protection product that provides a temporary protection and tissue separation during the critical phase appealing for nerve injuries.
This application was previously addressed by a body shop tissue membrane.
We are continuing the development of a replacement solution to address this important market opportunity and expect this will further strengthen our position in nerve protection supporting emergent trauma in the surgical treatment of pain.
We expect to launch this product in Q1 of 'twenty 'twenty four.
As I mentioned earlier they.
The success of our scheduled procedures has been supported by our patient activation initiatives, primarily for breast and paint applications.
Our marketing initiatives are designed to engage patients and direct them to our recent station and rethink pain website.
These websites are aimed at educating patients and building market awareness about the potential benefits of nerve repair procedures.
In addition, patient resources are available for locating surgeon skilled in these advanced techniques, particularly for those undergoing mastectomy and reconstruction.
And for individuals suffering from chronic neuropathic pain.
We believe the patient engagement strategy, we have developed in breast can be used to accelerate and expand our pain and other scheduled procedures, where patients are seeking solutions to their nerve conditions.
Our surgeon education programs on nerve repair remain a top priority for oxygen and continue to generate interest in the surgical community.
Our education initiatives encompass a wide range of learning events, including hands on best practices training educational conferences and presentations.
Moving on to updates and a growing body of clinical evidence.
We continue to develop quality clinical evidence to demonstrate the safety performance and utility of our nerve repair solutions.
Our sponsored clinical programs remain on track.
After the end of the quarter, we have over 200 peer reviewed publications across trauma breast O&M and pain.
On August 2nd the Recon study was published online in the journal of hand surgery.
The publication includes the author's analysis of the results, which found that advanced returned to a greater degree of functional recovery than conduits and superiority was demonstrated F gas linked to increased.
We're excited to see the addition of this level one evidence supporting the efficacy of advanced nerve graft in the published literature.
We believe this data will play an important role in searching clinical decision, making especially with middle adopter surgeons.
We continue to be pleased with the interest we're seeing from surgeons on the recently published meta analysis that reported positive clinical and cost outcomes for events.
In addition, the Premier publication also reported positive procedural cost outcomes for advance and noted a 41 minutes Oh, our time savings for advanced procedures as compared to autograft.
Both publications provide strong evidence in support of advanced nerve repairs compared to alternative techniques.
Uh huh.
Turning to our new production facility and our BLA for advanced nerve graft I wanted to provide an update on timing for these key projects for.
First we completed construction of the oxygen processing center and in the second quarter placed into service the warehouse and office spaces.
Final validation of a tissue processing center was delayed in the quarter and we now expect to begin processing tissue in the new facility later this month.
This facility provides for up to three times, our current capacity that was designed for long term growth and expansion.
[noise] processing information from the APC will be included in the CMC portion of our submission of the BLA for advanced nerve graft.
We will be requesting to utilize a rolling submission process with the FDA at a pre BLA meeting that is expected to occur early first quarter of 'twenty 'twenty four.
If the FDA agrees, we expect to begin the submission of the <unk> in the first quarter of 'twenty 'twenty four and complete the submission in the second quarter of 2024.
The company believes this process would support BLA approval in the first half of 2025.
A BLA approval will complete the regulatory transition of advanced nerve graft from a 361 tissue based product to a $3 51 biological product and importantly, we believe advance would be designated as the reference product, which would in turn provide 12 years of exclusivity with regard to potential biosimilars.
Yeah.
Looking ahead, we remain focused on executing our strategic initiatives and driving long term sustainable growth.
We believe that we set a firm foundation for growth anchored in our investment in clinical data, which is recently produced three significant publications that will be important for surgeon adoption of the accident algorithm, particularly with middle adopters.
Our investment in innovation has produced new applications and products that we're launching this year and next.
We have also demonstrated success with our patient activation programs in recent station and are extending and expanding these programs to other scheduled procedures, where patients are seeking improved quality of life solutions for nerve related challenges.
Finally, we're excited to open a new APC processing Center later, this month, which will provide longer term capacity and support our filing of the BLA for advanced 'twenty 'twenty four.
Now I'll turn the call over to Pete to provide a review of our financial highlights and guidance.
Thank you Karen revenue for the quarter was $38.2 million, representing an 11% increase compared to the second quarter of 2022 growth was driven by increases in unit volume up 6% as well as a 4% increase in price and a 1% increase from changes in product mix.
We estimate that revenue from scheduled procedures represented about half of total revenue and grew over 20% year over year, while emergent procedures also represented about half of our total revenue and grew in the low single digit range versus last year.
Additionally, we estimate that the mix of scheduled and emergent procedures for fiscal 'twenty 'twenty. Two it was 45% scheduled and 55 per cent emergent compared to the current 50 50 mix in the longer term, we expect a scheduled procedure category will continue.
To grow above 20% and continue to represent a growing portion of our revenue mix underscoring its upside potential as we continue to leverage the improved predictability and productivity of these applications. While we are measured in our near term growth expectations for emergent trauma we.
Anticipate returning to high single digit to low double digit growth in this category over time.
Turning to the rest of the financial results gross profit for the quarter was approximately $39 million compared to a gross profit of approximately $28 2 million for the second quarter of 2022 gross margin for the quarter was 81, 1% down slightly.
From 81.8 year over year.
Total operating expenses for the quarter increased 5% to $37.8 million compared to $36 1 million in the second quarter of 'twenty to the.
The increase was primarily the result of increased compensation.
Sales and marketing expense in the second quarter increased 6% to 20.8 million compared to $19 7 million in the prior year.
The increase was primarily due to compensation marketing programs and other services costs as a percentage of total revenue sales and marketing expense decreased to 55% compared to 57% in the second quarter of 'twenty two.
Research and development expense increased 5% to $7 4 million compared to $7 million in the prior year.
Product development expenses represented approximately 58% of total R&D compared to 51% in the prior year and include calls for a number of specific development programs along with the non clinical spend on the BLA for advanced nerve graft.
Clinical expenses represented approximately 42% of total R&D compared to 49% in the prior year and included spending in support of our various clinical programs.
As a percent of total revenues research and development expense decreased to 19% in the second quarter compared to 20% in the prior year.
General and administrative expenses increased 2% to $9 6 million in the second quarter as compared to $9 4 million in the prior year.
The slight increase was primarily due to an increase in net compensation of 1.6 million, which was mostly offset by lower insurance professional services and merchant fees G&A as a percent of revenue decreased to 25% in the quarter compared to 27% in the prior year.
Net loss for the quarter was $6.7 million or 16 cents per share compared to net loss of $7 7 million or 18 cents per share in the second quarter of 'twenty two.
Adjusted net loss improved to $1 $3 million or approximately three cents per share in the second quarter compared to a loss of $2 6 million or five cents per share last year.
Adjusted EBITDA loss in the quarter also improved to $250000 compared to an adjusted EBITDA loss of 1.6 million in the prior year.
The balance of our cash cash equivalents and investments on June 30 of 2023 was $40 8 million compared to a balance of $44 1 million at the end of Q1. The net change includes capital expenditures of 3.6 million related to the construction of the company's new processing.
Facility in Dayton, Ohio, partially offset by $300000 of net positive other operating cash flow in the quarter.
The remaining spend on the APC facility. It was primarily attributable to interest on our debt and employee costs that are capitalized into the cost with the facility until this placed into production, which we now anticipate being later this month, we expect to continue trending towards cash flow breakeven drill.
By leverage over our fixed cost infrastructure and our focus on thoughtful operating expense management.
We believe this trend combined with normalized capital expenditures will allow us to maintain our strong balance sheet position, providing ample support as we continue our path to profitability.
In today's press release, we are maintaining our full year guidance with 2023 revenue in the range of $154 million to $159 million, which represents growth of 11% to 15% at the midpoint of this range the guidance assumes growth of our scheduled procedures or revenue in.
The low to mid 20% range and growth in our emergent procedure revenue in the low single digit range.
Additionally, we anticipate the gross margin will be reduced with the transition to the new processing facility in the third and fourth quarters and that gross margins for the full year 2023 will be approximately 80%.
In summary, we are pleased with our second quarter performance and remain confident in delivering sustainable growth. We will continue to execute our strategies invest in innovation and leverage our market position to create long term value for our shareholders.
At this time I'd like to open the line for questions Daryl.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue you.
You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment. Please while we poll for your questions.
Okay.
Our first questions come from a lot of Michael Sarcone with Jefferies. Please proceed with your questions.
Good afternoon, and thanks for taking my question.
Hi, Mike.
Hi, just the first one just on the emergent trauma procedures. They grow those grew low single digits.
Just talk a little bit more about what you think it is impeding the return to growth there give us some more detail on that front.
Yes, so in the back half of last year, we saw.
Sort of high single digit growth and and this section and and thought we were coming into the target range that we expected it to be in and in the first half of this year. We seen at hospitals are really focusing on really thinking about their resources and profitability that what I would call routine trauma. So these are the symptoms.
So things like a kitchen knife cut or.
Small gap injuries are in many places being moved to a lower cost of care setting like an ambulatory surgery center and while we have some great tools in place and the long term to be able to deal with that with the work that we've put in place with CMC and our cost structure and coding that's in place.
Private payers have not adopted that infrastructure, yet and so we're working actively with ambulatory surgery centers are to continue to to get those changes rolled through there are through their contracts.
And so ultimately we think that's actually a good thing for oxygen, but in the short term here its caused some disruption with that simple nerve repair moving to an alternate setting.
I see I got it. Thank you that's helpful and then just.
Follow up on that so does that mean, the crux of the work.
To get to that you know high single digit low double digit normalized growth over time is primarily just getting these private payers on board and you know do you have resources working on that are you throwing more investment at that and are there is there any are there any other impediment you know outside of the.
The private payors, but you have to overcome.
Well, we want to continue to see the strength, we've seen in leveraging the meta analysis and the Premier data. The recent publications that we have have shown some nice growth on the more complex nerve repairs and we want to continue to see that and then yes and they are in the ambulatory surgery center, setting where working with that.
The sites of care and their pairs to get this to be a viable solution and their account again the infrastructure is there with the way CMS just set it up and we can do this today with CMS, but in trauma, the majority of the injuries or our private payors.
Got it okay. Thank you.
Thank you our next questions come from the line of Dave Shirk away with J P. Morgan JP JMP Securities sorry about that please proceed with your questions.
That's the kind of a misnomer hey, how are you guys.
Hi, Dave.
Alright, Thanks, a lot for the breakout.
Non trauma in the emergent.
I think I'll make you regret that.
I'm I'm teasing a little bit on how did you look at the two buckets.
I was wondering if you might give us any color on sort of.
You know the mix there in the no.
Non term component and then maybe the grocery I imagine breast is doing the best but any color on sort of what's in a while there.
Okay.
Ask about procedural S P.
I'm imagining that axa guards to probably use them.
No. It's in the other areas any color you might give some sort of.
What is key for oxygen is in those two.
Categories.
Sure I'm happy to well, but scheduled procedures have been growing at a faster rate than our than trauma has and for a number of years and and at least as we've seen the information, but it's been very hard for us to break that data out with clear specificity bid.
<unk>, there's a significant overlap in our core accounts and the majority of our core accounts are both emergent and scheduled procedures and so we've put together some aided tools here that we can now break it out and give you some color and insights into the into the growth and the growth is actually multi.
Both areas of scheduled procedures, but it is led by breast in a mask those are both areas that we have frankly, a little more history and longevity and in particular I'm Brad.
We've highlighted the tools that we've built that help with patient activation that we're now looking to expand into other areas of scheduled procedures and we think that will be impactful in those procedures.
Other benefits actually of these scheduled procedures as compared to emergent trauma and we're still very dedicated to emergent trauma I don't want anybody to think that we're not but there are some benefits that we've seen any scheduled procedures not surprisingly they're much more predictable you know that they're coming in advance stage.
Don't drop in on the day or the day. After an injury occurs there's something that's scheduled weeks in advance Ah patients have time to think about what's important to them surgeons can think about the algorithm that theyre going to do and typically have a more repeatable algorithm of repair once they make a change as you noted they are.
Also typically have a higher average selling price of accident products used in the procedures.
In total our case mix and.
Then what is again a routine trauma, what I absolutely. The extra guard products are used in these procedures, we see multi unit sales and many of these procedures. So for example in our breast reconstruction there would typically be a long advanced scrapped as well as.
Typically these surgeons do a connector assisted repair to make sure that that connection is and quotation as well protected so we do see a axa guard and advance used in our scheduled procedures.
Great. Thank you for that.
And I guess, if we look at the new E J products.
I think that was protector, but.
Should we assume that that's kind of hiring S. P.
Over time that that would be your core product.
It wouldn't be a reason ever to let's say not use the one with H a overtime with that.
Right now we see that surgeons may have an application choice that they may choose to use one versus the other we think H, a pluses, particularly targeted in.
In areas, where you need to have a lot of excursion of the nerve relative to the tissue around it so around major joints. So an example would be a cubital tunnel repair that's a decompression of the nerve right over your elbow and obviously you have a lot of movement as you move your arm and that situations show. The H a provides a nice gliding surf.
It's in the early stages of recovery as well as helping to separate the tissues and then over over time, just like in our classic Axa or actually got nerve protector, the Axa guard remodels into a sleeve around the nerve and so we think there's a there's a real application in places like the cubital tunnel, but we think so.
<unk> may choose to have the classic Axa Garden in places, where they don't need that much excursion and so so for example, we see Axa guard used frequently in our oral maxillofacial cases, where there's not a lot of excursion of the tissue and axa grow there'll be a fine application for that that the accurate the traditional axa art protector.
Got it thank you.
Yeah.
Thank you our next questions come from the line of Ryan Zimmerman with B T. I G. Please proceed with your questions.
Hi, This is Sam on for Ryan and Thank you for taking our questions you reaffirmed 2023 guidance at around 11% to 15%.
What do you expect the overall market to grow into 2024, and I know, you're not providing formal guidance, but any color would be much appreciated. Thank you then I have a follow up as well.
Yeah.
Well good question, but keep in mind for us the trauma is really a function of human activity. It's it's not as if the number of traumatic procedures is going to increase any more than you.
Then population growth the the real opportunity for us and this is not so much.
How much trauma my girl, what's the opportunity for us to utilize the data that we have in these new product launches that we have to capture more procedures and convert surgeons from you know from direct repair or autograph repair to the Axa Jim algorithms. So it's less about the market and more about our.
Ability with our data and products and in our sales execution.
To convert that activity.
And then on the scheduled procedures, Oh look I think we do see increases in our breast reconstruction year over year. The number of my sector Amazing reconstruction are growing at that rate and but again. That's the overall population of those is going to grow but our growth is really based on.
On converting surgeon procedures training, new surgeons identifying patients and conducting patients from surgeons for these procedures.
Thank you that's really helpful.
But I would appreciate it if you could provide some updates on sales force productivity and you indicated the independent sales agencies represented approximately 10% of revenues in the quarter, how should we expect that to trend over time. Thank you.
Yeah, we we would expect about 10% for the independent agencies in the end the primary growth will be the increased productivity of our direct sales team and and we continue to see that as we've continued to grow we continue to be able to see through execution improved productivity of the sales reps.
Okay.
Brian were you all finished.
Yeah. Those are all the questions for me. Thank you again.
Thank you.
Thank you. Our next question is come from the line of Cross Osborne with Cantor Fitzgerald. Please proceed with your question.
Okay.
Hi, Congrats on the quarter I Couldnt, you, taking our questions and for that incremental data points Oh, let's go to ask two quick ones, a would you be able to parse out price and volume growth in the quarter.
Are there any pricing dynamics, we should be thinking about the back half and then my second question is are you still seeing a trend toward the use of water that's drops that trauma. Thank you.
Yeah first of all on price, we've been running about call it 3% to 4% increase on price every quarter and I think that range is probably appropriate in the near term. We do take a you know we took a price increase in April of this year and.
We're seeing good uptake from that we take a price increase every year. So we think as that increase annualized as end customers accounts annualize. It will continue to see that 3% to 4% range and then your second question was about increase in advance and trauma, yes. We're.
Yeah, I think that's something we talked about last quarter, where we said that Oh Vance had become had gotten to the point, where it was about 60% of our revenue total revenue and previously it was slightly over 50% and a lot of that is attributed to again growth and these are.
Scheduled procedures as well as growth in and mixed and motor trauma procedures and more complex trauma procedures and again stemming from.
As we get more surgeon uptake on the meta analysis, which are really called out that and advanced nerve graft repair performed just as well as an autograph.
Regardless of the length up to 70 millimeters and regardless of if it was a sensory nerve or mixed and motor nerve and we think you know as surgeons are beginning to understand that data.
We're seeing surgeons, who were very good adopters of ours in the sensory nerves are now recognizing that they have an opportunity to offer the same benefit for their patients and mixed and motor category as well.
Alright.
Ross.
Yeah.
Alright, Thank you very much okay, great. Okay. Thanks, so much.
Our next questions come from the line of Kyle Rose with Canaccord Genuity. Please proceed with your.
Hi, This is Kate on for Colorado's and thanks for taking the questions.
Hi, just to start off why was validation delayed at the facility in the quarter and it's just something that you know really affects the margin cadence in the back half of beer and then also you know given where other companies have called out are you guys seeing any sort of supply challenges.
The supply challenges I can touch on real quickly I think our operations team has done a phenomenal job of of really trying to derisk, our supply chain and make sure that they've looked ahead and worked with suppliers.
To make sure that we have a steady and sturdy supply chain and so at this point no. We're not seeing any supply challenges are that that will affect production and they certainly have worked through.
You name it interesting things over the last a year and a half but nothing that I think is an interruption in what we're doing oh going forward.
In terms of the facility.
You know this is a big complex project there were a lot of moving parts and which it just took a little longer than what we had originally anticipated we're.
We're excited to get started in the facility here in the next couple of weeks and and everything is gonna be a quick go here, so happy with that and in terms of the gross margin impact and it will kind of roll over both Q3 and Q4, just given the timing of when we're starting it'll it'll.
Have some effect in Q3 Q4, but again for the full year, it'll end up still being around 80%.
Okay.
Awesome. Thank you so much.
Alright, thank you.
Thank you. Our next question will come from the line of Chris Pasquale with Nephron Research. Please proceed with your questions.
Thanks, Hey, guys.
Karen question around this reschedule side of the business a little surprised that it's half the business frankly, I think that's that's bigger than we would've guessed it in the past when you've leaned into really trying to maximize the growth opportunities in those schedules are categories you'd had some bandwidth issues with reps maybe taken their eye off the ball.
Core trauma a bit.
Having a hard time balancing those two.
Do you think that you have the proper resources to really maximize both at this point or how do you maybe avoid trauma getting a the short end of the stick given some of the exciting opportunities in the scheduled piece.
Yeah no.
Great question, and I think a number of years ago. We did have some challenges in particular in our math and we certainly learned from that so today. If I can remind you that today, we have a specialty team that addresses the breast and organization them given the complexity of that technique, we've decided that still needs to have specialists.
Address that with the with the surgeons and as far as the full line reps, who deal with both trauma, Oh, I laughed the surgical treatment of pain, and compressions and that means that their call pattern is really focused on hand, and plastic surgeons and oral maxillofacial surgeons. That's their primary call point, so they still have a focus.
I'll point within our core accounts and so far we've been really pleased with their ability to balance all of those and make sure that theyre. Both supporting the planned cases in their core counts as well as being available for emergent trauma, and where a surgeon needs to move through that algorithm and they've been actually quite some.
Zestful it seeing growth, both and again, Oh I'm F in pain as well as continuing to move through the algorithm the algorithm adoption of the mixed and motor nerves and so I think we've got the right formula here and the right balance of resources.
Okay. That's helpful. And then the BLA time line looks like it's been pushed out by about six months I think last quarter you were targeting submission by year end now we're looking at completing the submission into Q of next year is that all the facility or are there other issues that came up.
Yeah, well first of all I'll, just remind you we're a little different than any other submission in that we are commercializing at the same time, we're doing this regulatory submission. So speed is not as critical for us as it is to make sure that we are doing things in a methodical way and one of the options that's available.
For our BLA submission is to do what's called a rolling submission. So you take.
The various modules and and submit them on different dates which allows you to space out the interactive Q&A session that you have with the F. D. A so that you're not dealing with all the topics. It wont, but you might be dealing with a clinical and one time period, and then CMC and another time period and and you're not.
Clinical and in a different time period, and just given the workload is that Q&A session. We decided it was prudent to go ahead and ask for a rolling submission will get confirmation from the F. D. A following the pre BLA meeting that we have and are in the early part of 'twenty 'twenty four but anticipating that they are going to accept that it would.
Stand out the submission period.
They're doing that rolling submission.
Okay. Thank you.
Yeah.
Thank you there are no further questions at this time I would like to turn the floor back over to Karen Saturday for any closing comments. Thank.
Thank you Dara and I want to thank the accident team, who remain committed to our mission of improving nerve function and quality of life for patients with peripheral nerve injuries. We're.
We're happy with our current progress and we remain focused on ensuring our long term success.
And thank everyone for joining us this evening and have a great day.
Thank you. This does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and enjoy the rest of your day.