What happened

Shares of AxoGen (NASDAQ:AXGN) fell nearly 19% today after the company reported second-quarter 2018 earnings. The healthcare company, which develops and markets surgical solutions for peripheral nerves, actually reported a solid quarter of sales growth compared to the year-ago period. Revenue increased 36% compared to the second quarter of 2017.

However, the top-line growth was overshadowed by a huge increase in expenses and overhead, which led to a larger net loss in the second quarter of 2018 compared to the year-ago period. In the first half of 2018 AxoGen reported a net loss of $13 million, compared to a net loss of just $5.8 million in the first half of last year.

As of 2:16 p.m. EDT, the stock had settled to a 14.2% loss.

A businessman holding out his hand with a bar chart showing losses hovering over it

Image source: Getty Images.

So what

AxoGen has invested heavily in marketing and administrative capabilities to drive its growth. The company noted that revenue from direct sales channels now accounts for approximately 80% of the total. The business also ended the second quarter of 2018 with 72 direct sales representatives, up 41% in the last 12 months.

While the aggressive strategy appears to be working in terms of driving revenue growth, it's also proving to be an expensive investment. AxoGen saw total operating expenses increase 50% in the first half of 2018, compared to the same period of 2017.

Now what

AxoGen isn't the first company to spend today in order to capture high growth -- and, hopefully, a much larger and sustainably profitable business -- in the future. The good news is that the company completed a major stock offering during the quarter to extend its runway for the strategy. As a result, AxoGen exited June with $133.6 million in cash, compared to just $30.6 million at the end of March. That said, investors do need to keep a close eye on the income statement and balance sheet, to ensure that growth makes up for expenses over time.

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.