Shares of AxoGen, Inc. (AXGN 3.16%), a company that found a way to recycle human nerve tissue, are sliding in response to a negative report from an investor that stands to gain a great deal if the stock tanks. The short-seller has convinced enough investors the company's in trouble to drive the stock 22.4% lower on Tuesday.
Calling attention to some of AxoGen's flaws, either real or imagined, wouldn't have such a big effect on the stock if investors weren't still waiting for crucial clinical trial results. AxoGen began distributing the Avance Nerve Graft in 2007, but it isn't approved by the FDA yet. To satisfy the regulator, the company started a registry study to compare outcomes between patients receiving standard care and AxoGen's cadaver-derived product. After 10 long years, investors are ready to see results due this month that could either help sell more Avance Nerve Grafts, or hammer sales flat.
Investors are already wondering about delays for the smaller Recon study, which will compare outcomes between patients given bovine tissue or Avance Nerve Graft. When Recon started in 2015, Axogen promised top-line results this month, but that's been pushed back at least a year. Every day that goes by without results from these outcome studies leads investors to believe the company has a reason to drag its feet.
It's a decade into their launch, but AxoGen's nerve graft products still haven't achieved lift-off. Sales and marketing expenses ate up 68% of total revenue for the nine months ended Sept. 30, which was more than usual because the company made an extra big push this year.
Perhaps the expensive sales strategy will lead to valuable new accounts, but it looks like the company's losses are going to continue. AxoGen finished September with $126 million in cash and investments after losing $17 million during the first nine months of the year. If the company is dragging its feet for a good reason, those losses will accelerate, which means it's best to watch this story play out from a safe distance.