MiMedx Group, Inc. (MDXG) Earnings Call Transcript & Summary

Hi, good afternoon. I'm Craig Bijou, part of the Bank of America Medical Devices Research Team here. Happy to have MiMedx presenting. And from the company, Tim Wright, CEO; and Pete Carlson, CFO. And I'll turn it over to Tim and Pete to start the presentation, and then we'll probably have some Q&A at the end.

Thank you, Craig. And many thanks to Bank of America for your invitation to present to this year's virtual health care conference. Before we begin our remarks today, you should be aware that remarks made today may include forward-looking statements that are subject to risks and uncertainties. And therefore, we would advise everyone to review the cautionary language that is contained in Slide 2 of this presentation, which is accessible on our website and in appropriate SEC filings. And now, going to turn it over to Tim Wright. Tim, I lost your video there for a minute. It caught me. Tim Wright, our CEO, who will start on Slide 3.

Yes, so I'm going to kick off on Slide 3. Thanks, Pete, and thank you, Craig. I appreciate the invitation here. MiMedx was a pioneer in this whole amniotic tissue space. And as the new management team approached this business, looking to how we're going to create value here, we really look at it as the technology here as a platform for regenerative medicine. There's a lot of utility with amniotic tissue membrane, depending on how you formulate it. The first formulation or application of this technology is in the -- in our base business, which is the advanced wound care business. We grew that business to around $250 million or so over the period of time with the growth of the company. The other asset here that's very important is the promising late-stage pipeline, and that's focused on musculoskeletal. So the platform gives us a lot of utility across different indications, starting with advanced wound care and then moving into musculoskeletal. We'll dig down into it a little bit deeper. The common thread that pulls these 2 different types of businesses together is our PURION tissue engineering or manufacturing process. The smart technology that we're referring to here in the middle part of the slide is really just the nomenclature for the mechanism of action of our amniotic tissue membrane. So if you go to Slide 4, I'd like to talk a little bit about how we plan to grow the business. And Pete will -- as we get into this, Pete, we can talk -- we can really drill down on the base business for our audience here. We plan to grow the base business around 10% this year. So down on the bottom of the slide, with the '21 to -- up to '25, you'll see various approaches to growing the business here. First is our -- is a geographic approach, and then we'll talk about it, the indications we're seeking in our musculoskeletal space if you would take people through the complexion of our base business, that would be great.

Great. Thanks, Tim. When we talk about our base business, we're talking about that advanced wound care business, the skin substitutes that we first pioneered here domestically. Historically, our businesses also includes some products that are viewed as biologics and with enforcement discretion, which we'll talk about in a little bit, but we will no longer be selling those products after May 31. But we still look at that core base business, which is the advanced wound care skin substitute. For us, these are products made out of placental tissue and umbilical cords. And that is about a $200 million to $210 million base business that we look to grow 10-plus percent each of these years. We think that's growing in -- ahead of a market. Studies show it is expected to grow sort of 8% to 10% over these next handful of years on a CAGR basis. And Tim will take us through some of the reasons why. But we think, in summary, it is outstanding clinical evidence, ease-of-use, best-in-class, market access, including GPO contracts. And also how we help our customers and their patients work through the reimbursement process. On top of that, you'll see, and Tim mentioned the geographical expansion. And this taking that tissue product, those core products, and going into other regions. For us, the first one is Japan, and we're excited about the opportunity here. We expect to hear in the middle of this year about approval, regulatory approval, for use of our product in Japan. We are optimistic that, that continues to hold to take -- will take place. And then we recognize a need and estimate about a 3- to 6-month process to work with the authorities in Japan, so we set up the reimbursement scheme. So we see the business in Japan starting to be a meaningful contributor for us beginning in 2023. We are looking to go direct in there and control our own destiny. And as Tim mentioned, and I'll turn it back over to him, some of our indications coming out of our late-stage pipeline begin to take place, we think, in 2023.

Yes. Thanks, Pete. The 2023 plantar fasciitis is -- will be our first indication that we plan launching. We plan on filing a biologics license application mid '22 and anticipate, based on the PDUFA date filing, that we would be prepared to launch in '23. So this will add another layer of growth onto the business in addition to the launch in Japan and the growth that we see in our business. Now we have other opportunities outside the U.S. and Europe where we've already received approval for our product EpiFix portfolio in the U.K. as well as in Germany. We're going through the reimbursement process there now. We probably have 10 or 11 other approvals outside of Europe in the Middle East that will continue more on a tender basis to reap sales from that part of the world as well. Now as '25 and beyond will be -- will gain the benefit of our filing for knee osteoarthritis, which is probably the largest indication that we're seeking right now. If you go to Slide 5, you'll see a schematic here. I just want to cover this off for us. A BLA process for a company that started out as a tissue-based manufacturer of products. And for anybody approaching the BLA process, it does require a significant amount of integrated work by several teams across clinical development, regulatory, pre-clinical, et cetera, and our manufacturing colleagues. So if you look at the top of that, it's just the basic schematic or this gross Gantt chart across all the phases. Now we are in late-stage Phase III with our clinicals where we have the last patient out on our plantar fasciitis trial as well as our Achilles tendinitis trial. And we've completed our last patient out of our Phase IIb trial in knee osteoarthritis. So we're well into late-stage clinical development here and preparing for potentially a BLA launch in '23 with plantar fasciitis. Another important characteristic is this is all the groundwork that needs to be done to prepare your manufacturing being, one, CGMP or good manufacturing practice facility, but also the work that's required to characterize your product in the chemistry manufacturing control section is an area that we've been working on for quite some time collegially with the FDA as well as with our outside consultants in this effort. So the clinical is one thing to be able to generate. We're down the road on that in humans. The other piece of this is all of the manufacturing things that you have to put in place to make sure that it's complementary to your clinical data. So obviously, scale-up manufacturing is the ultimate here for us, and we're -- we've been refining our -- if you will, our manufacturing footprint over the last couple of years to make sure we can supply the required product in this setting. If you go to Slide 6, I'd like to just spend a little bit of time, we've -- on the clinical side of this, why this platform technology of amniotic tissue is so important as part of the growth story of the company. The advanced wound care business certainly is our base business. That's going to continue to grow. But this pretty exciting musculoskeletal pipeline is driven, one, by our first BLA potentially in plantar fasciitis. We're going to have top line data readouts of all of our clinical trials late summer. The schematic on the right-hand side just shows different areas where we think the application in musculoskeletal for our products could be potentially valuable. Now we started with knee osteoarthritis, which is by far, the largest potential indication. There are probably 17.5 million, 18 million people that suffer from knee osteoarthritis is in the United States. To give you a sense of the magnitude of order of the potential value creation here is when you look at just a single knee with a single injection, we think there's an opportunity to dose about 1 million to 1.5 million patients for that. Now that's 1 knee. If there's bilateral involvement, we'll be dosing 2 knees. So all of our forecast today really rest on, 1 knee, 1 dose. Now we don't have a Phase IIb clinical trial to -- that is dosing there for the patients that we're on placebo. So it's 6 months, both patient on placebo as well as the patient that's been on active. We'll have an opportunity to give second dose of our product. That should give us some insight on how we design our Phase III clinical trial. So as -- when we think about dosage administration down the road, we could either be dosing onetime a year or twice a year. And respectively, if it's bilateral, you'd be having 4 injections a year at max potentially. So that's a huge opportunity for us. We also have an Achilles tendinitis trial. To be quite transparent about that, the way the trial was designed in 2014 did not provide enough, if you will, a MR -- graphic representation of what was really going on with that patient's Achilles. So it was -- we didn't get a really good understanding of the patient population in this trial. We're going to go ahead and unblind the Phase III trial as well. We'll take that to the FDA in the summertime as well and go through that with them. I'm not overly bullish about where we're going to end up with Achilles tendinitis, although we do feel that in some of the retrospective work that we've been exposed to, our amniotic tissue product, AmnioFix Injectable definitely works in tendinosis and tendonitis. But this trial, given the way it was design, may not prove that out. As I mentioned earlier, we have a bias for science, doing really fantastic science. The team that we've hired in our R&D organization in the past 2 years is coming at this with, if you will, pharmaceutical and biotech expertise, not only across the regulatory and clinical operations, but also in the manufacturing area there. So we planned to file additional INDs. 2 weeks ago, we filed an IND for chronic cutaneous ulcers using our micronized formulation as well. We think there's an opportunity for our injectable products in wound care. We also think there's an opportunity in the acute setting in surgery. So there are several options that we're looking at to file additional INDs. Being a pioneer in this whole field, the utilization of amniotic tissue membrane, we think we can do the same thing that we did in wound care in this musculoskeletal area. Being a platform technology, we do think there are other areas where we can apply the basic characteristics of this product. So if -- it's believed that there may be an opportunity for us to expand into other areas such as aesthetics or in the respiratory space. That's for another day's discussion. If you move to the last slide, Slide 7, as I mentioned, we're investing in our base business. We've invested in our sales force there. We're at around 290 strong there. That's complemented by additions to our medical affairs organization, our speaker programs as well as probably the best in the business field-based reimbursement specialist that become the advocate for the patient as well as the physician in getting reimbursement for their patients. That's not to mention -- the other part of this is the market access organization that is led by a veteran in the industry, Marion Snyder. She is responsible for all GPO contracts, IDN contracts. She also has the reimbursement and health economics organization reporting to her. So we stay very close with CMS on the reimbursement trends here, providing our input into the government on that. All that combined creates a robust muscular commercial organization, if you will. So we've been investing a lot in that. Our pipeline, I've challenged our R&D group to accelerate our movement of our Phase III clinical trial in knee osteoarthritis. We think that will be a very important trial. If we can recapitulate, but Dr. Alden did in Chicago with his 82 patients there, we'll have a very strong Phase III clinical trial and a very strong rationale for moving to BLA status there. The capital raise that we did last summer that Pete's team orchestrated is definitely allowing us to invest in the business in the right places. We think the big domains of value creation are in R&D, in our manufacturing space, our supply chain, and then in our commercial operation. It gives us flexibility to sell across several different areas that can continue to grow this business at this 10%-or-above rate. So with that, I want to thank you for attending our presentation and, Craig, if you want to open it up for questions, we'd be happy to do so, take your questions.

Yes. Well, thank you, guys, for the presentation. Let me start with the core -- your core business, in the advanced wound care business. There are a number of different competitors who are putting up some pretty good growth rates there. I would just love to get a sense for, one, kind of the competitive dynamics that you're seeing in the core business. And then maybe what could happen when we do get past May 31 just in terms of any share shift or who's bound to benefit from some of the regulatory environment changes?

Yes. Craig, let me start out with some numbers, and then Tim can give you some of the overall perspective. One of the things, I think it's important for people to remember, we are an amniotic-only producer. So all of our tissue products are amniotic, meaning they're human-based. And so we talked about that base business. And again, it's tissue and core that we can -- that we have products for. It is all in the amniotic tissue skin substitute submarket. The other aspect of it is we see that -- that's we see growing at 10-plus percent that I mentioned before. And we also -- when you look at the marketplace, there are scores, if you will, of companies that are out in this tissue business. The regulatory change that takes effect here at the end of the month impacts, in a way, a subset of the products. For us, it's our micronized and particulate product. That's what's being studied in the clinical trials that Tim mentioned, and that's about 13% or 14% of our business. So I talked about the $200 million to $210 million that's, that remaining 85%, we're calling our base business here. The -- and but the other aspect of this is, in the last 3.5 years, we don't think -- we're not sure that everybody has been exposed to the same regulatory oversight just the way the enforcement discretion has played. And so while there are scores of companies that have these tissue products, we're not sure how many of them will be able to even stand up to a fully enforced tissue regulation. And that does get to what you talked about as opportunities for a little bit of shifting in the marketplace. Also, we view the market is a growing market. So while there's somewhat a shift in share, we think most -- most of it is just a growing market. There's a significant unmet need here. You talk about 30 million people in the U.S. alone with diabetes. 10% of those have these advanced wound situations and only about 10% of those are getting the treatment they need. So that's where we see some of the core opportunity for market expansion, a principal usage for those that aren't aware of our product is in the diabetic foot ulcers or venous leg ulcers that will come with diabetes. So that's sort of how we think about what will happen. It's the subset business of a company like ours that has this particulate or micronized product that is not able to be sold and then there are products that can continue to be sold, but you do need to comply with some base tissue guidelines. Tim?

Yes. Well, Pete, I think you've covered off really well. I do think there -- that there's -- when you think about the competitive landscape, there's one company that seems to be doing very well in the [ retail ] or in the private practice space. I think that's driven primarily by very, very favorable reimbursement in that setting. As you've probably seen in other presentations, Craig, we have -- we really drive our revenue from 3 principal areas: one is the hospital environment; the outpatient environment; and then private practice. As we build out our sales force and keep in mind the first quarter, we rebuilt virtually the entire sales organization. So we're getting our sea legs in our sales force. We've got a very capable team out there now. We're also supplementing this with real live health economic data for physicians and payers to consider in their prescribing decisions and reimbursement decisions. I think that is probably where we're focusing most is drilling down, providing the best clinical peer-reviewed evidence that we can provide for our products, educate the physicians on our platform technologies as well as provide them with a good strong economic rationale for the utilization of our products. I do think that there is going to be a change in the competitive landscape. My personal belief is that everybody in the wound care space has been renting market share. And sometimes, renting that market share or trying to gain market share here or there, comes at a cost that puts some downward pressure on your margins or pricing. We're not in the game to continue to, if you will, pre-commoditize a platform technology like ours. Our focus is delivering the best products we can, best clinical evidence, the best pharmacoeconomic evidence for our product. I do think you're going to see a smaller number of players. Our ongoing dialogue with the FDA, they've been very clear with us. After June 1, they could be very staunch in their enforcement based on their November of 2017 regulatory guidance in this area. So for companies that do not intend to file an IND or do not have the wherewithal to file an IND in this space, they will not be able to participate in this space with their market of products that they were marketing under enforcement discretion. We're very confident that the reimbursement landscape is going to change here over time and put things more on a level playing field as well.

Got it. Very, very helpful. So obviously, you guys have a pretty robust pipeline that you talked a lot about. And you talked about your capital raise last year. So would love to understand the use -- your resources and where you're directing your cash resources, given that building out a sales force has traditionally been a significant piece of wound care in accelerating growth there. So I would just love to hear how balance between the pipeline in the current core business.

Craig, we had 3 purposes when we did the capital raise last year. And that was, one, to really recapitalize the business to get rid of some high cost, high or tight restrictive debt, had tight liquidity covenants as well as coverage covenants. So -- and which was understandable given the time that, that loan was made, the company didn't have financial statements to provide. So that was goal number one. This -- the other 2 goals were much more forward-looking, and it was to raise enough capital to allow us to be able to invest in our strategic initiatives while we continued to resolve our outstanding litigation matters and legal and other contingencies. So it's investing in our strategic initiatives that we're doing this year. We've talked about it a couple of ways, and this is where you see that use of proceeds going. And the principal one is in our research and development areas. As we said on Slide 6 here, in the last bullet in the blue box, we're anticipating a threefold increase this year in our R&D spend. In the last couple of years, our R&D spending was about $11 million or $12 million. And so as much of a threefold increase and people can get a perspective on where that's putting us and that's focused on these 3 trials we have going on as well as working to accelerate the next steps. Next steps being for our knee indication study, doing a Phase III. For our PF or plantar fasciitis study that Tim talked about, it's actually going to the application process and submitting a BLA to try and get the approval to get that product on the market. The other place we are focusing investments is on the commercial side. It is somewhat accelerating sales rep count growth. The number Tim mentioned of about 290, that was 265 at the end of the year. So we've been very active and, frankly, even more active than that because we had some turnover as we realigned how we assigned accounts. So the team has been working very hard to attract new reps and help grow our business that way. But it's also investing in the medical education that Tim mentioned. It's another area on the commercial side. Then the final one is investing in our manufacturing operations. Again, Tim noted how critical these are. For us, it's been -- we've been very aggressive, and Tim has been focused on this really since he walked in the door 2 -- almost 2 years ago to get to that good manufacturing practice level. What we're doing is we're doing that across all of our processes. So even our tissue products will be prepared, will be processed under good manufacturing practices. We don't think you can tell somebody we're fully integrated. So it's our people that are doing all this work, and we can't train a processor that for a tissue, you only have to do this much, but for the biologic product, you need to do a little bit more. So we're just going to have them do that more for everything, which we think will help quality even more. But while we feel like we're essentially there on those -- getting those practices in place, we've been working on it for over 1.5 years. We've heard back from the FDA on an inspection in 1 of our 2 places and they agreed with us. We're waiting to hear back from them on the other. The other thing we're doing with those proceeds is also updating our facilities to get more efficient in how we deal that and frankly, adding some more space give our processors more room to do these procedures, and that's how you can really get the fish and it's not being on top of each other in addition to having systems in place. So that's how we are using those proceeds. This year, while we view our business, our -- particularly our base business as being cash flow positive, it has been all along, and this year we'll be close -- we will be spending cash on our balance sheet. So while the business itself would generate free cash because we're making these investments, the whole point is investing money that we raised. So we will be using some of that cash on our balance sheet.

Got it. That's very helpful. Maybe there's a couple of minutes left. But just -- is there any way to quantify some of the pipeline opportunities? I know that they're a number of years out, but you're obviously targeting pretty big spaces. So is there any way to put a dollar impact to it?

Yes. If we go back to Slide 4, let me talk about plantar, Tim, and I'll let you talk about knee maybe.

Sure.

And in the plantar fasciitis, which is the one we see coming on sooner than later because we're completing a Phase III there, we've talked about a market opportunity for MiMedx of 20,000 to 50,000 patients annually. We do think this is probably a one-shot opportunity annually. In fact, there's a recent article we've seen where a doctor has been using it and 1 shot was enough for his patients. And you would -- so you take the midpoint of that range, 35,000. And while we haven't talked about pricing explicitly, it's going to -- we know it will be a 4-digit number. So at that midpoint, even at just $1,000, it's a $35 million opportunity or ranging it to $20 million to $50 million opportunity. And we're not sure if that's even a conservative number. Now obviously, there's going to be a little ramp up. These products have been in the market. So I think the ramp-up is a little quicker than maybe a normal drug rollout, but that's how we think about plantar. Tim, do you want to talk about the knee?

Yes. Thank you, Pete. The market opportunity for MiMedx with knee osteoarthritis is significant. OA is by far the most common joint disease. Millions of adults experience pain and decreased quality of life because of joint destruction caused by knee OA -- caused by OA in general. We estimate the market today, and we're continuing to refine this in a couple of ways. One, we continue to do primary research on the market to understand the size of it, the magnitude of it. And also, we continue to do conjoined pricing analysis. My -- I think Pete made a good comment there. It's fair to say this will be a 4-digit number. When you look at the market for knee OA, we estimate the injectable size of the market for our product range between 1 million patients to 1.5 million patients per year. Now this is based on one injection. So you visit your doc, you get worked up. You get an injection for your knee. So it's 1 injection per knee per year. So if you put a $1,000 price on that, you've got $1 billion to $1.5 billion product. If you're injecting 2 knees, you can do the math on that. Or if you're injecting 1 knee twice a year or 2 knees twice a year, that's how you'd multiply that out. So you can be getting 1 injection a year. So if it's 1 million patients, it's $1 billion. If it's for a year, you can do the math on that. So it's a very sizable opportunity. And once we start our Phase III trial, we'll get a better understanding about how we're going to dose and administer that product.

And also the other thing is pricing and in Tim's numbers, we're using that simple $1,000, but you can also do the math if it's $2,000, $3,000. The benefit that was seen in the study Tim mentioned by Dr. Alden is people avoid a knee surgery. Knee surgeries are $55,000, $75,000 items. So pricing, we're just not sure where we'll fall out. But certainly, the $1,000 is a pretty conservative number.

That's great. And I think with that, we're out of time. So I want to thank you again, Tim and Pete, for presenting at the conference today and have a great rest of your afternoon.

Thank you, Craig. Stay well.

Thank you. We appreciate it. Yes. Thank you for the opportunity.