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

Greetings, everyone, and thank you for joining the H.C. Wainwright 23rd Annual Global Investment Conference. My name is RK, and I'm a biotech senior analyst at H.C. Wainwright. While we are virtual this year, we are confident we are going to be able to provide value to you with over 850 companies presenting at this conference as well as via our interactions through one-on-one meetings. H.C. Wainwright, as you know, is a full-service investment bank dedicated to providing corporate finance, strategic advisory and related services to the public and private companies across multiple sectors and regions. We have a total of 19 publishing senior analysts and over 560 companies covered across all sectors. Please visit hcwco.com for more information. [Operator Instructions] Please join us for corporate presentations and panels that will be available live and streaming during September 13 to 15. With that said, I'd like to welcome Tim Wright, CEO of MiMedx; Pete Carlson, CFO; and Bob Stein, CMO of MiMedx. MiMedx is an industry leader in commercializing amniotic tissue as a platform for regenerative medicine. Please go ahead, Tim.

Thank you, RK. And on behalf of my management team and the over 800 employees, appreciate the opportunity to present at the 23rd Annual Global Investment Conference. You've got a great agenda set up, and we appreciate the opportunity to update our colleagues. Today, we put out a press release that covers where we are with our interim analysis. We provided full disclosure and balance on that, and we'll get in and discuss some of those results today. Clearly, our analysis isn't completed. We'll be drilling down on that and have a better view on the complete data set as we move towards meeting with the FDA and then having an R&D day. If we can move to the next slide. As you know, those are the standard cautionary statements there. I'd urge you to read that. As RK stated, we're the industry leader in using amniotic tissue as a platform regenerative medicine. We have a base business that is growing. We spent over the last 18 months rebuilding our commercial structure, including our medical affairs organization and our key opinion leader group. That business provides the necessary fuel to fund our promising late-stage pipeline. And we're going to dive into the pipeline a little bit here with Dr. Stein, but I wanted to encourage people to read the full press release that we've provided for you. We still think that our knee OA program, we can move that into Phase III. We will be meeting with the FDA to discuss this in full. There are several factors that we have a theory on that we'll be testing as we move through the next couple of months. Next slide. So with that, Bob, I thought I would let you take this slide. Thank you.

Thank you. Hello, RK. Hello, everybody. This morning, we announced results from our plantar fasciitis Phase III study and our Phase IIb knee OA study. We didn't get the results that we had expected, although we got what I would encourage people to think about as a very positive efficacy signal in the knee OA study. And we really are somewhat puzzled by the results that we saw, but I'd like to at least walk you through them at a high level. The study was overall 446 patients, and the 2 endpoints that we had agreed to with the FDA, because they require 2 endpoints, are what's called the Visual Analog Scale of Pain, or VAS, and the WOMAC or -- that's an index of function, pain and stiffness that's used to assess the osteoarthritis in many clinical studies. The overall results did not show a statistically significant separation between saline, which we used as our placebo; and our micronized placental product, micronized dHACM in both the placebo or saline treated group and the micronized dHACM treated group, patients in the 446, there was clinically significant improvement at 3 and 6 months, but there was no statistically significant separation between the saline group and the micronized dHACM group. However, there was a planned interim analysis after the first 190 patients, and that was carried out in 2019. And the really interesting aspect is that there was a very strong clinically and statistically significant separation where micronized dHACM outperformed the saline group. Total WOMAC, which means the overall global score for the severity of the knee osteoarthritis signs and symptoms; and on pain, which markedly lessened better on the dHACM than on saline; and on function, which improved better on dHACM than on saline at 3 and 6 months. However, in that interim analysis, the Visual Analog Scale for Pain endpoint didn't show a clear statistically significant separation between the dHACM and the saline. And therefore, it was decided to up the number of patients that would go into the study. Originally having 318, they wanted to get to 435 evaluable patients. So they added patients to the study. And the next 256 patients that were studied lost the statistically significant difference between saline and dHACM. Both groups improved significantly from a clinical standpoint. This also coincided with the onset of the pandemic, and we're trying to understand the basis for the change in the observed response to the medication and to the placebo to get a better understanding of what might have caused that. So in the first 190 patients, there was a statistically and clinically significant improvement on dHACM compared to saline. In the next 256 patients, we lost that signal. And so in the overall 446 patients, the signal is diluted out, and we don't see statistically significant differences between saline and dHACM. I would like to emphasize that both groups did show a very significant clinical improvement compared to the baseline to the groups. And our conclusion out of this is that there is a signal that the dHACM provides real benefit, and it's encouraging us to progress the program into Phase III after discussion with the FDA, which we'll have to have. We will need the 2 Phase IIIs to register at this point because that's required. But the company is encouraged by the result, although puzzled and somewhat nonplussed by what we saw. So can we have the next slide, please? I also would like to emphasize that this interim analysis of the 446 patients is based after all the patients had completed the required 6-month blinded observation. We still have another 6 months before the study is fully of observation in an open-label format because the FDA wanted 12 months total observation. That will be something we can talk more about in October, at least that's when the second 6 months for all the patients will be completed. And I would also like to emphasize that in this study and our plantar fasciitis study and our Achilles tendinopathy study, the compound was very safe and well tolerated. So that's a very good indication that the material is going to be medically safe. And as I mentioned, we have the efficacy signal that I had just described. In plantar fasciitis, there was also an interim analysis done. There had been a very positive Phase II study with plantar fasciitis and looking at saline versus micronized dHACM that have been conducted. Our Phase III in the interim analysis showed this trend towards separation where dHACM was appearing to have better performance than the saline. Although that didn't reach statistical significance, it was hoped that, by adding patients to that trial, we'd be able to get the groups to separate. But again, in the same time frame, the second group of patients entered into the study after the interim analysis failed to sustain that separation between dHACM and saline. So at this point, we aren't going to be filing a BLA for plantar fasciitis, and we're going to pause that. We do have other long-term and near-term IND studies ongoing or planned. And we believe in the product, not only its safety, but in its potential efficacy in musculoskeletal settings. And the company is intending to make the investment to progress the product for registration for knee OA. We'll come back to you with the potential dates for filings after we've had a chance to discuss our findings with the FDA and have deeper internal analysis.

Next slide. Bob, all the work that you've been doing in research over the last 18 months or so has formed the foundation that moves beyond an indication in pain relief or improvement in function into this area where you're actually seeing some remodeling. And I think it's important that there are a lot of drugs out there that can reduce the pain. Having a substantial impact on the disease could be an important attribute of dHACM.

That's a very good point, Tim. The next slide actually -- on the left-hand side, the research team at MiMedx with outside collaborators had demonstrated that micronized dHACM protect against the loss of cartilage in an animal model of joint destruction. And the team has recently demonstrated that there are a number of compounds in micronized dHACM that can interfere or modulate Wnt pathway signaling. This was recently published, and the interesting aspect of that is that Wnt signaling is involved in cartilage maintenance. It's very clear that a number of companies have been evaluating the idea of inhibiting or modulating Wnt signaling to protect cartilage against destruction, not just improve pain and function. And so this could provide a mechanism whereby the dHACM actually could be thought of as a disease-modifying agent in the setting of osteoarthritis. That is something we're contemplating building into our planned Phase III registrational studies. And the other thing that the team discovered recently is that micronized dHACM components can inhibit transforming growth factor beta signaling. And transforming growth factor beta is known to be involved in scar formation, and this may contribute to the observations that micronized dHACM can cause scar tissue to rebuild towards more normal architecture. So we're gaining mechanism of action insights that we believe can help us design the next round of studies in a more effective way and to demonstrate even better aspects of the pharmacology and clinical effects of micronized dHACM.

Yes. Thanks, Bob. Next slide. Bob, I'm sure you can articulate this much better than I can. I think we've used this slide historically just to demonstrate the complexity and the careful nature which you approach a BLA. It's not only the clinical data that's important, but also over time, we have stressed the need have a very rigorous manufacturing process where we can really clearly define the product from a release standpoint. So we've -- over the last 2 years, we've been working through this in our manufacturing efforts. Those are beginning to pay off here. So we can move to the next slide. When you think about our base business, as I mentioned upfront, we have totally revamped our commercial infrastructure, new leadership, new approach to training our sales people around the clinical and the safety aspects of our product, in addition to the health economic value. And we're beginning to publish more on the efficacy side of our products, whether that be a DFU, we'd like -- probably like to start a study eventually, another study in BOU, which we can discuss in the Q&A, RK. We plan to continue to have peer-reviewed publications of everything that we're doing here. This is the approach that this particular market needs is to have peer-reviewed data, well-controlled trials. Now when we think about expansion of our portfolio, one of the key areas that we've been focused on is international expansion, predominantly in Japan. If we move into the next slide, we'll give you an overview of that. Japan is a very attractive market for us. We think the addressable market potential there from a patient standpoint is around 100,000 patients there. Obviously, we have approval in the U.K. and Germany, and we're working to get reimbursement there. And we're thinking through the, if you will, the commercialization model in those countries as well as rest of Europe. But in Japan, we will have a presence in Japan. And hopefully, over the next 3 to 6 months, we will be able to get reimbursement in that market. So we think this is a big contributor in the '22 time frame there.

I want to just take a minute to remind people about our financial results. The left-hand side of this slide has our historical results. And as we talked about during our second quarter earnings call, we've provided that breakout between those products that were impacted by enforcement discretion, which we refer to as the Section 361 products; and those that continue to be able to be marketed in the marketplace, our advanced wound care business. So left-hand side, our trailing 12-month results. On the right-hand side, we've given some updated outlook about where we see things falling out this calendar year. And you'll see that we talk about revenues falling between $245 million and $255 million. Again, that's for calendar 2021, and that's our net sales number that we're talking about there. Our gross margin picture remains the same. And as you look at the bottom right, you will see that where we stand today and what we expect to do the rest of the year, within this calendar year, we do not anticipate incurring as much R&D expenses as we thought maybe coming into the year. Several aspects have driven that, how enforcement discretion played out, the timing of when we were able to get the results out from the trials and our next steps, as Dr. Stein has talked about. So we wanted to give people that picture. And then in the middle is sort of our financial position. We did have the $85 million on our balance sheet at June 30 in cash. The EBITDA -- adjusted EBITDA and free cash flow numbers there in the bottom and the center, what I would just remind you is that we did highlight a couple of items in our second quarter earnings call that explain some of the downturn here both during the second quarter, and then in that middle table, how it is impacting our numbers on a trailing 12-month basis. Tim?

Yes. Next slide, please. Yes. You've seen this slide before, RK and others who are watching this. This is really our internal scorecard broken out into 3 big drivers of value: commercial, operations and R&D. As a biologics company, the operating side or the manufacturing side of our business is critical. Our ability to achieve validated CGMP compliance is absolutely critical in this area. We are dealing with drugs here. The commercial side of our business, as I said, has been revamped. And we're seeing the growth that we expect to see, our top line growth. And we've also had our focused goal of adding the appropriate salespeople with the right background. They're getting the right type of training, how we want to sell in this particular market. We've already reviewed Japan. We're on our way to get reimbursement there. We've got a lot of effort on that from our colleagues in Japan and folks in the international piece. Now there are selective opportunities from a licensing standpoint. We're not going to get into those today, but that could benefit and be synergistic with our base business. From an R&D standpoint, as committed to our investors, we want to have a top line readout. As Bob mentioned, it wasn't what we expected. It's very inconsistent. For example, on the knee OA, it's very inconsistent with the retrospective studies and the real-world evidence that we've been seeing. These products have been on the market under enforcement discretion for a very long time. So we still have some wood to chop, if you will, in understanding this data and then being able to communicate that to the agency under an RMAT format for knee OA, right? On PF, we didn't see the signals there, very inconsistent from our 2 -- Phase II study. We've got our work to do there as well as understanding why that happened. We don't know. We have some theories that we need to test, whether that's the unprecedented pandemic, how that could impact a company's studies that are focused on musculoskeletal diseases. And there are some other theories that we need to test, and we'll be doing that. So from a standpoint of when we would file a BLA on knee OA, we're going to have to get to our FDA meeting on that and come back to our investors on that. We're going to continue based on what we know and the basic research, understanding the mechanism of action of these drugs. We're going to continue to file appropriate INDs, studying this not only in the chronic wound area, musculoskeletal disease area, but also in the acute wound setting. I think there's still a lot of value that we can create here by just better understanding the mechanism of action of these drugs and also working to solidify our manufacturing GMP steps. So RK, I think we've -- we'd like to conclude here and take any questions that you have for us.

Sure. A couple of quick questions. Tim, I'm sure, while it's disappointing to see both primary endpoints not meeting statistical significance in the KOA study, just 2 quick questions on that. One is, were there -- how different were the enrollment characteristics prior to the interim analysis and post? Just -- I understand lots of other analysis you'll be doing, but this is just on baseline characteristics.

So the baseline characteristics, RK, were very similar in the first 190 and the next 256. The distribution between Kellgren-Lawrence [indiscernible] severity between 1, 2 and 3 were similar. Male and female were similar. Starting points for WOMAC-Pain, WOMAC-Function and WOMAC-Total were similar. Different sites were largely involved. The original 190 patients contributed a little bit to the next 256, but mostly they were new sites. And we don't really see a strong difference in the group study between the first 190 to the next 256. The 256 all occurred after the interim analysis and during the pandemic. And as Tim said, seems to be influencing clinical studies maybe more broadly. The FDA had put out guidance about analyzing studies from before and after the pandemic, so there may be some general trends. We also have some other ideas about what might account for the differences, and we're going to dig into those much more deeply in the coming months.

Perfect. Certainly, you will -- as I said, you'll be doing further analysis and also having discussions with the FDA. But at the same time, you're going forward with the plans to do the Phase III study. What gives you that confidence to move forward? Because you have to have kind of like 2 Phase III studies and probably this will be decently sized as well.

So several things. The original Kris Alden study of 100 knees, in 82 patients, getting very clear positive results. And as you may recall, this product has been out and in clinical use in many centers under the enforcement discretion, and there's very strong feedback from both patients and practitioners that the product provides observable benefit that they believe in. The 190 patients actually show a very strong signal for WOMAC-Total, but also for WOMAC-Pain and WOMAC-Function, and that is something that is required for a potential approval. And the VAS, although it didn't provide a statistically significant separation, isn't viewed as an optimal index for knee OA. That was something that when the study started in 2018 they had to come up with 2 primary -- co-primary endpoints because of FDA input, but the field's evolved, and the VAS only looks back for 24 hours at the pain signal and is not really an appropriate endpoint. As we go forward, we would likely choose WOMAC-Pain and WOMAC-Function as 2 co-primary endpoints. And it makes sense that if you want to approve a medication for this indication you would want it to not only relieve pain, but also improve function. And the other aspect that encourages us quite a bit is the deeper understanding of the biochemical mechanisms of the product point to a modulation of Wnt signaling, which is known to influence cartilage health, and the TGF beta inhibition, which is known to help rebuild scar tissues. And so we think there is a reasonable chance also based on the clinical observations that micronized dHACM is not only able to relieve pain and improve function, but may protect against cartilage destruction or even possibly rebuild lost cartilage up to a certain point. So there's a possibility of building that into our Phase III studies. The strong signal that we've seen suggests that these don't have to be giant studies and may be 400- or 500-patient studies, and we can conduct 2 Phase IIIs at the same time. They don't have to be carried out serially, and so that gives us an opportunity to modulate the length of time to the BLA filing.

Perfect. So with the recent knowledge from your research group that you just talked about regarding rebuilding the cartilage, so do you -- can you think of other indications, Bob, outside of what you're looking at, just outside of KOA or PF or AT, for that reason, so that you can keep that pipeline building over time?

Yes. So that's a very good question, RK. Clinically, the material has been found by outside investigators during the enforcement discretion to help quite a bit in the setting of tendon injuries, like tennis elbow or Achilles tendinopathy, patellar tendon injuries and possibly rotator cuff tears that are partial. And there's a potential that the company would want to study the material in a basket trial looking at the tendon injuries. That's an ongoing discussion with the FDA. We also have very interesting evidence that it can be helpful in more restricted settings where the investigators working with it have found quite a good signal that we are also contemplating moving forward in the nearer term. Because as you pointed out, the knee OA Phase IIIs are going to take some time, but there are other aspects that could be more rapid.

I want to thank Tim, Pete and Bob from MiMedx for taking part in our conference. Hopefully, our next conference will be one that we can all meet in person rather than virtually in this forum. Thank you again from the H.C. Wainwright team.

Thank you.

Thank you.