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

[Audio Gap] analysts here at BofA, and it's a pleasure to have MiMedx here. And from the company, Tim Wright, CEO; and Pete Carlson, CFO. So thank you, guys. Thank you for coming.

Yes. Appreciate the opportunity.

Let's start. You guys reported last week, Q1 results. So maybe just talk about some of the highlights there and some of the things that you saw during the quarter.

Yes. Craig, we had a very strong quarter. We ended up year-over-year growth of 13.4%. In fact, we've had 3 straight quarters of double-digit growth. That doesn't include Q2 of '21, which would be an anomaly from a comp standpoint. But we saw strong growth in -- across all 3 areas where we market our products, whether it's in the hospital, outpatient or in private practice. So we're -- we've made a significant amount of investments in our commercial organization over the past 1.5 years, and it's starting to pay off now with this type of performance.

Great. And then, I mean, maybe a little bit more specifically on wound care, what you guys are seeing? And then also, broadly speaking, what's going on in the market? How has that market started in '22? Has it been impacted by COVID to any extent? And kind of what are the expectations for the rest of the year?

Yes. We provided outlook of being in the range of 11% to 14% growth for this year. And we're going to stick to that. We had a very strong first quarter with this 13.5% or 13.4% growth. When you think about the market dynamics here, certainly, COVID impacted the company like many companies in the second quarter of '21. What we saw in the first quarter is that we had more procedures, more patients coming in than we anticipated may be coming in later on in the year. One of the important things that we did here last year, and we announced this in our Investor Day, we laid out our strategy, and our strategy including continue to pioneer products in the wound care space, but we also introduced our moving into surgical recovery. This is a really important move forward. It basically a little more than doubles our overall market attractiveness for us. We think we can make substantial inroads in the surgical recovery area. Our placental-based technology is really well designed to handle some of the complicated procedures that occur, where you may have a patient that has significant comorbidities and the surgeon knows that there's going to have some complication, whether that's an anastomosis or dehiscence during the surgery or trying to wrap the patient up. So the market dynamics here for us are really driven by these -- by the big trends, obesity, aging. And there's more of an awareness of the use of sophisticated placental tissue like what we generate. So I think the -- you got a little bit of tailwind based on the large demographics, but also our products, I think, are central to this. We have the leading products in this category, and we're going to continue to develop new products to serve the surgical market as well as the wound care market as well.

That's helpful. And I think you've touched on this a little bit. But some of the key growth drivers of that full year guidance that you did provide, maybe just talk about a little bit of that. I mean I do think Japan kind of factors into that as well. So maybe expand upon on that.

Sure. Yes. Definitely, Japan enters into this later on in the year. We're seeking pricing reimbursement now. We anticipate that some -- it will happen sometime in the second quarter. The Ministry of Health doesn't really call us up and tell us exactly when that will happen. But we definitely think this is a huge opportunity for us. Japan has a population of about 126 million people. About 600,000 patients, we think, suffer from these chronic wounds that don't heal, whether it's a diabetic foot ulcer or a venous leg ulcer or a pressure ulcer. The labeling that we have in Japan is -- it's superior to the labeling we have here. So we have a broad application there. We think we can probably serve about 100,000 patients in Japan. So as a single market, it's a very important part of our growth story. So that adds about 2% to 3% in there. When you look at new products in this where we plan to launch AMNIOEFFECT, as well as PCM into the surgical recovery space. Those products will generate another 2% to 3% on top. Pete, you have anything you want to add to that?

The other thing I would say as we look beyond this current year, we've talked about this 11% to 14% occurring each year. Tim's tasked the organization to do 2 new products every year as we have; 2 new products in '23 or '24, that would be additional growth on top of that 11% to 14%, plus anything if we were to find define something inorganic.

Yes. And I think what we have here with our amniotic tissue as a platform technology, that allows us to crank out 2 new products every year to continue to bolster the growth that we think we can achieve.

Got it. Very helpful. In terms of Japan, what -- from an infrastructure perspective, where are you in that process? Do you have feet on the ground there? Or is that part of an investment that's -- I guess, when do you invest to actually build that?

Yes. Certainly, we've done a lot of readiness preparation for the launch in Japan. We're going to build a small petite infrastructure there, but we will also use a defined distributor. So in the big cities, we'll have our own infrastructure, if you will. But in the outlying, out in the country, if you will, we would be using a distributor. So it's a hybrid approach. And part of the reason for that is, one, we want to be sensitive to the cost of building an infrastructure there until we have the sales. So we think we can achieve a growth rate there that can support an expanded infrastructure.

Got it. And the 2% to 3% that you mentioned, is that annual contribution? Or -- and does that start in '23 or...

It is over -- that 11% to 14% is sort of a multiyear annual growth. And so that over that time, it would be like that. This year, with the back-end loading both of our new products in the U.S. and the Japan opportunity, more of it's coming from the existing portfolio this year.

Got it. Helpful. Switching gears a little bit. Let's talk about the KOA trial. And just updated time lines, when do you expect that? I mean, I guess any milestones that you would highlight?

Yes. That's a good question. Having this placental platform technology allows us to reformulate the basic amniotic tissue into different deliveries. The micronized dHACM is an injectable product that's been studied in knee OA. It's also been studied in plantar fasciitis and other musculoskeletal disorders. So that gives you a sense of the range. It's also been available for probably almost a decade under enforcement discretion. And so it's been used in hip OA. It's been used in trauma settings like rotator cuff injuries and things like that. So it has the advantage of being -- having a lot of properties that make it absolutely valuable in a setting where you have a lot of inflammation, where -- reduced blood flow and the potential for scarring and development of fibrotic tissue. The regenerative medicine group in our company is focused, first and foremost, on driving knee OA to get the first patient into the clinic in the fourth quarter. So we're focused on that. That requires a significant approach there. I think one of the key milestones here would be getting our CRO up and running, getting the sites selected, making sure that we've got the strongest protocol we can have. We'll be speaking to the FDA about our protocol and our statistical analysis plan. We -- in that study, we're going to use WOMAC pain and function as primary endpoints. And we're in conversations with the FDA around setting up a DE mode. Based on our animal studies and based on the real-world evidence that sits out there after a decade of use, there is a potential for a DE mode indication, I think, that would be a totally different paradigm in the treatment of OA. Today, yes, hyaluronic is used, corticosteroids, Celebrex will be used, PRP will be used, but they all have limitations. And so I think this would be an important contribution to medicine, this injectable form of our amniotic tissue. So those are the big milestones: getting the CRO set up; meeting with the FDA; and then getting the first patient in I think will be really important. After that, it's all execution on the patients you can pull into that and into your study. So I think that is going to take us 10 months to enroll a projected 450 to 500 patients.

You guys obviously still feel confident despite the Phase II results. So maybe just talk about what really gives you that confidence? And what are the most important aspects and next steps to moving forward?

Well, I already mentioned one, the real-world evidence that's out there. Number two, there have been retrospective studies that have been published, and we'll continue to mine that. But more important was the exploratory Phase IIb trial, when you looked at the pre-interim analysis of 190 patients, they're very demonstrative P values. For example, on WOMAC pain, the P-value was 0.036 at 3 months. The p-value at 6 months was 0.009. What does that mean? I mean, that's what we need to figure out in the Phase III. Is it a representative of some type of soft tissue remodeling or does it represent a DE mode activity? What does that really mean? Or what does it represent that the product, its durability, takes time to set in? So that's an interesting thing, we'll study in our Phase III trial. Even the P values on function was 0.046 at 6 months and 0.009 at -- or after 3 months and 0.009 at 9 months. So that change, that dramatic change in P values, I think, is, one, it's statistically significant; and two, the patients actually were doing better. So that gives us confidence to move into a pivotal registrational trial. The amount of work that we did to uncover what happened in the second part of that trial was really based on the product and the oxidative stress that they went under. So we know how to fix that. We've already communicated that to the agency. So we're well on our way to get our first patient and the last by the fourth quarter.

Great. Maybe just asking about, I think, you announced the reorg of your business last week. Maybe talk a little bit about the strategic rationale and why you did it and what the benefit can be?

We're a channel captain in the wound care space, and we have been for a long time. We are not the channel captain in the knee osteoarthritis space. Separating these 2 businesses, so what connects those 2 businesses is the same manufacturing process or engineering process of our products. But when you elevate it to the regulatory pathway, the type of work that you have to do to develop a new product, they're totally different on our wound care and surgical recovery businesses. It takes a different team. It's more like you're bioengineering that product versus doing 2 well-controlled, placebo-controlled trials. So the people that you hire in each of these areas is totally different. And the regulatory pathway is different and the timing in the investment you make are totally different. I'll let Pete talk about some of the accounting things that I think are very important for our investors around clarity. Our wound care and surgical recovery business has the ability to be a big cash-generating cow there. And we need that to feed our work on the drug side of the business. So it gives the businesses focus. It gets them aligned. It also keeps them accountable to what's going on in their business. So I think on the regenerative medicine side, it's really important to think about it this way. We're evolving a new paradigm in medicine. It's a whole new category. There are small molecules. There are biologics like antibodies, checkpoint inhibitors in cancer and so on. This is a whole new category that with tissue-derived biologics. So defining that new category and characterizing that fully will be the job of the regenerative medicine group. We don't need to do that for our wound care business there. So it's really focusing in on how we can create the most value in the shortest period of time. Pete, do you want to talk about the other piece of that?

Yes. Investors don't like uncertainty and do like transparency. So over these last 3 years, Tim and the team have worked very hard to get a lot of uncertainty out of the way. And we provided some transparency. This is that next layer of opportunity to let people understand the business. And you've got a recurring mature business that's generating cash, and we'll be able to give people insight into that. And strategically, we use that cash to fund this investment.

Got it. Only have 20 seconds left, but let me ask on inflationary environment and any supply chain. I don't think we think of tissue as really a shortage issue. But just maybe a little bit quickly on that.

Our primary raw material are placentas donated from mothers after a scheduled C section, and there are no supply chain or inflation factors impacting our ability to recover those. Otherwise, there's modest increase. It's probably wages is where we see it as much as anything. And frankly, we've had some wage increase in our production area anyway through the pandemic because we were treating them fairly. So it's modest and we have strong margins. This is a narrow impact on strong margins.

Great. I think with that, we're done. Tim, Pete, thank you.

Appreciate the opportunity, Craig.

Appreciate it. Thanks, Craig.

Thank you.