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

Good morning, and thanks for joining us to have a conversation with Tim Wright, CEO; and Bob Stein, Executive Vice President, R&D of MiMedx. MiMedx is a leader in wound care and regenerative medicine. The company currently commercializes a portfolio of amniotic tissue products, bringing in nearly $250 million in annual revenues and has a portfolio of products for novel indications that could enter the market over the next 3 years. To talk about the company's strategy for 2022 and beyond, I welcome Tim Wright and Bob Stein to this fireside chat with me. Tim and Bob, glad to see you both, and I appreciate you accepting our invitation to talk to our audience today.

So let us start talking through some of your thoughts on the commercial growth in 2022 and then about the long-term strategy with Bob, both organically and inorganically. So Tim, to set the stage for our audience, could you please highlight your business model and the broad wound care market in which MiMedx is slowly but certainly becoming a major player?

Sure, RK, and thank you for the invitation. Our whole effort here is to be a leader in placental biologics, which we think is a new category in medicine. We plan to lead scientifically as well as commercially. If you look at the way we structured our organization, we have a deep focus on wound care, but now we've moved into an adjacency in surgical recovery or surgical repair. This is based on the intensive work that we've done to really take a look at the markets where we can play. We did an extensive research arcade back in '21, where we looked at, for example, 63 use cases in surgery where our products would have an application. So these are just the products that we have in our portfolio today. We're building new products to enhance our presence in the surgical recovery space. Now on the wound care side, we know that that's growing in high single digits growth there. As you know, we are the pioneers with our products in this wound care space by creating these skin substitutes from human placental tissue. Now on the other side, in the surgical recovery space, that's also another market, which is a little bit larger probably than the wound care space. But what it does for us, it allows us to go from wound care, which is about a $1.1 billion market, into another $1 billion market. So it allows us to leverage and amortize the value of our existing products. So we're very excited about the surgical space for us. We see a lot of growth there in addition to the unmet underpenetrated reality that exists in wound care. Now when you talk about our business model, it's pretty straightforward. Our strategy is basically to be where the patient needs us the most. The way we deploy our sales organization and our marketing efforts around 3 distinct segments, the hospital segment, the wound clinics and then private practice. Our sales are distributed about 1/3, 1/3 equally across there. We also have a significant presence in the federal system where we have a dedicated group of veterans who are calling on the VA systems for us is there.

Very good. And then when you look at your competition, how you regard your products versus competition as there are obviously multiple amniotic products in the market?

Yes. Well, as you know, there are many, many ways to treat wounds from dressings to devices to biologics. Now we compete in this biologics segment that we basically pioneered. There are a lot of products out there that do various things. There are many, many different treatment modalities. We focus in this biologic space where a skin substitute is appropriate. Now I do think the big differentiating characteristics of our product and our whole entire portfolio is based on the science that we generate. With Dr. Stein and myself, we're very focused on data generation both on the efficacy side and the safety side as well as health economic data. Reimbursement in all these areas is very important. Obviously, in the wound care setting, it's a different type of reimbursement system than in the hospital setting. It's mainly DRG driven there. But no matter what the reimbursement system is, you do need clinical data. You do need safety data, efficacy data as well as pharmacoeconomic data to make sure your products get covered and reimbursed. This is one thing, I think, that differentiates us. The evidence around our products of their efficacy, the health economic data, our sales force is the best in the business. We've done a great job of recalibrating our sales organization and focusing that down. And the other thing is we have the broadest coverage of commercial insurance of any of our competitors. You don't need to take my word for it. You can just look at the agency for health care research and quality study that was done. There was a meta-analysis. They looked at 240-plus studies in 76 skin substitutes. Now the 76 skin substitutes, only 22 really made it from a safety and efficacy and health economic standpoint. Five of those were MiMedx products. So not only does MiMedx have the most data out there, but it has the highest quality.

There's also -- in addition to all the points that Tim made, the placenta is a remarkable organ. It's got over 300 biologically active proteins in it, and it creates the environment where a single cell can grow into an 8- or 9-pound baby over the course of 9 months, and it's been evolving over 170 million years to have an optimized mix of components. And what MiMedx has done is they've worked out a very important process for taking that starting material and turning it into a practical medicine that retains those characteristics. And that's something that is -- took a lot of engineering and a lot of skill and they've made it into something that's sterile, that can last for 5 years and can be taken out of its envelope and put on to a wound and caused the benefit that we're seeking, and that is not something that is easy to create. So for the sheet products, I think we have uniquely produced powerful medicines from a wonderful starting point. And then we have the whole side of the business where we've taken the starting material that's a sheet product and converted it into forms that are small particles that can be injected under the skin or into knee joints or things like that to produce many of the good effects and stabilize or remodel damaged tissues in a way that is remarkable. And as I've seen the power of this material over the last several years, it really is practically miraculous.

So commercially, even though there is a little bit of hiccup with the 351 side of this business, not because anything from here but more from the regulators. But how will -- year-over-year, there has been growth since 2020. So you made -- certainly, you made some points of differentiation. Anything else that you would attribute the growth and how sustainable can we expect that to be?

Yes. We're very confident of the sustainability of our growth pattern here. We guided to 11% to 14%. I think we're in great shape there. Year-over-year growth, first quarter was 13.5%, 15.4% to be really accurate. Look, there's plenty of room here. We're working in underpenetrated markets, whether it's in wound care, surgical recovery, they're still underpenetrated. When you have the clinical evidence, you have the health economic evidence, you have insurance coverage and you have a sales force that is incentivized to basically get more patients treated with better outcomes, that's a good spot to be in. We are going to launch 2 new products this year, AMNIOEFFECT and a product we call PCM. These are going to play exceptionally well in the surgical recovery space. We have a goal of launching 2 new products every year for the sustainable future in our 5-year plan. And we're going to -- we'll focus on that organic, that organic growth. But also, we have ideas around inorganic growth as far as doing some tuck-in licensing, things like that, which don't burn a lot of cash but put a new product in the back of our sales representative so we can amortize the value of their relationships, their clinical acumen and their salesmanship.

Fantastic. Talking about new products, you're trying to get reimbursement approved to the Japanese regulators for EpiFix. So can we take a minute to talk to what else needs to get done, obviously, and then how easy or how are you planning the commercialization in Japan itself?

Yes. I'm glad you asked about Japan. We're really excited about it. It's part of our growth story as well, is not only are we growing in wound care surgical recovery but also geographically. We're going to move into Japan. We got approval in last year, and we're working through the reimbursement aspects of this with the Ministry of Health. I'm very confident we'll be able to launch this year. It's harder to pin down exactly when our reimbursement will be approved, but we're very confident with the -- with our key opinion leaders, the training that we've done with physicians in Japan already at the blessing of the Ministry of Health. So we're preparing this market. And if you think about it, MiMedx was a pioneer in this whole skin substitute area using human placental tissue. There is no amniotic tissue in Japan. So I look at it as first-mover advantage there, and we'll be able to penetrate the market. Our business model there will be a hybrid. We have a small petite infrastructure there as well as we use distributors in the outlying areas away from the big city. So really, I think it's a coup for the company to get regulatory approval there. It was very difficult. Our clinical ops team and our regulatory team were fantastic working with the authorities there.

We also got a very nice label. We have a broad label for using in chronic wounds. It's not restricted to DFU or BOU and so it's broader than the approval that we -- the indications we have.

So Bob, Tim laid out the strategy for the next 5 years of introducing 2 new products into the market every year. So what are your thoughts about what sort of products you're thinking of in terms of developing and getting them to the market?

So the 2 new products that Tim was referring to were largely to go into our 361 and 510(k) business. And the goal there is to create best-in-class treatment options for people with chronic wounds and people who have undergone surgery where they're less likely to have a good outcome of healing. And so as Tim mentioned, we already have the 2 products in the queue for this year, and we'll be working to create additional products. PCM is placental collagen matrix that will initially be a particulate material that will be a little bit like AmnioFix used to be before the end of enforcement discretion. But that can be reformatted into sheets. It could be reformatted into larger particles. So that can be also mixed with other components but still keep it in the 361, 510(k) category. So there's a whole future there that I think will allow us to create products that fulfill different needs that are encountered either in the chronic wound setting or in surgery, either on the surface at the surgical incision or perhaps anastomosis, say, colonic anastomosis, et cetera. And then there's the whole 351 side of the business where we're working to make biologics that require the more standard regulatory path through BLA filing. So the most advanced of those is a particulate made from human amnion and chorion called micronized dehydrated human amnion chorion or micro mdHACM. And that is going to go into a registrational trial this year for knee OA. We have very, I think, good evidence that the product works, not only was it out in practice for many years and [ 138,000 ] vials that were distributed before the end of enforcement discretion. So we have all kinds of real-world evidence that it works in the setting of knee injury, either osteoarthritis or sports injuries or tendinopathies, tennis elbow, plantar fasciitis, but we also had a Phase IIb study that we concluded last year that shows that when the product is fresh, it has a remarkable impact on both pain and the function, and we are very excited about moving that into registrational trials before the end of the year. We didn't meet our intended primary end points in that initial study, but we understand what happened there. In the first 190 patients, we had one injection of 40 milligrams of this material into the knee, and then we follow those patients for 3 and 6 months. We actually follow them for 12 months. Those data are about to emerge. But what we saw was that saline as expected in an injectable study gave a pretty good placebo effect, so pretty good improvements in pain and function. But we could see a clear statistically and medically significant improvement over the saline effect with micronized dHACM at 3 months and 6 months. It got even greater at 6 months than it was at 3 months after a single injection. And we also were able to determine that in the next 256 patients, there was no difference between the saline injection and the investigational product injection. And we've been able since then to trace that loss of activity to the fact that as the product ages from the time of manufacture, it loses its potency. And we have assays to detect that. We have a way to fix that. And we've got a plan going forward to initiate the registrational study this year. So I'm confident that the product produces an improvement in pain and function and that it's not only statistically significant, but it's medically significant. It's more than the minimal and important clinical difference. And we know how to produce that in a way that will be built into the product for the entire study. So we're excited about that. The other thing that we have, I'd say, suggestive evidence for, but not conclusive evidence for both preclinical and clinical, is that this material might actually modify the course of the disease and not just reduce pain because if you reduce pain, you can improve function. But in preclinical models, the material will protect against cartilage loss in animal models that are pretty good osteoarthritis models. And we know that there are components in there that act on important pathways involved in cartilage health, like the wind signaling pathway and blocking inflammation through inhibiting NF-kappaB signal transduction. So we're going to be looking at exploring the possibility that this not only will reduce pain and improve function but maybe slow the rate of cartilage loss or even perhaps build back some cartilage, and that would be part of our forward-going investigations.

So talking about that Phase III Study data and outcomes. So can you give us a little bit more on the design of the study? And also, since you just started talking about not only reducing pain but also improving the cartilage life or even building up carbonate as you say. What sort of endpoints are there? Does FDA have an approved kind of an end point for these set of studies?

Well, so let me tell you a little bit about the design first. We have previous use of the product where 100 milligrams for the product that was injected. Dr. Kris Alden did a pretty nice retrospective study to show that 100 milligrams injected in the knee and people with really pretty severe knee OA, KL grade 3 and 4 produced nice effects on both pain and function. And in the study that we did in-house, the Phase IIb study, 40 milligrams was used. So we have to figure out what the right dose is, and we'll end up doing something where we look at saline versus 40 milligrams versus 100 milligrams to determine the correct dose. And we need to understand the correct dose not only for reduction in pain and improvement in function but also potentially for this disease-modifying activity. Now the FDA is pretty, I'd say, behind the times and what they consider to be an endpoint. They want to see 1 of 2 endpoints for demode. They haven't approved anything for disease-modifying osteoarthritis drug yet. But what they want is either that you show a decrease in the rate of joint space narrowing by x-ray flat film or that you cause fewer people to need knee replacement. So that's a long study. Now it's doable, but there are much more sophisticated ways to look at the health of cartilage. Most of them involve MRI techniques. And so you can look at inflammation by dynamic contrast-enhanced MRI. You can look at cartilage cap volume. So I think about the polar ice cap and being able to measure the entire thing, the volume and the thickness. And you can also measure water content of cartilage, and that has to do with its elastic modulus so how well it protects against shock. You can look at the quality of the matrix GAG, Glycosaminoglycans, by also MRI techniques. And you can look at the underlying trabecula structure and changes in the bone under the cartilage because that's an indication of how well it's protecting against force transmission. So there'll be a lot of things that we can look at in the interim those things can be seen in the 3-, 6-, 12-, 18-month range, the joint space narrowing by flat film is an 18- to 24-month process usually. Now the other thing the agency requires is that not only do you show either slowing of the rate of cartilage loss or build back, but also that you've influenced pain and function because they ask, you put a little bit more [indiscernible] there, but if it's not making the patient any better. Why is that at a basis for approval? But we have the advantage that we know that we modify pain and function. And so we will be investigating -- I don't know, that we'll commit to doing a demode study out to 2 years. But we'll have interim data to look at to decide whether to do that. I actually think there's a pretty good chance that the drug has that effect. Dr. Alden used his studies in patients who had, as I said, pretty severe knee OA, who he thought were going to need knee replacements. And he put them on this as a temporizing measure. And a lot of them ended up not coming back for their knee replacement. They came back and osteoarthritis and other joints. So I think that that's anecdotal, but it's encouraging.

I think the FDA is very encouraged the way we're thinking about this particular registrational trial. And I think a lot of that is attributed to the team that Bob has built to really focus on this drug side of our business.

And we also -- thank you, Tim. And we also have assembled a very good group of people who are expert in all the phases, understanding the basic mechanisms understanding the clinical practice, understanding the clinical trial designs, understanding the use of imaging, taking cognizance of the regulatory environment, and we're trying to put together a really robust package that will determine the quality of our product and that it's effective and safe. I'm confident and we'll be able to talk about who those folks are pretty soon.

Yes. So we're building out a scientific advisory board with the best and brightest is pretty important.

And it's not just a [indiscernible], SAB. It's really some -- a group of people we're working with closely, which is...

Frankly, taking the right important clinical research organization is important too.

Yes.

So outside of all this, one of the -- as you said, the major issue is what happened in the second quarter was more of it on the shelf life of the product itself. So are you -- in this next round when we are going into the next study, are you making any changes within the manufacturing paradigm to see that you can gain on-the-shelf life?

So we are making a number of changes. I don't want to say what those are specifically because it's a competitive advantage. But what we have done is previously, they had a belief that the shelf life might be 5 years. We see a pretty clear evidence from the study that we conducted that 2 years is really the cutoff. And so we've changed the shelf life and changed the representation of the shelf life with the FDA. We will be using material that's more fresh than was used in the past study. But we've also made some changes in how we produce it. That I don't think will affect the biological activity, but they will affect the rate at which it loses that activity, and those are well underway. And so we'll be working with that approach as we take the product forward.

We believe that you cannot underestimate in the filing of a BLA. Having strong clinical data is one thing but having a robust CMC package is going to be absolutely critical. And so with the changes that we're making in our chemistry manufacturing controls are absolutely essential. And it builds upon what we've learned in the PURION process, we're moving -- we're going to be moving to the next generation of PURION called PURION TriPlex, which will give us that robust CMC package that we're looking for.

The good news, by the way, is that none of the concerns about the shelf-life duration applied to the sheet products. They really were uniquely applicable to the micronized material that has a lot more surface area and was stored in a different way than the sheet products are. So the sheet products are fine. It's really the micronized material that had to be adjusted.

So. Tim, very recently, you made this operational change within the business where you set up 2 different verticals. I know it is more on the operational side of things. But in general, what should investors think about it for the long term, obviously, people like me think about are you trying to divest anything? Or is it just operationally trying to gain more strength internally?

Yes. There are 2 reasons for this. One was operational. We have a growing commercial business. Those products are 361 and 510(k) based products. It's completely different in the area of the 351 area. So on one side, you have med device like products. The other side, you have drugs. And this was obviously driven by the FDA. So when I look at focus and when people come in to work every day, what do they want to focus on? So if they're in that commercial unit, their job is to grow that business. John Harper heads up the product development group there. We're going to be, if you will, cranking out 361s and 510(k)s. John is a legend in this space. We've got an excellent team built around him. So it's really focused in having an intensity of winning in those 2 verticals. Now on Bob's of this, as you know, we need to recruit a totally different phenotype to develop a drug. And that goes all the way from developing potency assays all the way through our manufacturing process and also designing these clinical trials. Now for our investors, I think what's in it for them is more transparency, particularly on the growth side of our business, how we're using cash, the productivity of our organization. So I think that as we get out into the future here, being able to isolate from an accounting standpoint, what's happening there are going to be very important for our investors.

So in the last 20 seconds that we have here, talking about cash. So can you talk a little bit about your cash runway right now and also how you're putting your resources in the right places?

Yes. Yes. At the end of March 31, we had about $75.7 million in cash. We consumed some cash from over prior year, about $11 million in cash from prior year. We can dive into that, but probably not in 20 seconds. So we're in good shape from a cash standpoint. That -- we will be cash flow neutral in '22. We will be able to -- with that cash, we'll be able to do our registrational trials in knee OA and support product development on the 361 and 510(k) side.

Thank you. Thank you, both. Thank you, Tim.

Thank you.

And thanks, Bob for this and good luck.

Thank you, RK.

Really appreciate it. Thank you.

Good to see you.