MiMedx Group, Inc. — Q3 2021 Form 10-Q Summary
Business context and reporting period
MiMedx develops and sells placental tissue allografts for wound care, burn, surgical, and regenerative-medicine applications. The company reported unaudited results for the three and nine months ended September 30, 2021, compared with the corresponding 2020 periods.
The FDA’s enforcement discretion for certain Section 351 micronized and particulate products ended May 31, 2021. MiMedx stopped marketing those products in the United States and may not resume U.S. sales until receiving applicable FDA approval, including a Biologics License Application.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Net sales | $63.1 million | $64.3 million | $191.2 million | $179.7 million |
| Gross profit | $52.9 million | $54.0 million | $158.7 million | $151.2 million |
| Gross margin | 83.9% | 84.0% | 83.0% | 84.1% |
| Operating loss | $1.1 million | $9.7 million | $8.3 million | $29.3 million |
| Net loss | $2.3 million | $19.4 million | $12.5 million | $32.7 million |
| Net loss per common share | $0.04 | $0.48 | $0.15 | $0.60 |
| Adjusted EBITDA | $6.8 million | $6.9 million | $14.3 million | $20.3 million |
Q3 adjusted EBITDA margin was 10.7%, versus 10.8% in the prior-year quarter. Nine-month adjusted EBITDA margin declined to 7.5% from 11.3%.
- Advanced Wound Care sales increased to $62.3 million in Q3 from $55.1 million, led by Tissue/Other and Cord products.
- Section 351 sales fell to $0.5 million in Q3 from $8.2 million and to $17.2 million for nine months from $23.1 million.
- Q3 research and development expense increased 29.5% to $4.4 million; nine-month expense increased 54.2% to $12.8 million.
- Investigation, restatement, and related expense declined to $3.2 million in Q3 and $8.3 million for nine months, compared with $12.0 million and $39.1 million, respectively.
- Cash provided by operating activities was $1.3 million for nine months, compared with $20.0 million used in the prior-year period.
- Capital expenditures were $2.9 million, producing investing cash outflow of $3.1 million. Financing cash outflow was $3.4 million.
Liquidity, debt, and capital structure
- Cash and cash equivalents were $90.6 million at September 30, 2021, compared with $95.8 million at December 31, 2020.
- Current assets were $141.9 million and current liabilities were $41.7 million, representing a reported current ratio of 3.4.
- Long-term debt, net, was $48.0 million, consisting primarily of a $50.0 million Hayfin senior secured term loan maturing June 30, 2025. No principal payments are due before maturity, subject to mandatory-prepayment provisions.
- The term loan carried an 8.3% interest rate at September 30, 2021. The company reported a total net leverage ratio of 2.4x and compliance with its financial covenants, including maximum leverage and minimum liquidity of $10 million.
- Series B convertible preferred stock was recorded at $92.5 million. It carries a 6.0% cumulative dividend rate after June 30, 2021; $5.6 million of dividends had accumulated but remained unpaid. The preferred stock was convertible into approximately 27.4 million common shares based on accumulated dividends at quarter-end.
Material changes, outlook, and risks
- The end of FDA enforcement discretion materially reduced Section 351 revenue and resulted in a $1.0 million write-down of related inventory, plus $0.7 million of reserves for discontinued product lines. Section 351 and discontinued-product write-downs reduced the nine-month gross margin by approximately 0.9 percentage points.
- Management reported that two late-stage musculoskeletal studies did not meet primary endpoints. The Phase 3 Plantar Fasciitis study did not meet its primary endpoints, and MiMedx does not currently intend to pursue a BLA filing for that indication. The Knee Osteoarthritis Phase 2B study also did not meet primary endpoints, although management identified varied efficacy signals and is reviewing the data with the FDA.
- MiMedx received Japanese approval to market EPIFIX in June 2021 but was still working with Japanese authorities to establish reimbursement pricing.
- Management stated that COVID-19 effects had largely abated as of September 30, 2021 and had not materially affected Q3 operations, while noting risks from future variants, hospital access, and donor-material availability.
- Management believes available liquidity will be sufficient to meet obligations over the 12 months following the filing date, but identified potential cash needs for regulatory approvals, international expansion, clinical development, litigation, settlements, and indemnification obligations.
- The company remained subject to securities litigation, a Department of Defense Office of Inspector General investigation, former-officer indemnification litigation, and other legal matters. It had accrued $4.0 million for legal proceedings and paid $7.7 million toward legal matters during the first nine months.
- Disclosure controls and procedures were not effective as of September 30, 2021 because previously identified material weaknesses in internal control over financial reporting remained under remediation.
Important facts for investors to verify
- Whether the company can replace lost U.S. Section 351 revenue through Advanced Wound Care growth, international expansion, or future FDA approvals.
- The FDA and clinical-development path for AMNIOFIX Injectable, particularly the Knee Osteoarthritis program following missed endpoints.
- The company’s ability to maintain liquidity and comply with the Hayfin leverage and minimum-liquidity covenants while funding litigation and clinical programs.
- The potential cash impact and timing of pending litigation, government investigations, settlements, and former-management indemnification claims.
- Progress and timing of remediation of material weaknesses in internal controls.
- The potential dilution or change-of-control implications of the Series B preferred stock, including its accrued dividends, conversion terms, and 2023 automatic-conversion provisions.