MiMedx Group, Inc. Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022; filed February 28, 2023. MiMedx develops and sells placental-tissue allografts for Advanced Wound Care and Surgical Recovery and is developing mDHACM as a biologic candidate for knee osteoarthritis. Beginning in the third quarter of 2022, the Company reported Wound & Surgical and Regenerative Medicine as separate segments.
Financial Performance and Position
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Net sales | $267.8 million | $258.6 million | Up 3.6% |
| Gross profit | $219.5 million | $215.3 million | Up 1.9% |
| Gross margin | 82.0% | 83.3% | Down 130 basis points |
| Operating loss | $25.0 million | $5.0 million | Worsened |
| Net loss | $30.2 million | $10.3 million | Worsened by $19.9 million |
| Net loss available to common stockholders | $36.8 million | $16.4 million | Worsened |
| Basic and diluted loss per share | $0.33 | $0.15 | Worsened |
| Adjusted EBITDA | $3.9 million | $18.7 million | Down $14.8 million |
- Revenue mix: Advanced Wound Care sales increased 10.5% to $265.2 million, including Tissue/Other sales of $242.0 million and Cord sales of $23.2 million. Section 351 sales fell 86.5% to $2.4 million following the end of FDA enforcement discretion for affected products in the United States.
- Segment performance: Wound & Surgical sales rose 10.9% to $264.9 million, but segment contribution declined 10.2% to $66.7 million because of higher cost of sales, selling expenses and research and development. Regenerative Medicine generated no revenue and had a segment loss of $15.0 million, compared with a $11.4 million loss in 2021.
- Operating expenses: SG&A increased 5.3% to $208.8 million; research and development increased 31.6% to $22.8 million; and investigation, restatement and related expense increased to $12.2 million from $3.8 million.
- Cash flow: Operating cash use increased to $17.9 million from $2.0 million. Investing cash use was $2.7 million, including $1.0 million paid under the Turn Agreement. Financing cash use was $0.6 million.
- Liquidity: Cash and cash equivalents were $66.0 million at year-end, down from $87.1 million. Net working capital was $90.6 million, compared with $106.2 million in 2021, and the current ratio was 3.1 to 1.
- Debt: The Company had $50.0 million of principal outstanding under the Hayfin senior secured term loan, recorded net at $48.6 million. The loan matures June 30, 2025, bears interest at LIBOR plus 6.75% subject to a 1.5% floor, and carried an 11.5% rate at year-end.
- Equity and obligations: Series B preferred stock had a $92.5 million carrying amount, a 6.0% cumulative dividend rate and $13.8 million of dividends in arrears. It was convertible into approximately 29.6 million common shares at year-end.
Material Changes Versus 2021
- Core Advanced Wound Care revenue grew, supported by Surgical Recovery applications, sales-force initiatives and the third-quarter launches of AXIOFILL and AMNIOEFFECT.
- Section 351 revenue declined sharply because micronized and certain particulate products could no longer be sold in the United States after May 31, 2021. The Company continues to sell certain affected products internationally.
- Margins declined due primarily to production variances and lower production levels; 2021 had also included $1.7 million of inventory write-downs that did not recur in 2022.
- Higher travel, sales commissions, bad debt expense, severance and clinical-trial spending contributed to reduced profitability and cash generation.
- The Company entered into a worldwide license agreement with Turn Therapeutics for PermaFusion antimicrobial technology and potential commercial rights to FleX, paying $1.0 million upfront and assuming potential milestone and royalty obligations.
- MiMedx obtained Japanese reimbursement approval for EPIFIX and entered into an exclusive distribution agreement with Gunze Medical, with commercial sales expected to begin in 2023.
- The Company separated from its Chief Executive Officer in September 2022, incurred approximately $2.0 million of one-time separation costs and subsequently appointed Joseph H. Capper as CEO in January 2023.
Guidance, Outlook, Risks and Unusual Items
- Management believes existing cash and anticipated operating cash flows will fund operational liquidity needs for the twelve months following the filing date; the filing does not provide formal revenue or earnings guidance.
- The Company initiated a post-Phase 2B registrational KOA trial in February 2023. The prior Phase 2B trial did not meet its primary endpoints, although a pre-interim-analysis cohort showed statistically significant improvements. A root-cause analysis attributed the broader trial failure in part to declining investigational-product potency with age.
- The FDA has not approved mDHACM for any indication, and the Company has not yet submitted a BLA. Approval, trial success, manufacturing readiness and commercialization remain uncertain.
- FDA classification of EPICORD and AMNIOCORD remains a significant contingency. If the products are determined not to qualify solely under Section 361, additional approval or clearance could be required. 2022 U.S. sales of umbilical cord-derived products were $23.2 million.
- Medicare reimbursement policies and proposed LCD changes could affect coverage, permitted applications and pricing. The Company has the required Section 361 confirmation for EPIFIX but not currently for EPICORD.
- The Hayfin agreement requires minimum net sales and minimum liquidity of $20 million. Covenant failure could permit acceleration of the $50.0 million loan. The Company stated that it was in compliance at December 31, 2022.
- Future contractual and contingent obligations include approximately $10.2 million of potential Nordic clinical-trial milestone payments after a January 2023 change order, up to $9.6 million payable if Turn receives 510(k) clearance for FleX, $3.7 million of severance obligations and $1.4 million of reserved legal losses and estimated legal commitments.
- The Company remains subject to securities litigation, former-employee litigation, a Department of Defense-related investigation and indemnification obligations connected with its prior Audit Committee Investigation and restatement. The filing states that outcomes and ultimate losses are uncertain.
- Independent auditors issued unqualified opinions on the financial statements and internal control over financial reporting. Management reported effective disclosure controls and internal controls as of December 31, 2022.
Facts Investors Should Verify
- Progress, enrollment, endpoints and manufacturing consistency of the registrational KOA trials and the timing and contents of any mDHACM BLA.
- FDA’s eventual classification of EPICORD and AMNIOCORD and the effect on the $23.2 million cord-product revenue stream and Hayfin sales covenants.
- Cash burn, operating cash flow, liquidity relative to the $20 million covenant and the Company’s ability to refinance or repay the $50 million Hayfin maturity in 2025.
- Medicare LCD and reimbursement changes, payer coverage and pricing pressure for EPIFIX, EPICORD and other products.
- Commercial traction and costs associated with Japan, AXIOFILL, AMNIOEFFECT, the Turn license and the planned antimicrobial product portfolio.
- Potential dilution, accrued dividends and change-of-control redemption rights associated with Series B Preferred Stock.
- Resolution and financial exposure from pending litigation, government investigations, indemnification claims and related legal expenses.