MiMedx Group, Inc. 2013 Form 10-K Summary
Business Context and Reporting Period
MiMedx develops, processes, manufactures and markets regenerative biomaterial products derived primarily from donated human amniotic membrane. Its principal products are EpiFix and AmnioFix, processed using the proprietary Purion Process, for wound care, surgical, sports medicine, ophthalmic and dental applications. The filing covers the fiscal year ended December 31, 2013, including fourth-quarter results.
- Tissue-based products represented approximately 99% of revenue in 2013.
- The company had more than 70 direct sales professionals and 222 employees at year-end.
- HydroFix products were discontinued in the fourth quarter of 2013 because of the limited addressable market. CollaFix remained under development and had not been commercialized.
Financial Performance and Key Metrics
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Net sales | $59.2 million | $27.1 million | Up 119% |
| Gross margin | $49.9 million; 84.2% | $21.9 million; 80.8% | Margin expanded |
| Operating income (loss) | $(2.6) million | $(5.4) million | Improved |
| Net income (loss) | $(4.1) million | $(7.7) million | Improved |
| Basic and diluted loss per share | $(0.04) | $(0.09) | Improved |
| Adjusted EBITDA | $5.5 million | $2.4 million | Up $3.1 million |
| Net cash used in operations | $(0.3) million | $(3.3) million | Improved |
- Wound Care revenue increased approximately $21.7 million, or 190%, to $33.1 million.
- Surgical and Sports Medicine revenue increased approximately $10.2 million, or 79%, to $23.2 million.
- Research and development expense increased 68% to $4.8 million, while selling, general and administrative expense increased 136% to $46.2 million. Share-based compensation was approximately $6.0 million, compared with $2.5 million in 2012.
- The company recorded a $368,000 impairment charge related to the discontinued HydroFix product line and a $30,000 disposal loss.
- Cash and cash equivalents were $44.1 million at December 31, 2013, compared with $6.8 million a year earlier. Working capital was $55.8 million and the current ratio was 6.8.
- Total assets were $84.7 million, total liabilities were $11.1 million and stockholders’ equity was $73.6 million. The company reported an accumulated deficit of approximately $73.8 million.
- Outstanding convertible senior secured promissory notes were converted into approximately 5.3 million common shares during January and February 2013. No long-term debt remained at year-end, although the company had an undrawn $3.0 million secured revolving credit facility with Bank of America.
Material Changes Versus the Prior Comparable Period
- Revenue growth accelerated substantially, primarily from EpiFix and AmnioFix sales, expanded direct sales coverage and improved Medicare reimbursement coverage.
- Gross margin improved because of increased direct sales, favorable product mix and higher production volumes that absorbed fixed manufacturing costs.
- Operating and net losses narrowed despite significantly higher sales and infrastructure investment.
- The company completed a December 2013 public offering of 5.75 million shares at $6.80 per share, generating approximately $36.7 million net of underwriting expenses and approximately $36.6 million of net cash proceeds as reported in the cash flow statement.
- Capital expenditures increased substantially as the company expanded production capacity and relocated processing operations to a larger Marietta facility in early 2014.
- Six of eight Medicare Administrative Contractors provided reimbursement for EpiFix sheet products at year-end; an additional contractor was expected to begin coverage on March 1, 2014.
- Fourth-quarter 2013 sales were $18.0 million, compared with $10.5 million in the fourth quarter of 2012. Fourth-quarter net loss was $1.4 million, compared with $1.6 million in the prior-year quarter.
Guidance, Outlook, Commentary, Risks and Unusual Items
- Management stated that existing cash and anticipated operating and financing resources should fund operational liquidity needs and planned investing activities for the next year. The filing does not provide formal revenue or earnings guidance.
- Management expected the 2014 Medicare reimbursement methodology for hospital outpatient and ambulatory surgery settings to improve the relative cost competitiveness of EpiFix versus certain larger competing products.
- Micronized products represented approximately 15% of projected 2014 revenue. The FDA issued an Untitled Letter in August 2013 asserting that the micronization process constituted more than minimal manipulation and that certain micronized products required biologics licenses.
- MiMedx proposed pursuing the Investigational New Drug and Biologics License Application pathways while negotiating a transition plan. The FDA could impose labeling or manufacturing conditions, prohibit continued marketing or require product recalls. No outcome was assured.
- Four shareholder class actions related to the FDA matter were consolidated. The company filed a motion to dismiss in February 2014 and stated that it believed the litigation would not materially affect financial position or results of operations; damages sought were unspecified.
- Customer concentration was significant: AvKARE accounted for 56% of 2013 revenue and another distributor accounted for 10%. The two customers together represented approximately 66% of revenue and 67% of accounts receivable.
- Government-account sales represented 56% of 2013 revenue. Any disruption to the Federal Supply Schedule or the AvKARE relationship could materially affect results.
- There was no third-party reimbursement for micronized products at the filing date, and reimbursement for private-payor and hospital applications remained uncertain.
- Other risks include continued net losses, dependence on donated placental tissue, regulatory changes, product liability or recalls, healthcare fraud-and-abuse compliance, competition, intellectual-property challenges and reliance on key personnel.
- Contractual obligations totaled approximately $6.8 million, including $6.4 million of operating lease obligations and $0.4 million of capital lease obligations. The company also had approximately $0.5 million of standby letters of credit.
Important Facts for Investors to Verify
- Current FDA status of the micronized-product transition, any BLA or IND submissions, marketing restrictions and potential recall exposure.
- Actual 2014 reimbursement and sales trends following the CMS packaged-payment methodology and the expansion of Medicare coverage.
- Sustainability of revenue growth and gross margins after the significant expansion of the direct sales force and operating expenses.
- Customer and distributor concentration, including renewal and Federal Supply Schedule status of the AvKARE agreement.
- Cash burn, capital requirements and use of the public-offering proceeds, particularly while the company remains unprofitable.
- Resolution and potential financial impact of the consolidated shareholder litigation.
- Dilution from 15.4 million outstanding options and 1.3 million outstanding warrants at December 31, 2013.