MiMedx Group, Inc. 2011 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2011; filed March 29, 2012. The filing reports full-year results, not separate fourth-quarter results. MiMedx is a regenerative biomaterials company developing, manufacturing and marketing human amniotic-tissue allografts and medical devices for wound care, orthopedics, spine, ophthalmic and dental applications.
Business context and material events
- MiMedx acquired Surgical Biologics, LLC on January 5, 2011, for cash, convertible notes, 5.25 million common shares, assumed debt and contingent consideration. The acquisition added the EpiFix and AmnioFix amniotic-tissue product platforms and the Purion processing technology.
- Amniotic-tissue products are marketed as Section 361 human tissue products and generally do not require U.S. premarket FDA clearance if applicable regulatory criteria are met. HydroFix and CollaFix products are regulated as medical devices.
- During 2011, the Company launched EpiFix and AmnioFix Wrap, received additional HydroFix 510(k) clearances and continued development of CollaFix. In January 2012, it received European CE certification for CollaFix Surgical Mesh CD and announced AmnioFix Injectable.
- The Company operated as one reporting segment and had 52 employees at December 31, 2011.
Financial performance and key metrics
| Metric | 2011 | 2010 | Change |
|---|---|---|---|
| Total revenue | $7.760 million | $0.789 million | Up approximately 883% |
| Net tissue processing revenue | $7.434 million | Not separately reported | Primarily from Surgical Biologics |
| HydroFix product sales | $0.326 million | $0.544 million | Down approximately 40% |
| Cost of products sold | $3.155 million | $1.720 million | 41% of revenue versus 218% |
| Research and development | $2.603 million | $2.753 million | Down approximately 5% |
| SG&A | $11.764 million | $6.848 million | Up approximately 72% |
| Loss from operations | $(9.761) million | $(10.533) million | Improved by approximately $0.772 million |
| Net loss | $(10.194) million | $(11.420) million | Improved by approximately $1.226 million |
| Basic and diluted loss per share | $(0.14) | $(0.19) | Improved |
| Adjusted EBITDA loss | $(6.320) million | $(8.250) million | Improved by approximately 23% |
Margins: Gross margin was approximately 59% in 2011, based on reported revenue and product costs, compared with a negative gross margin in 2010. The filing does not provide a clear adjusted EBITDA margin. Despite significant revenue growth, the Company remained unprofitable.
Cash flow and liquidity: Cash used in operations was $6.665 million, compared with $8.157 million in 2010. Cash used in investing was $0.703 million, including $0.466 million for the Surgical Biologics acquisition and approximately $0.335 million for equipment and furniture, partly offset by a $0.250 million Georgia grant. Financing activities generated $10.139 million, including $5.000 million of senior secured notes, $3.731 million from a private placement and $1.300 million borrowed under a related-party line of credit. Cash and cash equivalents increased to $4.112 million from $1.341 million.
Balance sheet: Current assets were $6.882 million and total assets were $27.096 million at year-end. Total liabilities were $15.200 million, including $7.917 million of current liabilities. Stockholders’ equity was $11.897 million, while accumulated deficit was $62.021 million.
Debt and obligations: Contractual obligations totaled approximately $9.075 million, including $5.000 million of senior secured notes, $1.300 million under the related-party line of credit, $1.250 million of acquisition-related convertible debt, leases, employment agreements and royalties. The senior secured notes mature December 31, 2013. The related-party line of credit is due December 31, 2012, subject to a possible extension. The Company stated that cash and anticipated operating cash flows were expected to meet operating needs and debt obligations for the next twelve months.
Material changes versus 2010
- Revenue growth was driven overwhelmingly by the Surgical Biologics acquisition; HydroFix sales declined as management shifted focus toward tissue products.
- Gross profitability improved substantially as higher tissue-processing revenue absorbed manufacturing costs.
- SG&A increased by $4.916 million because of acquisition-related costs, expanded sales and marketing activities, additional personnel, amortization and higher share-based compensation.
- Research and development expense decreased modestly, reflecting closure of the Tampa facility, partly offset by Surgical Biologics research and development and increased product-development and patent costs.
- Cash burn from operations improved, but the Company remained dependent on debt and equity financing to fund operations.
- Assets, goodwill and intangible assets increased materially because of the Surgical Biologics acquisition. Intangible assets were $15.090 million and goodwill was $4.040 million at year-end.
- Common shares outstanding increased to approximately 74.3 million at December 31, 2011 from 64.4 million at December 31, 2010, before considering additional potential dilution.
Guidance, outlook, commentary and risks
- Management identified near-term opportunities in EpiFix and AmnioFix while continuing to advance HydroFix and CollaFix through regulatory, clinical and reimbursement processes.
- Management expected manufacturing and quality-assurance spending, research and development spending and general and administrative expenses to remain at comparable or higher levels as commercialization expanded.
- Medicare reimbursement for EpiFix in ambulatory surgery centers and hospital outpatient centers was expected to become available through a CMS C-Code effective January 1, 2012. The Company added a Chief Medical Officer to support reimbursement and clinical-trial activities.
- Management stated that the Company would require additional financing in the future. Its ability to raise capital could be affected by market conditions, operating losses, dilution, debt terms and the Company’s limited operating history.
- Material risks include continued losses, uncertain market acceptance, reimbursement limitations, regulatory changes or delays, clinical-trial requirements, product liability and recalls, manufacturing disruption, dependence on donated placental tissue and limited suppliers, competition, intellectual-property challenges and dependence on key personnel.
- Two customers represented approximately 37% of 2011 revenue, and two customers represented approximately 43% of year-end accounts receivable, creating customer-concentration risk.
- The Company had approximately $2.821 million of cash above applicable FDIC insurance limits at December 31, 2011.
- Potential dilution was substantial: outstanding securities included 10.334 million options, 9.389 million warrants, convertible debt and related-party debt convertible into additional shares, plus contingent earn-out and warrant obligations. The 2011 revenue threshold for certain first contingent warrants was not met, resulting in vesting of approximately 1.998 million such warrants after year-end.
- The Surgical Biologics acquisition generated contingent consideration of approximately $3.185 million payable in common stock for 2011 performance and an estimated maximum additional 2012 obligation of approximately $4.225 million.
- The Company reported no litigation outside the ordinary course, no off-balance-sheet arrangements and effective disclosure and internal control procedures. The independent auditor’s report covered the financial statements but did not provide an internal-control attestation because the Company qualified for the applicable smaller-reporting-company exemption.
Investor verification checklist
- Verify the sustainability and quality of the $7.434 million of tissue-processing revenue, including customer concentration, collection experience and reimbursement sources.
- Reconcile reported cash of $4.112 million with the $6.665 million annual operating cash burn and assess the timing and availability of future financing.
- Review the maturity, collateral, conversion terms and related-party status of the $5.000 million senior secured notes, $1.300 million line of credit and acquisition-related convertible debt.
- Quantify fully diluted shares, including options, warrants, convertible instruments, earn-out shares and contingent warrants, rather than relying only on basic shares outstanding.
- Confirm the accounting and valuation of goodwill, acquired intangible assets and contingent consideration, including impairment sensitivity.
- Assess whether the CMS C-Code and other reimbursement developments translated into sustainable adoption and cash collections after 2011.
- Review FDA, AATB, European and other regulatory requirements for the tissue and device platforms, including the risk that product modifications or claims could require additional clearance or approval.