MiMedx Group, Inc. — FY2021 Form 10-K Summary
Business context and reporting period
MiMedx is a placental biologics company developing and selling human placental-tissue allografts, primarily for advanced wound care and surgical recovery, with a late-stage pipeline targeting musculoskeletal conditions. The filing covers the fiscal year ended December 31, 2021; it is an annual report rather than a standalone quarterly filing.
The principal commercial products were Section 361 sheet allografts, including EPIFIX, AMNIOFIX, EPICORD and AMNIOCORD. Following the end of FDA enforcement discretion on May 31, 2021, MiMedx stopped marketing its micronized and particulate Section 351 products in the United States pending required FDA approval.
Financial performance and key metrics
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net sales | $258.6 million | $248.2 million | +4.2% |
| Adjusted net sales | $257.6 million | $240.5 million | +7.1% |
| Gross profit | $215.3 million | $208.9 million | +3.1% |
| Gross margin | 83.3% | 84.2% | Down 90 bps |
| Operating loss | $5.0 million | $45.4 million | Improved |
| Net loss | $10.3 million | $49.3 million | Improved by $39.0 million |
| Net loss available to common stockholders | $16.4 million | $83.3 million | Improved |
| Basic and diluted loss per share | $0.15 loss | $0.77 loss | Improved |
| Adjusted EBITDA | $17.9 million | $30.6 million | Down $12.8 million |
Advanced Wound Care sales increased 15.0% to $240.0 million, including Tissue/Other sales of $216.4 million and Cord sales of $23.6 million. Section 351 product sales declined to $17.6 million from $31.8 million, reflecting sales only through May 31, 2021. Gross margin declined primarily because of inventory write-downs related to discontinued Section 351 and other product lines.
SG&A increased 9.6% to $198.4 million, driven by restored compensation levels, sales-force expansion, higher travel, increased commissions and $3.9 million of proxy-contest costs. Research and development expense increased 48.0% to $17.3 million. Investigation, restatement and related expense fell to $3.8 million from $59.5 million, reflecting lower legal costs, insurance recoveries and the completion of the prior-period restatement.
Cash flow, liquidity and capital structure
| Metric | December 31, 2021 |
|---|---|
| Cash and cash equivalents | $87.1 million |
| Net working capital | $106.2 million |
| Current ratio | 3.5x |
| Net cash used in operating activities | $2.0 million |
| Net cash used in investing activities | $3.4 million |
| Net cash used in financing activities | $3.4 million |
| Hayfin term-loan principal | $50.0 million |
Cash declined by $8.7 million during 2021, from $95.8 million to $87.1 million. Operating cash flow improved substantially from $30.3 million of use in 2020, aided by lower legal and investigation-related payments and $9.2 million of tax refunds. Capital expenditures were $3.2 million.
The Hayfin senior secured term loan matures June 30, 2025, bears interest at LIBOR subject to a 1.5% floor plus a 6.75% margin, and carried an 8.3% rate at year-end. No principal payments are scheduled before maturity. The February 28, 2022 amendment introduced quarterly minimum net-sales requirements and increased the minimum liquidity covenant from $10 million to $20 million. The company reported compliance with debt covenants at December 31, 2021.
Series B preferred stock had a carrying value of $92.5 million, with $7.2 million of dividends in arrears and potential conversion into approximately 27.9 million common shares at year-end. The company has not paid dividends on the Series B preferred stock since issuance and does not expect to pay common-stock dividends in the foreseeable future.
Material changes versus the prior comparable period
- Reported sales increased 4.2%, while adjusted sales increased 7.1% after excluding collections from legacy Remaining Contracts.
- Advanced Wound Care sales grew 15.0%, supported by reduced COVID-19 access restrictions, EPIFIX growth, surgical-recovery initiatives and EPICORD Expandable.
- Section 351 product sales declined $14.2 million year over year after U.S. sales ceased on May 31, 2021.
- Gross margin decreased from 84.2% to 83.3% because of approximately $1.7 million of inventory write-downs related to discontinued products.
- Net loss improved substantially because of the sharp reduction in investigation, restatement and related expenses and lower interest expense, although SG&A and R&D increased.
- Previously identified material weaknesses in internal control over financial reporting were remediated. Management and Deloitte & Touche reported effective internal control as of December 31, 2021.
- The company recorded a $2.0 million out-of-period equity-classification adjustment related to historical restricted stock and performance stock unit awards; management concluded it was not material to prior periods and did not affect total equity or earnings per share.
Guidance, outlook, risks and unusual items
Management expects 2022 Advanced Wound Care sales growth of 11% to 14% from the $240 million reported in 2021 and expects 2022 gross margin to be slightly below 2021. The company expects to begin a Phase 3 knee osteoarthritis program in 2022, with estimated costs of approximately $30 million over three years, and expects R&D expense to increase.
The Phase 2B knee osteoarthritis trial did not meet its primary endpoints. Management attributed the failure to fading potency of aged investigational product, while citing statistically significant results from a 190-patient pre-interim-analysis cohort. A Phase 3 program is planned for 2022, with a BLA filing anticipated in late 2025, but success and timing are uncertain. The plantar fasciitis and Achilles tendonitis programs did not support expected further BLA filings or additional studies at this time.
MiMedx received Japanese approval to market EPIFIX in June 2021 and expected reimbursement approval in mid-2022. The company is also evaluating expansion into Europe, Asia Pacific and the Middle East.
- Regulatory risk is significant. FDA classification of EPICORD and AMNIOCORD remains a potential issue; 2021 cord-product sales were $23.6 million.
- Failure to obtain BLAs could permanently limit U.S. sales of micronized products and require further clinical, manufacturing and compliance spending.
- The Hayfin loan contains minimum liquidity and net-sales covenants; a breach could accelerate the $50 million principal balance.
- COVID-19 could affect provider access, elective procedures, clinical-trial enrollment, employee availability and placenta donations, although management said its 2021 operational impact was not material.
- The company remains subject to litigation and investigations, including a Department of Defense OIG subpoena concerning sales of micronized and other products to federal facilities and communications with the FDA. The outcome is not predictable.
- The company paid $6.7 million to settle legal proceedings in 2021 and carried $1.0 million of accrued legal contingencies at year-end, partially offset by $0.6 million of insurance recoveries.
- Revenue recognition remains a significant audit matter because of the volume and judgment involved in ship-and-bill and consignment transactions, including transactions near period-end.
Facts investors should verify
- Whether 2022 Advanced Wound Care growth reaches the 11% to 14% target and whether gross margin stabilizes after the 2021 inventory write-downs.
- The FDA’s classification of cord-derived products and the resulting effect on the $23.6 million cord-product revenue base.
- Progress, cost and clinical results of the Phase 3 knee osteoarthritis program and the feasibility of a late-2025 BLA filing.
- Compliance with the amended Hayfin minimum-liquidity and minimum-net-sales covenants through the June 2025 maturity.
- Potential dilution and cash obligations associated with the Series B preferred stock, including $7.2 million of accrued dividends and approximately 27.9 million potential common shares.
- Developments in the Department of Defense investigation, securities-class-action appeal and other indemnification or litigation matters.
- Whether operating cash flow becomes consistently positive while the company funds clinical trials, international expansion and manufacturing-capacity investments.