MiMedx Group, Inc. 2012 Form 10-K Summary
Business context and reporting period
MiMedx develops, manufactures and markets regenerative biomaterial products and human amniotic-tissue allografts, including EpiFix and AmnioFix, using its Purion processing technology. It also maintains HydroFix and CollaFix medical-device platforms. The filing covers the fiscal year ended December 31, 2012, with comparative results for 2011; it is an annual report rather than a quarterly filing.
- Tissue-based products represented approximately 95% of 2012 revenue.
- The company operated as one regenerative-biomaterials segment and had 166 employees at December 31, 2012.
- Production capacity expanded from one to three processing lines during the second quarter of 2012.
Financial performance and condition
| Metric | 2012 | 2011 | Change |
|---|---|---|---|
| Revenue | $27.054 million | $7.760 million | +249% |
| Cost of products sold | $5.188 million | $3.358 million | 19.2% vs. 43.3% of revenue |
| Research and development | $2.885 million | $2.976 million | -3.1% |
| SG&A | $20.971 million | $11.181 million | +87.5% |
| Loss from operations | $5.355 million | $9.761 million | Improved |
| Net loss | $7.662 million | $10.194 million | Improved |
| Basic and diluted loss per share | $0.09 loss | $0.14 loss | Improved |
| Adjusted EBITDA | $2.394 million | $6.314 million loss | Improved by $8.708 million |
Gross margin improved materially as direct sales increased, product mix shifted toward tissue products and higher production volumes absorbed fixed manufacturing costs. SG&A growth reflected investment in government and commercial wound-care sales forces, reimbursement support, training, commissions, infrastructure and marketing. Financing and net interest expense increased to $2.307 million from $433,000, primarily due to convertible senior secured notes.
Cash and cash equivalents were $6.754 million at year-end, compared with $4.112 million in 2011. Current assets were $18.089 million and current liabilities were $5.071 million, producing a reported current ratio of approximately 3.6. Total assets were $35.183 million and total liabilities were $15.175 million. The accumulated deficit was $69.684 million.
- Net cash used in operating activities: $3.385 million, compared with $6.665 million in 2011.
- Net cash used in investing activities: $583,000, primarily equipment purchases.
- Net cash provided by financing activities: $6.610 million, including $6.001 million from warrant exercises and $1.053 million from option exercises.
- Year-end debt included $5.314 million of convertible senior secured promissory notes before unamortized debt discount; the carrying value of the long-term portion was $4.012 million.
- The 2012 balance sheet included a $5.792 million earn-out liability payable in common stock.
Material changes versus the prior comparable period
- Revenue growth was driven primarily by EpiFix and AmnioFix. Surgical and sports-medicine revenue increased approximately $8.508 million, while wound-care revenue increased approximately $10.239 million.
- Government-account sales became significant following the launch of a direct sales force; government accounts represented approximately 40% of 2012 revenue.
- Three customers accounted for approximately 68% of 2012 revenue, including distributors representing approximately 40% and 21% individually.
- Accounts receivable increased to $7.654 million from $1.892 million, and inventory increased to $3.023 million from $713,000, reflecting rapid growth and working-capital investment.
- The company recognized a $1.798 million impairment charge for HydroFix-related intangible assets because the product line was not expected to expand significantly.
- The company issued 2,632,576 shares in April 2012 to settle the 2011 Surgical Biologics earn-out and recorded a $5.792 million 2012 earn-out liability.
- In January and February 2013, all holders converted the senior secured notes into 5,271,963 common shares, including 532,260 shares issued to the CEO. The conversion was expected to accelerate recognition of approximately $1.301 million of debt-discount amortization.
Guidance, outlook, risks and unusual items
Management expected continued revenue growth from investments in direct sales, government accounts, commercial wound care, reimbursement support and clinical activity. It also expected additional sales-force and research-and-development spending in 2013. Management believed existing cash and anticipated operating and financing cash flows would fund operational liquidity and planned investing activities for the following year, while noting that additional debt or equity financing might be required for longer-term needs.
- Reimbursement remains a major adoption risk. As of March 1, 2013, five of nine Medicare Administrative Contractors had agreed to cover EpiFix for lower-extremity chronic wounds; commercial reimbursement was described as inconsistent and not reliably measurable.
- EpiFix and AmnioFix depend on sufficient donated placental tissue and compliance with tissue-bank, FDA, AATB and other regulatory requirements.
- The company relies heavily on distributors, with material contract-renewal and concentration risk.
- The FDA could reclassify the tissue products, potentially requiring more costly and time-consuming premarket clearance or approval.
- The company remained loss-making, had a substantial accumulated deficit and stated that it might require additional financing. Future equity financing could dilute shareholders.
- Outstanding dilution sources at year-end included 13.614 million options, 3.129 million warrants and convertible debt convertible into approximately 5.314 million shares, excluding certain contingent instruments.
- A new approximately 80,000-square-foot headquarters lease beginning May 2013 carried aggregate base rent of approximately $7.1 million over 69 months and required a $499,087 security deposit.
- The filing reports no litigation outside the ordinary course, no unresolved SEC staff comments and no off-balance-sheet arrangements.
- Independent auditors issued unqualified opinions on the consolidated financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether revenue growth and improved gross margins continued after the government-account sales-force expansion.
- Collection of the sharply higher accounts receivable balance and the sustainability of customer and distributor relationships.
- Actual Medicare and commercial-payer coverage, reimbursement rates and clinical evidence supporting EpiFix and AmnioFix.
- Post-conversion share count, remaining debt, earn-out settlement and the resulting dilution from options and warrants.
- Cash burn, financing requirements and compliance with the Georgia grant’s headcount and spending conditions through December 31, 2014.
- Regulatory status of the 361 HCT/P classification and any FDA or AATB findings affecting tissue products.
- Commercial prospects and potential further impairment of HydroFix and other medical-device assets.