MiMedx Group Inc (MDXG) 2017 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the MiMedx Group, Inc. Conference Call (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Mr. Robert Borchert, Vice President, Investor Relations.

Thank you, Bridget, and good morning, everyone.

Please be reminded that our comments today may include forward-looking statements that are subject to risk and uncertainty, and actual results could differ materially. We list the factors that might cause actual result to differ materially in our filings with the Securities and Exchange Commission, which are available on our website, www.mimedx.com. We do not undertake to update or revise any forward-looking statements except as may be required by the company's disclosure obligations in the filings it makes with the SEC under Federal Securities Laws.

Finally, MiMedx is not responsible for the accuracy of our telecast conference transcripts provided by third parties. The only authorized live and archived webcasts are located on our website.

Now I'll turn the call over to MiMedx Chairman and CEO, Pete Petit.

Thank you, Robert. Good morning. We appreciate you joining us for this update. I have with me, Bill Taylor, our President and Chief Operating Officer; Chris Cashman, our Executive Vice President and Chief Commercialization Officer; and Debbie Dean, Executive Vice President; and Mike Senken, our CFO. There are other members of our senior management team in the room with us.

We recognize that postponing the release of our 2017 financial results and 10-K is challenging in the near term. However, we're confident this course of action is the best long-term -- is in the best long-term interest of the company and its shareholders.

The Audit Committee of our Board of Directors has engaged King & Spalding as its legal counsel to conduct an independent investigation with the assistance of KPMG, another Big 4 accounting firm, as a forensic accountant. While the timeframe for the completion has not been determined, the audit committee is working closely with its advisers to complete the investigation in as timely a manner as possible.

We certainly believe you can expect our revenue growth to continue at a rapid rate. The company reiterated revenue guidance for the year of $383 million to $387 million. Also, our cash flow remains very strong and we anticipate that to continue.

The company repurchased approximately $24 million of our shares in the fourth quarter, which puts our total shares repurchased at approximately $130 million since 2014. I'll remind you that the company has no debt.

As we have stated many times, there are approximately 1.3 million wounds annually that need advanced wound care products and therapy. In today's market, there are only about 12% of those patients receiving advanced wound care. The sales force now have approximately 400 individuals being directed and managed through our new and very innovative Sales Management System. We're able to more deeply penetrate our major markets. And most importantly, we're also expanding rapidly into the secondary and tertiary markets across the U.S.

As many of you know, for some time, illegal short-sellers with a value-destructive agenda have taken an active interest in our company. Their aggressive tactics have also negatively and unfairly impacted other public companies of all sizes. Fortunately, regulators are now clearly aware of these activities.

Now the main purpose for the today's call is to reiterate that the operating performance of the company is absolutely, Intact. It's taken us 8 years to build the asset base that we have. It is extremely valuable, not only to you, our shareholders, but to patients and physicians. And eventually, they will be valuable to some other large organization. The hard work and expertise that have gone in to building this very efficient and effective group of assets and individuals will be promptly rewarded at some point in time.

Also, we have reaffirmed our 2018 revenue guidance. The toughest quarter of the year, namely the first quarter, is going well in spite of all the headwinds that all organizations, not just ours, but all organizations, face as insurance companies readjust their coverage and deductibles are dealt with.

Companies with our asset base and future opportunities are going to trade minimally at 5x to 6x current year's revenues. We're now half of that metric. Given our substantial revenue growth, we believe our company is undervalued. Many analysts and investors who closely follow our industry sector understand the trading multiples and dynamics of other companies like ours.

Besides managing our business competently, part of our job as a management team is to communicate the strength of our business to the investment community. We intend to keep you as informed as possible during this interim period relative to our progress. We will obviously have some extra legal expenses during this period, but our growth in revenue and our sales coverage should continue at a rapid rate. Our key assets will continue to build as our clinical studies produce the compelling results you've previously seen.

We intend to update you on our operational performance regularly during this period, and we will remain focused on managing our business and hitting key milestones and delivering increases in value.

To talk more about that, I'm going to turn the call over to Bill Taylor. Bill?

Thanks, Pete. I will keep my comments brief and then turn the call over to Chris Cashman and Debbie Dean, who will give updates on various aspects of our operational progress.

First of all, I want to reiterate that our management team and everyone involved is taking this situation very seriously. We are fully committed to cooperating with the audit committee as it conducts the independent investigation. As Pete stated, the investigation should not affect our operational performance and clinical research activities.

Now we are pleased to update you today on the business and our continued execution. We remain confident in our ability to deliver operational and clinical success in the months and years to come.

Improving and saving lives is at the heart of what we do. Our team remains committed to ensuring that the innovative and highly effective products we've developed are readily accessible to the clinicians and patients who need them. We continue to make great strides in our clinical efforts, including patient access. We continue to establish scientific and clinical differentiators with data and peer-reviewed publications. And Debbie will talk more about our clinical efforts in just a few minutes.

As we grow, we have remained keenly focused on process improvement, which has resulted in our ability to more than double the yield per placenta over the past several years. Looking ahead, we have a number of key initiatives identified that we expect to also increase yield and our efficiencies.

So on the sales front, we finished our national team meeting a few weeks ago, our national sales meeting. And we're up to just over 400 people in our field sales force, up from 350 in September of 2017. We expect that to be over 450 later this year. Our recruiting efforts for the sales force continue to be strong, and we've attracted some excellent sales executives and managers.

Our territory management process has given us flexibility in that we can hire a mix of experienced medical sales personnel as account executives as well as junior salespersons and associate account executives, or AAEs. These AAEs train and operate under a seasoned account executive. This model has worked quite well, and Chris will talk more about sales shortly.

The company's intellectual property portfolio, which includes issued patents, pending patents, trademarks, knowhow and trade secrets, is very robust. And our settlement with MTF in January only strengthened our position. There should be no question that the MiMedx patents are defensible, robust and valuable. We will continue to innovate and expand this asset base as a key long-term value driver.

Now our management team is very excited about our operational performance and our outlook for 2018 and beyond. We believe our future is bright, and we look forward to updating you on our progress regularly.

And now I turn it over to Chris.

Thanks, Bill, and good morning. Today, I'll talk more about our sales and product momentum as well as our major growth initiatives for 2018.

We've built a very strong asset base with established and expanding sales and marketing channels and an outstanding, mature, operational support organization. Both share gains and market expansion are contributing to our sales momentum and are driven by our refined territory analytics for the larger markets and our effective secondary market strategy.

As you all know, we continually strive to raise the bar for ourselves. And through good planning and execution, this year should be no different. We have a purposeful strategic plan and well-defined sales management system processes that focuses our management and their teams on providing these results. We aren't growing by chance.

Our sales personnel and management are developing better planning, forecasting and account management skills. And coming out of our national team meeting, our account executives' education and ability to communicate the MiMedx product efficacy and differentiation sets us apart from our competition.

Growth in 2018 will come from 3 areas of initiative: Number one, expansion of our core technology product platforms in the form of EpiFix and AmnioFix; number two, product introductions of our umbilical cord product, EpiCord and AmnioCord and our placental tissue product, AmnioFill, for bridging compromised integumentary tissue; and number three, the steady expansion of AmnioFix Injectable in musculoskeletal pain applications. We expect to see continued market expansion and market share gains in the wound care space.

Continuous provider education of our proprietary scientific platform and clinical study data is a key to broadening recognition of the clinical leadership and economic value proposition that MiMedx products deliver. We believe this will enable more providers to begin to adopt the use of EpiFix, thereby expanding the market spend for skin, dermal substitutes. Case in point, the published randomized clinical trial in venous leg ulcers, better known as VLUs, has been broadened and strengthened our clinical compendium of data.

We have projected that we will start to see some positive commercial payment policies for VLU coverage going into effect in the second quarter. However, the revenue impact will begin to be seen more in the second half of 2018.

Specific to our surgical sports medicine and orthopedic, or SSO, service line focus, additional approvals from hospital value analysis committees are fueling the availability of AmnioFix and other core products to surgeons in the operating room. We are pleased to see that our products are being utilized for enhanced healing in high-risk patients with complicated wounds and in specialized surgical procedures conducted by plastic, vascular, urologic, general, colorectal and gynecologic physicians, produce cost-effective enhanced healing.

Specific to the pain market, we expect to see a continuing but controlled increase in utilization of our AmnioFix micronized product. The plantar fasciitis Phase IIb clinical data should be released shortly, and we have hired our first 10 sales specialists to educate clinicians in the musculoskeletal pain market. And of course, our entire direct sales organization work daily with foot and ankle orthopedists and podiatrists, addressing soft tissue and tendon pain. The ultimate BLA clearances for indications for use for this product could culminate in 2020 and 2021, with reimbursement quickly following.

AmnioFix is highly differentiated from alternative options available today and should be instrumental in offsetting opioid use as well as offsetting the common first-line therapy use of degenerative corticosteroids. We believe we will make good progress through continued education as we initially target the cash pay market, and ultimately believe peak AmnioFix revenue for musculoskeletal pain management, including in osteoarthritic pain indication, will exceed $4 billion.

Let's not forget the proven safety profile of MiMedx allografts and the fact that we have distributed over 1 million grafts without a single reported adverse reaction. While a number of competitors have begun selling new products that utilize different processing and configuration techniques, we believe that MiMedx grown tissue products provide the greatest safety for the patients.

Additionally, these products don't have the compendium of research and clinical data to support utilization. We now have 42 clinical and scientific studies published, including 7 randomized controlled trials, approximately 30 studies running and 4 INDs in support of BLAs for musculoskeletal pain indications. This is why MiMedx is the trusted leader and innovator.

We certainly understand health care providers' and facilities' quest for cost-effective products. We add that they review regenerative tissue products and all of the clinical and economic differences in order to clearly understand true total cost of care. In fact, one of the most expensive products from a competitor is one that does not provide much clinical benefit to the patient.

Our sales employees are passionate about what they do and we all are driven by the life-changing impact our products can make on patients and their loved ones. The processes our management utilize are disciplined and deliver predictability. We fully expect to continue to deliver another year of success in 2018.

Now I'll hand the call over to Debbie.

Thanks, Chris. Good morning. Today, I'd like to provide an update on our ongoing clinical trials for the use of AmnioFix Injectable for the treatment of certain pain management indications. As you might remember, we are currently running 4 IND and investigational new drug trials as we progress towards biological license applications with the Food and Drug Administration. We have completed our primary endpoint measurements for our plantar fasciitis Phase IIb trial. We filed the results with the FDA this week and the lead clinical investigator will shortly proceed with the publication of these results in a Level 1 journal.

The data clearly affirms the interim results that we have shared and makes us even more confident in this products' long-term market potential. To remind you of the interim phase IIb results discussed in August 2017, with the primary efficacy endpoint, pain relief at 3 months, AmnioFix Injectable demonstrated clinically meaningful and statistically significant separation from placebo with a p-value of 0.0001. This is very significant statistically.

As we have previously announced, we have also begun enrollment on our Phase III IND trials for plantar fasciitis and Achilles tendonitis. In addition, we expect to begin enrollment for the fourth IND trial, a phase IIb trial for the treatment of knee pain due to osteoarthritis in early March. We currently have 5 sites in the final stages of beginning enrollment. We expect to bring on a total of 20 sites and believe this trial to enroll faster than the 2 tendonitis trials because of the large incidence of this condition.

Current available treatments for OA, such as corticosteroid-hyaluronic acid formulations and platelet-rich plasma, PRP, have not shown to be consistently effective. Specifically, corticosteroid injections may present short-term pain relief for osteoarthritis patients, but unfortunately their use is limited. The condition tends to reoccur, and complications, such as joint degradation, may occur. And while hyaluronic acid injections may provide temporary symptomatic relief, their use is not without controversy and is currently not recommended by orthopedic societies. These treatments have also been removed from the coverage by the Blue Cross Blue Shield Association.

I also wanted to comment today on our activity in our payer engagement strategy designed for expanding coverage for VLUs for EpiFix. The Blue Cross Blue Shield Association and Aetna have the VLU paper currently in their review cycle. We expect to hear on a coverage decision from both of these large payers in March.

As way of reminder, within the 12-week treatment in a study of 52 VLU patients receiving EpiFix, 60% completely healed. This compared to only 35% of patients treated with the standard of care alone. At the final 16-week follow-up visit, complete healing was observed in 71% of those treated with EpiFix versus 44% with standard of care, equating to a p-value of 0.00625.

We are optimistic for favorable coverage decisions, given the high standards under which the study was conducted and the landmark result in efficacy that were achieved.

I will now turn the call back over to Bill.

Thank you, Debbie. We will not be taking live Q&A on this particular call, but we would like to address the primary questions that we've received from a number of our analysts.

So with the first question, how long would this investigation take?

The board and their independent advisers are working to complete this in as timely manner as possible. Because this is an independent investigation, management is not in control of that time line.

Second question, whether -- is there a certain period of time in particular that is in question?

And the answer on that one is, at this point in time, we're only able to say that the internal investigation will review matters related to current and prior period manners -- matters, excuse me.

The next question was whether the company's review of certain distributor contracts are all-compassing, or are there specific partners that are being looked at.

Well, while we are limited to what we can say, I can tell you that the independent investigation will look at matters related to allegations about sales and distributor practices. Company executives are also reviewing the accounting treatment of certain distributor contracts.

One other question was, how important is stock comp to our sales reps? And is there a risk of turnover if they are underwater?

While we mentioned in the past that sales rep compensation consists of base salary, commission and stock. In the past number of years, MiMedx has only issued restricted stock in our stock plan rather than stock options. So while a downturn in stock price lessens the value of the stock, they do not go "underwater", and thus, will continue to have value.

Next question was whether or not -- or excuse me, what gives us confidence in our revenue growth for this year?

Well, our sales team has been forecasting in the neighborhood of 5 or 6 quarters ahead for some time. We have a very good Sales Management System where we plan the sales expansion and territory management, months and quarters in advance. Our forecasts are generally built from the bottom up, and then executive management cuts that back a bit before we give our guidance to shareholders. Therefore, we believe that we will have substantial growth this year based on the fundamental strength of our business.

Another question is whether this investigation will affect our business operations or clinical trials.

The audit committee's independent investigation should not affect our operational performance and clinical research activities. As I addressed in my remarks, we've been experiencing rapid growth over the last few years as our product portfolio continues to meet significant unmet needs in the marketplace. We expect to continue to deliver operational and clinical successes in the months and years to come.

With that, now I'll turn it back over to Pete for some closing comments.

Thank you, Bill. We believe in execution of our business strategy. Given the combination of our financial stability, continued revenue growth, we are well positioned to continue to gain market share across our industry.

Also I'd like to recognize our management team and employees who differentiate MiMedx as a leader in innovation and product quality. In MiMedx, we're committed to enhancing shareholder value as we continue to enhance -- ensure that patients receive the best treatment possible.

Also, please recall how MiMedx quickly worked through our growing pains in the past, and I would certainly classify this as one. Remember the FDA issues that seem to persist, the qui tam filed by a competitor who's opposed to new competition and kept showing up year-after-year.

And now please recall that this short and historic campaign has issues that go far beyond MiMedx. We have confidence that these significant Washington regulator matters are being thoroughly vetted.

And thank you for your patience during these times. And I thank you for joining us today. As always, we will communicate with you often and keep you very informed. Thank you.

Ladies and gentlemen, this does conclude the program. You may now disconnect. Everyone, have a great day, and a great weekend.