MiMedx Gets Ever Weirder – Pete Wants Back In

MiMedx Group, Inc., the struggling supplier of wound-care allografts and tissue-based injectables, had two big, back-to-back and somewhat entertaining news announcements on April 11.

First, its fired former CEO, Parker (Pete) Petit, under whose management MiMedx got into its current financial woes, announced that he’s running for the board of directors at a shareholders meeting expected to be held June 17, and bringing with him a retired corporate mergers and acquisitions accountant and a corporate super lawyer.

Second, current management announced a quite rosy strategic plan which, at its core, requires the company to raise more capital through stock sales or new borrowings or both.

The company announcement, optimistically titled, “MiMedx Announces Board Approval of Long-Range Strategic Plan,” said this about its cash situation:

“MiMedx intends to seek capital to implement its long-range strategic plan, which includes expanding its product offerings…. The capital raise is also intended to provide liquidity to fund the costs associated with the ongoing Audit Committee investigation, the restatement of the Company’s financial statements and the near-term efforts by the Company to address certain contingent liabilities relating to pending and threatened lawsuits, pending governmental investigations and other legal proceedings.”

That statement only hints at how badly MiMedx’s finances have deteriorated since the allegations of “channel stuffing” (that is, shipping out products which hadn’t been ordered and calling them sales, in order to meet or exceed end-of-quarter financial numbers, back to 2012) which led to Petit’s ouster last June.

Petit’s management team had claimed that the company had $33 million in cash and no debt as of December 31, 2017.

The April 11 statement also said, “the Department of Veterans Affairs (VA) Office of Inspector General (VA-OIG) has issued subpoenas to the Company, and the VA-OIG, in conjunction with the Civil Division of the DOJ, has requested, among other things, information related to the Company’s financial relationships with VA-affiliated providers.” MiMedx had already confirmed that it was being investigated by the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) for actions alleged to have occurred under the old management team.

Another purpose for borrowing funds will be to fund desperately needed biological license applications (BLAs) for its product line. The company faces a potential November 2020 death sentence for its amniotic-tissue-based products without biological licenses.

Petit and former President/COO Bill Murray made many public statements as far back as 2014 about being in “pursuit of a BLA” and “our BLA studies” and “our four ongoing IND/BLA clinical studies,” but the company doesn’t seem to have ever filed a BLA under his management. A November 2017 statement said, “We expect to have completed the prerequisites and be in a position to file our first BLA within the next two years or earlier if we get the RMAT (regenerative medicine advanced therapy) designation.”

Can MiMedx survive? Depends on whom you believe

Is MiMedx headed for financial oblivion or for a heroic rebound? (see “MiMedx Reeling Under Fraud Allegations,: by Robin Young, Orthopedics This Week, August 15th, 2018)?

Wall Street short sellers Aurelius Value, Marc Cohodes, and Viceroy Research say it’s doomed. Viceroy, in an online publication last posted dated November 5, 2018, said:

“We reiterate our opinion that due to the overwhelming nature and amount of evidence against the company we believe MiMedx is a robust fraud, entirely uninvestable, and worth $0.00.”

However, Prescience Point Capital Management (PPCM, which also short-sells stocks at times) has been buying MiMedx stock and filed a report on April 2 saying it now owns 7.92 million shares, or 7.3% of the company. It said in a January 8 report:

“MDXG shares are conservatively worth at least $8.09, almost 4x the current share price.”

Certainly, MiMedx’s problems since forcing out its prior top management last June are real and substantial. Between our August 15, 2018 story and April 11:

• Four Minneapolis-based VA podiatrists and a dermatologist resigned on September 20 due to unstated “irregularities” involving MiMedx products over an unstated period. This scandal follows news from May 2018 that three VA hospital employees were indicted by a grand jury in Greenville, South Carolina, for taking bribes from MiMedx during the prior management’s tenure.
• A Savannah, Georgia grand jury heard testimony in September “about financial ties between MiMedx and a surgeon at the Dwight D. Eisenhower Army Medical Center in Fort Gordon” in a previously undisclosed investigation being conducted by the Defense Department’s Criminal Investigative Service, the Wall Street Journal (WSJ) reported on October 5.
• According to WSJ, MiMedx, under the prior management, didn’t offer its least expensive and most widely used wound coverings to VA and DoD hospitals. The lowest-priced wound covering offered to these taxpayer-funded hospitals cost $895—which contrasts with the $313 paid by non-government hospitals paid for a smaller size. The Journal also cited the company’s EpiFix injectable. The DoD and VA paid $725 for a bigger dose, while private-care physicians were offered a smaller one for $225.

Also, “Company sales representatives were required by Mr. Petit to host lunches and dinners with doctors, meetings he called ‘healing reviews,’” the WSJ reported. “An internal MiMedx spreadsheet reviewed by the Journal and provided to federal investigators shows hundreds of company meals hosting thousands of doctors over 10 months in 2016.”

For this story, we checked the Open Payments database and confirmed that not one of MiMedx’s payments to physicians has ever been reported.

MiMedx has argued that it doesn’t have to report. The basis for that claim is a mystery to us; the law requires that manufacturers of biologics covered by Medicare must submit. MiMedx said in a press release on March 13, 2014 that its EpiFix® wound care allograft was covered by all Medicare contractors.

• Ernst & Young, the auditor brought in by the new management to help it reconstruct its financials in the wake of the alleged channel stuffing, quit on December 4, saying it could not construct solid financial figures because the company still had to rely on legacy middle managers left over from the prior regime for some of its numbers.
• On December 6, the company laid off a reported 240 people, 24% of its staff—half of them from its sales force.
• The stock price, which had been dropping most of last year from a February 2, 2018 midday peak of $18.25, hit a nadir of 95 cents the day after the layoffs.
• NASDAQ delisted the stock February 25, tossing it to what are called the “pink sheets” because it doesn’t have verifiable financial reports.
• MiMedx announced March 1 (and again April 11) that it still could not file required 10K financial statements with the Securities and Exchange Commission (SEC) for 2017 or 2018 because its financial reports for those years are still a mess.
• On April 5, an orthopedic treatment called OrthoFlo, which appeared prominently in the company’s product line on March 31, was no longer listed on its website. This was just after the Food and Drug Administration (FDA) announced on April 3 that it was stepping up enforcement actions against what it sees as unproven human-tissue-based products (see that separate story).

And then there’s the FDA

Recently the FDA has stepped up its enforcement of 361 HCT/P regulations. In its April 3 announcement to the allograft industry, the FDA used tough language to remind all processors that human-derived placental and umbilical cord blood tissues which claim to be “homologous” must comply with the functionality standard. In short, the function those tissues performed in the donor must be the same functions intended to be performed in the patient.

And, if those allograft human tissues are being marketed as treatments, then they most likely require a biologics license.

MiMedx has one of the most extensive placental tissue clinical studies and trial efforts and has repeatedly announced that they intended to apply for a biologics license. Prior management listed 33 clinical studies and trials on clinicaltrials.gov from 2012 through 2018. Of those 33, 18 are listed at that site as “completed.”

None of the studies listed in that federal database are also listed as having been published in a peer review journal. Thirteen of the 18 studies are listed as having enrolled fewer than 100 patients; the smallest studies had 5, 7, 10, 10, and 16 patients, respectively.

One of the studies, a Stage 2 clinical trial, has published results for injections of MiMedx’s AmnioFix product for plantar fasciitis. The study claims statistically significant success, but in an unusual note at the bottom of the article, the editor of the journal undermines the results:

“The authors are to be commended for performing a high-quality prospective, randomized trial. They did find a 76% decrease in VAS pain score at 3 months in the dHACM group vs control and a 60% decrease in Foot Function Index score in the treatment group vs 40% decrease in the control group. It is unfortunate that they have only reported their 3-month outcomes despite seeing the patients at 6 and 12 months after enrollment. It is unknown whether the beneficial effects of the treatment persist…. The results…are preliminary at best. Also, no information about the cost of this injection, which is always important with new treatment modalities especially in our current health care environment, is given…. One could also argue that enrollment in the study after only 30 days of conservative treatment was not a long enough period of conservative treatment.”

The United Kingdom’s National Institute for Health Care and Excellence (NICE) has questioned the trustworthiness of clinical studies of MiMedx’s EpiFix product, saying: “Two of the 5 studies included were written by the same group of authors (Zelen et al.) and 4 studies were funded by the company. Four other studies are ongoing, and 5 studies have been completed but not published.” NICE also expressed doubt about the economics of EpiFix, saying a course of treatment of five dressings, one per week, was £5,091.95. By comparison, a standard wound dressing there is as little as £0.20.

Here’s why Prescience Point says it’s buying MiMedx stock

With all that bad news and all the doubts surrounding the investigations, the financials, and the FDA’s future regulatory treatment of the product line, why would PPCM buy the stock in such quantities that it now owns 7.92 million shares, or 7.3% of MiMedx?

PPCM told why, in a 9,909-word January 9 commentary, “MiMedx: The Healing Is Just Beginning,” available to anyone for a free trial on the Seeking Alpha website.

• The amount of channel stuffing known so far was very small compared to MiMedx’s total sales. The whistleblower lawsuit said the totals were about $10 million in 2016 and $2 million to $2.3 million in the first quarter of 2017. MiMedx’s total claimed sales, now suspect, were $157 million in 2015 and $245 million in 2016, and projected by former management to be $321 to $322 million in 2017, up from $59 million in 2013.
• MiMedx is debt-free, repurchased 100 million shares from 2014 to the third quarter of 2017 without borrowing, and had $33 million in the bank at the end of 2017. PPCM estimated that it would still have at least $20 million in the bank when all the restatements are completed. That estimate seems questionable, given the company’s stated need to borrow.
• PPCM also said, “Our investigation indicates that the majority of MDXG’s product sales are legitimate and sustainable” and the bribery was only “certain rogue sales people…we found zero evidence of widespread bribes/kickbacks.” With grand juries looking into MiMedx in South Carolina and Georgia, subpoenas from the VA and an ongoing Justice Department investigation, this conclusion certainly remains to be proven.

MiMedx’s stock price rose steadily from its December low of 95 cents to $4.00 April 9, but receded almost 9% April 10 and 11.

What about Pugnacious, Pusillanimous, Pete Petit – the Disgraced Former CEO?

He’s punching back hard, claiming that current management has made a mess of everything and placing his name and those of his associates into the running for seats on MiMedx’s board of directors.

MiMedx’s shareholder meeting is scheduled for June 17, 2019. Every shareholder should attend. The fireworks should be, if not bombastic, then colorful.