Q2 2020 MiMedx Group Inc Earnings Call
Good morning, and welcome to limited second quarter 2020 financial results Conference call. All participants will be in listen only mode did you need to see scripts. We signaled conference specialist my question to Starkey followed by zero.
After today's presentation, there will be the opportunity to ask questions. Please note. This event is being recorded.
Well I like to turn the conference call over to go Dixon.
<unk>, Vice President Investor Relations and corporate Communications. Please go ahead.
Thank you operator and good morning.
With me today or him right, Chief Executive Officer, and Pete Carlson Chief Financial Officer.
Additional members of senior management will also be available to answer your question.
Before we began I want to point out that we issued cute press release of recently announced a key additions to our senior management team.
Dr. You're well hit catch up a bit executive Vice President and Chief Commercial Officer, Dr., Robert Stein as Executive Vice President Research and development.
I also want to highlight it on August 3rd we filed our definitive proxy statement and announced that we will hold or 2019th annual meeting of shareholders on August 31st 2020 in a virtual format.
The press release with you in second quarter 2020 financial results was issued on August four and is available on our website.
I'd also like to remind you that remark made during today's call include forward looking statement.
Although the company believes that the expectations reflected in such forward looking statements are based upon reasonable assumptions actual outcomes and results are subject to risks and uncertainties and may differ materially from those anticipated due to many doctors.
Let's not go directly to the risk factors set forth in my Medicine 2019 annual report on form 10-K, and the second quarter 2020 quarterly report on form 10-Q.
Factors that could cause actual outcomes and result to differ materially from Doe is reflected in the forward looking statements.
The company assumes no obligation to update or supplement any forward looking statements, except as required by law.
This call will also include references to certain financial measures such as adjusted EBITDA and adjusted EBITDA margin that are not calculated in accordance with generally accepted accounting principle for gap.
Reconciliations of those non-GAAP financial measures the most comparable measure calculated and presented in accordance with gap are available in the earnings press release on the Investor Relations portion of our website.
With that I'm pleased to turn call over to my next Chief Executive Officer, Tim right.
Thank you Hillary and thank you to everyone joining us on the call. This morning.
I could not be more please say that metrics is correct its financial reporting requirements filing the second quarter form 10-Q represents a significant milestone for our company. That's the first time since 2017.
Medix. This time, we filed its annual or quarterly report.
Over the past year.
Primary priorities have been to restore the financial integrity of the company.
Building capable and cohesive management team.
Progressed in the resolution of the company's legal matters.
The companys coach around enforcement discretion in compliance with the FDA regulatory guidance for human cell in tissue products.
And refine the next steps.
Advancing our pipeline.
Each of those priorities and our future growth is strengthening our leadership team.
We are fortunate to have attracted to highly.
Seasoned executives.
To my metrics.
Both of whom are well regarded high performing leaders burst in late July we announced Doctor will get cashier.
With joining nomadic says executive Vice President and Chief commercial Officer.
Patrick caching is going to accomplish strategic leader with experience in building successful global commercial operations.
And a track record of delivering growth.
Transforming business.
Product portfolios and building high impact page.
Dr. Cashier brings more than 20 years of medical device experienced human medics with a solid track record of performance in developing strategies for market creation in commercial models that will deliver value to patients in health care systems.
I'm confident that.
This breadth of industry experience he will drive growth.
With our end market brands expanded market awareness of the growing prevalence and difficult to feel chronic wounds.
And diseases, such as diabetes, but can cause such words.
And communicate the clinical and economic value of our product portfolio.
Second yesterday, we welcome Dr. Bob Stein.
As executive Vice President Research and development.
Bob will lead our product and pipeline development priorities.
Noted for his significant contributions in it and accomplishments in medical research and development Dr. side brings to metrics more than 40 years of experience across multiple pharmaceutical and biotech companies.
He has served as a lead contributor in the discovery and registration to be marketed drugs and its highly regarded their respected industry sciences.
Dr. Stein is broadly known for his expertise in numerous faces a product developed particularly in the areas of molecular and cellular biology.
Biochemistry animal pharmacology drugs metabolism and safety assessment among among other things.
He led and supervise large groups sites system positions for more than 15 years of major therapeutic there.
In addition, I'm pleased to share the one of Dr. signs responsibility.
Will include the formation of a new scientific Advisory Board.
So I answered regenerative tissue technology holds tremendous promise in our team is committed to advancing category science and demonstrating value. So that patients can access to care they need.
He brings the extensive development regulatory registration expertise necessary to advance the rigor of placental based.
Space Science and accelerate the transition of our category line with recent FDA guidance.
Having to these two highly qualified industry leaders along with extensive experience.
The executives we have attracted to the company over the past year demonstrates our commitment to strengthening our leadership in advanced wound care in advancing our pipeline to registrations.
Our senior management team built both from those joining the company over the past year NB formidable existing talent within the organization, who have stepped into leadership roles.
Possess the training skills integrity and experience to act strategically.
Differentiate our product will lead the category future innovation in tissue sites.
I look forward to virtually introducing you to our leadership team at our and upcoming 2019 annual meeting of shareholders.
When I joined the matters. This is why I can't.
That is why these leaders also kid in order to restore.
Reshaped and transform the potential for were medics to make a meaningful difference to all of our stakeholders, whether they're in investor.
For a patient or an employee.
Tell me to expand on this.
Our products are derived from tumor placenta way rigorous process, whereby the mother consents to donate Hurco center for medical purposes.
The placenta is a sophisticated biological systems that supports growth in healing.
And creates a platform to develop innovative and useful products in new care and other areas such as muscular skeletal applications, which we are studying in the clinic today.
What sets us apart is the possibility to transform got only metrics, but the advanced wound care category as Paul.
Our experience in wound care can guide our understanding of the properties and utility coal central tissue in other applications.
As a science based company, we have the opportunity and the responsibility to advanced science that reinforces the efficacy and safety of our products and usually potential placental science to four.
Platform technology.
We are investing in research and development.
Cgmp manufacturing.
And our commercial organization.
As the primary drivers for growth.
And operational excellence.
We believe that we now have the leaders in place to realize the company's value potential.
Well, let me turn to the impact to covert 19 on the business.
We continue to closely monitor key performance indicators across the business.
Some indicators viewpoint towards the recovery, although there's still significant uncertainty.
The ongoing pandemic has impacted the company ability to access various sites of care across the country.
Patient stayed away and in some areas continue to stay away from hospitals and other medical facilities.
Pete will provide additional details shortly in his discussion with you.
I'd like to address the recent recent extension of enforcement discretion by the U.S. food and drug administration for the up yet.
Last month, the FDA announce an extension of its enforcement discretion policy from November Thirtyth 2022 may 31st 2021.
This applies cross human cells tissues, and cellular and tissue based products in the industry.
The FDA outlined the extension is warranted in light of Coca 19, public health emergency and the unique challenges presented in recruiting clinical trial participants in conducting clinical trials during the pandemic.
Although in extending the deadline the FDA did not change its views on directly on regulatory criteria applied to tissue based products like those that we develop and produce.
The FDA did state its intent to give manufactures additional time to determine.
If they need to submit and I envy investigational new drug for marketing application that has an application is required to prepare the R&D or marketing application.
No as the leader this important therapeutic category we welcome.
In support the FDA guidance to clarify regulatory standards and we'll continue to worked proactively with the agency.
This includes proposals to the FDA on enforcement discretion matters proactive communications and increased dialogue with the agency.
And the implementation.
Other improvements that further strengthen the company's quality systems, along with the advancements of our clinical pipeline Tonight studies.
The metrics is well in this way towards compliance.
The good manufacturing practices are cgmp, including the filing of additional.
I entities and the advancement of our manufacturing processes that we previously described.
While we appreciate the FDA is extension of enforcement discretion period.
The extension does not affect our continued drive to aggressively transition our pipeline products to compliance with within biological standards.
We are advancing our purity potency and identity tests to demonstrate consistency and reliability of the manufacturing process.
A rigorous focus on chemistry manufacturing and controls.
We're continuing to enroll patients in our.
Hi, Andy trials to demonstrate the safety and efficacy of our products.
As noted last month.
We've responded to the FDA is 43 observations from December 2019 and have completed.
All committed corrective actions.
We are preparing to schedule.
End of phase meetings with the FDA, two or you are progress with our ongoing clinical trials.
Outline proposed next steps.
Simon.
For this will be dependent upon FDA feedback and or they will build.
We have commenced the necessary steps to file I am duties.
Of our placental tissue matrix.
And to our injectable micronized placental tissue for the treatment of a broad range of UBS. Please.
These actions demonstrate that we're moving forward expeditiously incompliance with regulatory standards to elevate standard of care in this industry and fully support the transition outlined in the guidance to biological product standards.
I encourage other companies they are sector to adopt this from similar focus on product and regulatory standards by which our products are being evaluated before they reach the patient.
I would like to turn over the call to peak Carlson.
Baidu with our overview of financial results.
Thank you Tim Good morning, everyone and thank you for joining us today.
In the past five months the company has filed two 10-K's with audited financial statements.
Five 10-Q's, these milestones demonstrate our goals of transparency and action as we continue to position the company for growth.
Tim discussed his reasons for taking the role here at the metrics and noted the quality of the leadership team.
I joined the company to help re establish a practice or regular financial reporting.
And to raise the bar on our operating controls and the information systems.
I am pleased that we are the that's the point, where we can talk more transparently about the business.
On a timely basis.
Now, let me talk about our second quarter results and take a minute to thank our managers and employees for their responsibility diligence and commitment, particularly during the Kobin 19 pandemic.
Our cost containment actions have been effective and they've helped offset the impact of the pandemic on second quarter sales.
The businesses operating efficiently.
And we continue our efforts to ensure effective product support and service for our customers and access to our solutions for patients and families.
Net sales for the quarter ended June Thirtyth 2020 were $53.6 million, primarily recognized on an as shift basis.
20.4% decrease compared to net sales for the same period in 2019 recognized on a cash receipts basis.
As a reminder from January 1st to September Thirtyth 2019.
Revenue was recognized on a cash basis consistent with the treatment in the 2018 form 10-K.
From October 1st 2019 forward revenue is primarily recognized on an as ship basis similar to most companies.
For the quarter ended June Thirtyth 2020 revenue includes $1.7 million of cash collected related to sales made prior to the transition and the company's revenue recognition methodology.
September Thirtyth 2019.
I encourage you to read the notes to the financial statements for more information.
The decrease in net sales resulted primarily from the cobot 19 pandemic.
Causing cancellations and postponements for many elective procedures.
Consistent across many companies in our sector.
The restrictions affected all product lines.
In materially impacted product applications across multiple sites of service, including hospital outpatient.
Hospital inpatient.
And physician office settings.
There will address this more in a minute.
Net loss for the second quarter of 2020 was $8.5 million, which included $11.4 million of investigation restatement and related expenses.
Our adjusted EBITDA in the second quarter of 2020 was $10.2 million.
An improvement over 2019, despite lower sales volume.
You see this and the percent of sales where are the adjusted EBITDA margin in the second quarter was 19.1% compared to 14.1% in the second quarter of 2019.
Gross margin on the second quarter of 220 was relatively consistent with the prior year at 84.7% compared to 85.5% in the second quarter of 2019.
Selling general and administrative expenses or SGN day for the second quarter of 2020 decreased $4.4 million or 26.3% compared to the second quarter of 2019.
The decrease was driven in part by a temporary decrease in salaries travel and other expenses as part of our expense management aimed at mitigating the impact of the Coca 19 pandemic.
Lower commissions also contributed to the decrease in SDMA.
In addition, the company reported a year over year did decrease from almost $5 million and legal consulting and accounting expenses not covered in investigation restatement and related expense category.
SGN a expenses were lower this quarter.
Because of the cost containment actions implemented across the company.
I will note that many of these initiatives were temporary and we expect SDMA to increase the rest of the year.
However, going forward, we do anticipate that with an increase in sales, we can leverage our normal run rate operating costs.
As I mentioned investigation restatement and related expenses for the second quarter were $11.4 million.
Included in the results for a quarter is a benefit of $5 million from insurance coverage payments received related to litigation involving the company its current and former directors and former officers.
As indicated in our filings with the audit Committee investigation was completed in 2019.
And the restatement costs essentially ended in the second quarter with the filing of the 2019 form 10-K in early July.
As such the remaining cost and lease this category relate to legal matters spending from the audit Committee investigation, which can be classified into three buckets.
First to expenses for legal services for matters in which the company is named.
Second resolution costs, if any for those matters.
And third cost incurred under indemnification commitments for former officers and current and former directors involved in legal matters related to their time with metrics.
Research and development expenses for the second quarter of 2020 were $2.3 million.
Opened 19 has affected our clinical trial enrollment similar to other companies and the results for the quarter reflect this however, while expenses are down compared to the prior year.
The company expects these costs to increase overtime as we invest in additional clinical and scientific research, including internal product development.
Michael efficacy and economic data and preclinical research supportive of future growth objectives.
The additions of doctors catch up and Stein demonstrate our commitment to category leadership and our belief that our investment in commercial operations and research and development is core to our future portfolio and pipeline.
The monthly trends help understand the impact of the pandemic honor sales volume.
Net sales in April and May 2020 were down significantly compared to April and May 2019, respectively. While net sales in June 2020 were in line with net sales one year ago.
Beginning in early July 2020, additional restrictions that again limit or postpone some elective procedures have been put in place in certain areas of the country and in particular in areas of the country that contribute a larger portion of sales.
That being said on a consistent basis net sales in July 2020 were in line with July 29 team that sales.
We do need to caution that future sales will depend on patients willingness to visit healthcare providers for care.
The Companys sales forces access to healthcare providers and.
And the severity of the Kogut 19 pandemic across the country, including future waves of the outbreak depending on where infection rates are highest.
Like many companies, we cannot reasonably estimate covert nineteens future effect on patient behavior future demand for the financial impact of the pandemic on the ability of providers to pay for the company's products.
Our donor collections have remained resilient throughout the pandemic, reflecting the actions of management to adjust recovery resources, where needed and to build inventory when possible to ensure consistent supply.
And we continue to take actions that protect the health and safety of our workforce in accordance with federal state local public health sources that set policy.
Unfortunately people with on healed wounds face medical urgency and for those people not able to receive care now treating their rooms will have an even greater urgency later.
We are working to ensure that we are ready to support our customers in caring for these patients.
Before I turn it back to Tim to discuss the upcoming communication milestones I will remind you that we have initiated the process for Reed listing our common stock.
And are optimistic that this event will occur before the beginning of the fourth quarter.
We are encouraged to note that over the past month trading volume in our stock an important metric of liquidity at market interest has grown and we are increasing our reengagement with members of the financial community.
I look forward to updating you on our progress.
With that I will turn the call back over to tail.
Thank you Pete.
As you saw in our filing of our proxy statement last week.
We've scheduled the 2019 annual meeting of shareholders at the end of this month on August 30, Onest. The meeting will be held virtually in the best interest to safety for everybody.
At that meeting we plan to tell you, where we are and outline our efforts along with.
The work we have ahead of us.
By the end of the year, we'll also hold.
Our 2020 annual meeting of shareholders.
At that meeting we will share our vision for where we are going over the next several years and how we plan to achieve measurable progress to get that.
We have effective products and a promising pipeline with the potential to address unmet patient needs.
As a platform technology across multiple applications.
The science of regenerative tissue technology holds tremendous promise for millions of people, who suffer with chronic difficulty heal wounds in our commitment is to advance category science and demonstrate value. So that patients can access the care they need.
The metrics is under new and significantly experience category leadership.
And our team is dedicated to transforming the culture.
In sealing operational excellence across the company and realizing the company's value potential.
We continue to take actions that focus on our patients enhance our business resiliency in the store the companys financial integrity and reputation.
We're moving forward.
We will now take your questions.
And at this time will be conducting a question answer session.
I'd like to ask your question. Please press star one on the telephone keypad.
Confirmation Tony will indicate in license question Q.
You May proceed starting to if he would like to move your question from the Q for parties is using speaker equipment. It may be necessary to pick up the antenna before question to start.
One moment, please while we call for questions.
And again as a reminder, you have any questions you May press star one on your telephone keypad.
And so we're ensuring issue in the question Q.
Okay.
Our next question is our first question is from it as by from Christian. Please proceed with your question.
Hey, guys.
This is Ed.
Yes, Joe Good morning, most recent.
Good morning, your most recent thanks, Hey, you guys disclosed.
Promising preliminary results.
Your knee.
And our Bassi ice trials, which both showed significant separation between the treatment in the Controlfour.
Our assessment is that the pipeline that revolutionized the treatments of an assortment of muscular skeletal generative disorders, with Oh, hey alone potentially adding billions of the value of the company.
We are highly encouraged by the company now, making major investments in the pipeline through the higher of scientists and other highly credible personnel can you articulate your base case on the dollar value potential of the pipeline.
Yes.
The as you know the osteoarthritis of the knee is a well characterized market.
We're not in a position today to share with you base case or or a upside case on this.
I do believe.
It did our shareholder meeting on August 31st we'll be prepared to share that with our with everyone.
Understood. Thank you.
Thanks, Ed.
Okay.
And we have received energy question answer session out now turn the call oversee management for closing remarks.
Thank you for joining us today, we have another call color.
We have a question from Brian said was in cabinets. Please proceed with your question.
Congrats again on.
You know get everything that you have done done here.
Yes, I guess I had a question on.
Kind of market share.
And the success.
Over the last couple of.
Last two years, you've had to play do you sense on a variety of fronts.
And at this point seems like all those distractions or basically behind you.
What are sort of the incremental things you guys can do to start competing and winning back market share over the next six to nine months here within the home care market.
Brian Good morning, its peak Carlson.
As we think about who the growth opportunities really split it between the two business there are between two components of our business.
As we just mentioned, we still need to and do plan to in the near term give people an understanding of some of the market.
Hi is related to our injectable and granular product, what we collectively referred to as Micronized.
And we.
So then as you and then that runs around 15% of our business, though if you think about the the 85% that are the skin substitute tissue products.
We think about growth really in four ways.
And this is what you're going to see US Act on the first is just market growth that seems to be in the high single digits in most people's mind, and we tend to agree with that.
We can take advantage of that gross that multiple ways.
Including some boots on the ground.
Secondly, we think and probably the biggest opportunity as we think theres an opportunity to expand the market beyond sort of the normal growth you'll hear us talk about apathy is a competitor or barrier.
So this is where we want to use our.
Clinical support.
As well as economic data.
To educate more and more people about the effect effectiveness efficacy of our product.
So thats the second area.
The third is business development, we have Stan myself on it as it's a focus on that area and that can come in many ways partnerships or other licensings arrangements et cetera.
And then the final will the fourth one that we talk about admittedly this is a little bit longer term.
But we do believe there are opportunities outside the us.
To further expand the product.
So those for growth areas again.
This market growth expanding the market.
Business development.
International opportunities or how we see Tim you on talk about how we can leverage the.
Each our Q results.
Yes, as many of you.
Based on our previous discussions with one another.
On on cost we.
We've discussed the HR Q results. This was an independent study that was conducted.
With this agency.
It was basically a metal analysis that was conducted we're.
Were the there were 76 commercially available skin substitutes of which.
25 pad clinical studies included in the documents.
HR to conducted a literature church, yielding 164 studies and 81 other submissions to their seeds program only 22 of those randomized control trials met the inclusion criteria.
Of the of the 22 randomized controlled trials Normedix had six included in the final briefing.
22 studies reviewed only 12 were assessed as low risk compliance.
Of which 500, the Medix randomized control trials. The other 10 were assessed as moderate risk of buyers. This assessment was the first amniotic.
Membrane products that HR acute had reviewed for the treatment of chronic wounds.
That being fix was noted had the most randomized controlled trials and had a low risk of overall by us.
At a statistically significant finding.
Upbeat.
Of course, the overall conclusion in the 2020 assessment is that additional studies are needed, which we fully support.
This is in perfect alignment with our strategy to elevate standard of care and commit to operational excellence and demonstrate our category leadership.
Thanks, Tim and Brian just to conclude that's the type of information, we think will help us.
Go to market and work on those for growth opportunities, we talked about and we're also working with other data, but we think will help people understand the importance of our product.
Thanks.
So.
Okay.
And I understand the big question and answer session and we were handed over to management for closing remarks.
Thank you for joining us today for this important call as noted earlier, we will be increasing our outreach the members of the financial community with a goal creating.
Ongoing transparent dialogue. Unfortunately, we will not be able to me to face to face as would be our preference for looking forward introducing our new management team via conference in video calls where possible. We appreciate your interest and continued support thank you.
Yes.
And we have reached the end of today's conference and you may disconnect. Your lines at this time. Thank you for your participation.