Apr 27, 2018
Executives
Robert Borchert - VP, Investor Relations Bill Taylor - Chief Operating Officer Michael Senken - Chief Financial Officer Christopher Cashman - Executive Vice President and Chief Commercialization Officer Deborah Dean - Executive Vice Presidents. Pete Petit - Chairman & CEO
Operator
Good day ladies and gentlemen, and welcome to the Q1 MiMedx Shareholder Conference Call. At this time, all participants are in a listen-mode.
[Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce Robert Borchert, Vice President, Investor Relations.
Sir, you may begin.
Robert Borchert
Thank you, Heather, and good morning everyone. I like to remind you 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 the actual results to differ materially in our filings with the Securities and Exchange Commission, which are available on our website, midedx.com. We do not undertake to update or revise any forward-looking statement except as maybe required by the company's disclosure obligations in 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 will turn the call over to MiMedx’s Chairman and CEO, Pete Petit.
Pete Petit
Thank you, Robert. Good morning.
We appreciate you joining us for this quarterly update. I have with me Bill Taylor, our present Chief Operating Officer; Mike Senken, our Chief Financial Officer; Chris Cashman, our Executive Vice President and Chief Commercialization Officer; and Debby Dean, one of our Executive Vice Presidents who has wide responsibilities.
First please refer to our December 13, 2017 press release for our 2018 financial guidance. Given the investigation by our audit committee, we cannot release the specifics of our financials yet.
However, we can give you sufficient information to assist you in understanding how excellent our first quarter was. For the first quarter, we exceeded the top-end of our revenue guidance nicely.
Recall that our top-end revenue guidance was $92 million. Also our distributor and OEM revenue was less than 5% of our total revenue.
That is the way it has been for a number of quarters now. Our cash flow for the quarter was strong and we are tracking to or exceeding our annual goals on gross margin of 89% to 90%; operating income of 15% to 17%, as well as fully diluted GAAP EPS of 30% to 35%, and adjusted EPS of $0.45 to $0.50.
Refer to the December 13th press release for more details on those particular items if necessary. We are also increasing our 2018 revenue guidance and providing guidance on our second quarter.
We had previously communicated revenue guidance in that press release for 2018 of $383 million to $387 million. We are increasing our revenue guidance range to $389 million to $394 million because of our performance in the first quarter, and of course, anticipated performance throughout the year.
In regard to the second quarter, that revenue is now expected to be $96 million to $98 million. We had what I consider to be an excellent quarter.
Operationally we are continuing to improve our manufacturing processes, which now include the use of lasers for cutting and perforating. That could further enhance our gross profit margins.
Additionally, all of our functional areas performed very well. The efficiency and effectiveness resulting from the implementation of a new sales management system is proving to be an extremely effective asset, and we will continue to make a substantial difference in our ability to accomplish our sales planning and execution in quarters and years ahead.
We now have over 400 dedicated sales representatives and that group is growing rapidly. I'm going to turn the meeting over to Bill, and I will have some further comments later.
Bill Taylor
Thanks Pete. Good morning everyone.
Our first quarter 2018 was operationally one of the best first quarters in the past several years. As most people will recall, the first calendar quarter tends to be the softest quarter of each year for many reasons.
This year we overcame the normal insurance deductible resets, a challenging winter that just seemed never to stop, as well as the external noise from our current situation. With all these factors in play, our team stayed focused and performed extremely well.
For that continued performance and focus I thank each and every member of the MiMedx team. MiMedx is keenly focused on serving clinicians and the patients they treat.
We also continue to be very focused on expanding our sales footprint and further penetrating each of the markets we serve. We are managing our territories with a diligent four to six quarters out and this continues to help our predictability and our ability to forecast with good accuracy.
In our February call, I mentioned that we had reached 400 sales personnel earlier this year, which was up from 350 in September of last year. Today, when including recently accepted offers, we are at about 425 with plans to get to 450 field sales personnel by the third quarter.
This puts us slightly ahead of our previously discussed pace. Our detailed planning and territory management discipline, education, execution and accountability particularly through the use of our sales management system or SMS continues to drive predictable and sustainable results.
The other areas of our operations are also performing quite well. We are expanding our research and development organization, and continue to add personnel who have experience with biologics and other more complex regulatory paths.
We are looking at our five year plus strategic plan to evaluate how we can expand and improve our product pipeline and R&D projects. It is a bit early to discuss the details of this initiative, but at the appropriate time we will discuss our pipeline planning.
It is definitely an exciting time that we are going through. Our processing, recovery and quality groups continue to do an excellent job in expanding production and in innovating the process to continue finding ways to improving efficiencies and ultimately lower cost.
We continue to hire and expand in virtually all areas of our business. We continue to have a strong candidate base and are making some great additions to our organization.
One area where we don't have enough capacity is office space. We are running very tight in all three of our current facilities.
Therefore, we just signed a lease for another 28,000 square feet facility that will be split with approximately 8000 square foot of the office space, and about 20,000 square feet will be distribution warehouse and packaging space. This building is located on our main business park in Marietta, Georgia, and is two buildings away from our headquarters.
This addition gives us just north of 170,000 square feet of space for our distribution operations and offices. We still need more space this year because of our growth.
So we also signed a letter of intent on another property for about 40,000 square feet that would be used as office space. We hope to sign a contract on the incremental space in the next several weeks.
Regarding our intellectual property, we now have 134 issued and allowed patents in total with 51 of them being placental based. We still have over 120 total patents pending, more than 90 of which are placental tissue-based.
All of which we believe offer significant barrier to entry for our competition, and enables us to confront other patent infringers if needed. Regarding our open patent lawsuits, we don't have any new updates for you at this time, but if developments occur we will keep you informed.
Now I will turn the call over to Chris Cashman.
Christopher Cashman
Thanks, Bill and good morning. First I want to thank our whole team for the diligence and hard work that they each exhibited in pursuit of outstanding performance.
The first quarter is always our toughest quarter of the year and everyone buckled down and worked the sales management system business plan that they each formulated with management. We are energized by our continued progress in our markets, and are continuing to hire within the sales organization and support groups.
As Bill noted, we expect to continue hiring beyond our budgeted 450 sales personnel by year-end in order to meet our growth plans and to further access the market opportunities. As we are well into the second quarter, I want to address the importance of our product and specialty initiatives.
It is paramount that we continue to focus first and foremost on our core wound care products. As a recognized leader, it is critical for MiMedx to continue to gain market share as well as drive market expansion.
Our competition is trying to lead with price and say their products perform the same, even though there is no level 1 clinical data to support those claims. We continue to be successful in communicating and educating physicians on our safety profile and efficacy as well as the importance of processing, quality and consistency as exhibited by our US pharmacopeia mark and compliance to good manufacturing practices.
Our MiMedx representatives are focused on being a part of making a difference in patients’ lives. We continue to invest in medical education and peer-to-peer symposiums.
Once providers have experienced the power of healing that resides with MiMedx’s product offerings and wound healing then they begin to expand their applications into foot and ankle pain and lower extremity and complex wound and surgical procedures. MiMedx is also continuing to invest in clinical studies because we know physicians want to understand the science and clinical data in order to make a well-informed choice as to what is most beneficial to their patients’ healing and outcomes.
It follows the physicians may conclude that MiMedx products are the best option for their patients. We feel strongly that physicians and hospital organizations should be given and want clinical options.
And we deliver solutions and economic value that enhance healing and improve outcomes for their patients. Our new products AmnioFill and EpiCord and AmnioCord made terrific strides in the first quarter.
While still a small percentage of total revenue, these products are gaining momentum with a strong repeat customer base that can accelerate the surgical and wound growth for the second quarter and balance of the year. AmnioFill and EpiCord and AmnioCord also offer our sales force a cross-selling opportunity into their base business.
Regarding surgical, sports medicine and orthopedics, our pain and surgical team efforts continue to gain traction. Surgical is finding a strong base and acceptance in the operating room with surgical specialties through increasing value analysis committees that are known as VAC approvals.
Surgeons are adopting MiMedx products for enhanced healing in high risk patients with complicated wounds and in specialized surgical procedures. The musculoskeletal pain specialist team is committed to educating the market on the attributes of the AmnioFix injectable platform under the HCT/P section 361 pathway.
With the plantar fasciitis Phase 2b efficacy data out now, and publication coming in the near term we have outstanding outcomes that can be shared with podiatry, foot and ankle orthopedics and physician offices treating musculoskeletal pain. AmnioFix injectable is highly differentiated from alternative options available today, and should be instrumental in offsetting the common first-line therapy use of degenerative corticosteroids, as well as minimizing the prescribing and use of opioids to relieve pain.
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 could exceed $4 billion. MiMedx employees are passionate to assist providers and facilities to deliver clinically and economically viable product solutions to its patients.
I'm confident that we are part of the fiscally responsible solution that will allow providers to practice evidence-based medicine to treat their patients. And now I will turn it over to Debby.
Deborah Dean
Thanks Chris. Good morning.
Today I would like to start by updating you on our IND trials and RMAT designation. As you might remember, we are currently running four IND or investigational new drug trials as we progress towards the filing of biological license applications with the Food and Drug Administration for micronized dHACM or AmnioFix injectable to treat certain musculoskeletal pain management indications.
We currently have our manuscript for the primary endpoint measurements for our plantar fasciitis Phase 2b trial under review. We hope that it can be published in the next 60 days.
Once this study is published, we plan to submit to [payers] for coverage determination. This product has proven repeatedly to be highly efficacious.
At the three month follow-up visit, mean VAS, visual analog scale scores for pain in the treatment of the group were 76% lower compared with a 45% reduction in mean VAS scores for control, which equates to a 54 point drop in the treatment group versus a 32 point drop in the control group, or a p-value of less than 0.0001. Additionally subject to receive, the micronized dHACM injection had a mean reduction of 60% in the FFIR foot function index score compared to baseline, which subject to receiving [placebo] had a mean reduction of 40% in FFIR score at 3 months compared to baseline, which equates to 36 point drop in treatment group and a 22 point drop in the control group with a p-value of 0.0004.
Enrolment in our two Phase 3 clinical trials for plantar fasciitis and Achilles tendinitis are going very well. Currently we anticipate the plantar fasciitis trial will finish prior to the AT trial but they are both ramping nicely.
Our Phase 2-b trial for treatment of knee pain due to osteoarthritis started enrolment in late March. Additionally, we were granted the regenerative medicine advanced therapy or RMAT designation for this IND with MiMedx being one of only 14 companies in the United States to receive this designation to date.
In granting the RMAT designation the FMA committed to a multidisciplinary comprehensive discussion with MiMedx regarding the company's development program for AmnioFix injectable for use in the treatment of OA of the knee. This includes planned clinical trials and plans for expediting the manufacturing and development strategy.
We have committed of meeting our quest to meet with the FDA to discuss ways to expedite approval for this indication. The clinical, regulatory and scientific teams have done an exemplary job in bringing these INDs to this point in a short period of time.
The FDA routinely inspects pharmaceutical medical device and HCT/P companies as part of their duty. At the end of an FDA inspection of Form 483, our Notice of Inspectional Observations maybe issued.
These observations are commonly referred to as 483. The FDA inspector may issue a 483 in their judgment they observe something that may violate regulations governing the inspected company.
Receiving a Form 483 is very common and most companies are accustomed to it. Companies such as Medtronic, Zimmer etcetera all have received such inspection findings.
And in fiscal year 2017, the FDA actually issued 5155 Form 483 across the industries they regulate. Companies receiving the 483 should respond to the FDA within 15 days to describe the corrective action plan to realign their activities with regulation.
This response is not mandatory, but uses the method to show the FDA that the company takes the observation seriously, and are treating them as an opportunity for improvement with a specific plan and timeline to resolve the issue. When the issues are resolved, then no further action is taken.
If the issues were not resolved it could result in a warning letter. MiMedx has never received a warning letter.
Additionally on the clinical study front we have completed the study for EpiCord in the treatment of diabetic foot ulcers, which includes a protocol population of 139 patients across 14 centers. Healing rates for EpiCord treated patients were 79% and 83% at 12 and 16 weeks.
These healing rates represent a significant improvement over the controlled population with p-values of 0.0067 and 0.0040 at 12 and 16 weeks respectively. We are preparing the manuscript for publication and look forward to sharing the publication results with you soon.
For the [DSU] study, we will be presenting a poster at SAWC, which includes a protocol population of 98 patients across 14 centers. Healing rates for EpiFix treated patients were 81% and 85% at 12 and 16 weeks.
Similar to EpiCord these healing rates also represent a significant improvement over the controlled population with p-values of 0.0093 and 0.0356 at 12 and 16 weeks respectively. A number of surgical studies are also nearing completion and heading for publication.
From a payer perspective we had a significant win with [indiscernible]. They have reduced the criteria for approval of EpiFix for VLUs and DFUs after seeing our additional study, and have experience with efficacy of EpiFix, which has resulted in a 40% increase in [approval] since the policy change.
Since the [VLU] study, we have added a total of 4.3 million covered lives for DFU and VLU in 2018. I will now turn the call back over to Pete for closing remarks.
Pete Petit
Thank you, Debby. Obviously we continue to relentlessly execute on our business strategy.
We continue to fulfil commitments made to you, our shareholders. We continue to fulfil commitments made to our patients and to our scientific and clinical endeavours.
We continue to build assets of this business in a very routine and programmed manner. Our cash flow is strong and is expected to continue to build.
In fact, I believe you will see a significant build-up of our cash in the second quarter, which is generally the way the business has been run for years. I will remind you that the company has no debt and sees no need for debt financing at this point.
Recall that we have repurchased over $130 million of our stock in the last 3.5 years. That cash came from our strong earnings and resulting cash flow.
The company is currently very undervalued in my opinion. There is another company I will mention that has gross profit margins and growth rates of approximately the same as ours in the healthcare area.
That company’s name is [Abiomed]. The company is currently trading at approximately 22 times this year's revenue.
I will say that again, 22 times this year's revenue. MiMedx is currently trading at about 2.3 times this year's revenue.
I would say this is clearly demonstrate – a demonstration of an undervalued situation on our part. At some point the audit committee of our board will complete its investigation and we will then publish our audited 2017 financial statements and our reviewed first quarter financial statements.
It is management's opinion that your company has a very bright future ahead as we continue to grow in the advanced wound care sector of healthcare, and now very importantly brings new therapies to the market through our FDA BLA IND processes. I want to thank our investors who have been patient enough to retain their stock ownership in the company during the time.
We want to make it clear that companies continue to perform operations like we have over the years, which led MiMedx to become the fifth fastest public growing company in America according to Fortune magazine. Finally, I want to thank our employees and the board of directors for their dedication and ongoing commitment.
We thank you for listening today. We look forward to speaking with you again in the near future about some new opportunities.
On that call we open it up for questions. Thank you very, very much.
End of Q&A
Ladies and gentlemen thank you for participating in today’s conference. This does conclude the program and you all may disconnect.
Everyone have a wonderful day.