MDXG: Model Updates

By John Vandermosten, CFA

NASDAQ:MDXG

READ THE FULL MDXG RESEARCH REPORT

Updates Based on Guidance

We had a chance to catch up with MiMedx Group, Inc. (NASDAQ:MDXG) management following their issuance of 2022 guidance and discussions with investors at January conferences. MiMedx benefits from a number of factors in its favor including new product launches (Amnioeffect and Placental Collagen Matrix), international expansion (Japan), development of the surgical recovery market and improved clarity regarding its development programs.

When MiMedx reported topline data from its Knee Osteoarthritis (KOA) study in mid-September, full study results were in stark contrast to results from the pre-interim analysis cohort. The topline results from the overall study missed primary endpoints, whereas the earlier 190-patient cohort demonstrated improvement in pain and function. In a follow-up to the KOA study presented at the company’s Virtual Investor Day in early December, further analysis showed that potency of the MIMEDX dehydrated Human Amnion Chorion Membrane (dHACM) faded as it aged. With this clarity on full trial results, MiMedx elected to launch a Phase III clinical trial beginning in 2022. A Biologics License Application (BLA) is expected to be filed in late 2025.

Based on our conversations and review of updated company materials, we adjust our revenue, expense and earnings estimates for future periods. Estimated core 2021 revenues, which exclude Section 351 product, are expected to be $236 to $240 million. Topline growth for 2021 is forecast in the range of 11-14% with 7-8% growth expected from existing products and another 2-3% each from new products and international expansion. 2022 quarterly growth is expected to accelerate as the year progresses with mid-single digit percent growth rate in 1Q, high single digit percent growth in 2Q, mid- to high teens percent growth in 3Q and up to 20% growth in the fourth quarter. We also increase our estimates for research and development spend for the year to $22 million to reflect the initiation of the KOA trial.

2022 Anticipated Milestones include:

➢ Achieving annual growth target;

➢ Mid-2022 launch of EPIFIX in Japan;

➢ Commence two Phase III clinical trials in KOA;

➢ Implement rigorous cGMP2 standards throughout supply chain;

➢ Peer-reviewed publications on research and clinical studies;

➢ Launch two new products in US: AMNIOEFFECT and Placental Collagen Matrix.

Investor Day

On December 7, 2021, MiMedx held a Virtual Investor Day for the first time in four years. The Investor Day was held via webcast and featured a number of distinguished Key Opinion Leaders (KOLs). The primary concern since the September 13th topline data report for KOA was addressed in the presentation and a path forward for the KOA program was provided. Based on an extensive review of the data, MiMedx determined that the age of the micronized dehydrated human amnion chorion membrane (mdHACM) product impacted its potency, obscuring clinical efficacy results from the trial. The analysis allows us to conclude that product less than two years old should provide a statistically significant benefit as seen in the first patients enrolled in the Phase II KOA trial. We summarized the details from the event in our research report here.

Key takeaways from the Investor Day include:

➢ Interim results including p-values from Phase IIb KOA study support registrational trials;

➢ Root cause analysis identified shelf life as cause for Phase IIb KOA endpoint miss;

➢ Expected 2022 start to two Phase III trials for KOA;

➢ KOA Biologics License Application (BLA) filing anticipated in late 2025.

Company Milestones

➢ IND / IDE submission for multiple wound care indications – As of August 2021:

◦ Chronic cutaneous ulcers (AmnioFix) – IND Cleared

◦ Surgical incisions (AmnioFix) – IND Cleared

◦ Soft tissue defects (AmnioFill) – IND Filed

➢ Conclusion of enforcement discretion – May 2021

➢ Regulatory approval for EPIFIX in Japan – June 2021

◦ Launch of EPIFIX in Japan – Mid-2022

➢ Virtual Investor Day – December 2021

➢ Launch AMNIOEFFECT and Placental Collagen Matrix – 1H:22

➢ Phase III KOA trials launch – 2022

◦ Phase IIa KOA trial completion – April 2021

◦ Final analysis & database lock – 2H:21

◦ Final safety follow up – October 2021

◦ Generation of full data set – 2H:21

◦ End of Phase II meeting with FDA – 2H:21

◦ BLA submission – Late-2025

◦ Commercial launch – late 2026

Valuation

We continue to use a multiple of 2026 earnings and of EBITDA discounted to present to calculate our target price. We reduce our revenue estimates, our anticipated gross margin and increase research and development spend to reflect company guidance. The net result of the change generates 2026 EPS of $1.20 per share and EBITDA of $250 million. Applying the 20x and 15x multiple to each and discounting the result to 2022 using a 20% rate generates a blended share price of $11.00.

Summary

MiMedx provided detailed guidance for 2022, including quarter by quarter estimates of revenue growth. Guidance was also provided for gross margins and research and development spend. Based on these inputs we revise our model to reflect the latest information. We are optimistic on future growth for MiMedx given numerous drivers, all of which can add a material amount of growth to the current base. 2022 initiatives include the launch of two clinical trials under its Phase III KOA program, launch of EPIFIX in Japan, and launch of two new products, AMNIOEFFECT and Placental Collagen Matrix. Other initiatives include implementing rigorous cGMP standards throughout MiMedx’ supply chain and continued research on clinical efficacy; economic viability; and underlying mechanism of action of MiMedx’ tissue product.

MiMedx hosted a valuable Virtual Investor Day on December 7th, for which details can be found here. The company discussed its KOA program, as well as commercial opportunities and strategy and offered updated financial guidance for revenues. The KOA program session, led by Dr. Robert Stein, MD, PhD, revealed more information about its mdHACM KOA program, including a root-cause analysis for the Phase II miss that revealed product degradation as a function of shelf life. Management is confident they can address the deterioration issue as they target two registrational trials to begin simultaneously in 2022.

See our recent initiation on MiMedx for an in-depth discussion of MiMedx’ technologies and products, our investment thesis, and discussion of recent events and milestones.

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1. Source: MiMedx January 2022 Corporate Presentation

2. Current Good Manufacturing Practice

3. Source: MiMedx January 2022 Corporate Presentation

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