MDXG: Unexpected Results Call for a Revision

By John Vandermosten, CFA

NASDAQ:MDXG

READ THE FULL MDXG RESEARCH REPORT

Topline Results from Phase IIb KOA and Phase III PF

On September 13, 2021, MiMedx Group, Inc. (NASDAQ:MDXG) reported results from its Phase IIb Knee Osteoarthritis (KOA) study and topline results from its Phase III Plantar Fasciitis (PF) study. Six-month efficacy data from the Phase IIb KOA study interim results did not meet primary endpoints. Upon review of the Phase III PF data, management concluded that the results do not support a BLA filing. Management will discuss the data with the FDA as allowed under the Regenerative Medicine Advanced Therapy (RMAT) process. AmnioFix Injectable received RMAT designation for KOA in 2018, which includes benefits of Fast Track and Breakthrough Designation programs.

In concert with the press release, MiMedx management, including CEO Tim Wright, CFO Pete Carlson, and research and development head Dr. Bob Stein provided an update at the recent H.C. Wainwright conference.

Phase IIb Knee Osteoarthritis

Topline results from an interim analysis at six months for the Phase IIb trial in KOA (NCT03485157) did not meet primary endpoints of Visual Analog Scale (VAS) for Pain or Western Ontario and McMaster Universities (WOMAC) Osteoarthritis Index. Efficacy measures differed between patient cohorts evaluated before and after a blinded interim analysis performed mid-2019. This anomaly has prompted management to pursue further confirmatory studies in the indication. Micronized dehydrated human amnion chorion membrane (mdHACM) was well tolerated with no significant adverse events or serious adverse events. Trial enrollment included 466 patients between the ages of 21 to 80 years. Subjects included had osteoarthritis grade 1 to 3 on the Kellgren Lawrence scale and a VAS for Pain score greater than 45. Due to a lower-than-expected participant dropout, the trial has already achieved an adequate number of patients to assess the primary endpoint. The final enrollment totaled 446 patients. The trial’s 12-month safety visit follow up is expected to conclude in October 2021, with six-month open-label extension to follow. A safety readout is also expected at this time.

Though not statistically significant, interim analysis trended toward potential treatment efficacy, warranting further investigation. Differences were observed between patients enrolled prior to the study’s initial blinded interim analysis and those enrolled after. Patients in the pre-interim analysis cohort demonstrated greater improvement in WOMAC-Total, WOMAC-Pain and WOMAC-Function scores and actually achieved statistical significance at both three- and six months. Patients in the post-interim analysis group were more difficult to differentiate as both treatment and placebo groups experienced positive response. Analysis of VAS endpoint was not statistically differentiable in either pre- or post-interim analysis cohorts at either three- or six-month timepoints.

MiMedx management expects that, based on the interim analysis, two Phase III studies in KOA will be necessary to file a BLA and looks forward to meeting with the FDA to discuss next steps. Management had guided toward BLA filing in late 2024 or early 2025. Pending guidance from the FDA, MiMedx will update investors on timing as future activities become clear. Management plans continued research investment to understand the underlying disease process in KOA, mdHACM’s potential benefit to cartilaginous tissue, and understanding mdHACM’s mechanism of action.

Phase III Plantar Fasciitis Topline

MiMedx’ trial in Plantar Fasciitis (NCT03414268) did not achieve statistical significance in its primary efficacy endpoint of change in VAS for Pain at 90 days. MiMedx will not pursue a BLA for mdHACM in PF, and will instead prioritize the KOA program. mdHACM was found safe and well tolerated in this study with no significant adverse events. Both treatment and placebo groups showed improvement in VAS Pain and Foot Function Index Revised (FFI-R) scores.

The Phase III study was a prospective, double-blind, randomized controlled trial of a single injection of 40 mg of mdHACM into the plantar fascia as compared to saline placebo. The trial enrolled 277 patients between the ages of 21 and 79 years with plantar fasciitis diagnosed for greater than or equal to one month and less than or equal to 18 months. Patients included had a VAS Pain score of greater than or equal to 45. Patients had been treated for greater than or equal to 1 month (30 days) using general modalities such as rest, ice, compression, elevation stretching, NSAIDs, or orthotics. The primary endpoints were change in VAS for Pain at 90 days and incidence of related adverse events at 180 days, serious adverse events, and unanticipated events during the first 12 months post-injection. Secondary endpoints included self-reported responses to the Foot Function Index – Revised (FFI-R) at 90 days.

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 31, 2021

➢ Regulatory approval for EpiFix in Japan – June 2021

➢ 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

➢ Analyst and investor R&D day – Late fall 2021

Valuation

We reduce our target price for MiMedx based on the removal of sales related to PF and temper the revenue impact from KOA based on the undifferentiated results from the Phase IIa study. Removing PF lowers topline growth in 2024 and 2025 from 20% to 12% for both years. 2026 and 2027 revenue growth are reduced from 25% to 18% due to the weaker than expected results from the Phase IIa trial which impact both the anticipated penetration and ultimate likelihood of success for the program. We also reduce our research and development expenditure forecasts to reflect lower spending related to the PF program. In response to the lower topline growth rate, we also reduce our target multiples from 25x P/E and 17x 2026 EBITDA to 20x P/E and 15x EBITDA to reflect a smaller benefit from a successful KOA program and lower growth rate. Our forecasts for 2026 call for revenues of $494 million, EPS of $1.06 and EBITDA of $222 million. These compare to our previous 2026 estimates of $591 million (revenues), $1.47 (EPS) and $304 million (EBITDA). After discounting our 20x 2026 P/E and 15x EBITDA estimates at a 20% discount rate, we generate a target price of approximately $10 per share.

Summary

Despite favorable early results in the Phase II PF study and interim results in the Phase IIb KOA study, both efforts missed their intended mark at the end of the trial. This has forced MiMedx management to adjust their future approach and abandon the PF program and modify the KOA program. Next steps for the company include meetings with the FDA to identify a path forward as there has been substantial data that has shown benefit for KOA patients using mdHACM. The team is analyzing the data to understand what may have driven the changes in outcomes from earlier evaluations. For the KOA trial in particular, subjects added later in the study were at newer expanded sites and also received their treatment during the pandemic, which may have impacted the results. We will know more at the upcoming analyst day expected this fall after management has had a chance to consult with the FDA. The company is planning to move forward in KOA with two Phase III trials that are expected to launch in the coming year. While the markets responded violently to the news regarding the PF and KOA trials, MiMedx is in a good position to continue to generate double digit topline growth with line extension products such as EPICORD Expandable and geographical reach into Japan and other international markets.

MiMedx holds sufficient cash on its balance sheet to reach positive cash flows and earnings without additional capital raises. We continue to see full year positive earnings by 2022 and substantial growth over the next several years which will provide the firm substantial financial flexibility to optimize its capital structure. Due to the weaker than expected topline data from the PF and KOA trials, we decrease our price target to $10.00 per share.

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. MDXG Corporate Presentation September 2021

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