Zacks Small Cap Research – MDXG: Legal Avenues – Technologist

By John Vandermosten, CFA

NASDAQ:MDXG

READ THE FULL MDXG RESEARCH REPORT

Since the report of 2023 full year results on February 28th, MiMedx Group, Inc. (NASDAQ:MDXG) has received an update on its request for designation for Axiofill from the FDA. It has also signed a commercialization agreement with TELA Bio to distribute xenograft products, introduced an e-commerce and account management platform and appointed new directors to its board.

Axiofill Letter

Last December, MiMedx issued a press release announcing that the FDA had issued a warning letter related to the classification of Axiofill as a Section 361 product. The warning letter did not relate to any other MiMedx products and was not related to product safety or adverse events. Axiofill generated less than 5% of total net sales in 2023 and there was no impact on 2023 revenues. Axiofill is used to replace or supplement damaged or inadequate integumental tissue and is derived from human placental disc extracellular matrix.

Prior to the issuance of the letter, MiMedx was actively engaged with the FDA through the Request for Designation (RFD) process. The RFD allows companies to determine the regulatory pathway for their products in consultation with the FDA. Based on our understanding, the Warning Letter will have no effect on sales until a final disposition has been made through the RFD which could take some time. Following the letter, MiMedx gathered additional details regarding the RFD and submitted the compiled data to the agency. The FDA had 60 days to make a final determination and provided a response in late March. The FDA determined that Axiofill does not qualify for classification as a Human Cell, Tissue or Cellular or Tissue-based Product (HCT/P) under Section 361 of the Public Health Service Act (PHSA). This was a final decision by the FDA, and in response, MiMedx will take steps to assert its position in court.

The company has filed suit in the U.S. District Court for the Northern District of Georgia to overturn the FDA’s decision. MiMedx feels that the agency is treating similar products differently. One human derived particulate product is considered a Section 361 product, and another was approved using the 510(k) pathway which is used for medical devices. In a previous update we discussed the Section 361 classified product, Interfyl, a connective tissue matrix. It is a placental-derived, allogeneic, decellularized, dehydrated particulate similar in manufacture and use to Axiofill.

➢ Section 361 Product

o Defined as medical devices or products that do not require FDA approval

o For human cells, tissues, and cellular and tissue-based products (HCT/Ps), the FDA evaluates whether the HCT/P is minimally manipulated to determine if it qualifies for Section 361

o Product must be minimally manipulated undergoing processing that does not alter the original relevant characteristics of the HCT/P relating to its utility for reconstruction, repair or replacement

o If the HCT/P is more than minimally manipulated, meaning there is a change to the biological characteristics or function, then it would require a higher level of premarket review such as a Biologics License Application (BLA)

➢ Section 351 Product

o Must clear the BLA process and be expressly approved by the FDA before marketing

o Product must be considered more than minimally manipulated

We made a minor reduction to our estimates following the December press release that assumed sales from Axiofill would taper off by year end. MiMedx has been finding alternate products to meet the needs of Axiofill users and may substitute other products in its portfolio to address surgical recovery and has also announced new arrangements to sell xenograft products which should contribute to topline. The company will be able to continue sales of Axiofill until it has exhausted its options which we anticipate will take the majority of 2024. Furthermore, MiMedx has maintained its financial guidance provided with 4Q:23 earnings. At this point, we do not expect further negative revisions related to Axiofill.

TELA Bio Arrangement for Regenity Biosciences’ Xenograft Product

In an effort to mitigate the impact of a potential disruption related to Axiofill and to expand its offerings into xenografts, MiMedx has negotiated rights to commercialize a 510(k) cleared, bovine-derived collagen matrix particulate. The product is indicated for the management of exudating wounds. MiMedx has obtained exclusive rights to assume TELA Bio’s rights to its manufacturing and supply agreement with Regenity Biosciences. The partnership with Regenity will allow MiMedx to augment its placental-derived product portfolio with xenografts and synthetic skin substitutes in order to expand its customer base. MiMedx anticipates that this will improve its competitive position in the Wound and Surgical markets.

The agreement will immediately add a 510(k)-cleared, bovine-derived, collagen matrix product to MiMedx’ portfolio indicated for the management of moderately to heavily exudating wounds and to control minor bleeding. The collagen in this product serves as a dressing that allows for cell adhesion and migration into the wound site and supports wound healing. It is provided in particulate form allowing it to be molded or packed to conform to various wound types such as pressure ulcers, venous stasis ulcers, diabetic ulcers, acute wounds, for example trauma and surgical wounds, and partial-thickness burns.

Under the terms of the agreement with TELA Bio, MiMedx will make an initial $5.0 million payment and additional future payments ranging from a minimum of $3.0 million and a maximum of $7.0 million based on net sales of the bovine-derived collagen matrix product over the next two years.

E-Commerce and Account Management Platform

MiMedx launches its MiMedx Connect wound care management portal which provides access to online ordering and reimbursement tracking. Providers that use MiMedx product can place orders, verify insurance coverage, track orders and manage patient reimbursement. The system is also connected to distributors and has a direct link to partner FedEx for order tracking.

Details of the new platform were provided in a March 13th press release. The goal of the portal is to simplify the interactions customers have with MiMedx and to reduce administrative burden and provide a centralized hub for access to account information and resources. The platform also provides product information for each of MiMedx’ products. At the time of the press release, over 300 customer locations were using the hub and feedback from customers has been positive.

New Directors

As of March 1st, 2024, MiMedx appointed two new independent directors to the MiMedx board of directors, increasing the size of the board to 11. The first new additions is Tiffany Olson, who has experience as CEO, President and other senior leadership roles at Cardinal Health, Roche and Eli Lilly. She is also a board member for two other public companies, Telix Pharmaceuticals and Castle Biosciences, and the private company Langham Logistics. The second new board member is Dorothy Puhy, who has held board positions at Abiomed, Azenta, Eaton Vance, Reebok and other private companies. Executive experience includes CFO and COO of Dana-Farber Cancer Institute and COR of New England Medical Center (Tufts Medical Center). The board of directors anticipates that these new additions to their ranks will contribute to the company’s strategic vision and provide valuable insights.

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