Ladies and gentlemen, thank you for standing by, and welcome to the MiMedx First Quarter 2021 Operating and Financial Results Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker, Mr. Jack Howorth. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to the MiMedx first quarter 2021 operating and financial results conference call. With me on today's call are Chief Executive Officer, Tim Wright; Chief Financial Officer, Pete Carlson; and Executive Vice President and Chief Commercial Officer, Rohit Kashyap. Tim and Pete will provide a summary of the operating and financial results for the first quarter 2021. And at the conclusion of their remarks, Tim, Pete and Dr. Kashyap will be available for your questions. Before we begin, I would like to remind you that comments made during today's call include non-GAAP financial measures, and we provide a reconciliation to GAAP in our press release, which is available on our website at www.mimedx.com. Also, our comments today will include forward-looking statements. While we discuss some reasons why we are optimistic, actual outcomes and results are subject to risks and uncertainties and may differ materially from those anticipated due to many factors. Listeners are directed to the cautionary notes in the press release issued today as well as the risk factors set forth in the MiMedx 2020 annual report on Form 10-K for factors that could cause actual outcomes and results to differ materially from those reflected in the forward-looking statements. The company assumes no obligation to update or supplement any forward-looking statements, except as required by law. In particular, Tim will mention expected clinical trial, FDA submission and approval and product launch timelines for both plantar fasciitis and knee osteoarthritis. Obviously, there can be no assurance that our clinical trials will produce favorable results and the actual timing of trials, BLA submissions to the FDA and approval will depend on a number of factors, including COVID, the results of our clinical trials and other factors that may be outlined in our meetings with…

Thank you, Jack. Good morning, everyone, and thank you for joining us on today's call. Yesterday afternoon, we issued a press release reporting our first quarter '21 operating and financial results. I'd like to start today's call with a review of our commercial business, and then move right into an overview of our progress to date on our promising late-stage pipeline. After I complete my opening remarks, Pete Carlson, our CFO, will take you through a full discussion of our first quarter results. MiMedx reported 4% growth in adjusted net sales in the first quarter, driven by our Wound Care business. This included the positive impact from sales of our recently launched EpiCord Expandable product. We further attribute the recent growth in our business to a number of strategic changes and investments we've made with our commercial organization. These fundamental changes, coupled with the addition of talented representatives are designed to accelerate our top line growth. Not only are we making the right changes in investments within our core business, we are retaining the right people to keep our transformation and momentum going. We continue to recruit highly skilled individuals with experience in biotechnology and tissue segments of the health care industry. Supplementing these hires by focusing on supplying them with a refreshed training model and clinically-oriented selling tools. The people we are onboarding are focused on selling our current portfolio of products and understand the fundamental science that differentiates our products and believe in our core mission, vision and values. I'm pleased to report that our sales representative headcount stands at 284 people strong. To further supplement our sales representatives with the right tools, our market access group continues to expand the availability of MiMedx products to the wound care patients through increased coverage by leading payers around the…

Thank you, Tim, and good morning, everyone. I will provide an overview of our first quarter 2021 financial results, starting with an update on some of the underlying trends in our business. Overall, we saw growth in demand across our core portfolio as patients return to the hospital for treatment of their wounds and hospitals return to a more normal operational workflow. Additionally, as Tim noted, our new EpiCord expandable product line launched this past September drove additional increased demand during the first quarter. Net sales for the first quarter ended March 31, 2021, were $60.0 million compared to $61.7 million for the same period in 2020. Net sales for the first quarter of 2021 and 2020 included the benefit of $0.3 million and $4.5 million, respectively, resulting from the change in revenue recognition methodology. Adjusted net sales, which excludes impacts of the company's transition and revenue recognition, were $59.7 million in the first quarter of 2021, an increase of 4.2% from the same period a year ago. Gross margin in the first quarter of 2021 was 83.9% compared to 83.8% in the first quarter of 2020. Selling, general and administrative expenses, or SG&A, for the first quarter of 2021 were $45.2 million or a decrease of 3.8% compared to the first quarter of 2020. Year-over-year decrease was driven by lower travel expenses due to government and company imposed restrictions on travel to mitigate the effects of the COVID-19 pandemic. Research and development expenses were $4.3 million for the first quarter of 2021 compared to $2.8 million for the same period last year. The increase reflects our planned investments to support the company's clinical research efforts and includes increased consulting fees, headcount additions and additional activity in our preclinical studies. We continue to expect that these costs will increase over…

Thanks, Pete. In summary, we made significant progress on our transformation strategy in a compressed period of time and are starting to see tangible results stemming from our efforts and initiatives. We continue to meet with and take calls from a variety of investors interested in our business and our pipeline. Significant financial investments in R&D and commercial are now possible with most accounting and legal issues resolved. We have several priorities and milestones ahead for 2021, pipeline acceleration, improving our understanding of the full potential of our products based on their mechanism of action, sales force expansion, successful registration of EpiFix in Japan, CGMP compliance and building a world-class regulatory, quality and medical affairs team, just to name a few. We're building on a strong foundation we created in 2020, and are committed to delivering operational excellence across all functions for all stakeholders, increasing the value of our PURION amniotic tissue-based platform. Expanding the body of scientific evidence for our product portfolio of products, increasing patient access to the best possible wound care through an expanded coverage and advancing our innovative pipeline of musculoskeletal therapies are 4 key priorities that we will unlock the value for shareholders, and our entire company is ready to deliver. Now before we open the call for questions, I'd like to briefly address precious points, nomination of 4 Director candidates to stand for reelection at our 21st Annual Meeting. The MiMedx Board is made up of 9 experienced and highly engaged directors who are committed to acting in the best interest of all MiMedx shareholders. As part of this commitment, the company maintains a consistent and open dialogue with shareholders, including precious point. It's unfortunate that precious point is pursuing a potentially costly and distracting proxy contest instead of working constructively with the company. Among the 4 directors, Precious Point is seeking to replace 2 of their own nominees from 2019, our Board Chair, Dr. Kathy Behrens; and our Audit Committee Chair, Mr. Todd Newton. Both have been outstanding leaders and made significant contributions to our successful turnaround and to the creation of additional shareholder value. Under this Board's stewardship, the MiMedx management team is executing on its strategy and driving enhanced shareholder value and patient value. Over the course of 2020, MiMedx successfully implemented a number of governance, operational and financial initiatives that were critical to the company's future success and potential. Our significant progress has created a strong foundation for growth in '21 and beyond. With that, I'd like to underscore that the purpose of today's call is to talk about our financial results. We will not be commenting further on Precious Point on this call. We appreciate you keeping your questions focused on our results. Operator, you may now open the lines for questions.

[Operator Instructions] Our first question comes from Swayampakula Ramakanth with H.C. Wainwright.

A few questions from me. So starting off on the top line. In the press release, you stated there was a decline in year-over-year sales due to a decrease in recognition of contracts, which is not quite a bit, it's just $0.3 million, but compared to $4.5 million from the previous time period. I'm just trying to understand what this statement means. Does this mean that you did not receive contracts of similar or increasing value in '21? Or you are ending up some existing contracts, and they were not renewed for 2021? I'm just trying to understand how to think about this number going forward.

Okay. It's Pete. That -- those remaining contracts simply relate to our transition in the accounting treatment for revenue recognition. So at September or October 1, 2019, when we transitioned from the cash receipts to as-shipped method. We had a series of contracts of shipments that had been made, bills that had been processed, the cash that had not yet been received and we have isolated that. And so those are just the numbers that are a difference between net sales as reported and adjusted net sales. We just simply use the accounting term remaining contracts. So there was a fixed amount, it was about $40 million as of October 1 -- or during the third quarter, and by the end of 2020, there was $1.8 million of that remaining -- $1.2 million, sorry, that still needed to be collected. So the $0.3 million this year is just that collection. We fully expected that amount to wind down as we collected. These are sales that occurred back in the prior to the fourth quarter of 2019. So the point of that disclosure is to isolate those numbers to get to the more comparable amounts of adjusted net sales. So those are not lost contracts or anything in that manner. It is just the amount we've collected on that remaining balance and it has been declining for these last quarters.

Then regarding the [April '21] announcement that FDA made through the PHS act, saying that the enforcement discretion will be starting by end of May. And your statement that the impact was about -- the impact or the sales that came from that was about 13% of your 2020 revenues. So I understand all that, but what is both your commercial team and management, as such, are trying to do in terms of mitigating that loss going forward, either by expanding other revenue lines or bringing in any other forms of revenue. So that it doesn't become a bigger issue going forward? Just on the sales, I understand you have a big R&D, and so that's a different question, but just on the top line.

This is Rohit. That's an excellent question about what are we trying to do. In terms of the products and where they are used in clinical practice. We are trying to understand, and we do know some places where there's an alternate therapy that can be used, which is some of our sheet products that can be deployed where they might have used micronized products that would no longer be available with the 361 path. At the same time, that will help us retain some of that business. We are also launching more focus on our sheet products to expand. There's again an untapped potential for that opportunity, so we'll continue to push in that area to make up for some of the gap. And we're also deploying our medical education team in order to deploy those resources to more effectively communicate our value proposition, and we recently came out with a health economics data on the sheet side, which will further help us mitigate some of the impact. So while we can't promote those products directly, and we haven't been promoting them in compliance with enforcement discretion. As we go forward, we will look for those opportunities for untapped potential to continue to expand and grow our business and mitigate that impact. We are optimistic and confident that we can still continue to show above-market growth rate at above 10% as we go forward beyond the enforcement -- beyond the period of enforcement discretions.

Thank you, Rohit. This is Tim [indiscernible] On the BD front, as we said earlier in the call, we've been approached by several companies around licensing deals that some meet our criteria, whether it's scientific criteria, clinical criteria. And it's -- we're constantly scanning that to drop something into our representatives bag. But those are licensing types of deals. We have no interest in, if you will, M&A type of deal to compensate for loss of sales at least right now. So I do believe what Rohit's team is doing in transitioning from our injectable products in certain settings, utilizing our tissue products. I think we'll be successful in that transition.

1 last question for Bob. The AmnioFix injectable for the PF indication. What is -- I know the data is going to come out in the summer. What is it that you need to demonstrate to get an FDA approval? And also, what else needs to be done between this summer and middle of '22, when you will be filing the BLA?

Yes. That's a good question. On the PF, as you know, we've -- our last patient out. We've accomplished that. That was pivotal. Now we're in the process of scrubbing that database, locking it down, implementing our statistical analysis plan and meeting with the FDA. So the big steps are complete the analysis of the Phase III trial, meet with the FDA. The third big important piece of this is ensuring that our manufacturing facility can be validated at GMP. A big component of the BLA filing will be the chemistry manufacturing control section, which have been working for 2 years since I came on with the company to make sure that we're meeting all the critical quality metrics that the FDA would expect. This is an important area for us. I think we're all over it. I'm very positive about our ability to file our BLA in the second half of '22. I've outlined the 3 big steps there. Obviously, there are a lot of smaller steps. The very encouraging thing for me is our ongoing dialogue with the FDA in this matter. As you know, this isn't a well tread path. And so the amount of cooperation and dialogue we get from the agency has absolutely been outstanding. That's on the manufacturing side as well as the Clin Dev side or clinical development side. So those are the big the big buckets of activity that we're focused on. The recent addition of Dirk Stevens to our team was important. And from a quality standpoint as well from a manufacturing -- chemistry, manufacturing, control and GMP. So we're well positioned to get all that done and get our BLA file.

So a quick follow-up, Tim. On the GMP facility, once you have this audited and validated, what all products will be produced through this facility so that you don't have to kind of answer this question to the FDA in the future on any of the -- of your products?

Yes. I don't think we'll have to have a prior approval inspection for knee OA, for example, so that's the benefit of getting -- now that it's too early with PF from a biologic license application standpoint. So I really feel that having an approved facility, having all of your data, whether it's purity, potency, stability, basically inserted into your BLA package for PF will be very advantageous. Now we plan to produce all of our products under GMP. I think this is an important consideration for the industry. And it's just another focus on the high-quality products that we plan to produce in the future. GMP is a critical part of our strategy to make sure that we're producing products the same way every day all the time. So I'll be -- I'm very comfortable with where we are in our strategy around GMP, and that will affect all of our portfolio.

[Operator Instructions] Our next question will come from John Vandermosten with Zacks.

I wanted to build on the previous questions about understanding the impact of enforcement discretion over the next year. And first, just what -- how will the channel look as of May 31? Will everything be continue to go through that was already requisitioned? Or just explain how that might work?

John, it's Pete. The end of enforcement discretion, what happens that day is we are no longer able to sell after that day. So sales up until that day will continue. At this point, some of the details are still being worked through. But at this point, there is no product recall aspect of this. So sales up through that day. And then after that, we don't ship the product out without the biologic license application approved. Obviously, we'll have some production going on and some product will be out and about related to our clinical trials, and there might be an opportunity to expand those trials to continue to get product into patient's hands. There's a lot of guidelines around that. But as far as normal sales, they stop as of May 31.

John, let me -- I think you have a good -- very good question there. Let me just put this in perspective for our patients and physicians. We've had numerous discussions with the FDA regarding patient access. If you're a patient that's been on our product for the last 5 years or the last 2 years, you'd like to have continuity and care. So this is what we've stressed with the FDA is that we feel it's a responsible thing to do to continue to provide patient access to our product. There is opportunity within the, if you will, FDA's guidelines around expanded access under a cost recovery model. So we're working through that with the FDA. And that is in the interest of the physicians we serve and the patients we serve. So I'm -- once we're -- once we get a little more detail around that, I think that we'll be able to share that with our investors. But -- and equally as important, being able to share that with our physicians and other health care workers that have been using these products successfully in a safe manner and in an effective manner. So from our perspective, we have an obligation and responsibility to appropriately make sure that the patients have access to our products. And I think we can do that under expanded access.

Okay. And what -- I know it's only been about a week and maybe that's enough -- not enough time to get feedback. But what feedback has there been from the docs and the users of micronized products so far about the cutoff coming up in about 4 weeks or so?

I think there's confusion. And every company has a little bit different story around what they can and can't do. Some companies, honestly feel that they can -- if they've got an IND on file, they can continue to sell these products. That's not been our discussion with the FDA. In April 21, Dr. Mark, laid out with all the work that they've done since 2017, offering companies the opportunity to file INDs, pursue BLAs. They also very adamant about our ending enforcement discretion. So I think there's a lot of confusion out there. I can tell you that I've had discussions with Dr. Mark and his team about this. We plan, from our standpoint, to make sure that we eliminate the confusion for our patients and for physicians and other health care and health care systems by ongoing dialogue with them that's supported by the FDA.

Okay. Okay. Yes, complex issue. And I guess, we'll find out how it comes out in another couple of months. I want to move on to the IND that was cleared chronic cutaneous ulcers. So how does this indication expand where the product is already used?

Yes. All the clinical work for our products has been done in the DFU, VLU, there are other indications that we'd like to pursue. And if you see where the regulatory environment is heading, it makes sense to have discrete indications that can be reimbursed in the future. Look, the beauty of our amniotic tissue platform, I think, is important to stay here. If you think about it, MiMedx was a pioneer in reducing to clinical practice, their amniotic tissue membrane that was produced by a proprietary system engineering system called PURION. Okay. I do not believe that all amniotic tissue is created the same. Our PURION process is a unique process. It's pristine in how it delivers a finished product. The first application was in Advanced Wound Care. This company grew dramatically during that period. It was very disruptive to wound care. It's going to be disruptive in the musculoskeletal space as well. The flexibility, the strength of our amniotic tissue platform is rare to be able to expand into other indications. This whole musculoskeletal space has an enormous amount of unmet need. We're tackling knee osteoarthritis. If we're successful there, we changed the complexion, not only in this company but as an industry, and it would be well welcomed by patients and physicians. Other indications like Achilles tendinitis or plantar fasciitis, it's just the start with this platform. We feel we can extend that into other areas and we're exploring those other areas. We're just not ready to initiate and pull the trigger on an IND. But if you think about it or partial thickness tears of rotator cuff, very important area here. If you can avoid surgery in that area and avoid the recuperation of the rehab process, it's very significant for that patient. So I think this amniotic tissue membrane platform is very unique. It's supported by an outstanding product that's been engineered very successfully here. We need to build on the clinical data, and we need to produce these products in a GMP environment. So that's the cool thing about this company. It's very rare where you have a company that has the potential to keep adding indications based on their underlying amniotic tissue platform technology. Now I also noted early in my presentation that we are curious about disease modification. It is a tough standard to hit. Our indications are focused around pain relief and improve function. Those 2 things together are very important in the near term. Long term, if we can demonstrate disease modification, that is huge. We got a lot of work to do there. But under the leadership of Dr. Stein and Dr. Koob, we're really focused on in this area. So more on that as we have more and more data that we can share with you.

Okay. And a follow-up on the chronic cutaneous ulcers indication and maybe a little snapshot of the background on the etiology and epidemiology. Can you give us a sense of how big that is? And how it fits in?

Yes. We're currently quantifying that market. If you think about where we are, if you look at the number of patients with this particular type of ulcer, it's probably broader than what we're seeing with DFU and VLU. In the future, we'll be able to quantify that much better for you. We have really focus down on getting the IND filed. Obviously, we wouldn't file an IND if we didn't think there was an opportunity to penetrate this market. This has been a request by practicing physicians for us. The other applications that need to be considered along with this cutaneous issue here is other areas such as tissue defect as well as the application of our products potentially in the burn area. And I think that there are really important considerations from a health economic standpoint, cost effectiveness or cost benefit or the benefit risk of using our products in those areas. Rohit, you may have another more perspective on this particular indication. I'll pass on you.

I'd just say the chronic cutaneous includes all the pressure houses along with venous and the diabetic foot ulcers and almost the pressure was almost as big in market opportunity as the other 2 combined. So there's a huge potential that it allows us to access. But as Tim mentioned, where exactly that product with the IND is applicable and how big that opportunity is, we're still quantifying it to give you more precise aspects of that as we go forward.

Ladies and gentlemen, thank you for participating in today's question-and-answer session as well as today's conference call. You may now disconnect, and have a wonderful day.