Ladies and gentlemen, thank you for standing by. And welcome to MiMedx Second Quarter 2021 Operating and Financial Results Conference Call. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today. Mr. Jack Howarth. Please go ahead, sir.

Thank you, operator and good morning, everyone. Welcome to MiMedx second 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; Executive Vice President of Research and Development Dr. Robert Stein; and Executive Vice President and Chief Commercial Officer, Dr. Rohit Kashyap. Tim and Pete will provide a summary of our operating and financial results for the second quarter 2021. And at the conclusion of their remarks, Tim, Pete and Dr. Stein and Kashyap will be available for your questions. Before we begin, I'd like to remind you that our comments today will include forward-looking statements, including anticipated timelines for our ongoing clinical trials, and FDA submissions and approvals, and expected market size for these products. These expectations are subject to risks and uncertainties and actual results may differ materially from those anticipated due to many factors. Actual timing and FDA approval will depend on a number of factors, including the results of our clinical trials, the impact of COVID, actions by others that affect our timeline, and other factors that the FDA deems important. We list additional factors in the press release issued yesterday afternoon, as well as the risk factors section of our Annual Report on Form 10-K. Also, our comments today 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. With that, I'm now pleased to turn the call over to Tim Wright. Tim?

Thank you, Jack. And good morning, everyone and thank you for joining us on the call today. Yesterday, after the markets closed, we issued a press release reporting our second quarter 2021 operating and financial results. I'd like to start today's call with a brief review of our commercial business and recent operating highlights and then move right into an overview of the progress today we're making on our promising late stage pipeline. Afterwards, Pete will take you through a discussion of our strong second quarter financial results. Starting with an overview of our performance. Second quarter net sales grew 27% year over year to $68.2 million, driven primarily by our Advanced Wound Care business reflecting solid execution by our expanded commercial sales team. Adjusted net sales which excludes the impact of change in our company's methods for recognizing revenue grew 31%. This increase was primarily driven by EPICORD Expandable and the EPIFIX portfolio in our Advanced Wound Care business, along with sales of our micronized injectable products prior to the end of Enforcement Discretion that occurred on May 31. I will touch on Enforcement Discretion in more detail shortly. But remind you that this was a category wide guidance that applied to all HCTP manufacturers and for MiMedx we believe the impact is limited to our micronized and particulate products only. Our most prescribed flagship brands EPIFIX and AMNIOFIX are not impacted and continue to see strong demand across the market. In the second quarter, we reached our 2021 goal of increasing our sales force size by 10%. And currently stand at 289 customer facing sales professionals, complemented by a strong network of sales agents to expand our reach, frequency and impact of our products into additional surgical procedures and deepen our penetration into targeted accounts. Broadly speaking over…

Thank you, Tim and good morning, everyone. I will provide an overview of our second quarter 2021 financial results, starting with an update on some of the underlying trends in our business. As Tim mentioned earlier, we had an outstanding second quarter. MiMedx reported net sales of $68.2 million in the second quarter of 2021, a $14.5 million increase compared to the same period a year ago. Sales volumes increased over last year second quarter. As you know, COVID resulted in access restrictions for lower volume and decreased travel for lower costs. Net sales for the quarter include revenue recognized on the remaining contracts of $300,000 compared to $1.7 million in the same period a year ago. Adjusted net sales, which excludes cash collected on the remaining contracts outstanding at the time of change and the company's revenue recognition methodology were $67.9 million in the second quarter of 2021 compared to $51.9 million for the second quarter of 2020. You will note, we have provided disclosure of net sales broken out between products in our base Advanced Wound Care business and products impacted by Enforcement Discretion, which we refer to as Section 351 products. The 31% increase in second quarter adjusted net sales includes 29% growth in Advanced Wound Care products, reflecting a positive impact from the sales of EPICORD Expandable, which the company launched in the third quarter of 2020 as well as growth in our flagship EPIFIX sheet portfolio. Sales of our Section 351 products were up 44% over the prior year period, which were disproportionately impacted by the pandemic. Gross profit margin was 81.3% in the second quarter of 2021, compared to 84.7% for the same period a year ago. Gross margin was impacted by negative variances from reserves recorded for inventory and sales returns for products…

Thank you very much Pete. I'm extremely pleased with MiMedx's performance in the first half of the year. We achieved a significant amount of progress and growing our base wound care business despite the challenges of Enforcement Discretion. In addition, we filed additional INDs to fuel our pipeline, and achieve regulatory approval of EPIFIX in Japan, among other corporate and operational developments. Our commitment to enhancing the lives of patients is at the forefront of all we do and I believe that our amniotic tissue products have the potential to address unmet needs across large markets and make meaningful and positive impacts. Our second quarter performance was strong, and I thank our customers, our employees and our shareholders for their commitment. We're focused on maximizing your long-term value. And I thank you for your continued interest and support. Operator, you may now open the lines for questions.

Thank you. [Operator Instructions] Our first question comes from the line of Carl Byrnes with Northland Securities. Your line is now open.

Hey, thank you. First congratulations on your progress and for the questions here. There's been a bit of a concern in the industry that core products may be subject to 351 classification, do you believe that MiMedx will be affected by this at all? And I have a follow up as well. Thanks.

No. Hi Carl, this is Tim. Currently, we do not believe our EPICORD products will be impacted by Enforcement Discretion simply because of the way the products are manufactured and how we promote those products. I'd like to have Dr. Stein give you a little bit more background on that. So, Bob?

Thank you, Tim. Hi, Carl. So, the way that our corn products are made, we take out the vessels in the inside and take the outer wrapping and flatten it out into a sheet. And we use it as integument substitute or barrier to provide a protected environment for healing. And so, that is homologous use in our opinion for the outer wrapping of the umbilical cord. The issue that the FDA has been raising is that for people we're trying to use it, otherwise they think it is a conduit and we believe we have a different use that's in keeping with the molecules.

Great, thank you that's helpful. And then just to kind of follow up with respect to the status of the CGMP status of the two processing facilities. If I recall correctly, one of the facilities was inspected. And there was VAI. And I think the other you were still waiting for FDA inspection in mid-COVID. Do you have any updates with respect to those processes? Thanks.

Hey Carl, this is Tim again. You're absolutely correct. We did receive the VAI on our Town Park facility. We're waiting for the VAI on or the disposition of the agency on that. I think there's a lot of congestion at the agency, due to their review of the vaccine development relative to COVID. But we're in contact with the FDA and there's weekly on not only this, but other aspects of our pipeline. But I can say this, we did a significant remediation of both of our facilities, and have responded on a quarterly basis to the agency. So, I think we're going to have to just wait and see where the agency comes down on that.

Great. Thank you. And again, congrats on the progress.

Thank you.

Thank you. Our next question comes from the line of John Vandermosten with Zacks SCR. Your line is now open.

Good morning, and congratulations for me as well on the great revenues and also with getting the Advanced Wound Care INDs accepted. Let me start off with a question on your successful revenues. So, EPICORD that was launched last fall, and that seemed to be a prominent driver in the revenue growth. What are the lightning drivers for that that product and how penetrated is that market? I mean, I know it's not even been out there a full year yet. But are we just in the beginning stages of how far you can penetrate there? Any background and kind of what we could expect from that single product would be helpful.

Yeah. Thanks. So EPICORD, we have had in the market for several years, what we launched last year was EPICORD Expandable has expanded our portfolio in the market. What it does is allows you to target wounds that we already dealt with the diabetic foot ulcers but which are deeper integrated with the expanded portfolio and allows you to, therefore provide another option for treating those wounds because of the nature of the tissue, which is different than EPIFIX. We believe that opportunity and the uniqueness of our product gives us access to the market, which is a significant insight. So, we still expect that an ongoing growth from that platform as we go forward. And we also believe that in combination with other portfolio of sheet products and EPICORD products, they work well in tandem as well, in order to provide an optimal healing outcome for the patient. So, we believe that there's a significant growth opportunity in that portfolio on an ongoing basis. And we plan on continuing to expand different offerings within that that need a different wound care needs for different shapes and sizes as we go forward.

Okay, great. And another question on Enforcement Discretion. It's impacted all the industries you mentioned. And do you anticipate the shift in demand to products that aren't subject to Enforcement Discretion? I mean, will this curator shift and then also, other companies out there have probably been impacted much more than MiMedx. Is there an opportunity to take any share due to the loss of others that are not going to be selling those products anymore?

Yeah, first of all, with the loss of Enforcement Discretion products, obviously, there's a lot of emotion tied to it in terms of the clinical options, because they clearly help patients. So, we are working continuously in educating customers and are viable alternatives. Again, there is not always an alternative that can be used in the same way clinically, but there are situations where you can use instead of using the micronized or the particulate products that were a part of Enforcement Discretion and replace them with either EPICORD or our sheet products AMNIOFIX or EPIFIX. So, we continue to work with customers and educate them. There's a process of kind of trying it out and making sure that they get comfortable with the clinical techniques and then also with the outcome. So, we are confident that we can at least partially do that and while not being able to completely address it because some situations you just can't replace an injectable product with a sheet product, for example. On the competitive dynamics, again, we believe as the market progresses and gets educated into things that will clearly distinguish our performance of the product, the clinical outcomes, the health economic data, and the relationship and education that you provide to your customers. So, we continue to compete and as this market shakes up, we believe that we are well positioned to take advantage of it and are confident of delivering above market growth over the next few years, which would include both penetrating the market further but also capturing some of the share from competition as we go forward.

Great, thank you, Dr. Kashyap. And a last question for me. Is their approximate timing on that R&D day? Is that kind of a late fall type of thing? I mean, I think it may depend on kind of what some of the information comes out. But what should I put on my calendar to note that?

Yeah, I think late fall is a good estimate. We obviously would like to have had our interface to be meeting with the agency on the osteoarthritis program, and be in a position to fully describe where we are with that, as well as our plans for Phase 3 clinical trial design. So, I would say that that's probably a pretty good estimate. It's really predicated on our ability to meet with the agency and the number of things that we, as you know, we have a very robust pipeline here. But wrapping up the data, we want to get in front of the agency. We have decided that, given the timing of any of these meetings with the agency, we've decided that we'd like to be in a position to late summer to present top line results of PF and Knee OA.

Great, thank you for taking my question.

And that would be a separate meeting.

Thank you. Our next question comes from a line of Sean Lee with H.C. Wainwright. Your line is now open.

Good morning, guys. Thanks for taking my questions, and congratulations on a great quarter. My first question is on COVID. So, you mentioned that your sales force is prepared to see the new COVID spiking, we're seeing in some states. So, on the Advanced Wound Care [ph] handle, do you still believe there are any residual impacts going on from the pandemic and do expect the new impact the new spikes to impact your sales anyway?

Yes, Sean good morning. Yes, as far as COVID is concerned, I think as we went through in progress through Q2, we saw that the business return more to normal both from an external and internal perspective. Externally, the access restrictions to facilities were removed as a result our salespeople could be in front of the customers. Pretty much close to normal, we were able to educate customers on a face-to-face basis as well. Over the last few weeks, as COVID has spiked what we see is not broad based in bags, but pockets where in response to local markets, that access gets changed and altered. And that's what we're expecting as we go forward in our outlook for the rest of the calendar year. So, as far as our expectation is concerned on COVID, we expect that we will face some restrictions in pockets with spikes in there. But we'll be able to conduct our business definitely in a much more effective manner than what transpired throughout the second half of last year, for example.

I see. Good to hear that. My second question is on the international opportunity. So, would you be pursuing product approvals in other areas besides Japan? And also, would you be looking to get say, AMNIOFIX proofing in Japan as well, in addition to EPIFIX?

Sean, it's Pete Carlson. Our focus right now on the approval in Japan is for EPIFIX. And it is definitely for wound applications and so that is our focus. We've not focused on trying to get AMNIOFIX into the surgical environment there. We want to certainly get through the process. We're very pleased to receive the approval of the product itself and now want to work through this reimbursement as Tim talked about. And then once we are in the marketplace, we can assess opportunities and receptiveness of AMNIOFIX products also.

I see. That's all I have. Thanks, again for taking the questions.

You bet.

Thank you. [Operator Instructions] Our next question comes from the line of Eiad Asbahi with Prescience Point Capital. Your line is now open.

Hi, thanks for taking my questions guys. Given AMNIOFIX's flawless safety record, we believe that the FDA could be willing to grant AMNIOFIX early approval of the Phase 2b Knee OA trial results a positive. With that said, my first question is, during your upcoming meeting with the FDA, do you plan on asking the FDA to consider granting AMNIOFIX early approval for the treatment of knee osteoarthritis?

Eiad, nice to hear from you. This is Tim, I'll give you some opening comments on that and I'll let Dr. Stein follow up with you as well. Certainly, all of our portfolio our AMNIOFIX, EPIFIX portfolio, there's a low incidence of any type of adverse event. And I think that's one hallmark of this platform. Number two, when we do meet with the agency at our close out of our Phase 2b the strength of the data will dictate our regulatory strategy. And I think it's given the size of the Phase 2b trial 447 patients or rather relatively large Phase 2 trial, I think it's if we see that opening, I'm sure that Dr. Stein and our Head of RAQA Dirk Stevens will want to take advantage of that where we can. Bob, do you have additional comments regarding Eiad's question?

Hi, I think it's a good question. And if we have remarkably strong evidence of the micronized dHACM is doing what we hope it will do. And as you point out, we have a very good safety profile. It is possible to talk to the FDA about a provisional approval based on a very strong single study. It is a very large study for Phase 2b. And so I believe that's a possibility, but it's not a lock. I would say that we will approach that, we have the advantage of having the ARMET status that might give us some additional flexibility in speaking with the FDA on that topic.

Okay, thank you for that. Based on our understanding, it typically takes biotech companies to process trial results, it takes them about maybe two to three months, and then they typically publish the results. In our case with MiMedx, can you help me to understand and I get that this analysis that we've run could be rudimentary and doesn't take all factors into account. Can you help me understand why in MiMedx case, it could be taking longer to process and get the final results from the, for example, the Phase 2b knee trial?

Yeah, as you know - this is Tim, as you know Eiad, we have three trials, one of PF AT and Knee OA. We prioritize each of these from an analytical analysis standpoint, that's consistent with our statistical analysis plan. Bob can provide you, if you will, the timeline for doing that. I would say that, given the size of these studies, and that we have three studies where we ended the last patient in, for PF and AT occurred approximately the same time with Knee OA falling on the Phase 2b just a lot to assimilate here, for a company our size. So, we are working probably with one of the best outside consulting firms to do a robust statistical analysis. So, I don't think it's taking necessarily longer. I think we're being very thoughtful about how we approach our analysis. Bob, do you have additional comments on the timing of that?

So yeah, in the Knee OA study or 2b study we had 447 patients at 17 sites during COVID. And as a result, we have to gather all the data, make sure that it's clean and quality controlled, and lock the database, we're close to being able to do that, then you're right that after that there'll be top line results generated that would take a week or so, or two weeks rather, and then there will probably be another two or three weeks for generating a full analysis. We will be sharing top line data as quickly as we're confident in what we've generated. And we will be having the discussion of the full data and our analysis of that, after we've had a chance to meet with the FDA. And right now, the intention is to do that at an upcoming R&D day, as was discussed in the fall.

Okay, yeah. Thank you for that color.

I'd say in summary, that is, given the circumstances and the size of the study, I don't think we're slower than the average bear. I think we're actually working at it quite diligently. And we will have the information out there as quickly as we can generate it. We're all excited to see what the results show.

Understood. Yeah. And again, thank you for that color. I appreciate it. My last question is that during your recent investor presentations, it was mentioned that there's evidence that AMNIOFIX has regenerative properties? Can you discuss this evidence in more detail and how you intend to flesh this potential out?

Hey, Bob, I think that's the question right down your alley.

Thank you. So, we do have a number of preclinical studies going on that look at the properties of components of AMNIOFIX and micronized dHACM. There are a large number of growth factors in the materials as produced. And that's one of the advantages of the way that MiMedx produces these materials, we make them still have quite a bit of bioactivity well-being sterilized so that they have a very low risk of transmitting any type of infectious complication. And we've been able to see that the materials have the ability to modulate the activity of transforming growth factor beta, that's an endogenous protein involved in wound healing, that leads to hypertrophic scarring and inappropriate the deposition of collagen. And that was recently published by MiMedx. And we've also been able to show that there are a number of compounds in the material that modulate wind signaling, which is known to be involved in maintaining stem cell activity and also of modulating cartilage biology. And so, we're looking at these, that was also recently published, we're looking at moving those observations forward into animal studies. And we do believe that they have an impact in the clinic. However, our intended Phase 3 study in Knee OA will not be set up to demonstrate that we have a disease modifying agent in osteoarthritis, because that's a very long and large study. We will be showing that we have both pain reduction and functional improvement. And I think that's a very important aspect of the pharmacology of micronized dHACM. And I think ultimately, as we talk to practitioners, using the material like Dr. Oldham, who published on the impact of micronized dHACM and knee osteoarthritis earlier, there is a suggestion that the use of the product isn't just treating symptoms, but also delaying the need for knee replacement, et cetera. So, I think that the goal we have is to get it registered and then to further flesh out its beneficial characteristics since subsequent studies allow us to do.

Understood. Thank you very much, guys. Very, very much appreciated.

Thank you, Eiad.

Thank you. Our last question comes from the line of John Vandermosten with Zacks SCR. Your line is now open.

Hi guys, just to follow up on gross margin. You noted, Pete you noted some temporary pressures on gross margin and I think you said they're going to last until about September. Should we expect similar gross margin in the third quarter and then return to kind of the normal trajectory in the fourth quarter?

John, there's two things to the pressure the gross margin this quarter, one that won't recur are the reserves we recorded in the quarter related to products impacted by Enforcement Discretion. That principally related to inventory that was out on consignment. So, it had been previously shifted but not actually transferred, not implanted and that's the sale occurring. So, we have had customers return that inventory, and then we reserve that. So that won't recur. Our production variances, what we were talking about there on the September is yes, we do anticipate that our additional wages as we get out of the pandemic, and get into more normal operating mode, our sort of ex-compensation related to the pandemic will go away. And we're obviously working to adjust to revise operating levels from and gather inventory appropriately set. So, we're hopeful that the other production variances settle down. So, about half or more than half of the trend or the difference from our normal trend relates to those Enforcement Discretion items. So yes, we should be getting back to more normal levels of gross profit here in the third and particularly fourth quarter.

Great, thank you.

Thank you. There are no further questions. I will now turn the call back to Mr. Tim Wright for closing remarks.

I'd like to thank everybody for attending the call today. And also, I thought the questions were outstanding. We're very excited about our amniotic tissue platform here given that, we feel that it has a lot of utility across different therapeutic areas where there's significant unmet need. We're very, very focused on delivering on our PF and Knee OA statistical analysis, as well as focusing on our manufacturing facility. So, we're prepared for, if you will, prior approval audit downstream. And the third thing that we're hyper focused on is our sales organization, supporting them with good strong medical education, as well as the best day that we can accumulate around the efficacy of our products and their economic benefit to the payer system and the patient. So, I thank you, look forward to talking to you all over the next coming weeks. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.