MiMedx Group, Inc. (MDXG) Q3 2021 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the MiMedx Third Quarter 2021 Operating and Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Jack Howorth. Please go ahead, sir.

Thank you, operator, and good morning, everyone. Welcome to the MiMedx Third 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, Dr. Rohit Kashyap. Tim and Pete will provide a summary of our operating and financial results for the quarter. And at the conclusion of their remarks, Tim Pete and Dr. Kashi will be available for your questions. Before we begin, I would like to remind you that our comments today will include forward-looking statements, including potential time lines 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, our interpretation of those results, the impact of COVID-19, actions by others that affect our time lines and other factors that the FDA deems important. Additional factors that could impact outcomes and our results include those described in the Risk Factors section of our annual report on Form 10-K and our quarterly reports on Form 10-Q. 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. Good morning, everyone, and thanks for joining us on the call today. Yesterday, following the close of the financial markets, we issued a press release reporting our third quarter 2021 operating and financial results. Today, Pete and I would like to highlight three primary topics of interest to investors. Our growing commercial business and recent operating highlights, status of our detailed analysis of the top line readouts from our plantar fasciitis and osteoarthritis clinical studies that we reported in mid-September and our financial resources. Pete will also discuss our financial results for the quarter. I'm extremely pleased to report third quarter net sales of $63.1 million and adjusted net sales of $62.8 million, which include a 13% increase in sales of our core portfolio of tissue and core products versus the third quarter of 2020. -- Adjusted net sales of the same portfolio of products drove an impressive 16% increase year-over-year for the first nine months of 2021. We believe our expansion into surgical recovery applications as well as continued solid execution by our commercial sales team has placed us ahead of our 2021 top line growth outlook of 10% plus in our tissue and core products. We have the right people in the right places. And despite disruptions during the quarter caused by COVID-19 in two major markets, our direct and agency teams exceeded our internal expectations. Our AmnioFix brand is demonstrating utility in a number of surgical applications, and this diversified revenue growth reflects that effort. In addition, we're gaining traction with our EpiCord product line with the successful launch of an additional size targeting smaller, lower extremity wounds in a cost-effective way. Our targeted focus on growing the base acute and chronic wound care business has achieved significant growth by leveraging the strength, clinical efficacy and the differentiation of our Purion process tissue technology. The commercial team is working aggressively to continue positive sales momentum achieved in the first nine months of this year into the fourth quarter and beyond. These positive results from our tissue and core portfolios helped support our ongoing cash flow requirements, enable investments into expanded research, product development, including portfolio innovation and expansion as well as clinical operations initiatives. Ultimately, we are driving better outcomes for patients in need of advanced evidence-based treatment options. Turning now to two late-stage musculoskeletal clinical trials of our AmnioFix injectable product. Since announcing the top line data in mid-September, we have been extensively reviewing the study results to determine reasons behind the observed differences between patient cohorts in the knee osteoarthritis trial. As part of our statistical analysis plan, third-party biosticians have validated the probability values or p values from the Phase IIb NEO study and substantiated both a statistically significant and clinically meaningful outcome in Western Ontario, a Master's University Osteoarthritis Index, WOMAC, Total, OmacPain and WOMAC function scores for the pre-interim analysis cohort of 190 patients with p-values less than 0.05 at three months and less than 0.01 at six months. It is important to note the clinical improvement in all WOMAC scores for these 190 patients increased as they progress from 3-month observation to 6-month observations. These results are very encouraging and lay the groundwork for future analysis and study. The positive efficacy signals while limited to the pre-interim analysis cohort of 190 provides us with important insights into our approach for our future Phase III studies, and we are confident in the therapeutic potential of micronized hAC. Prior clinical experience, retrospective studies, along with our increased understanding of the product's mechanism of action, give us reason to believe moving ahead into Phase III is the right decision. We have been investigating all of the data points, testing several hypotheses that may have come into play since the study was initiated and have engaged in dialogue with the FDA to guide our path forward. We are also working with industry and FDA recognized leaders across the musculoskeletal community, including rheumatologists, orthopedists and other key treaters of knee osteoarthritis to advise in the design and execution of a contemporary randomized well-controlled studies that can first confirm dose, efficacy and safety for the EOA indication. We anticipate these studies could enroll approximately 400 to 500 patients and run concurrently with Wallman and Wilmafunction as potential primary endpoints. With respect to the Phase III plantar fasciitis study, a similar effort is underway to evaluate the study results and other study-related variables that may have influenced this unexpected and puzzling outcome. Importantly, throughout both studies, AmnioFix Injectable was found safe and well tolerated with observations confirmed in formal data safety monitoring Board meetings. The data from these trials continue to build upon an already strong safety database for the product. We look forward to reviewing these data and reasons for our continued optimism at our upcoming Investor Day, December 7, 2021. Clinical development of unique patient treatment options is rarely a linear process. Our leadership team is resolute in its commitment to advancing the scientific rigor of the industry and bringing innovative solutions to physicians and patients that need here in the U.S. and in the international markets. At MiMedx, we remain dedicated to advancing health economic and scientific research in order to improve patient care and outcomes. To that end, we are furthering our scientific publication strategy to reinforce the differentiation of our products and convey the clinical value of our brands. We recently announced the publication of three peer-reviewed studies designed to enhance our understanding of the mechanism of action and expand our medical education programs. Let me spend a few moments to highlight some of these findings. The first study published in the Journal of Wound Care addresses the observed impact of advanced treatment using skin substitute products and lower extremity pathetic ulcers. The data from this study provide validation that advanced wound care treatment can reduce suffering in the expense caused by these chronic diabetic ulcers and raise the standard of care for these patients. The second study was published in osteoarthritis in cartilage open. Here, we identified a novel mechanism of action by which Purion process micronized dHACM regulates degrative processes in human articular chronocytes, the primary cell type comprising articular cartilage. These results further support AmnioFix Injectable as an investigational new drug candidate for the treatment of osteoarthritis and highlight potential disease-modifying activities. The third study was published in the Journal of Biomedical Materials Research Part B. It examined chronicity and poor outcomes following tendon injury attributable to prolonged inflammation in hypervascularity. These complications were modeled in vitro for the purposes of evaluating micronized Atom as a treatment for tininopathy, which led to the identification of specific mechanisms responsible for counteracting these disease processes. Our research and development activities are focused on demonstrating mechanistic attributes that support our technology platform in a number of clinical indications, including two but not limited to tease arthritis tendinopathies and rotator cuff injuries, etcetera. As a pioneer and amniotic tissue technology and placental tissue engineering, we believe our investigational study significantly contribute to the body of knowledge in this field, and ultimately, may provide insights into additional indications beyond wound healing and musculoskeletal conditions. Our scientific research is providing mechanism of action insights that we believe will help us effectively design the next round of studies and more convincingly elucidate the pharmacology and the therapeutic effects of AmnioFix injectable. We know there is considerable market demand for safe and effective alternatives to reduce pain, improve function and modify disease and the positive signal within the KOA trial provides a basis to build on these learnings and pursue additional studies in this indication as well as many others. Jack, that concludes my opening remarks. I'll now turn the call over to Pete, who will take you through the financial results. Pete?

Thank you, Tim, and good morning, everyone. I will provide an overview of our third quarter 2021 financial results, starting with an update on some of the underlying trends in our business. This is the first full quarter following the end of enforcement discretion. As you know, the company is no longer able to market Section 351 products in the United States, which previously represented approximately 13% of total sales. Despite the loss of revenue from these products, we recorded net sales for the three months ended September 30, 2021, of $63.1 million, a $1.2 million or 1.9% decrease compared to the three months ended September 30, 2020, in which we recorded net sales of $64.3 million. Net sales for the current quarter include revenue recognized on the remaining contracts of $300,000 compared to $1.0 million for the prior year quarter. Adjusted net sales, which excludes cash collected on the remaining contracts, were $62.8 million for the three months ended September 30, 2021, compared to $63.3 million for the three months ended September 30, 2020, a decrease of $0.5 million. While overall sales volume in the third quarter of this year was negatively impacted by our inability to sell or market Section 3, 51 products in the U.S., adjusted net sales of our tissue and core products grew 13% to $62.3 million for the three months ended September 30, 2021, compared to $55.1 million in the prior year. Our focus on growing the tissue and core business as well as expansion into surgical applications has paid off thus far by making up for the lost Section 351 product revenue, resulting in relatively consistent total sales volumes quarter-over-quarter. Gross profit margin for the three months ended September 30, 2021, was 83.9%, relatively consistent with the 84.0% for the three months ended September 30, 2020. Selling, general and administrative expenses for the third quarter of 2021 decreased $1.7 million to $46.3 million from $48.0 million in the prior year, reflecting lower professional fees on legal and other matters. Research and development expenses were $4.4 million for the three months ended September 30, 2021, compared to $3.4 million for the three months ended September 30, 2020. The increase reflects higher personnel costs driven by growth in head count to support clinical research efforts. While the company has increased its investments in clinical studies, it did not incur as much R&D expense as anticipated due to the delayed timing of trials. We expect these costs to increase as the company plans and execute new clinical trials, which I will discuss in a moment. Investigation, restatement and related expenses for the third quarter of 2021 were $3.2 million compared to $12 million for the three months ended September 30, 2020. During the prior year quarter, MiMedx incurred expenses towards the advancement of legal fees of certain former officers and former directors of the company. These expenses were not as significant in the current year quarter. While the company expects to continue to incur some litigation costs moving forward, a continued reduction in investigation, restatement and related expenses is anticipated other than costs related to the resolution of the securities class action matter the amount and timing of which are highly uncertain. Looking at profitability. Net loss was $2.3 million for the third quarter of 2021 compared to a net loss of $19.4 million in the same period a year ago. Adjusted EBITDA was $6.8 million or 10.8% of adjusted net sales in the third quarter of 2021 compared to $6.9 million or 11.0% of adjusted net sales in the same period a year ago. As of September 30, 2021, the company had $90.6 million of cash and cash equivalents compared to $95.8 million as of December 31, 2020. Looking forward, the company continues to expect that adjusted net sales for fiscal year 2021 will be between $245 million and $255 million, including $16.7 million of Section 351 product sold in the U.S. prior to the end of the period of enforcement discretion. This compares to adjusted net sales in fiscal year 2020 of $240.5 million, including $31.8 million of Section 351 products sold in the U.S. In summary, although we had an unexpected setback in our clinical programs this past quarter, our base business is growing, driven by multiple initiatives designed to reinforce the differentiation of our products and convey the clinical and economic value of our brands. We believe this base business will be cash flow neutral in the next 12 to 15 months, while we also expect overall revenue to return to pre enforcement discretion levels during that period. As we think ahead to additional R&D investments needed for the clinical trials that Tim described for the knee OA indication, we believe those costs total less than $30 million and would be incurred over a 3-year period. We believe our existing financial resources, reflecting capital raised in the middle of 2020 to invest in our pipeline and business are more than sufficient to fund the near-term cost of these trials and that our base business will return to its normal level of cash generation after the 12-month to 15-month period I just described. Our team continues to do a great job in restoring our financial integrity and flexibility, putting us in a position to invest prudently in future growth given the financial tools and necessary funds we now have in place. I will now turn the call back to Tim.

Thank you, Pete. I'd like to take a step back and reiterate our strong value proposition. MiMedx is certainly evolving. Our base business is growing at a double-digit rate. In addition to growing the tissue and core portfolios, led by expansion into surgical applications, we are looking ahead to adding revenue in '22 from EpiFix sales in Japan. We're also exploring other therapeutic uses for our products, along with generating scientific data that enables our market access team to expand additional reimbursement coverage with third-party payers. On the scientific side, we are doing the heavy lifting with the objective of making regenerative medicine a reality. It is our intent to lead the industry in unlocking the remarkable potential of amniotic tissue science. We know that the placenta has an amazing set of properties. One of those being it's immune privileged, meaning that it doesn't elicit an inflammatory response from the body, unlike other types of cell therapy. We are also seeing early mechanism of action data demonstrating disease modification evidence in working rapidly to understand our full therapeutic potential through rigorous science and clinical development. We are confident in the therapeutic potential of our micronized dHACM. We plan to expedite two Phase III studies and believe the delay in initiating trials from our prior expectations will be measured in quarters rather than years. The positive clinical results in the pre-interim analysis cohort warrant further investigation and investment. We are committed to making that investment and believe we have the funds to make that investment. Our amniotic tissue products have the potential to address significant unmet needs across large markets and make meaningful and positive impact on patients' lives. I want to thank you for your interest and ongoing support. Operator, you may now open the lines for questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first questions come from the line of Carl Byrnes with Northland Capital Markets. Please proceed with your question.

Thank you. First, congratulations on the success in the third quarter. But considering a third-party review the Phase IIb pre-interim cohort, again, the 190 subjects in EA. Would you anticipate when you begin enrollment in the Phase III studies to do that or target that as a normalized recruitment environment, i.e., when COVID is stable and perhaps not a factor if that were a factor. Or were there other things that you may be seeing in the review of the data that might lead with that particular cohort may lead to some alteration of inclusion, exclusion criteria in the Phase III trials? And possible I got a follow-up question as well. Thanks.

Carl, this is Tim. That's a great question. You're absolutely correct. We did have third-party CRO validate the biostats, if you will, on the 190. And they validated the P-values there, which we think are important statistically as well as clinically. We have ongoing forensic analysis to really address some of the questions that you pose here. On December 7, I think we'll be in good shape to provide you more insight onto our complete findings relative to this particular exploratory trial...

Great. And then just a follow-up. Considering the gross profit margin improvement in the third quarter sequentially over the second quarter, was that a factor that might have been related to some of the mix with respect to surgical recovery and extremity wound treatment? And what would you expect GPM to be if you can provide guidance at all in the fourth quarter and going forward? Thanks.

Carl, it's Pete Carlson. What we talked about in the second quarter was there were a couple of items somewhat unusual, although my accounting friends don't like me to use that term in the quarter. The biggest was that we had recorded reserves related to products impacted by enforcement discretion. And we also had a batch of some of unfavorable production variances coming through. So we did see the second quarter gross margin to be a little bit abnormally low. Those -- we didn't have the reserves and the production variances work themselves out. So that's why we return to that normal range, and we continue to think that the gross profit margins would be in that 83% to 85% we've previously talked about.

Great, perfect. Thank you.

Our next questions come from the line of RK with H.C. Wainwright. Please proceed with your questions.

Thank you. Thanks, Tim and Pete and congratulations again on a great quarter. So just to comment a little bit more on the continued growth that you're seeing in the base business. Just trying to understand what is helping there? And also, Pete, as you suggested that you could potentially be cash positive in 12 to 15 months, what needs to happen in the base business over the next year-end a little bit more so that you can come back. I mean you can be cash positive.

Rohit, do you want to take that?

Sure. Thanks, RK. Great question. We're very pleased with the results in our base business. Again, there are several factors contributing to our success in that area. We made investments early in the year in the year in both expanding our sales team as well as enabling them with training and effectiveness tools by targeting that improves their productivity and targeting the right customers that are with the right value proposition. As Pete mentioned also earlier in the call, we are pinning our team to be more effective in demonstrating our clinical value as well as our economic value and the new data that we have generated during the course of this year helps us in that sales effort as well. Alongside that, we're also making it easier for customers to access our products by making efforts, like we said, with partners and net health and how they can get their reimbursement patients verified, etcetera. So all of those elements come together in helping us deliver the results on the year so far. But we're also very confident that the investments that we have made are sustainable in the sense that they will also help us grow the business as we go forward at a clip, which is higher than the 10% that we have talked about historically. So I'm very confident about that. Pete, do you want to take the cash flow?

Yes. RK, really what needs to happen is time, frankly. We made a conscious decision not to adjust our field force with the end of enforcement discretion. So we need to grow back into our revenue. We had -- We felt the right people in the right places, and we didn't want to make a shift in that. And so as you've seen this quarter, we have that 13% growth in kind of that base business, and that's what we need to do is we just need to grow back into the revenue levels, and we think that happens over the 12 to 15 months.

Okay, thank you. I'm just trying to understand a little bit more on the KOA and the PF study data. I understand I might have to wait until December 7 to get a better understanding. But in the interim, other than utilizing a third-party bio satisfaction team as well as trying to get additional preclin data, I'm just trying to understand how differently do you think you would need to go about doing this next study? Do you need to be a little smaller study just to understand what other factors are involved before going into a larger study -- And I'm just trying to understand how -- basically trying to get on timing in my head as to how long this process is going to take until we get to that neon-stage?

Yes. RK, this is Tim. I appreciate your questions. I think we'll have a more fulsome view on December 7. I do think that our rigorous analysis of this goes beyond the bio statistics, if you will. I mean certainly evaluating what's happening at each site, doing site plot analysis, all the classical things that you would do to really fully understand what was happening. And so we're working through that. Dr. Stein has his team fully deployed on this, really trying to understand that. And I really think we'll be in a good position on December 7 to do that. When you go back and you look at the protocol that was developed in 2018, one of the things that I think is really evident to us is the use of some type of imaging, whether that's x-ray or MRI, I think should be part of our ongoing study protocol. And the reason for that is that all three elements of WOMAC total pain and function are important, but also I think if Dr. Stein were here, he would be discussing the potential for soft tissue remodeling. And we need to be able to capture that probably in these studies as well. But we'll discuss more of this in December. And I'm really looking forward to having a very fulsome discussion about our strategy as we move into conducting these clinical trials. And I think we're well capitalized to do that.

Okay. And the last question for me is regarding your expansion strategy, where are you in terms of trying to get commercialization going on going in Japan and also in Europe, how far are we from Europe?

Yes. Go ahead.

Yes. First of all, we're excited about the opportunity in Japan. Obviously, we got our approval back in June, which was very favorable and gave us access to a significant part of the market. We are in the process of working through the reimbursement path in Japan. As you know, that involves various steps. We expect that will be done by -- sometime in the middle of 2022, and we'll be ready to, at that time, go to market with our effort. We continue to interact with the commissions and physicians to build the awareness of our product as they're excited about having the opportunity to treat their patients with a new class of products as we will be the first to market to launch an amniotic product in Japan, and we look forward to exploiting that market fully and really helping grow that business overall for MiMedx as well.

Rohit, can you mention a little bit, I think the regulatory approval, the nature of it from a label standpoint, what it covers?

It essentially is a broad label. It covers essentially all hard-to-heal wounds. So essentially covers a broad range of chronic wounds, just not lower extremity, meaning the DFU and it covers DFU, VLU as well as PU and other wounds that can be classified as hard to hear. So that's what I meant by saying that it's a favorable approval broader than, in fact, what we have access to in any respect.

I think we have to give our regulatory team some credit for negotiating that type of labeling. It's actually better than labeling that we have in the U.S.

Thank you, folks. Thanks for taking…

Thank you, RK.

Our next questions come from the line of John Vandermosten with Zacks. Please proceed with your questions.

Good morning, everyone. It was nice to see the increase in cash sequentially over the prior quarter coming from operations. And I was noticing that you said you expect free cash flow or positive cash flow to accelerate or improve in the coming quarters. Can you tie that into R&D levels because the R&D was a little bit below what we thought. And can you combine those two trends to let us give us some visibility into how free cash flow will trend?

Sure, John, it's Pete. When we talk about that base business being sort of cash flow neutral, we view that as including sort of a normal R&D spend to support the tissue and cord products. So that includes doing work to introduce new products into the system. To Tim's really challenged the team to have new products in the marketplace regularly, a couple of products annually. So we do have in that kind of base business view the normal-ish level of R&D spend. And then what we talked about is that sort of being cash flow neutral while we go back into our pre-enforcement discretion revenue, and then that business would generate cash flow. And that cash flow will help us support the clinical trial cost that I talked about for the knee trials. And again, those clinical costs are, we think, less than $30 million for the trials that Tim talked about, and that's going to occur over a 3-year period. So we'll be generating that cash as those additional costs come in, and we certainly have the resources in the meantime.

Okay. And in terms of normalized R&D, should we think of that as a proportion of revenues or a certain amount in the coming quarters?

Yes. I think you can think of it somewhere in the mid- to high single digits of revenue.

Okay. Another question I have, and it's kind of more of a macro question, but I've heard a lot of discussions from not only companies in the life sciences space, but all around that supply chain and transportation issues. And it seems like you've been able to avoid those so far looking at gross margin. Have you seen anything there? Do you expect anything in the future on that side to maybe disrupt operations at all?

John, it's Pete again. Not really. We literally ship our product using overnight carriers. So we're not dependent on individual trucking lines or anything like that. So our ability to get the product to our customers is quite strong. We capture our product, either directly with local representatives or again, it will use overnight carriers. So those folks have not had any problem delivering our products. And we -- from a placental donation standpoint, no issues there either. We really have been working well. The team's worked well with our network, including through the depths of the pandemic 1.5 years ago, and we were able to keep our supply chain open and plenty of product coming in.

Okay.

So, we certainly challenged our donor recovery but I believe we have the best donor recovery systems network in the industry. and it proved to be true during this pandemic. So a good job with the team on managing through that, both on the supply side and the demand side.

When you guys mentioned COVID disruptions, what -- how exactly does that manifest itself? I mean some of I think that's a really broad term, including what we just talked about, the transportation and things like that or clinical trial enrollment or things like that. What precisely are those disruptions? Because I mean, I think they can be pretty varied, I think.

Yes. We have a couple of large states where we saw changes there in Rohit, you can elaborate on that. On the clinical enrollment side, yes, I think early on, every company saw a disruption with follow-up visits and things like that. But that's starting to become neutralized there. I feel that -- We've done a good job of -- with our CRO, reaching out to our sites, finding ways to make sure that we're managing through the clinical trial study. Rohit, you have any other comments on the commercial side of that?

Sure. I think at this point, John, the disruption from COVID happens obviously in market. And typically, it manifests itself as two things: the restriction of access for your team out there through clinicians in facilities, whether it be wound care clinics or hospitals. The second thing that happens is also the delaying of some elective procedures where our products get used that impacts the utilization of our product as well. Some of the interesting dynamics that we have to be nimble around is those patients tend to go then to alternate sites of care, and we have to adapt our ability to reach them accordingly. And even now, as we go through with the hospitals, it's in the news all over the hospitals being short staffed and having to delay procedures or manage the volume that they can address. That continues to be something that we deal with. At a more broader level, it's easier to get access to customers where you already have good relationships with and therefore, our scale and our beat across the different care settings has helped sustain that during COVID. It's harder to build new relationships in this environment with the new customers. But I think that also will continue to improve over the next several quarters.

Okay, great. That's a great color. Thank you.

Thank you. Our next questions come from the line of Eiad Asbahi with Prescience Point Capital. Please proceed with your questions.

Thank you very much. Hello, me Eiad Asbahi.

Good morning.

Good morning. As been quite informative, and thank you for that. It sounded like Pete has emphasized the company will generate enough cash flow to and validate the need for any near- or intermediate-term capital raise. Is that right?

Yes. Look, what we've said is we believe we have the existing resources on our balance sheet and goes back to that capital raise. We did a year plus ago. So yes, we do not see a need for a near-term capital raise, which we've heard investors ask about.

Okay, thank you. This is very important because I believe that in the absence of such clarity, investors that price into your equity to the worst case scenario, that that being the risk that Amnio takes has zero market potential and that AmnioFix intent to raise capital based on the filing of the shelf registration. It sounds like both of these assumptions amount to market misassessment -- So that clarity is greatly, greatly valued. Thank you. Based on yesterday's press release, the first cohort of patients from the Mardin study shows great results. And I think, Tim, that these P values mean that over a 6-month period, there is less than a 1% chance that the statistically significant separation between AmnioFix treated and placebo-treated patient groups were due to a lot, necessary, correct, less than a 1% chance separation was due to a lot...

Yes, that's a very good interpretation of the P value.

That's quite astounding. And -- So in terms of the improvement, were the results from the first cohort comparable to the results from the CRYSAlDIN study, in which any of the treated patients showed an improvement in pain and function of 67% and 118%, respectively, after six months.

Yes, it's Pete. Let me -- I'll give a quick answer and Tim can give you more perspective. I think the simplest thing is the metrics are different between those two studies. The WOMAC wasn't a metric used by Dr. Alden in his retrospective study. And obviously, it's a very quantitative thing we used in our -- in this Phase IIb. We do think improvements were generally consistent, yes. So it's the C score that Dr. Alden used, and those are different metrics. Tim?

Look, I mean, this is an important conversation. This product AmnioFix has been available widely under enforcement discretion for almost a decade. There's a substantial amount of experiential use with AmnioFix in the field. And it's across EOA, partial cares of the labor, other forms, other tendinopathies, -- So it's had some very broad use there. Number two, you mentioned the ALDEN study. There's also the Gellhorn study. They may have used different metrics there, but that is the direction the results are the same. Patients are improving when this product is administered then. And we believe that the reason we're spending so much effort with Bob's team on understanding the mechanism of action, we think that, that underlying mechanism of action has exceptionally broad utility across many different indications. Now obviously, we're focused on NOA because of this tremendous unmet clinical need. And we're going to bear down on that and deploy the appropriate resources to get the job done there. But I do believe that when you have a platform technology like this that has demonstrated both after almost a decade of use to be safe and reliable. You also have the responsibility to demonstrate its efficacy in well-controlled trials that the agency would recognize as a registration trial. So we've reviewed with the top folks in the FDA, the results of our exploratory trial in NOA. They understand what we understand now, and we're not complete with our analysis of all the potential factors that could contribute to this anomaly. But we're bearing down on that. And EOD, we're really looking forward to our meeting on December 7 to have a fulsome review of not only what happened in these trials, but also what we plan to do next. Also, I think it's really important to balance out what's going on with MiMedx. MiMedx over the last 2.5 years has gone through a complete transformation of almost every function in the company. And I'm really happy with our performance in our commercial business. What I'm seeing there is people under Rohit's leadership that have developed a winning attitude and are going after that business that we deserve. So, look forward to more on this on December 7.

That's great to hear. And thanks you for that additional color. It sounds like the -- in light of the improvements from the first cohort, reflective of improvement demonstrated from previous studies and the astounding value that these results from the price cohort were quite profound. That's very informative color. Thank you. -- So Tim, I'm guessing then that your views on the market potential of this product have not changed even in light of the press release power results you published in mid-September, it sounds like the first ever results were profound, and that is the reason you're following through with a Phase III study. Is that...

Yes. I think -- yes, there are a lot of -- our thinking on this has been very comprehensive. We're not complete with our analysis yet. But I do believe that the basic research that has been done under Bob's leadership around the underlying mechanism of action points to this ability to modify the disease. And I think that is a big game changer. We're able to demonstrate that in the clinic, along with improvement in pain, decrease in pain, improvement in function, if you have the ability to demonstrate or you do demonstrate you have a remodeling capability or characteristic, that is profound. And I do believe that if we're able to demonstrate that in the clinic, this would be right in line with our expectations of the potential value of this. And when you think about the underlying mechanism of action, it has other utility, and this is what, 2.5 years ago when we spoke EOD, I felt that the we weren't just talking about a product. We were talking about a platform technology that had legs on it. We have to demonstrate this in this big unmet need area of OA. But I think once we are able to do that, then this product has a lot of broad utility.

Yes. And Tim, as you know, we present point, we have great confidence in the market potential for this product. That is on a waiver we publish our thesis. Our assessment of value remains unchanged. So it's important for us to understand that it seems like yours remains unchanged as well. So given the, how profound the results were. Is there any possibility that if there is some simple explanation for the performance, the outperformance of the second cohort that the FDA could give you some sort of a path or a waiver or we improve it still? Or are these still profitabilities or around it.

I would love to think there is a possibility. I just don't think that there is. I could be proven wrong. We need to complete the analysis, meet with the agency under our map and other avenues to discuss the results of this product. And I think that the FDA will be excited to see what we're doing here and very supportive. But for them to take that leap, I don't see that right now, but I could be totally wrong.

Yes, it's Pete. We should -- there's the one more question you have, we need to move along to the others that are on the call.

Yes, sure. Yes. I'll convince my next couple of questions Okay. So based on our research, there's a real lack of effective treatment available for patients suffering from the osteoarthritis. The currently available mix of treatments being NSAIDs, corticosteroids and hyaluronic acid or all or deficient treatments in terms of safety and/or efficacy. So -- and this is a known fact. So then given AmnioFix injectable contactable safety profile and the lack of effective treatment options for neocearthritis, if amines injectable demonstrates even moderate efficacy, isn't it true that AmnioFix could be a blockbuster drug?

Let me address it this way. There are a lot of alternatives out there. You've listed them. All these alternatives have limitations. Part of that is due to their safety profile with the extended use. Part of it is do their efficacy and how that drug actually works. What's really important to understand here, and I think it's -- this is why I've been stressing the -- as you know, chemistry manufacturing controls, how you build the product and understanding of the underlying mechanism of action is so important. This drug -- this biologic drug is different than what is available today. And I believe that if we're able to demonstrate in the clinic, it's efficacy, prolonged safety and if there is a demode characteristic, this would be represent a, what I would say, a complete paradigm shift in the treatment around the osteoarthritis for 18 million people out there who are suffering from this degenerative disease. So, I do believe that we're optimistic that this could provide a useful different type, completely different type of treatment in the future. We have to prove that in the clinic, and we got to get it approved, and we have to scale our operations to be able to meet that type of demand.

Thank you. Our next questions come from the line of Bruce Conway [ph]. Please proceed with your question.

Good morning, Tim and Pete. I'm glad to see the growth in the AWC business. I'm also very pleased to hear your emphasis on the biopharma attributes of this company. I wanted to embellish a little bit on the scoring that you brought up. If I heard it right, the Gel harm and the Olin studies were scored differently, but I believe they were both very positive. Is there a WOMAC score that you can reveal that would maybe shed light on both those studies. And it seems to me the scoring is a really big to be figured out for the Phase III. Thank you.

Well, I think the WOMAC pain and function, WOMAC total is what is the most contemporary measurement in this particular area. I don't discount the KU [ph] scores. What is really Bruce, probably the most important thing from us if you were to sit down and talk to our clinicians is what we're seeing in all these trials, whether it's retrospective, prospective, whether it's exploratory all have demonstrated clinically meaningful benefit to the patient. And frankly, the KU [ph] score in WOMAC are very similar in the way they are -- the subject is reporting their payment scores and their function scores. The other piece that is really important if we're able to do this is have a secondary endpoint and that secondary end point could be around disease modification. And we would be able to capture that either do an X-ray or an MRI on it. I think if we truly believe and we need to come to a conclusion on this, Bruce, we truly believe that there is this beautiful disease-modifying characteristic. We owe to ourselves and we owe to the patients and frankly, all of our stakeholders to demonstrate that -- challenge that in our clinical trials.

Yes. And as you say or suggest those images would certainly differentiate obviously, from placebo, and that seems to me to be the problem with the second leg.

The one thing that you brought up here that I would -- I want to make sure we capture in your question, and I think our commercial team has done a fantastic job. We've had to rebuild the entire organization, frankly. There is a shift that's going on. You mentioned the advanced Wound Care business. And as you know, Bruce, you've been in this stock a long time. The company pioneered that whole area. It was absolutely brilliant. The other thing historically, the company did was understand that there was more utility and bigger indications. That's why we're in musculoskeletal disease. That's why we're studying the EOA. The other thing we feel are area that we have broad utility in is in this surgical recovery. When Rohit came on board in last year, we began studying what other areas can we penetrate. And I'd like for Rohit to just touch on that a bit because it's more -- this company is more than AWC. It's more than a wound care company. It's got a platform technology, and you mentioned biopharma. Well, this company has always been a biologics company. The way it was characterized maybe wasn't that way. But we're dealing with tissue that's a biologic, but it's different than a biotech company that's working on an antibody for cancer. But it's also different than a small molecule like nonsteroidal that you're taking. So this is a whole new category that I think needs a leader, and we intend to be that leader scientifically and otherwise. So Rohit, could you just talk about our efforts in surgical recovery, please?

Sure. As you know, we have provided more than two million graphs over the last decade or so. And troughing the process, we have learned that clinicians use these grafts in different clinical situations because the amniotic tissue has a lot of clinical value in those situations. In the surgical setting, what clinicals desire to do is to reduce the complications of the procedures that they do. And our issue can be used in different situations to either augment provide a barrier or help with the closure and reduce those complications. And we'll definitely share a little bit more on this also at Investor Day, but bringing that to light and then getting our sales streams trained, both the direct and our agency and focus on these procedures and also now focusing on developing the clinical evidence to support this folks continue to drive the penetration in that market as well.

Another aspect, Bruce, we focused a lot on our R&D programs in this historically, I think. We brought on John Harper, a well-known person in this space to head up our research and our product development. The research, all the activity there is around mechanism of action, what's going on with these at a more of a cellular molecular level. The product development piece of the organization is designed the way we've built that we crafted that. It's designed to support our base business going forward. So we'll have -- as Pete mentioned early on, I've really challenged the organization under John and Bob's leadership to provide -- put more products in the bag of our sales reps, and we get that leverage of our infrastructure cost that's sitting out there. So I feel very confident we'll be able to perform on supporting through R&D, organic growth to support our base business. And then, this future, if you will -- exponential opportunity for this company is in the musculoskeletal area, and that's run out of our clinical operations group, led by Dave Mason. -- another rheumatologists that we have working for the company. So as I look at it for the entire business, we're starting -- we've got the whole business working now the way I think it should be working.

Thank you. There are no further questions at this time. I would like to turn the call back over to Tim Wright for any closing remarks.

Look, I'll quickly close here. We have the necessary capital to do what we need to do here across the board. I'm very pleased with the performance of our commercial business. And frankly, I'm very pleased with how we've responded in R&D on evaluating the DOA [ph] trial and we'll continue to value the PF trial. So I'm really looking forward along with my management team for a very robust MiMedx discussion on December 7 at our Investor Day. Thank you for your continued interest and support in MiMedx. Much appreciated.

Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time.