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MiMedx Group, Inc. (NASDAQ:MDXG)

Progress of FDA Discussions, Reimbursement Successes and Recent Short-Selling Initiatives Conference Call

March 25, 2014 11:00 ET

Executives

Thornton Kuntz - Vice President, Human Resources and Administration

Pete Petit - Chairman and Chief Executive Officer

Bill Taylor - President and Chief Operating Officer

Mike Senken - Chief Financial Officer

Analysts

Matt Hewitt - Craig-Hallum Capital

Bill Plovanic - Canaccord

Bruce Jackson - Lake Street Capital Markets

Suraj Kalia - Northland Securities

Operator

Good day, ladies and gentlemen and welcome to the MiMedx Group Incorporated Shareholder Call to Update Progress of FDA Discussion, Reimbursement Successes and Recent Short-Selling Initiatives. My name is Stephanie and I will be your operator for today. At this time all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder this conference call is being recorded.

And now I’d like to hand the call over to Thornton Kuntz, VP of HR and Administration. Please proceed sir.

Thornton Kuntz - Vice President, Human Resources and Administration

Thank you, Stephanie and good morning everyone. This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based upon the current beliefs and expectations of our management and are subject to risks and uncertainties. Actual results may differ materially from those set forth in, contemplated by, or underlying the forward-looking statements based upon factors described in this conference call and in our reports filed with the Securities and Exchange Commission including our Form 10-K for the year-ended December 31, 2013. We do not undertake to update or revise any forward-looking statements, except as may be required by the Company’s disclosure obligations in filings it makes with the Securities and Exchange Commission under Federal Securities laws.

With that I’ll turn the call over to Pete Petit, MiMedx’s Chairman and CEO.

Pete Petit - Chairman and Chief Executive Officer

Thank you, Thornton. Good morning. I have with me Bill Taylor, our President and Chief Operating Officer and Mike Senken, our Chief Financial Officer. As usual there are some other corporate executives with us. Thanks for joining us. We tell it’s worth a conference call to give you an update on a number of issues and clearly there are some things that came up last week. In our last conference call we were clear relative to the potential to some disruption in the market relative to new Medicare Reimbursement Codes for our EpiFix products. We anticipate these issues and we’ve been working diligently to help all wound care providers understand the new codes and specifically how they relate to coding for allografts.

Since the last call we’ve had our first meeting with FDA on March 13 relative to our first Biologics License Application or BLA for our micronized tissue. We’ve previously discussed the fact that we expect to have at least two meetings with the FDA during this spring in preparation for the filing of our BLA. The attendees of this first meeting were our Chief Medical Officer, Chief Scientist, our Vice President of Quality, Regulatory and Product Development, Vice President of Clinical Programs and in addition certain members of management team there include Bill Taylor and myself.

As we stated in the press release the individuals from the Center for Biologics Evaluation and Research, CBER that were in attendance were extremely helpful in answering our questions and providing additional information that will be helpful to us as we navigate this process. We discuss having our second meeting to answer further questions and review additional clinical and safety information. This should occur in the near future.

Also I want to comment on reimbursement activities. These are extremely important to any company as it attempts to enter healthcare markets. We have a very experienced staff who have been involved in reimbursement issues that this makes it for decades. So our reimbursement team includes our Chief Medical Officer, Dr. Don Fetterolf, myself and others who work daily on supporting all these activities. So in intense effort I think most people don’t appreciate the critical nature of it. We now have four different publications in Level 1 journals on our EpiFix allograft. We have a number of other supporting scientific and clinical publications. Of notice, that we will soon announce the publication of a 90-patient study on venous leg ulcers.

This is a multi-center randomized controlled trial involving seven different centers. This should clear any questions on the effectiveness of EpiFix on the larger VLU wounds. Also we have another study that’s nearing completion on diabetic foot ulcers. This is also a multi-center study. The publication of these studies would bring our total clinical population to well over 200 patients. This – obtaining this should be more than sufficient clinical evidence to obtain coverage from a majority of health clients. And we’ll be using that – those clinical trials in addition to the evidence we already have to clearing the next hopefully six months the majority of these national health plans.

I am now going to turn the discussion over to Bill Taylor, our President and Chief Operating Officer. Bill?

Bill Taylor - President and Chief Operating Officer

Thanks, Pete. I’m going to go into more detail on our various items. The first thing, the FDA meeting we had on the 13. As Pete mentioned, our team spend a great deal of time and effort to send our pre-IND materials to the FDA a month ahead of the meeting. The package included safety data, in-vitro data, clinical study data and other relevant information. We also delivered a comprehensive draft clinical study protocol for our first proposed indication. With this submitted data, we also delivered a lengthy set of questions related to this first proposed IND application. The FDA then reviewed the materials and delivered responses to our questions prior to the meeting.

Their detailed responses allowed us to have an even more focused question-and-answer session when we met in person. Personally, I was impressed with the obvious amount of effort the FDA team spent on reviewing our materials. They asked some great questions in winning some detail regarding areas that are of particular focus to them as well as areas where companies sometimes had difficulties. The overall tenure and tone of the meeting was very positive and was apparent that the FDA team genuinely wants to see products like to go successfully through this regulatory process.

We’re very pleased with their effort and direction so far and we look forward to the next step in the process. We compiled our notes on the meeting and are preparing our next steps. This will include gathering additional data, providing our draft clinical study protocol and widening the IND submission. We also expect to have further discussions related to a possible transition plan over the next month or two.

Now, changing gears to reimbursement. As we announced two weeks ago, EpiFix is now able to reimburse for Medicare patients across the country assuming the affordable coverage criteria are met. The rapid success of obtaining coverage for EpiFix across the country is a testament to its strong clinical efficacy as well as the strength of our reimbursement and management team. Our company’s D&A is somewhat unique because of our management team’s experience in healthcare services, informatics, medical devices and instrumentation. This diverse background includes longstanding business relationships with large portion of the health clients across the country. This combination gives us an advantage over other companies when it comes to reimbursement and is reflected in our successful CMS coverage for EpiFix, which is by far outpacing all the other companies who receive the Q-Code at the same time as us. Our main initial strategic focus has been on the MACs, but we have also been working on private pay and Medicaid.

We currently have coverage on roughly 30% of covered lives in these two areas. Our reimbursement and health policy teams are working diligently to increase that coverage in the coming months. Now we’ve had some questions regarding EpiFix reimbursement in 2015 and what will happen when our pass-through status expires. I’m going to get into some details here. So – but the bottom-line is that assuming the methodology remains the same as this year we expect to still be in very good shape and I’m going to walk you through that. First of all I want you to recall that procedures performed in the physician office are still reimbursed for the skin substitute graft at ASP plus 6% per square centimeter. So far they have not been packaged in this environment and CMS yet to comment on any potential changes in this area if any. So this is assuming that it’s staying the same in 2015.

Now after analyzing the 2012 Medicare data, we do believe the current system can be improved by having another tier for very large wounds that would have a higher payment rate. We met with CMS last month and shared an analysis that we did using the 2012 Medicare data that justified a separate rate for larger wounds. In July we should hear CMS wants to make any adjustments or not. Now assuming however that there are no substantial changes made in 2015 I’m going to breakdown now how MiMedx will still be in very good shape next year even without the pass-through status that we have this year.

Recall from our previous discussions that our recent publication shared a breakdown of wound sizes for DFUs and VLUs. Approximately 76% of diabetic foot ulcers and 66% of venous leg ulcers are 5 square centimeters or less, combined that’s roughly 70% of these wounds, 70% of these wounds. Now the current high cost skin substitute package rate is $1,371. So the price of our 6 square centimeter graft is just over $1,200 and our small graft is just over $300. That means in 2015 for 70% of the cases, the facility should make between $170 and $1,070 per application. Again, that’s even after the pass-through expires.

So another question is what about those larger wounds, the other 30% of the wounds, so roughly 30% of the wounds? Let’s look at the very large wounds say over 20 square centimeters, which is still want to make rid of 8% to 10% of these wounds. A percentage of those are actually treated in the OR in a DRG case. So those are not really applicable to the packaged rate. So that only leads a small single-digit percentage treated in the hospital outpatient setting of these very big wounds. And this is what we hope CMS will address with our proposal from last month. Now, the middle roughly 18% to 20% or so of the cases are from 5 to 20 square centimeters. For these wounds, we have focused on cost of closure, total cost of the treatment to close the wound, because we have sized appropriate grafts, the graft cost goes down week to week. We expect that for those 5 to 20 square centimeter wounds, the facility were averaged in a range between breakeven to a lot of thousand dollars positive over the full cost of treatment when our pass-through expires. In order to better match our graft size, the wound size, we are also going to be adding additional sizes next year.

Now, let me give you a couple of very specific examples and I will walk you through them, so you can understand the progression. For a 10 square centimeter wound, here is a typical type of progression, week 1, what will be one of our new sizes at 3x3 9 square centimeters and one disc could cost about $2,100, so that will be applied in week 1. In week 2, the wound size typically gets reduced to only one 2x3 will be necessary, that cost us about $1,200. In week 3, it will progress down to one 2x2 at a cost of about $800. In week 4, it would progress down to one disc at a cost of about $300. So if the total cost for our grafts over this cost to closure for this wound will be about $4,400. So the total package reimbursement of 1,371 x 4 is $5,484. So the difference between that and the $4,400 means the facility makes almost a $1,100 on the total treatment regimen in 2015 without our password. So it’s still over the whole cost of closure for that one patient still a positive event for the healthcare facility, they do not lose money in that example.

Case number two, a 16 square centimeter wound, I would start off with a 4x4 costs about $3,200. In week 2, it will be a 3x3 typically at a cost of about $1,800, week 3, a 2x2 at about $800, week 4, probably two discs at a cost of about $600, week 5, one disc at a cost of about $300, total cost $6,700 and total package reimbursement at 1,371 x 5, 6,855. So the facility makes roughly $155, not much, but they didn’t lose money even though they did not have a pass-through. So you can see from examples I just explained use of EpiFix should still be very strong next year even after the pass-through status expires. And that also does not even include if CMS decides to use another higher tier for the larger wounds, which we proposed to them. So the facilities will be in the black, the majority of the time either per treatment or in the case of larger wounds over the dollar cost averaging at the multiple applications to close the wound.

One of the thing, I want to point to you is that three years ago, we were not in the wound care market at all. At that time, we were focused solely on surgical and orthopedic business. We didn’t start focusing on wound care till roughly mid-year 2011. So it gives over 2.5 million from zero market presence to one of the top two or three players in the space and growing rapidly. In the same time period, we initiated multiple clinical studies in wound care and already have four peer-reviewed public articles related to every big superior clinical efficacy in treating DFUs. We expect another DFU study to be completed in the second quarter of this year as well as our first VLU study, as Pete mentioned earlier, with 90 patients.

And I will remind you of something I have also said before, our best sales through was simply the usage of EpiFix by just not any wound care physician. Scientists or researchers can argue all day long about which clinical study is better than some other study, but what’s non-debatable as a result of the use of a product in the hands of the typical wound care doctor in a widely diverse patient population. Our best sales through is to have a physician use an evaluation sample of EpiFix on a patient of theirs who had a chronic wound that he or she has not been able to close for months. And then we will come back to that position one or two weeks after that initial application, response when we see the doctor again is almost always the same.

What’s in that graft? The wound that is installed for months has either healed or significantly reduced the size. So personally, I don’t care if it’s better as a clinical study of 20, 50 or 500 people, none of them have shown the clinical performance of EpiFix noted most of them have the very simple logistics to the use of MiMedx. They can’t compete clinically or cost effectively so they try to focus and divert attention to something else.

Now, changing gears to our MAB and the discussion that we had on our press release yesterday. The MAB agreements referenced in the shorts article from last week were entered into – the majority of them were entered into over six years ago back to we are development stage company with zero revenue and prior to Pete or me joining. This is back in the HydroFix days when we are working on multiple spine implant PMA products and the early days of CollaFix development. The company was small and necessarily relied on help from engaged MAB. Since then, we have grown our observation and did not need much outside help in development any longer. The author of that article last week chose not to disclose the fact that two reference doctors in that article were also founders of the company and played a role in product development and had not been involved in the company for years. And of course, they would be to mention that the majority of those MAB stock options that we have issued expired prior to being exercised. Of the 70% or so that were issued prior to Pete and me getting here over 90% of those are expired without being exercised. So we take compliance very seriously here at MiMedx and we take care to ensure that our business relationships with physicians meet the ultimate guidelines in all applicable laws.

Last, we have approximately about a dozen MAB physicians who are still active and received stock options from the company. About a third of these were on the MAB before Pete and I came to MiMedx. So revenue to MiMedx in 2013 from MAB physicians who use our products was very small and not material. If you have other physicians that are consultants who have speaking engagements with us to educate on our products, they speak at educational meetings, tradeshows and conferences. The standard compensation for these speaker consultants is in hourly rate between $225 and $350 and they are not given stock options. Generally, these speakers have experience using our allografts and they are paid only the fair market value for their hourly rate of their service.

So with that, that’s a pretty detailed explanation of several issues. I will turn it back over to Pete.

Pete Petit - Chairman and Chief Executive Officer

Bill, thank you. Mike Senken has got some comments. Mike?

Mike Senken - Chief Financial Officer

Thanks, Pete. I wanted to speak briefly about several factors relating to the company valuation. As we all know, there are number of factors that contribute to the company’s valuation. One of many important factors that are taken into consideration for MiMedx is rate of the top line growth that is forecasted over an extended period of time. This is the acquisition of Surgical Biologics, which closed on January 5, 2011. The company’s reported annual revenues have grown from $767,000 to $59.3 million. This represents a three-year CAGR of approximately 326%. If we hit the low end of our 2014 revenue guidance which is now $95 million, our four-year CAGR will be approximately 234%. There are very few companies that can claim that rate of growth.

Looking forward, we have pointed to near-term growth catalysts in the commercial wound care market driven by the superior performance of our product and supported by expanded reimbursement coverage. We estimate the commercial wound care market is approximately three times the size of the government wound care market, which we have successfully penetrated over the past 18 months. Based upon the superior efficacy and overall cost effectiveness of the EpiFix platform, we expect higher than normal growth rates to continue over the next several years. In the medium-term, we expect to see accelerated growth driven by our AmnioFix platform in surgical and sports medicine applications as we move from a cash pay or reimbursement covered as part of the DRG to a specific reimbursement code for the graft. Additionally, we have stated that with gross margins in the low to mid-80s – 80% range, operating profit in the 20% to 30% range is doable once we had built our direct sales and support organization and enter clinical trials on the injectable product. This top and bottom line growth potential is what drives our valuation.

With that, I will turn the call back over to Pete.

Pete Petit - Chairman and Chief Executive Officer

Thank you, Mike. Now, I want to address some of the other misinformation that was conveyed in the Street Sweeper blogs last Thursday. I will comment on the blog specifically related to my SEC case. And this case relates back to 2007 when I was Chairman and CEO of Matria Healthcare, a $450 million healthcare, informatics and services company. Please understand that my remarks related to this matter would be made in my personal capacity and not as a representative of MiMedx.

I want to make one thing clear from the offset I did not give a tip to Mr. Arrowood or anyone else in this matter. Both Mr. Arrowood and I have consistently deny that there was a tip in our testimony for this case. There is not a single piece of objective evidence to the contrary. First, I hope all of you have been able to go my personal website and review the three documents that I have placed there yesterday. Those documents should begin to clear up the numerous questions that were raised by the misinformation conveyed by the blogs. When I was asked by some shareholders about the site, I did not see any redeeming qualities to doing so. However, I did it and now the availability of this site has proved to be useful. I hope you found it useful also.

Also I recently noted something I tell them do that there has been some information placed on the MiMedx Yahoo! message board on this subject. The first document on my website is a press release that was published by Matria in January of 2012 when we have notified that after three years of investigation the SEC decided to file a lawsuit against me and Mr. Arrowood. The information in the press release should stand on its own merits. The second document is a letter sent to my attorneys to the SEC in June of 2010 while investigation was underway. I have been advised by one of my attorneys and I should consider taking a polygraph with lot of tests which I willingly agreed to do. This letter states that we offered to take polygraph test again with the second, but that offer was not accepted.

The third document is our brief of request for summary judgment. My attorney felt it was worth we have to do request to summary judgment on the first tranche of shares and that’s however purchased, because there was no (indiscernible) in that situation. However, the SEC continued their work facts and disputes, so the judge didn’t have the summary judgment. Well, they are legal arguments. The facts in the case would be thoroughly read during the trial. No rationale conclusions should be drawn from this summary judgment now for either side. Our interest in obtaining the summary judgment was that it would bring the five-year ordeal to a partial closure, recall this has been going on since 2009 and has been somewhat of a distraction.

Let me first discuss the simple issue, which is that I had zero motivation to provide a tip to Mr. Arrowood or anyone else during this crucial process, it makes your healthcares on the going. First, if I felt that Mr. Arrowood any numeration of any type or anything, I would have simply written him a check. Our record was clear on that, probably capable of providing a check and (indiscernible) is certainly well documented. To let Mr. Arrowood, anyone else know about the secret process at Matria Healthcare was evaluating strategic alternatives would have been quite irresponsible.

If the fact got out there, we were undergoing such a process that would have allowed hedge funds to manipulate our stock unmercifully. As it turns out, we kept this process absolutely secret for 3.5 months is a carefully select – a small investment banker and we had tight security over the process. So for me, let Mr. Arrowood or anyone else know about the process would have been absolutely detrimental to this important transaction. These type of secrets move quickly. The hedge funds would have run the stock price up and taken out of a fair range for a transaction. As a matter of fact, there has been testimony that my children do not even know about this exploratory process. My wife is the only person in my family that knew about the situation.

Another very important question is why I would advise a friend with limited capital advanced stock in a company that might have a future transaction. I have been involved in many major transactions in my business career and most of it very uncertain until the last minute. That was actually the case here. The acquirer actually walked away from transaction in mid-December and later returned in January. There is no question in the fact that I had two phone calls with Mr. Arrowood on the date that he bought his second tranche of Matria shares on December 27. From about a week before that and for several weeks after that we were talking daily because I was in the process of buying another aero plane and making preparations to sell the one I had. Mr. Arrowood (indiscernible) with the situation and after each our phone calls there were generally phone calls to my attorney who was structuring the transaction or to the owner of the aeroplane or the session of the service centers. If that is very clear about what the phone calls were about during this period of time and after the aircraft purchase, actually on December 27, was the day that we actually completed the purchase agreement with the sale of the aircraft. There were some extenuating circumstances in this case from SEC's standpoint, I understand that. Mr. Arrowood with the acquisition (Technical Difficulty), started when he was a teenager, it was over and he went through this period, like old. He rather quickly made a right decision to receive therapy and got the situation behind him. He subsequently finished his depositions. And all of mine and Mr. Arrowood’s testimonies were both have asked to bring that no information or tip was given about Matria Healthcare’s transaction. Mr. Arrowood was clearly testified with that fact as have I. A process of this nature is extremely stressful and financially debilitating like Mr. Arrowood. All of these expenses are out of pocket for him.

In my case, I have Directors and Officers’ liability insurance, which has picked up most of my fees. However, you can understand by many individual (indiscernible) regardless of innocence of yield and owned the stock with substantial cost related to their legal fees. However, in this case Mr. Arrowood and has up to this up until now refused to sell. The SEC (indiscernible) indicated that he had been given a tip by. This was in the process of attorney – of his attorney discussion with the agency what were their settlement proposal be with Mr. Arrowood. This was an old process negotiating our settlement. These discussions were going to be hypothetical such as “what would this settlement be if my client did receive a tip.” This is what is called a prophet negotiation. And today Mr. Arrowood made a profit of $9,900 on these two trades after holding with trades for six months and nine months respectively with $94,000 as a hypothetical value that he would have achieved if he had sold the shares on the day of the announcement.

Now, that’s abated facts in this case, I felt all along if I want to quote with the federal judge, I would be found innocent. I still feel that why kind of apparently Mr. Arrowood does too. When this case started five years ago, I asked my attorney to advise the commission. I was not going to sign the consent decree because I was innocent, absolutely innocent. That reminds me in our minds that today I look forward to having this trial sometime in the early summer and getting this behind me personally and being certain it does not affect MiMedx in anyway.

Okay, that ends my statements on that subject and what we will do now is throw the meeting open to questions and answers. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) First question comes from Matt Hewitt from Craig-Hallum Capital. Please proceed, your line is open.

Matt Hewitt - Craig-Hallum Capital

Good morning gentlemen.

Bill Taylor

Hi Matt.

Pete Petit

Hi Matt.

Matt Hewitt - Craig-Hallum Capital

My first question is you received the coverage in Florida here not too long ago, I am curious if you could give us an update on how the response has been, how many sales people you have been able to shift into that geography and what your expectations are over the coming quarters for Florida?

Bill Taylor

Well, if memory serves, I think we have about four people in Florida now and we have listed three or four people that we were targeting to hire and we began that process that we got the good news. So we expect to have Florida pretty well covered here in the next few weeks.

Matt Hewitt - Craig-Hallum Capital

And the response there, I mean have you seen a similar type adoption rate to some of the other geographies over the past year and a half as far as how quickly you are able to target some of the key wound care clinics and hospitals and generate that revenue?

Bill Taylor

It’s too early to say right now, but we have been in the process of educating that and hoping that we would be able to get coverage here soon. So but it’s just only been a matter of couple of weeks here, but it’s just little too early to tell, but we anticipate that to be as good at least if not better than some of the others that we had from January to February.

Matt Hewitt - Craig-Hallum Capital

Okay.

Pete Petit

Matt, this is Pete. We can tell pretty much by the way March revenues have developed, but the process is beginning to mature and these centers begin and get back to business is normal and on that basis we will do very well.

Matt Hewitt - Craig-Hallum Capital

Okay. And maybe one more for me and it’s kind of an awkward question, but I think it’s something that investors are curious about, Pete, at what point obviously you have had these two blogs come out commenting directly about your legal situation and while you have been pretty adamant over the last couple of years that this is completely separate, at what point does this become too much of a distraction and how would you and MiMedx handle kind of keeping those two separate?

Pete Petit

Well, first of all, I think we have absolutely kept them separate. The Board of Directors of MiMedx has been fully apprised of this situation from the day they have joined the company and the day they have joined the board. It came after that. The distractions are generally my personal ones and frankly having been around as long as I have been running public companies as long as I have. I treat it as a slight diversion. Really, I am expecting the company accept when shareholders left these kind of balls, volume in a way that they should have in my opinion. Now, let’s explore the alternatives here. If the case goes to trial here in the next six or so days which I expected to, the worst case scenario is that the judge decides and I am – I use the word extremely guilty that’s not a legal word, but extremely guilty. And he enjoins me from participating as an executive in a public company, well of course I will have to resign as Chairman and CEO and that would be that.

As Board of Directors has had and continues to update our management plans in terms of succession, it’s very well vetted. Bill Taylor is the most effective Chief Operating Officer I have ever had with any of my companies. And Bill has been the last several years exposed now to Wall Street from things and other strategic matters that my experience brings to bear. So I think if something happened and I have to step back from the company, Bill and the board will make those decisions. Now, I am still probably the largest individual shareholder. So I am serving on a – that wouldn’t keep me from making my comments as a shareholder, I just couldn’t be involved in the active management of the company. So now, I don’t expect that to be the case. My expectations today are that this case will go like I thought it would five years ago and that’s why I was stuck tonight. The public hearing will just go into court and clearing matter. Now, again I don’t want you or anybody else to feel awkward about asking questions about this, I was trying to be extremely open about it. I can’t try the case on conference call obviously, but few individuals saying feel very strong about this meaning ourselves and Arrowood. And I don’t know I was going to go to court and I think there is no evidence here that should result hopefully in the event found guilty.

Matt Hewitt - Craig-Hallum Capital

Alright, great. Thank you very much.

Pete Petit

Thank you, Matt.

Operator

Thank you. The next call comes from the line of Bill Plovanic from Canaccord. Please proceed.

Bill Plovanic - Canaccord

Great, thank you. Pete on that same thing, talking about Bill, I was just wondering if you could provide us with some of the depth of the management team that you have just beyond, Bill that we see facing everyday and just some of the other people involved I think so people – so we understand it’s what else is fine in the company?

Pete Petit

Okay. Well, first of all, this is a very experienced management team. Doing what we have done, you have seen our operating progress, you have seen our ability to tell you what we are going to do each quarter and execute, we have hit every I think goal we have set out for shareholders. You don’t do that if you don’t have the experience that this management team has, but majority of this people involved with me at Matria Healthcare which was a $450 million revenue company, which had a good growth rate. I mentioned Bill was the most effective Chief Operating Officer I have had with any of our organizations. And he is gaining experience with public markets finance and strategic matters. So I think I will address that.

With our organization, again people who were with me prior to this, was Debbie Dean. Debbie joined our organization 20 years ago and worked her way up to the management likes to point where it makes your healthcare, she had seven physicians reporting to her, all of our medical doctors reported Debbie all the informatics functions and everything else, which was pretty much the core sections of that company. Brent Miller is Executive Vice President like Debbie. Brent was Bill’s number two executive at Facet Technologies and that capacity oversaw a lot of the Facet Technology operations. Roberta McCaw, Roberta has been with us, our General Counsel, for 16, 17 years in all of our public company activities, very experienced as from General Counsel standpoint. Thornton Kuntz, our Vice President of Administration and Human Resources also a 16, 17-year veteran with us. Now, some of the newer members of our team, Mike Carlton has been with us four years. He is our top sales executive. Across the individual who has done an excellent job in taking us from a zero revenue company basically to where we are today. Mike Senken, our Chief Financial Officer also been with us for years. Mike was very experienced financial executive in this prior career and I made changes when I first stepped into this company with CFO and other members of management. So there is a depth of management here. If we didn’t have that depth of management, we couldn’t have performed. It’s as simple as that.

And I think if you look at our performance in growth and the fact that we haven’t gotten some things out of control and have some issues, where we make statements and couldn’t fulfill them it will be because we had experienced management. That hadn’t been the case. I have done many and some may not show up in the future, but we have got adopted on good track record and it’s because of this management team, it’s not because the ball have made a lot of implications that this is a one man band, it’s not. There is a depth of management here with most companies this size don’t have and they grow slower and they add the themes on a slower light. We have been able to add and build this company very rapidly because of our ability here in the Atlanta area to reach out to people who had functioned with us in our previous companies and are happy to come back and get involved again in another week at new venture.

Bill Plovanic - Canaccord

And then Pete, just that you have done a lot of heavy lifting over the past couple of years as a company in terms of reimbursement, the products you brought to market. As you look at the next three years, what you expect the heavy lifting to be?

Pete Petit

Well, first of all, I will add that, Marlene DeSimone recently joined us. She was with our previous organization, Matria Healthcare. Marlene ran one of our business units here and at one point ran the sales organization. She has got the assignment when she walked in the door last fall if we meet our five-year strategic plan fine-tuned, developed and she has done a great job of doing that. So we have got a five-year strategic plan, it will be in front of the Board of Directors here shortly that lays out the next five years for this company. It lays out our product initiatives. It lays our market initiatives. And we have got a roadmap to follow. Again, most companies never have programs like that and plans like that laid out. We used to that, because we are involved in the larger organizations from our previous activities. We had our five-year strategic plan that was updated annually when we gave the Board our budgets for the following calendar year and we viewed it quarterly as management team to see what adjustments have been made. Those kind of issues you plan in much mature companies are embedded here in MiMedx to-date. So I think the next several years are well laid out that, that may make some adjustments, but I think that program has been well thought out and five years like are laid for us.

Bill Plovanic - Canaccord

And then just last question for Mike is in the press release, you raised the low end of guidance from I think there was some commentary surrounding the second quarter, but I mean, is this as you get through the first quarter, I know you are not done with the quarter, is this based on just the marked results or is it based on kind of the whole quarter results? And what I am getting at is as we look at Q1 and I know it’s sort of preliminary not to focus on the call, but just trying to get a flavor for whether we should expect the very positive Q1 and we are building off that or just as you exited through that last month of Q1 is what gives you confidence for the rest of the year?

Pete Petit

Bill, let me mention Southern for Mike discusses it. I have always said and this is what I have done with all my involvement with my public companies. Anytime we are not going to meet a guidance figure we have given to our shareholders, we will come out and talk about that ahead of the quarter end. Because generally speaking about it certainly by the end of the quarter, companies generally note they are going to miss revenues, it’s going to miss profits or something like that, we will discuss that. I have never given shareholders’ the surprises. There have been negative things happened as they have with all companies, but I will give plenty of notice with the fact that we are not going to make a quarter in terms of the guidance we have given, you will know about it ahead of time and we will deal with the issues associated with it when we come out with press release.

If you haven’t heard anything generally that’s going to be good news. We are not going to wait till the end of our quarter when we do our normally quarterly press release and say oh by the way, we have missed numbers. I don’t believe in doing that. I think you do it, you do it best if you let shareholders know ahead of time, this is what’s happening and here is why. You don’t wait till you get any report, so generally speaking if it’s quiet before the end of the quarter that’s probably good news. Mike?

Mike Senken

Bill, the short answer is it was driven by what we have seen in March. We have talked earlier on the call that between the education in the marketplace, with the change in reimbursement and that coming out late, albeit a month late last year that education took a period of time and in addition to that we had the weather issues which were real. But March as you saw in the press release is very strong and as we had said previously we wanted to see how the uptake would occur and we are starting to see that now in March.

Bill Taylor

So I would add in addition to the March results, also obviously it goes back to the number of sales people we have added. And as we mentioned in the press release yesterday, we are now as of this week we are up to 120 now in the sales organization, up from 110 when we had our call in February.

Pete Petit

And generally speaking again looking back over the last two plus years, we have been pretty good at increasing our expense related issues associated with where we are going to be revenue wise. And that will be a day where we will miss something, but so far we haven’t. And I don’t think we would be at this stage with this many sales people if we didn’t have a pretty well going good feel for what’s going on all throughout the whole reimbursement system what’s going on throughout the country, what’s going on with our competitors. So I think we positioned ourselves properly, but time will tell.

Bill Plovanic - Canaccord

Great. Thank you for taking my questions.

Pete Petit

Thank you, Bill.

Bill Taylor

Thanks Bill.

Operator

Thank you. The next question comes from the line of Bruce Jackson from Lake Street Capital Markets. Please go ahead.

Bruce Jackson - Lake Street Capital Markets

Hi, thank you for taking my question. Just to follow-up on the FDA meeting, which indication are you going to pursue first?

Pete Petit

Well, look I will just say this, because there are some competitive issues embedded here. We went up with one proposal with the second one to also be discussed and they gave us some additional thoughts. So we will make that information available here shortly. But again as Bill said it was a very productive meeting. We will add with one initiative and may come back with another initiative, come with both, there is just a little bit of uncertainty and we are working through that right now. So this may be give us little more time for us to get ready to build the second meeting. When we finished the second meeting, I think at that stage we will be in a better position to be very specific about what we are doing.

Bruce Jackson - Lake Street Capital Markets

Okay, great. And then with the First Coast Services, MAC approval that was for all lower extremities applications and I was wondering with some of the earlier MAC approvals, is there – will those also at some point in time be expanded to the VLUs in addition to the DFUs?

Pete Petit

Well, each one of them has its own nuances. There is of course nine different ones and there is a team of nine different medical directors associated with each of those MACs. So they all make their decisions based on their personal experiences and how they view clinical evidence etcetera. We have one MAC as I recall was not reimbursing for venous leg.

Bill Taylor

But all the others are.

Pete Petit

But all the others are.

Bill Taylor

And we believe once we get this venous leg ulcer study published that they we will – we consider them the one MAC that’s not covering for VLUs where we consider and start covering it.

Pete Petit

So we continued to and we will always be developing additional clinical evidence on all of our products everything we do, that’s just going to be a novel process. And then taking that into the reimbursement side and convincing medical directors, we have sufficient clinical evidence to whatever the indications are we are seeking.

Bruce Jackson - Lake Street Capital Markets

Okay. And then last question just from a competitive standpoint they say that limitations be some serious from of flattery there has been a couple of other amniotic tissue products that have propped up over the past couple of quarters, can you just remind us about your IP position and also your competitive positioning in terms of the product structure?

Pete Petit

Well, we would certainly agree with what you say and we have been very, very flattered. Let’s field this back to intellectual property. We have been talking about our patents for a couple of years. We have had 11 issued. We have just had some verification of some others, 53 or so filed. We have developed a very strong patent portfolio. And we will be taking some initiatives very shortly in terms of making it clear to individuals they are in violation. We have selected our timing on that carefully and we are well thought out our initiatives there and you will know about them as soon as we push those buttons. In the case of amniotic membrane tissue, if it’s a single layer tissue, amnion-only generally, our patents don’t cover, but other than that they cover very, very thoroughly. So what you will see is perhaps some companies coming along with single layer, single layer is clumsy, it’s hard to handle, it’s got one-tenth, one-twentieth of the growth factors that multi-layers have etcetera. So it’s not effective a product. So those kind of things will work themselves out in the marketplace.

Bill Taylor

If I can just speak about two things, generally speaking the folks that have those single layer or amnion generally fully be cellulizing. So it’s basically just a collagen – thin collagen sheet with very few growth factors and cytokines and so forth. And as Pete mentioned I think on all the analysis that we have done it may average about one-twentieth of the level of the growth factors and so forth that we have in our EpiFix or AmnioFix. So it’s substantial difference and we have even seen a few very small studies from one or two of these would even show that they are not as clinically effective as what ours are. So we expect that to be – that to continue for which we think we have a pretty strong advantage over them.

Pete Petit

We do have people showing up in the market, which well, there was – when it comes to the patent issues. So, our products just like MiMedx, thanks very much, well, they have no clinical studies, they have no scientific studies, they have nothing. And of course that kind of marketing ends up falling short generally speaking and then the patent issues will soon settle much of that. So, we are comfortable where we are and we are flattered by the people following.

Bruce Jackson - Lake Street Capital Markets

Thank you very much.

Pete Petit

Thank you.

Bill Taylor

Thank you, Bruce.

Operator

(Operator Instructions) The next question comes from the line of Suraj Kalia from Northland Securities. Please proceed.

Suraj Kalia - Northland Securities

Good morning gentlemen.

Bill Taylor

Hello Suraj.

Suraj Kalia - Northland Securities

So Bill and Pete I think so there are lot of questions which are bordering on the personal I do not think I appreciate Pete giving a fair defense and I don’t think so it’s appropriate in this forum, but nonetheless highly respective that you guys came out and offered your position. Bill let me just stick to the market. You gave us certain example of the cost to closure and I don’t have all the numbers memorized but it’s been tough to do with sizes kept changing every week should we that implies a certain rate of wound healing/epithelialization, I guess if I look at different wounds of different etiologies, Bill how do you all go into a clinic where let’s say the first wound the cost of closure is in the positive, but the second wound for whatever reason if it’s – there is a hiccup or whatever, how do you convince the clinic, guys this is the best product out there versus epigraft, dermograft, you got to continue with this, if you could walk me through it? Thanks.

Bill Taylor

Thank you. It’s pretty simple answer though. If you look at the clinical date out there, if you talk to any physicians that have used those products and EpiFix what you will find is EpiFix by far heals more wound than (indiscernible) products or anything else that they have used. So what you get for instance with the dermografts is even on a more typical diabetic foot ulcer, even if you look at their clinical study, you get 30% or 40% of the wounds that are closed after five, six or seven applications. So you still have 60% or 70% of the wounds that had five or six applications and they still haven’t been healed. So there is a huge differential there in terms of performance. And what we have seen what our physicians have seen that it is, is that it applies across pretty much any different wounds that they take pride on is that EpiFix typically performs better. So, most of these people and certainly the patients want to have the wounds that healed as opposed to 70% of the time doubling the yield. So that’s one.

Now, obviously, the example I gave where we are more typical of the typical type of closure rates we see in the field as we have shown and I think three or so of our papers, the average number of applications to close the diabetic foot ulcer at least is somewhere around 2.3 to 2.4 applications. That’s compared to the competitors that again only closed in the year from 30% to 50% of the time and those averages are somewhere around 5% or north of 5%. So yes, there are going to be some occasions where on closing a wound, especially the larger wound, the physicians or the facility will lose money by the majority of the time, they will breakeven or make money even on these middle size wounds 5 to 20 square centimeters as for the examples that I gave you. Now, on the small ones, again 70% of the time they are going to make large percentage of money there. You look at the 50% of the cases. They are the size of our small graft or smaller and they are going to make $1,000. So if you look at their whole book of business, their whole average cost to closure across all their wounds, EpiFix is absolutely the best choice they have in the marketplace. So I hope that answers your question, but I have not seen – we have not seen any technology that has a better more effective cost of closure.

Suraj Kalia - Northland Securities

Fair enough. Gentlemen, thank you for taking my questions.

Pete Petit

Thank you, Suraj.

Operator

Thank you. The next question comes from the line of (Bruce Conway from MiMedx). Please proceed.

Unidentified Analyst

Thank you. Hi, Pete. I just wanted to say that frankly I am very pleased with the operating performance of the company and Pete I would like to thank you for your candor on your personal situation. I did want to mention however a comment on Street Sweeper and this comes from a friend yesterday because I got a call, just got a call couple of secs ago from somebody was on the call and said gee, the stock isn’t responding. And I said well, I know somebody whose company has been to a personal for actually two years and they still hold the stock, they have had it for 14 years, they are up 300 times on their money. And I just all I want to say which I said to him is if people don’t sell these guys will go away. That’s the only reason why they are here. There is a big network on the short side associated with the Street Sweeper gang. And if the company is doing fine, just hang in there and will prevail. So that’s really all I wanted to say.

Pete Petit

Well, Bruce, thank you. For those on the call, Bruce happens to be one of the early shareholders in this company and there is numerous more individuals of that nature. And again, having run public companies now for 33 some odd years, these are the – just the pebbles in the pathway of growing a company that has the kind of exceptional technology we have with large needs and unmet needs and the experienced and effective management team and 2013 should prove to be another exceptional year, it’s buying opportunity was shares are now. We can debate some of the issues associated with are we overly valued, correctly valued, undervalued or whatever, the market generally sorts that out, but the large institutional investors have begun to notice the company. I expect those will increase in number as they do. This volatility should again clear itself, because we will unfortunately at this stage of our growth, we are right in the sweet spot of the short sellers. We have enough trading volume everyday with the right-sized market cap. We don’t have the majority of our shares in the hands of large institutional holders at this time. There are still some small institutions from small investors, non-institutional investors who get concerned about these kind of disclosures. And so we will mature through this and use it as the buying opportunity if you just see fit, but I think management has tried to abate to clear the way we can for you. If you have other questions, please feel free to call us. Well, I think that’s going to conclude the call, if we don’t have any further questions. Thank you very much.

Operator

Thank you. Ladies and gentlemen now I would like to turn the call back to Mr. Pete Petit, Chairman and CEO for closing remarks.

Pete Petit - Chairman and Chief Executive Officer

Well, I have just made my closing remarks. Thank you very much.

Operator

Thank you. Ladies and gentlemen, that concludes your conference call for today. You may now disconnect. Thank you for joining and enjoy the rest of your day.

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Source: MiMedx Group's CEO Discusses Progress of FDA Discussions, Reimbursement Successes and Recent Short-Selling Initiatives Conference Call (Transcript)
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