Thursday, December 17, 2015

3rd AIM student stock update: MiMedx Group, Inc. (ticker: MDXG): What the Heck Happened to MDXG?

MDXG (MiMedx Group, Inc.): What's Happening with the Biotech Stock -MiMedx Group?
By: William Pink, Student at Marquette University

Image result for MiMedx Group, Inc. logo

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Summary:

·       MiMedx Group, Inc. develops, processes, and markets patent protected regenerative biomaterial products and bioimplants processed from human amniotic membrane.

·       MiMedx is struggling to gain back investor confidence after the publication of the FDA's investigation on MDXG’s homologous use of human cells, tissues, and cellular and tissue based products (“HCT/Ps”).

·       The FDA's Notice of Public Hearing and Request for Comments on April 13, 2016 will generate input that will shed more light on MDXG’s use of HCT/Ps.

·       Parker Petit, CEO, strongly believes that their products have been in total compliance with homologous requirements and that the FDA's focus will center on the marketing and labeling of HCT/Ps, rather than on their actual use.

·       MDXG was recently awarded twelve new U.S. patents for its amniotic membrane allografts, including eight for one of its leading products - CollaFix.

·       On December 1, 2015, the company announced that coverage for their allografts increased to over 170 million commercial health plan lives. A nine million increase in covered lives from the end of October 2015.

MiMedx Group, Inc. (NASDQ: MDXG) remains a controversial stock. Since the announcement by the FDA that the firm's HCT/Ps products are under investigation, the stock price has declined roughly 12.5%. MiMedx Group's CEO, Parker Petit, is under immense pressure to reverse the recent downturn in the stock price and to find a solution to the looming FDA complication.

Since the beginning of December, the company has been releasing positive news, such as the increase in covered lives for MDXG’s allografts along with more contracts with U.S. GPOs and IDNs. Although there has been good news, the stock has struggled to rebound to the $9.00 range due to the high volatility in the market and the continued questions of whether MDXG’s HCT/Ps usage can pass the FDA's clearance.

CEO Parker Petit is very confident that MDXG products will fit under compliance with the FDA guidelines regarding HCT/Ps. The problem for stockholders is that the decision will not come until April 2016. With that being said, the decision by the FDA will continue to weigh on the stock price and pose a great risk on current and potential investors. Recent news of increased covered lives and contracts will help drive up revenue and increase market share in the future, but it is hard to imagine the stock experiencing a large rise in price until after the FDA's decision.

The company has recently announced they will host a conference call on December 17, regarding their updated outlook for 2016. This will be especially important for current or potential investors to learn what management wants to do regarding the FDA problem and how to increase shareholder value going forward.

Recent Stock Movement
As stated above, since the announcement by the FDA regarding MDXG’s products with HCT/Ps, the stock has declined 12.5%. Before the announcement, the stock was trading roughly around the $9.50 range but has since fallen down to the $8.25 range. The company will need positive news in the near future, such as beating earnings expectations for Q4 2015 to help instill confidence in investors again and increase shareholder value.

Past Year Performance: MDXG has decreased 24.6% in value over the past year, but the stock still has strong fundamentals. MDXG has increased revenue for ten consecutive quarters along with possessing greater ROA and ROE figures compared to their industry peers. If the FDA obstacle proves to be nothing more than a labeling cleanup, the stock could see a sharp increase given that the company continues its operational success.

Source: FactSet

My Conclusion
The FDA decision will continue to be a negative weight on the stock and for that reason it is hard to believe the stock will experience a drastic increase or decrease - baring any important news release regarding the firm. Even if the stock does beat forecasts for Q42015, investors will still focus on what the FDA will do in 2016. It seems investors are too caught up on the FDA decision because it only relates to the marketing of the product and not the actual product use itself. MDXG will continue to use their HCT/P products and drive revenue from increasing covered lives and contracts. The conference call on December 17 will address numerous investor concerns and if the company can clear up the FDA obstacle the stock can elevate back up to the $10-$12 range providing a solid return.



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