Author Topic: MDXG - MiMedx Group  (Read 3052 times)

Gregmal

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MDXG - MiMedx Group
« on: November 17, 2018, 09:36:23 AM »
This is something I've had an eye on for quite a while and I feel the story has finally played out and the risk to reward here is now massively skewed to the upside.

I am not an expert on these type of companies. Zero is still definitely a possibility. This is a massively overcrowded short.

However, the one thing no short has been able counter, is that MDXG does have solid products that are overwhelmingly viewed favorably by doctors, employees, and even competitors.

Over the past month or so, the perfect storm of shoes dropping has occurred. Kicked out of smallcap index, delay of filings, delisting, and a poison pill to name a few. The company also seems to have completely cleaned house, and generally speaking, it's actions in no way reflect a company on the brink. I specifically believe that the past 2 weeks have brought out every forced seller possible, and now the shares even trade at a discount to Citron's $3 target.

All in all, this one is simple. The actions of the company, and the precedent set by regulators leads me to believe that MDXG's existence is not likely threatened. And if it survives, it is a multi bagger from here. This is a great spec. long...
« Last Edit: November 18, 2018, 03:59:24 PM by Parsad »


Cigarbutt

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Re: MDXG MiMedx Group
« Reply #1 on: November 17, 2018, 11:08:43 AM »
Opinion:

Promising field but IMO nowhere near lasting clinical applicability.
Investing profits from sentiment rebound is not excluded but the odds are stacked against the investor.

It's hard to evaluate precisely the odds of developing a product with sustainable moat in the short to mid term concerning their wound or surgical products but, for the injectable products for pain, I evaluate the odds at less than 1 in a million.

With all due respect and even if what is promoted appears to be sophisticated and vanguard, in my humble perspective it feels like:
https://www.youtube.com/watch?v=gN-ZktmjIfE
Even if you are dealing with the Wright brothers here, I would guess that the eventual "successes" may be coming out of left field.

JRM

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Re: MDXG MiMedx Group
« Reply #2 on: November 18, 2018, 05:08:15 AM »
I haven't spent any time on this; I just know they've been accused of fraud:

https://www.youtube.com/watch?v=W6jykRgR3dE

Gregmal

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Re: MDXG MiMedx Group
« Reply #3 on: November 18, 2018, 08:03:43 AM »
Yes, this one has been quite interesting, for a long time. I've always thought the short case had more merit than the long case, however was never able to get a good response from any short piece about why their offerings where highly regarded and why even competitors typically saw them in a favorable fashion. I don't doubt there is/was fraud on some level.

If, as some have stated, we're dealing with bribes and channel stuffing, from years ago, done by employees who no longer work there, I mean thats not blowing them off the map.

So essentially where I am at, is that is should clearly have a SPECULATIVE AF disclaimer, but with the convergence of recent event, this IMO is where you take a shot at this thing.

Think about it for a second. The people truly behind the scenes just put in a poison pill at $6. If this is a fraud or ending up a doughnut, wouldn't they at least try to pass the hot potato or salvage something for shareholders? But instead they took a measure to assure the company wasnt going to get sold for a quick 20% premium, ~$7 a share. ALA Papa John's sub $50. Now at $2.5, with ZERO having changed, even at a 20% discount to the poison pill announcement, you have 100% upside.

kab60

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Re: MDXG MiMedx Group
« Reply #4 on: November 18, 2018, 08:11:07 AM »
Haven't dug deep but I suspect you're right. Reading the last Petit filing one gets the impression he mig be working on launching an offer for the Company. Strange if it is a donut.

TBW

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Re: MDXG MiMedx Group
« Reply #5 on: November 18, 2018, 11:36:18 AM »
I would be really careful with this one.  I have been short, covered most of it recently but hold some remaining put positions.

The first thing to note is no one has any idea what the underlying revenue is and last 6 yrs of financials are being restated.  If you look at its comps OSIR and DSCI, they all started with roughly the same amount of revenue in 2013, MDXG/OSIR has $25mil, DSCI had $34mil.  MDXG grew revenues are 75% pa (!?!), OSIR, and DSCI at 35% and 11% respectively.  The amount of stuffing that may have occurred here could be enormous.  You will also note that OSIR ran into similar issues with its management team and growth slowed significantly.  If you apply OSIR growth rate of 35% to 2013 revs then Epifix revenues would be in the ~$120mil range.  Attached a 3x rev multiple (like OSIR) and keep MDXG's other line of biz flat at $60mil you get a value of ~$492mil, or $4.40 per share.  Certainly higher than current price but not that great.

You have to keep in mind that the previous CEO is fired for cause and having all his comp shares clawed back.  Usually that is only if criminal activity occurred.  The underlying sales number is anyone's guess.

Then you have the liabilities to think about.  The accounting restatement, especially given C-suite firings, over 6 years is going to be really expensive.  They also have a mountain of lawsuits from whistleblowers, hedge funds, equity holders etc.  There is also the cost of VA, DOJ investigations, SEC fines etc.  Going into all this the company only had $30mil of cash.  Even if equity value is positive, is it really greater than all these liabilities?  One counterpoint here, somehow the company has survived this long, so maybe it still is generating some cash, and that is a positive point.  However, their current CEO is from A&M a restructuring firm and he is paid hourly.

As for as the product.  It is really hard for me to know.  This company was growing sales really quickly, but not much cash.  This could indicate, and there is evidence to suggest that perhaps bribes were paid to increase sales.  No idea if this is true, but may explain why they grew sales at incredible rates relative to its peers.  This may also explain why their product is loved.

Having spoken to some dr friends they say that the evidence behind wound care like this is mixed.  There is a lot of hype, there is a need for better products, but it is not clear if these products work as well as advertised.  He also was surprised by the amount of sales as he thought the market was pretty small as this stuff is used for difficult wounds like diabetes etc.

If you attach peer growth rates and multiples you can make the argument that this stock is not that cheap.  If you consider the liabilities then you may say its is very expensive.  Since none of this is exactly clear I have covered because if I am wrong it could go up a lot.  On the poison pill, they may just be doing this to preserve NOL's if there were to file?  Just a guess.  I am not sure one can read into it too much, seems like a standard move any company with such advisors in control would do.  But I could be wrong.

My view is this could be interesting if they restructured.  That would cause an even bigger equity washout, and then any discount to the value of the underlying business could be very large.

The counter point is that DOJ/SEC/courts are very hesitant to force a company to fail.  Therefore they may lean on the light side on any fines/charges etc.  In that case the stock does go up, but perhaps not nearly as much as it may appear.

Gregmal

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Re: MDXG MiMedx Group
« Reply #6 on: November 18, 2018, 11:51:16 AM »
I would be really careful with this one.  I have been short, covered most of it recently but hold some remaining put positions.

The first thing to note is no one has any idea what the underlying revenue is and last 6 yrs of financials are being restated.  If you look at its comps OSIR and DSCI, they all started with roughly the same amount of revenue in 2013, MDXG/OSIR has $25mil, DSCI had $34mil.  MDXG grew revenues are 75% pa (!?!), OSIR, and DSCI at 35% and 11% respectively.  The amount of stuffing that may have occurred here could be enormous.  You will also note that OSIR ran into similar issues with its management team and growth slowed significantly.  If you apply OSIR growth rate of 35% to 2013 revs then Epifix revenues would be in the ~$120mil range.  Attached a 3x rev multiple (like OSIR) and keep MDXG's other line of biz flat at $60mil you get a value of ~$492mil, or $4.40 per share.  Certainly higher than current price but not that great.

You have to keep in mind that the previous CEO is fired for cause and having all his comp shares clawed back.  Usually that is only if criminal activity occurred.  The underlying sales number is anyone's guess.

Then you have the liabilities to think about.  The accounting restatement, especially given C-suite firings, over 6 years is going to be really expensive.  They also have a mountain of lawsuits from whistleblowers, hedge funds, equity holders etc.  There is also the cost of VA, DOJ investigations, SEC fines etc.  Going into all this the company only had $30mil of cash.  Even if equity value is positive, is it really greater than all these liabilities?  One counterpoint here, somehow the company has survived this long, so maybe it still is generating some cash, and that is a positive point.  However, their current CEO is from A&M a restructuring firm and he is paid hourly.

As for as the product.  It is really hard for me to know.  This company was growing sales really quickly, but not much cash.  This could indicate, and there is evidence to suggest that perhaps bribes were paid to increase sales.  No idea if this is true, but may explain why they grew sales at incredible rates relative to its peers.  This may also explain why their product is loved.

Having spoken to some dr friends they say that the evidence behind wound care like this is mixed.  There is a lot of hype, there is a need for better products, but it is not clear if these products work as well as advertised.  He also was surprised by the amount of sales as he thought the market was pretty small as this stuff is used for difficult wounds like diabetes etc.

If you attach peer growth rates and multiples you can make the argument that this stock is not that cheap.  If you consider the liabilities then you may say its is very expensive.  Since none of this is exactly clear I have covered because if I am wrong it could go up a lot.  On the poison pill, they may just be doing this to preserve NOL's if there were to file?  Just a guess.  I am not sure one can read into it too much, seems like a standard move any company with such advisors in control would do.  But I could be wrong.

My view is this could be interesting if they restructured.  That would cause an even bigger equity washout, and then any discount to the value of the underlying business could be very large.

The counter point is that DOJ/SEC/courts are very hesitant to force a company to fail.  Therefore they may lean on the light side on any fines/charges etc.  In that case the stock does go up, but perhaps not nearly as much as it may appear.

This is an excellent, excellent summary of basically what's up. I interpret, and more or less speculate that the question marks/concerns you listed are revealed more favorably than the market expects, but its really just a moderately educated guess. Your reasons for covering the short are my reasons for going long here, more or less.

Cigarbutt

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Re: MDXG MiMedx Group
« Reply #7 on: November 18, 2018, 06:20:30 PM »
I would be really careful with this one.  I have been short, covered most of it recently but hold some remaining put positions.
...
This is an excellent, excellent summary of basically what's up. I interpret, and more or less speculate that the question marks/concerns you listed are revealed more favorably than the market expects, but its really just a moderately educated guess. Your reasons for covering the short are my reasons for going long here, more or less.
Was planning only one input here but somehow find that this could be useful for perspective on the "product".
This is not about the depth of TBW's anaysis or the validity of Marc Cohodes' investigation which are shining lights on pretty significant red flags.
It's about the product itself.

Here's a hypothetical venture: Placentophagy or the consumption of placenta by women who just delivered it to the world
-Huge market potential
-Almost all non-human placental mammals ingest their placentae at parturition
-Could patent a recipe that could blend it into a smoothie even if raw preparations would be available
-The placenta contains an innumerable amount of difficult to pronounce chemicals with undefined but amazing potential
-Possibility of sponsored studies and inventive sales team
https://www.jognn.org/article/S0884-2175(15)00009-X/pdf

Placentae have a viscous texture and a disgusting look but what sticks with you is the smell. Unforgettable.
I may be wrong but can't you smell That smell? (Lynyrd Skynyrd, 1977)
There's the smell of Bad Blood and Henry Kissinger is not even on Board.


scorpioncapital

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Re: MDXG - MiMedx Group
« Reply #8 on: November 19, 2018, 05:18:11 AM »
Placental ECM has good potential, it's even being used for hair loss (google amniotic BioD).
However in the space of tissue engineering and biomaterials there is lots of competition and methods and hard to say who is the winner. Lots of claims. For example I know Cook mEdical makes some claim about some biological matrix and then I read some clinical study of those using it who say it just dissolves like putty. So got to be careful there.
I think placental ecm is a kind of semi-autologous ecm. VCEL makes a ecm with your own cells from your own blood. There are many ways to skin a cat and many products on the market just getting started. There are even semi-viscous UV activated biomaterials (eg Poltiss). So if you can pick the winners great, otherwise best to do some thinking.
Integra lifesciences (IART) also has a portfolio of placental ecm products when they acquired dermal sciences, but also other items in the portfolio. Personally I like the more diversified approach, just in case. Although I admit there are some small biotechs with better products. Some are private.

alwaysdrawing

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Re: MDXG - MiMedx Group
« Reply #9 on: November 19, 2018, 06:14:03 AM »
No reliable financials since 2012, senior executives fired for cause with clawbacks pursued, surprise de-listing from NASDAQ for unknown reasons (after getting an extension until February 2019), accusations of bribery and fraud at the VA, poison pill adopted to preserve NOLs.....everything here points to an imminent bankruptcy filing.  If they don't file BK before the February scheduled timetable for de-listing, I'd be very surprised.

With a market cap still around $300 million, and still no idea how many shares are currently outstanding, or how much cash is in the bank, and the CEO being paid hourly from a restructuring firm with massive liability shields, and 6 years of financials to re-state, I really don't see much upside even if things go "better than expected". 

Talking about the technology and its potential are fine, but no one on this board should miss the risks here--everything points to this being a 0.  If the issues were going to be resolved, why would NASDAQ immediately de-list?  Why adopt a poison pill to preserve the NOLs?  In fact, if this wasn't going to 0, and there were any chance of solvency, why wouldn't the company be put on the block for sale?