Ladies and gentlemen, thank you for standing by, and welcome to MiMedx second quarter 2021 operating and financial results conference call. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star then one on your telephone. If you require any further assistance, please press star then zero. I would now like to hand the conference over to your speaker today, Mr. Jack Howarth. Please go ahead, sir.
Thank you, operator. Good morning, everyone. Welcome to MiMedx second quarter 2021 operating and financial results conference call. With me on today's call are Chief Executive Officer, Tim Wright, Chief Financial Officer, Pete Carlson, Executive Vice President, Research and Development, Dr. Robert Stein, and Executive Vice President and Chief Commercial Officer, Dr. Rohit Kashyap. Tim and Pete will provide a summary of our operating and financial results for the second quarter 2021. At the conclusion of their remarks, Tim, Pete, and Doctors Stein and Kashyap will be available for your questions. Before we begin, I'd like to remind you that our comments today will include forward-looking statements, including anticipated timelines for our ongoing clinical trials and FDA submissions and approvals, and expected market size for these products. These expectations are subject to risks and uncertainties. Actual results may differ materially from those anticipated due to many factors.
Actual timing and FDA approval will depend on a number of factors, including the results of our clinical trials, the impact of COVID, actions by others that affect our timeline, and other factors that the FDA deems important. We list additional factors in the press release issued yesterday afternoon, as well as the risk factors section of our Annual Report on Form 10-K. Also, our comments today include non-GAAP financial measures, and we provide a reconciliation to GAAP in our press release, which is available on our website at www.mimedx.com. With that, I'm now pleased to turn the call over to Tim Wright. Tim?
Thank you, Jack. Good morning, everyone, thank you for joining us on the call today. Yesterday, after the markets closed, we issued a press release reporting our second quarter 2021 operating and financial results. I'd like to start today's call with a brief review of our commercial business and recent operating highlights and then move right into an overview of the progress to date we're making on our promising late-stage pipeline. Afterwards, Pete will take you through a discussion of our strong second quarter financial results. Starting with an overview of our performance. Second quarter net sales grew 27% year-over-year to $68.2 million, driven primarily by our Advanced Wound Care business, reflecting solid execution by our expanded commercial sales team. Adjusted net sales, which excludes the impact of change in our company's methods for recognizing revenue, grew 31%.
This increase was primarily driven by EPICORD Expandable and the EPIFIX sheet portfolio in our Advanced Wound Care business, along with sales of our micronized injectable products prior to the end of Enforcement Discretion that occurred on May 31st. I will touch on Enforcement Discretion in more detail shortly, but remind you that this was a category-wide guidance that applied to all HCT/P manufacturers. For MiMedx, we believe the impact is limited to our micronized and particulate products only. Our most prescribed flagship brands, EPIFIX and AMNIOFIX, are not impacted and continue to see strong demand across the market.
In the second quarter, we reached our 2021 goal of increasing our sales force size by 10% and currently stand at 289 customer-facing sales professionals, complemented by a strong network of sales agents to expand our reach, frequency, and impact of our products into additional surgical procedures and deepen our penetration into targeted accounts. Broadly speaking, over the past year, the easing of COVID restrictions at healthcare facilities minimized the disruption for our sales personnel and allowed us to conduct meaningful medical education programs. As the only data-driven amniotic tissue allograft to have complete national commercial coverage for the treatment of diabetic foot ulcers, we continue to leverage our extensive reimbursement coverage to reinforce the differential advantage of our products and to convey the clinical and economic value of our brands. We are also closely monitoring recent reports of possible COVID spikes in certain parts of the country.
Our sales team is well-positioned to adjust and adapt to any changes in facility protocols. We remain committed to keeping our employees safe, ensuring continuity of care for patients, and continuing to ensure providers have access to our flagship brands. Overall, we are extremely pleased with the commercial progress that we've made in the second quarter. We realize that we must continue to execute, and I believe we are well-positioned going into the second half of the year. Now, moving on to some recent highlights.
In May, we announced the important collaboration with the Wake Forest Institute for Regenerative Medicine to develop and advance scientific evidence in support of safe and effective clinical therapies. Led by Dr. Anthony Atala, the Wake Forest Institute for Regenerative Medicine is recognized as an international leader in translating scientific discovery into clinical therapies, and was the first in the world to engineer laboratory-grown organs that were successfully implanted into humans. Our collaboration will involve research into the specific mechanism of action and basic pharmacology involved in the host responses to treatment with our amniotic tissue-based platform and other regenerative tissues. Our partnership reflects a shared vision to advance regenerative science and innovative biologics that restore quality of life for patients and further our understanding of the potential therapeutic targets. We look forward to updating you on the efforts of this important collaboration with Wake Forest in the future.
In June, we announced regulatory approval by the Japanese Ministry of Health, Labour and Welfare to market EPIFIX in Japan. Our current efforts are focused on establishing reimbursement pricing, which may take until mid-2022 to finalize based on the ministry's calendar. Following the successful approval of reimbursement pricing policy and subsequent listing of the reimbursement rate, MiMedx can begin offering EPIFIX to physicians and their patients in Japan. When reimbursement is approved, we believe EPIFIX has the potential to reach as many as 100,000 patients each year for this market. I look forward to updating you on the progress to help more patients achieve better outcomes across the globe. As an industry leader in Advanced Wound Care, MiMedx continues to build a solid foundation of scientific data to support our products.
We recently announced the publication of a peer-reviewed study in the "Journal of Investigative Dermatology Innovations," highlighting the potential benefit of MiMedx' PURION process dehydrated human amnion/chorion membrane, also known as dHACM, to combat complications stemming from excessive fibrosis, a pathological process central to a number of serious unmet medical needs. MiMedx's PURION process amniotic tissue has been used extensively for the treatment of multiple acute and chronic conditions, ranging from diabetic foot ulcers and significant burn injuries to musculoskeletal applications like plantar fasciitis and knee osteoarthritis and other sports medicine applications. This important work can help enhance our potential to address the needs of patients suffering from pathological scar formation, numbering as many as 100,000 patients worldwide, including those with minor cosmetic defects, significantly compromised tissue architecture, and impaired function across a number of conditions.
PURION process amniotic tissue has demonstrated remarkable results in safety in a multitude of uses, and we are focused on investments that further uncover its tremendous potential. That also increases our scientific understanding of not only its capabilities, but also its limitations as we continue to gain insights into the complexity of this tissue. We are building an existing library of peer-reviewed literature as we believe that this provides MiMedx with a critical advantage for the further development of novel therapeutics. Let me turn to Enforcement Discretion. As you may recall, we addressed the FDA's communication regarding the category-wide end of Enforcement Discretion on our first quarter call and confirmed our plans to discontinue marketing of our micronized and particulate product at the end of May.
Unfortunately, both providers and ultimately patients, there was significant marketplace confusion across the industry, and in particular, for companies unprepared for the May 31st deadline. At MiMedx, we were prepared. We planned for and executed on an enhanced communications program with our customers to address and ease some of the confusion. Our commercial team exercised strong leadership to support our customers as they provide much needed patient care. The need for scientific rigor and quality is paramount, and our continued open dialogue with the FDA is focused on exploring ways that enable continued access for patients to innovative therapies. Pete will discuss the impact of Enforcement Discretion on our financial results in a few minutes. Shifting gears now to some updates on our rapidly progressing pipeline.
I'm excited to report that we have achieved our 2021 goal of filing three additional investigational new drug applications for our micronized and particulate products in the first half of the year. On our last quarterly call, we announced acceptance as filed by the FDA for the first of these IND applications for chronic cutaneous ulcers, and I'm pleased to report acceptance as filed by the FDA for our second IND to support the use of micronized dHACM in surgical incisions. In addition, our third application for soft tissue defects has been filed, and the FDA is currently reviewing this submission.
We are still in the very early stages of planning study protocols for all three of these important programs and will update you upon initiation of patient enrollment. Finally, most importantly, we are approaching some key milestones with our musculoskeletal pipeline, including the late summer release of top-line data for our plantar fasciitis and knee osteoarthritis clinical trials. Depending on the data, subsequent next step meetings are to be scheduled and agreed upon with the FDA. We will also plan a future R&D date to discuss the PF and knee OA study results in more detail with our financial community. First, let's talk about where we are with the phase III PF study. The study design included 277 patients with endpoints that measured a pain score on the Visual Analogue Scale and the Modified Foot Function Index.
The clinical field monitoring teams have cleaned, verified, and validated source documents and recently achieved database lock. The next step is final data analysis and generation of a full data set to be reviewed at a meeting with the FDA, with a goal to agree upon a path forward to an eventual BLA filing. Of course, the timing of any such meeting will depend on the results of both the phase II-B trial and the phase III trial after the FDA's review. An eventual BLA filing will depend on those and other factors, which I'll discuss with you in a minute. I would remind you that a BLA filing is a significant effort, and if we are successful, this would be the first for an amniotic tissue product aspiring for large-scale production under a drug biologic pathway.
Moving now to the phase II-B study in knee OA, which involved 447 subjects. The study was designed with co-primary endpoints of pain, as measured by Visual Analog Scale and WOMAC. We are approaching final analysis and database lock by the clinical monitoring team, and the 12-month safety visit follow-up, as requested by the FDA, is scheduled to be complete October 2021. Similar to the PF study, the next steps include generation of a full data set to be reviewed at the end of phase II meeting with the FDA, with the goal of designing a phase III study. With respect to the timing of communicating top-line results for both studies by late summer, the company now believes that it would be appropriate to discuss top-line data to investors while simultaneously requesting meetings with the FDA to discuss the overall PF and knee OA study results.
Once the meetings have been held with the agency, MiMedx plans to review the full study results with investors at a future company R&D day. These are very exciting times for our science, our technology, and our employees. Yet the BLA filing and review process is exceptionally rigorous. The typical steps for obtaining FDA approval of a BLA to market a biological product in the United States include performance of two adequate and well-controlled clinical trials in accordance with good clinical practices to establish the safety and efficacy of the products for each indication, along with the development of purity, potency, and identity tests to demonstrate consistency and reliability of the manufacturing process through rigorous chemistry, manufacturing, and controls.
Submission to the FDA of a BLA for marketing the product includes, among other things, reports of the outcomes and the full data sets of clinical trials and proposed labeling and packaging for the product. In addition, the satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced is required to assess compliance with the FDA's Current Good Manufacturing Practice regulations to assure that the facilities, methods, and controls are adequate. We are thoughtfully and aggressively moving these efforts forward, including the preparations for labeling and packaging insert development, each of which would allow us to more accurately project and refine the total addressable market for our injectable technologies.
We are in the early stages of planning for pricing decisions, third-party payer discussions, and product launch preparations, and believe that the commercial ramp-up for AMNIOFIX Injectable may benefit from its prior clinical use in the market, along with its excellent track record of safety. On behalf of the MiMedx team, we would like to congratulate one of our distinguished Board Members, Dr. Cato T. Laurencin, on being awarded the Spingarn Medal, the NAACP's most prestigious honor, honoring his accomplishments in the fields of tissue regeneration, biomaterial science, nanotechnology, and regenerative engineering, a field he founded. Dr. Laurencin received the Spingarn Medal at the NAACP's 112th Annual Convention last month. Established in 1914 by the late Joel E. Spingarn, the NAACP awards the medal annually for the highest or noblest achievement by a living African American during the preceding year or years in any honorable field.
As a pioneer in the field of regenerative engineering, Dr. Laurencin's discoveries and achievements have pushed the boundaries of science in the service of human health and inspired countless other researchers to do the same. His addition to the Board of Directors at MiMedx last fall has been invaluable and speaks to our shared mission, advancing science to improve patients' lives. We are fortunate to have the opportunity to learn from and build on his truly unique insights. Congratulations to Dr. Laurencin. I will now turn the call over to Pete, who will take you through all of our financial results. Pete?
Thank you, Tim, and good morning, everyone. I will provide an overview of our second quarter 2021 financial results, starting with an update on some of the underlying trends in our business. As Tim mentioned earlier, we had an outstanding second quarter. MiMedx reported net sales of $68.2 million in the second quarter of 2021, a $14.5 million increase compared to the same period a year ago. Sales volumes increased over last year's second quarter. As you know, COVID resulted in access restrictions for lower volume and decreased travel for lower costs. Net sales for the quarter includes revenue recognized on the remaining contracts of $300,000, compared to $1.7 million in the same period a year ago.
Adjusted net sales, which excludes cash collected on the remaining contracts outstanding at the time of change in the company's revenue recognition methodology, were $67.9 million in the second quarter of 2021, compared to $51.9 million for the second quarter of 2020. You will note we have provided disclosure of net sales broken out between products in our base Advanced Wound Care business and products impacted by Enforcement Discretion, which we refer to as Section 351 products. The 31% increase in second quarter adjusted net sales includes 29% growth in Advanced Wound Care products, reflecting a positive impact from the sales of EPICORD Expandable, which the company launched in the third quarter of 2020, as well as growth in our flagship EPIFIX Sheet portfolio. Sales of our Section 351 products were up 44% over the prior year period, which were disproportionately impacted by the pandemic.
Gross profit margin was 81.3% in the second quarter of 2021, compared to 84.7% for the same period a year ago. Gross margin was impacted by negative variances from reserves recorded for inventory and sales returns for products affected by the end of Enforcement Discretion. In addition, lower than planned production volumes and higher than planned compensation for manufacturing personnel combined to have a negative impact on gross margin. The higher compensation reflects overtime pay, increased use of contract labor, and pandemic-related temporary bonus payments for these essential workers. As we return to normal working conditions, currently planned for September of this year, we anticipate these pandemic-related payments will end. Together, these two items had a negative 3.2% impact on gross margin. Selling, General, and Administrative expenses were $53.6 million in the second quarter of 2021, compared to $37.3 million in the same period a year ago.
The increase reflects the salary restrictions last year in the midst of the COVID-19 pandemic. As you know, last April, the company enacted temporary decreases in salaries and subsequently restored them early in the third quarter. In addition, company and government-imposed travel restrictions during the three months ended June 30th, 2020, significantly reduced travel costs. The company anticipates that travel expenses will approach more normal levels. The increase in SG&A was also driven by year-over-year increases in commission expenses resulting from the increase in sales volumes. Finally, the second quarter of 2021 includes $3.8 million related to the proxy contest associated with our 2021 Annual Meeting in May. Research and development expenses were $4.1 million for the second quarter of 2021, compared to $2.3 million in the same period a year ago, reflecting higher consulting fees and additional headcount to support the company's clinical research efforts.
I'm pleased to say that our investments in preclinical studies to fuel our pipeline and base portfolio increased, and we expect these costs to increase over time. Investigation restatement and related benefit was $2.1 million in the second quarter of 2021, compared to an expense of $11.4 million in the same period a year ago. Results in the current quarter include funds received related to certain of our directors' and officers' insurance policies, along with resolution of amounts owed to law firms for fees related to indemnification commitments. The second quarter of last year included expenses incurred related to the restatement of prior period financial information, which we completed in the middle of that year.
While we may incur some litigation costs going forward, we expect a continued reduction in investigation restatement and related expenses other than costs related to the resolution of the securities class action matter, the amount and timing of which are highly uncertain. Net loss was $1.8 million for the second quarter of 2021, compared to a net loss of $8.5 million in the same period a year ago. Adjusted EBITDA was $2.8 million or 4.2% of adjusted net sales in the second quarter of 2021, compared to $10.2 million, or 19.7% of adjusted net sales in the same period a year ago, which include a much lower expense level in the midst of the pandemic. Adjusted EBITDA in the current quarter was negatively affected by reserving for items impacted by Enforcement Discretion, primarily consignment inventory, as well as the expenses related to the recent proxy contest.
These items, along with our planned investments of proceeds from last year's capital raise, represent about 12% of adjusted net sales. As of June 30th, 2021, the company had $85 million of cash and cash equivalent, compared to $95.8 million as of December 31st, 2020. Finally, we have come a long way in restoring the financial stability and reporting integrity of MiMedx. Last year, we brought our financials current and relisted our common stock on Nasdaq. In the second quarter of 2021, we were added to the Russell 3000 and Russell 2000 indexes and anticipate being added to the Nasdaq Biotech Index in the fourth quarter. Later this week, we expect the company will become S3 eligible, a financial filing status made possible by these important milestones.
I am proud of the progress we have made to date and thank all of our team members and partners that worked hard to achieve these goals. I'll now turn the call back to Tim.
Thank you very much, Pete. I'm extremely pleased with MiMedx's performance in the first half of the year. We achieved a significant amount of progress in growing our base wound care business despite the challenges of Enforcement Discretion. We filed additional INDs to fuel our pipeline and achieve regulatory approval of EPIFIX in Japan, among other corporate and operational developments. Our commitment to enhancing the lives of patients is at the forefront of all we do. I believe that our amniotic tissue products have the potential to address unmet needs across large markets and make meaningful and positive impacts. Our second quarter performance was strong. I thank our customers, our employees, and our shareholders for their commitment. We are focused on maximizing your long-term value. I thank you for your continued interest and support. Operator, you may now open the lines for questions.
Thank you. As a reminder, to ask a question, you will need to press star then one on your telephone. To withdraw your question, please press the pound key. Our first question comes from the line of Carl Byrnes with Northland Securities. Your line is now open.
Great. Thank you. First, congratulations on your progress and I have a few questions here. There's been a bit of a concern in the industry that cord products may be subject to 351 classification. Do you believe that MiMedx will be affected by this at all? I have a follow-up as well. Thanks.
Yeah. Hi, Carl. This is Tim. Currently, we do not believe our EPICORD products will be impacted by Enforcement Discretion simply because of the way the products are manufactured and how we promote those products. I'd like to have Dr. Stein give you a little bit more background on that. What's up, Bob?
Thank you, Tim. Hi, Carl. The way that our cord products are made, we take out the vessels in the inside and take the outer wrapping and flatten it out into a sheet, and we use it as an integument substitute or barrier to provide a protected environment for healing. That is homologous use, in our opinion, for the outer wrapping of the umbilical cord. The issue that the FDA has been raising is that for people who are trying to use it otherwise, they think it is a conduit, and we believe we have a different use that's in keeping with homologous use.
Great. Thank you. That's helpful. Then just to follow up with respect to the CGMP status of the two processing facilities. If I recall correctly, one of the facilities was inspected and there was a VAI, and I think the other you were still waiting for FDA inspection amid COVID. Do you have any updates with respect to those processes? Thanks.
Yeah. Hey, Carl. This is Tim again. You're absolutely correct. We did receive a VAI on our Town Park facility. We're waiting for the VAI or the disposition of the agency on that. I think there's a lot of congestion at the agency due to their review of the vaccine development relative to COVID. We're in contact with the FDA almost weekly on not only this, but other aspects of our pipeline. I can say this, we did a significant remediation of both of our facilities and have responded on a quarterly basis to the agency. I think we're going to have to just wait and see where the agency comes down on that.
Great. Thank you. Again, congrats on the progress.
Thank you.
Thank you. Our next question comes from the line of John Vandermosten with Zacks SCR. Your line is now open.
Good morning, congratulations from me as well on the great revenues and also with getting the Advanced Wound Care INDs accepted. Let me start off with a question on your successful revenues. EPICORD, that was launched last fall, and that seemed to be a prominent driver in the revenue growth. What are the underlying drivers for that product and how penetrated is that market? I know it's not even been out there a full year yet, but are we just in the beginning stages of how far you can penetrate there? Any background on what we could expect from that single product would be helpful.
Yeah. Thanks. EPICORD, we have had in the market for several years. What we launched last year was EPICORD Expandable. It's expanded our portfolio in the market. What it does is allows you to target wounds that we already did with diabetic foot ulcers, but which are deeper and bigger with the expanded portfolio and allows you to therefore provide another option for treating those wounds because of the nature of the tissue, which is different than EPIFIX. We believe that opportunity and the uniqueness of our product gives us access to the market, which is significant in size. We still expect an ongoing growth from that platform as we go forward. We also believe that in combination with our other portfolio of sheet products and EPICORD products, they work well in tandem as well in order to provide optimal healing outcome for the patient.
We believe that there's a significant growth opportunity in that portfolio on an ongoing basis, and we plan on continuing to expand different offerings within that meet the different wound care needs for different shapes and sizes as we go forward.
Okay. Great. Another question on Enforcement Discretion. It's impacted all of the industry, as you mentioned. Do you anticipate the shift in demand to products that aren't subject to Enforcement Discretion? Will this curate a shift? Also, other companies out there have probably been impacted much more than MiMedx. Is there an opportunity to take any share due to the loss of others that are not going to be selling those products anymore?
Yeah. First of all, with the loss of Enforcement Discretion products, obviously there's a lot of emotion tied to it in terms of the clinical options because they clearly help patients. We are working continuously in educating our customers and on our viable alternatives. Again, there is not always an alternative that can be used in the same way clinically. There are situations where you can, instead of using the micronized or the particulate products that were part of Enforcement Discretion and replace them with either EPICORD or our sheet products in AMNIOFIX or EPIFIX. We continue to work with the customers and educate them. There's a process of trying it out and making sure that they get comfortable with the clinical techniques and then also with the outcome.
We are confident that we can at least partially do that and while not being able to completely address it, because some situations you just can't replace an injectable product with a sheet product, for example. On the competitive dynamics, again, we believe as the market progresses and gets educated, the things that will clearly distinguish our performance of the product, the clinical outcomes, the health economic data, and the relationships and education that you provide to your customers. We continue to compete, and as this market shakes up, we believe that we are well positioned to take advantage of it and are confident of delivering above-market growth over the next three years, which would include both penetrating the market further but also capturing some of the share from competition as we go forward.
Great. Thank you, Dr. Kashyap. A last question from me. Is there approximate timing on that R&D Day? Is that kind of a late fall type of thing? I think it may depend on when some of the information comes out, but what should I put on my calendar to note that?
Yeah. I think late fall is a good estimate. We obviously would like to have had our end of phase II-B meeting with the agency on knee OA program and be in a position to fully describe where we are with that, as well as our plans for phase III clinical trial design. I would say that that's probably a pretty good estimate. It's really predicated on our ability to meet with the agency on a number of things that we, as you know, we have a very robust pipeline here. We're wrapping up the data and want to get in front of the agency.
We have decided that given the timing of any of these meetings with the agency, we'd like to be in a position to, late summer, to present top-line results of PF and knee OA.
Great. Thank you for taking my question.
That would be a separate meeting.
Thank you. Our next question comes from the line of Sean Lee with H.C. Wainwright. Your line is now open.
Good morning, guys. Thanks for taking my questions, and congratulations on a great quarter. My first question is on COVID. You mentioned that your sales force is prepared to see the new COVID spike we're seeing in some states. I was trying to get a handle of, do you still believe there are any residual impacts going on from the pandemic, and do you expect the new spikes to impact your sales in any way?
Yes. Sean, good morning. Yes, as far as COVID is concerned, I think as we went through and progressed through Q2, we saw that the business returned more to normal, both from an external and internal perspective. Externally, the access restriction to facilities were removed. As a result, our salespeople could be in front of their customers pretty much close to normal. We were able to educate customers on a face-to-face basis as well. Over the last few weeks, as COVID has spiked, what we see is not broad-based impacts, but pockets where, in response to local markets, that access gets changed and altered. That's what we're expecting as we go forward in our outlook for the rest of the calendar year.
As far as our expectation is concerned on COVID, we expect that we will face some restrictions in pockets with spikes in there, but we'll be able to conduct our business definitely in a much more effective manner than what transpired throughout the second half of last year, for example.
I see. Good to hear that. My second question is on the international opportunity. Would you be pursuing product approvals in other areas besides Japan? Also, would you be looking to get, say, AMNIOFIX approved in Japan as well, in addition to EPIFIX?
Sean, it's Pete Carlson. Our focus right now in the approval in Japan is for EPIFIX, and it is generally for wound applications. That is our focus. We've not focused on trying to get AMNIOFIX into the surgical environment there. We want to certainly get through the process. We're very pleased to have received the approval of the product itself and now want to work through this reimbursement, as Tim talked about. Once we are in the marketplace, we can assess opportunities and receptiveness of the AMNIOFIX products also.
I see. That's all I have. Thanks again for taking my questions.
You bet.
Thank you. As a reminder, to ask a question, you will need to press star then one on your telephone. Our next question comes from the line of Eiad Asbahi with Prescience Point Capital. Your line is now open.
Hi. Thanks for taking my questions, guys. Given AMNIOFIX's flawless safety record, we believe that the FDA could be willing to grant AMNIOFIX early approval if the phase II-B knee OA trial results are positive. With that said, my first question is, during your upcoming meeting with the FDA, do you plan on asking the FDA to consider granting AMNIOFIX early approval for the treatment of knee osteoarthritis?
Eiad, nice to hear from you. This is Tim. I'll give you some opening comments on that, and I'll let Dr. Stein follow up with you as well. Certainly, all of our portfolio, our AMNIOFIX, EPIFIX portfolio, has a low instance of any type of adverse event. I think that's one hallmark of this platform. Number two, when we do meet with the agency at our closeout of our phase II-B, the strength of the data will dictate our regulatory strategy. I think given the size of the phase II-B trial, 447 patients, a relatively large phase II trial, I think if we see that opening, I'm sure that Dr. Stein and our head of RAQA, Dirk Stevens, will want to take advantage of that where we can. Bob, do you have additional comments regarding Eiad Asbahi's question?
Hi, Eiad. I think it's a good question. If we have remarkably strong evidence that the micronized dHACM is doing what we hope it will do, and as you point out, we have a very good safety profile, it is possible to talk to the FDA about a provisional approval based on a very strong single study. It is a very large study for phase II-B, and so I believe that's a possibility, but it's not a lock. I would say that we will approach that, and we have the advantage of having the RMAT status that might give us some additional flexibility in speaking with the FDA on that topic.
Okay. Thank you for that. Based on our understanding, it typically takes biotech companies to process trial results, it takes them about maybe two to three months, and they typically publish the results. In our case, with MiMedx, can you help me to understand, and I get that this analysis that we've run could be rudimentary and doesn't take all factors into account. Can you help me understand why in MiMedx's case, it could be taking longer to process and get the final results from the?
Yeah
the phase II-B knee OA trial?
This is Tim. As you know, Eiad, we have three trials, one in PF, AT, and knee OA. We prioritized each of these from an analytical analysis standpoint that's consistent with our statistical analysis plan. Bob can provide you, if you will, the timeline for doing that. I would say that given the size of these studies and that we have three studies where we ended the last patient in for PF and AT occurred approximately at the same time, with knee OA following on the phase II-B. It's just a lot to assimilate here for a company our size. We are working probably with one of the best outside consulting firms to do a robust statistical analysis. I don't think it's taking necessarily longer. I think we're being very thoughtful about how we approach our analysis. Bob, do you have additional comments on the timing of that?
Eiad, in the knee OA study, our phase II-B study, we had 447 patients at 17 sites during COVID. As a result, we have to gather all the data, make sure that it's clean and quality controlled, and lock the database. We're close to being able to do that. You're right, that after that there'll be top-line results generated, probably take one week or so, or two weeks rather, and then there'll probably be another two to three weeks for generating a full analysis. We will be sharing top-line data as quickly as we're confident in what we've generated, and we will be having the discussion of the full data and our analysis of that after we've had a chance to meet with the FDA and right now the intention is to do that at an upcoming R&D day as was discussed in the fall.
Okay. Yeah.
So.
Thank you for that color.
I'd say in summary, Ehud, is that given the circumstances and size of the study, I don't think we're slower than the average bear. I think we're actually working at it quite diligently, and we will have the information out there as quickly as we can generate it. We're all excited to see what the results show.
Understood. Yep. Again, thank you for that color. I appreciate it. My last question is that during your recent investor presentations, it was mentioned that there is evidence that AMNIOFIX has regenerative properties. Can you discuss this evidence in more detail and how you intend to flesh this potential out?
Yeah. Hey, Bob, I think that's a question right down your alley.
Thank you. We do have a number of preclinical studies going on that look at the properties of components of AMNIOFIX and micronized dHACM. There are a large number of growth factors in the materials as produced, and that's one of the advantages of the way that MiMedx produces these materials. We make them still have quite a bit of bioactivity while being sterilized so that they have a very low risk of transmitting any type of infectious complication. We've been able to see that the materials have the ability to modulate the activity of transforming growth factor beta. That's an endogenous protein involved in wound healing that leads to hypertrophic scarring and inappropriate deposition of collagen. That was recently published by MiMedx.
We've also been able to show that there are a number of compounds in the material that modulate Wnt signaling, which is known to be involved in maintaining stem cell activity and also modulating cartilage biology. That was also recently published. We're looking at moving those observations forward into animal studies. We do believe that they have an impact in the clinic. However, our intended phase III study in knee OA will not be set up to demonstrate that we have a disease-modifying agent in osteoarthritis because that's a very long and large study. We will be showing that we have both pain reduction and functional improvement. I think that's a very important aspect of the pharmacology of micronized dHACM. I think ultimately, as we talk to practitioners using the material like Dr. Oldham, who published on the
Impact of micronized dHACM in knee osteoarthritis earlier. There is a suggestion that the use of the product isn't just treating symptoms, but also delaying the need for knee replacement, et cetera. I think that the goal we have is to get it registered and then to further flesh out its beneficial characteristics as subsequent studies allow us to do.
Understood. Thank you very much, guys. Very much appreciated.
Yeah. Thank you, Eiad.
Thank you. Our last question comes from the line of John Vandermosten with Zacks SCR. Your line is now open.
Hi, guys. Just a follow-up on gross margin. Pete, you noted some temporary pressures on gross margin. I think you said they're going to last until about September. Should we expect similar gross margin in the third quarter then a return to kind of the normal trajectory in the fourth quarter?
John, there's two things that pressured the gross margin this quarter. One that won't recur are the reserves we recorded in the quarter related to products impacted by Enforcement Discretion. That principally related to inventory that was out on consignment, so it had been previously shipped, but not actually transferred, not implanted, and thus a sale occurring. We have had customers return that inventory, and then we reserve that. That won't recur. Our production variances, what we were talking about there on the September is, yes, we do anticipate that our additional wages, as we get out of the pandemic and get in a more normal operating mode, our sort of extra compensation related to the pandemic will go away. We're obviously working to adjust to revised operating levels and get our inventory appropriately set. We're hopeful the other production variances settle down.
About half or more than half of the trend, or the difference from our normal trend, relates to those Enforcement Discretion items. Yes, we should be getting back to more normal levels of gross profit here in the third and particularly fourth quarter.
Great. Thank you.
Thank you. There are no further questions. I will now turn the call back to Mr. Tim Wright for closing remarks.
I'd like to thank everybody for attending the call today, and also, I thought the questions were outstanding. We're very excited about our amniotic tissue platform here, given that we feel that it has a lot of utility across different therapeutic areas where there's significant unmet need. We're very focused on delivering on our PF and knee OA statistical analysis, as well as focusing on our manufacturing facilities, so we're prepared for, if you will, prior approval audit downstream. The third thing that we're hyper-focused on is our sales organization, supporting them with good, strong medical education as well as the best data we can accumulate around the efficacy of our products and their economic benefit to the payer system and the patient. I thank you. Look forward to talking to you all over the next coming weeks. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.