All right, great. We're going to get started. My name is Ross Osborne. I'm the MedTech and Diagnostics Analyst at Cantor Fitzgerald. And this afternoon, we have MiMedx here. And so to kick things off, we'll have Matt present some initial slides, and then we'll dive into a fireside chat.
Awesome. Thanks, Ross, and to the Cantor team for the opportunity to present. Before we get into the fireside portion, and I'm here joined with our Chief Administrative Officer, Butch Hulse, wanted to take the opportunity to provide just a high-level overview of MiMedx Group, Inc., for those of you who may be unfamiliar, and so we'll be talking today about various aspects of the business. For any discussion of risks, I'd refer you to our SEC filings, our Form 10-K and Form 10-Q. Who's MiMedx ? We're a pioneer and leader in an area of MedTech focused on wound and surgical opportunities. Think of everything that we do as centered around helping humans heal. This is our why statement, and it really informs the way we think about this business both today and in the future.
When we think about these market opportunities, what we're talking about here is a massive need for healing solutions. It's a large and growing patient population. On the wound side of the business, the demographics are pretty staggering. At any given time, there's 10 million people suffering with chronic and hard-to-heal wounds. These include diabetic foot ulcers, venous leg ulcers, pressure ulcers. It's a burden that's especially pronounced in the Medicare population, where you see nearly one in five Medicare beneficiaries are impacted by these types of wounds. Now, fortunately, when these outcomes, well, unfortunately, when these outcomes, these wounds do not heal properly, the outcomes are disastrous. The worst-case scenario being amputation. That's a catastrophic outcome for the patient, for their loved ones, and it carries an alarming mortality rate.
But the fortunate thing is, in literature, patients who receive our products have shown reductions in these outcomes and achieve wound closure. So as we grow our business, we found additional areas of medicine that could benefit from the use of these products. These are namely what we call in the surgical setting, and we'll talk a little bit about that later. So today, most, but not all, of our business is derived from products that are made from birth tissue, primarily the placenta from healthy C-section deliveries. And our business is vertically integrated. So we begin with an expansive donor network, our hospital partners, and we bring the tissue to our facilities in Marietta, Georgia. They undergo our proprietary processing technology, and they result in a dehydrated, shelf-stable product that's ready to ship. We protect this technology with a robust IP portfolio, and we're currently a single shift.
We've got considerable headroom to scale. Our wound products can be found basically wherever a patient is going to present with an issue. We've got a very large, direct sales force that calls on all these sites of care, and then wherever necessary, we'll supplement them with agents. Likewise, in surgical, this is just a flavor of some of the ways in which we've tried to build the body of evidence for using these products in a variety of surgical procedures. We see this as being something that we're in the very early innings of, and it's a side of the business that's grown very, very nicely, particularly over the last few quarters. From a revenue standpoint, this is just a glimpse at our LTM breakout for both wound and surgical. You think about us as 2/3 wound, 1/3 surgical, both growing nicely.
I'm going to turn to our strategic priorities here just to kind of help inform the way we answer these questions. So our CEO, Joe Capper, starts every earnings call with sort of a checkup on how we're doing against these strategic imperatives. We believe if we do all three of these properly, we'll be able to reach more patients, obviously grow the business, and unlock shareholder value over the long term, and then finally, just to wrap up before we go into questions with a glimpse at the team here, we've been together for a few years now and have pretty deep MedTech experience to drive this strategy forward, so with that, happy to kick over to you, Ross.
Great. Thanks, Matt. So jumping right into everyone's favorite question on the Physician Fee Schedule, just high-level thoughts. Has anything changed in your view since it's come out, whether that's the probability of it going through as is? Do you expect pricing to increase, etc.?
High-level views are that we were thrilled to see them go with the structure that they did. We had been advocating for quite some time that CMS needed to go away from the ASP plus 6% methodology. It's a drug and biologics methodology. These products aren't drugs nor biologics. So square peg, round hole to begin with. CMS had talked about going to a bundle, much like they had in the wound care center, and we were not proponents of that. A bundle, you tend to overpay for small wounds and underpay for the larger wounds. And we saw that in the wound care center when they originally went to the bundle. So when they went to a flat price per square centimeter along with an application fee, we were thrilled to see them get it structurally correct.
We were even more excited to see that they not only changed the reimbursement methodology in the private office through the Physician Fee Schedule, but they also made changes or proposed changes in the wound care center with the OPPS, the outpatient prospective payment system. And so they kind of fixed what we thought that they had gotten wrong the first time. And so there, too, they went with the price per square centimeter, which means you're buying the right size product. You're not overpaying for small wounds and underpaying for large wounds. So structurally, we like where they went. There's a couple of things we would like to see tweaked here and there within the rules, but our comments, which are due in a couple of weeks, will largely be supportive of what CMS has done.
Great. And then ahead of January and assuming it goes through as is, what is MiMedx Group doing today to prepare for that?
Yeah, so look, we've a couple of different things. We talk about, on the one hand, our surgical business has been growing very nicely, and that obviously helps contribute to growth. If you think about in the wound markets, we've brought in some additional products for the time being to help remain competitive in the space. And we've talked a little bit about CELERA and EMERGE. And so certainly, those were a part of what drove the wound side of the business in Q1 and Q2. And I think to the extent behavior doesn't change over the back half of the year, that's likely to continue to be the case. But on the other side of January 1, there's likely to be a reversion back to products that are more reasonably priced and kind of fit under the constraints of the new world order, so to speak.
We're ready to dial up our manufacturing. Like I said, we have plenty of headroom to take advantage of the volume that may exist in that market, regardless of where those patients end up going for their care.
Great. And then you've alluded to the surgical business a couple of times. And although it's a smaller piece of the overall pie, it's still a decent top-line contributor there. So maybe could you walk through the current use cases in the surgical portfolio and some of the exciting opportunities in the pipeline?
Yeah, surgical for us started with what I'll call surgical recovery. So it was our products being used principally with clean closed incisions. They're wounds. They were just intentionally created wounds. And so in patients that are compromised for one reason or another, one comorbidity or another, the folks that tended to need our products in the chronic wound care setting would benefit from them in the acute care setting. And so that's where we saw kind of the first initial use cases. So think about somebody who just had a hernia repair surgery and has diabetes and is going to have a hard time healing. So we started to see utilization there. More recently, we've started to see our products actually being used in the procedure itself.
So not just on top of or just below the clean closed incision, but any place where you've got an opening and you're trying to put something back together. So think of a bowel resection or a colon resection. And so we've seen an uptick there. Frankly, in any procedure where you have a compromised patient, I think our product would be beneficial.
How are you feeling about your product portfolio from a competitive standpoint with regards to surgical?
Right now, most of our products tend to be sort of ancillary to the surgery as opposed to the primary driver of the procedure. So there are definitely some things we could do either from an internal development standpoint or from an M&A standpoint where you become a bigger part of the procedure, where you're there not just selling either the amniotic tissue or the xenograft, which we added to the portfolio a year ago, but become a bigger part of the surgery. We're selling more than one product. And so certainly, things like that are exciting because you're already in the OR.
But as it relates to the existing product portfolio, I think the other kind of simultaneous mandate for us is to go out and generate evidence for why these products make sense.
We talked about presenting at DDW, Digestive Disease Week, earlier this year, meeting clinicians, specific surgeons where they are to help show that, listen, wrapping an anastomosis with our tissue helps show us a statistically significant reduction in leaks. Leaks are catastrophic. They're expensive. They impact accreditations. There's a whole host of reasons why you'd want to kind of take on maybe an incremental cost to avoid those downstream complications. And with AMNIOEFFECT, with AMNIOFIX, and certainly with HELIOGEN, our xenograft that Butch alluded to, I mean, I think there's a lot of wood to chop, so to speak, to build out that evidence base and continue to tap more surgical disciplines. And we'll be doing that in the coming years.
That makes a great point. With the different form factors, so HELIOGEN is a particulate product, and particulates just provide a much greater flexibility in the surgical procedures than the sheets do. And so while it's early days and a small base, particulates like HELIOGEN and AXIOFILL have demonstrated great efficacy in the OR.
Great. And then lastly, on the surgical portfolio, do you guys have any preference in terms of return on investment and time between developing internally versus M&A?
So we have expertise in human tissue. And when we made the decision to go outside with a xenograft and add that to the portfolio, we went outside. In that case, we partnered up with Regenity and obviously are looking to build out that product portfolio, that xenograft portfolio. So think about the technology verticals, human, xenograft, and synthetic. Those latter two, whether it's partnership or acquisition, would be the preference because it's the fastest way to sort of build out a product portfolio, the know-how, the manufacturing scale, etc., and more flexible, I think, on what that all looks like for the right target.
Makes sense. All right, switching gears, you're scheduled to launch EPIXPRESS later this year. Would you walk through that product offering, how it fits in your product portfolio, and the related market opportunity there?
Yeah, I mean, I don't necessarily think that we really go down a path, especially within wound versus surgical, of breaking down specific market opportunity verticals. But our R&D group looks for ways constantly to improve the widgets, so to speak, bring in new features and benefits. You saw that with the Effect line a couple of years back, and that's done incredibly well. EPIXPRESS is yet another one of these examples where when really fluid retention is kind of an issue, you've got now a fenestrated sheet that can actually be laid down on the surface of the wound. And we've got others in the hopper. I mean, I want to stress that, yeah, we've looked outside for certain products, and HELIOGEN is a great example of that.
But our R&D team has been hard at work with, and we've got a pretty robust pipeline of similar sort of iterations on the product that bring forth different benefits.
Either unique handling characteristics or some other unmet need. The EPIXPRESS line is a great example. A lot of our products are being used in conjunction with negative pressure wound therapy, where you've got obviously a vacuum that's trying to draw fluid from the wound as well as bringing the wound sites together. And so a perforated product makes a tremendous amount of sense. So input from the clinical community and then the R&D team gets to work.
Great. And then switching to EPIEFFECT, RCT, any update on enrollment there and when should we expect to see data?
Yeah, enrollment continues to go. I think the plan is going to be to publish an interim analysis to the extent the LCDs are still a component of reimbursement reform. We want to make sure that EPIEFFECT is a part of that conversation. And so I would say stay tuned. But even if that's not the case, if the LCDs in this new world where PFS and OPPS take the place of that aspect of reform, I think it makes total sense. And what you'll see us do is continue to try to generate evidence with any of these innovations. So EPIEFFECT, EPIXPRESS, any of these that we bring to market, which is normal MedTech behavior.
I was just going to make the same comment. Evidence matters in this space, whether you're trying to convince a payer or a clinician. And so this is a space that got away with no data for, frankly, far too long. And everybody's up in arms that CMS is asking for data. Sophisticated payers and clinicians have been asking for data for a lot longer than CMS has related to skin substitutes.
All right. And then maybe next, touch on Vaporox. How does that fit into the overall commercial strategy? Where's the overlap there in leverage?
So I think about Vaporox as one example as we talk about innovating and diversifying our wound offering. There are lots of different innovations along the healing continuum that the same clinician we call on treating the same patients is going to reach into their proverbial storage shelf and pull off the shelf to use. Vaporox is really interesting adjunctive therapy. The data on its own looked very promising. And when they approached us and we started talking about moving towards some sort of collaboration, it turned out that their sort of real-world experience looked even better when EPIFIX was involved with the patient. And so there again, you're thinking about, okay, what are other ways we can bring value to these wound patients with products that could potentially benefit their sort of care pathway? And so a strategic alliance kind of made sense.
We're excited to kind of see where that goes. This is a pretty early-stage startup that has been belt and suspenders building out demand. And so I think our commercial infrastructure could certainly be helpful to them over time.
Yeah, and Vaporox is nice because it's not, as Matt alluded to, not competitive too, but beneficial in conjunction with our product. But the other thing that's so nice about Vaporox is most of our products, at least in the acute care setting or sorry, the post-acute care setting, the wound has to reach chronicity. So you're not getting reimbursed for a product. You can't use our products until you've reached 28 days of tried and failed with conservative therapies where Vaporox can be used from day one. So it's another way to get a hold of the patient early and live with them through that wound care continuum cycle.
Got it, and then assuming the partnership continues and you guys potentially invest more time and money into the company, where is there leverage in that business? What was attractive about Vaporox from, I guess, the site of service mix?
Yeah, I mean, I think adding to the bag, to the sales rep bag, especially with stuff, as Butch mentioned, that's going to be complementary as an adjunctive therapy is good all the way around. It makes our sales reps more impactful as we think about building customer intimacy and becoming a more valuable, reliable partner with those clinicians. Well, you've got to have stuff that they rely on in order to do that. And we've done it to some degree with MiMedx. We've done it, obviously, with our organic portfolio. But certainly with innovations like Vaporox, it's kind of a different way to think about how to go about treating these patients. And so I think that's exciting.
Now, as it relates to sites of care, I think in a similar way to our products being used across a wide range of care settings, it's over time. I think there's a case to be made very similarly for Vaporox.
Great, and then maybe turning to your Q2 key results. You guys had a really nice quarter and raised guidance. Looking at guidance, what gave you guys confidence to raise? What's your confidence level in hitting that guidance, if not exceeding?
Yeah, so it was. Q2 was a great quarter for us. Growth was broad-based, both with wound and surgical. So on the wound side, as I mentioned, you saw the impacts from bringing in CELERA and EMERGE, obviously. And the surgical side saw incredible growth at AMNIOFIX, AMNIOEFFECT, and then a real start to kind of inflection ramp in HELIOGEN sales as well. And similar to sort of the dynamics being thought of as a 2026 event, we're in a scenario where we're continuing to just execute in the market environment that's been handed to us. You'll recall last year we saw some growth hiccups along the way. We had a considerable amount of disruption and turnover within the sales force.
Having stabilized that group and bolstered them with a toolkit that makes them more competitive in the marketplace is really what gave us confidence in nudging that guidance up for the balance of this year.
Great. And then you reiterated EBITDA guidance of 20+%, although gross margin came in a bit light. How big of a lever is the gross margin? Does that need to be in order to hit your EBITDA guidance?
Yeah, I mean, look, I think just more broadly speaking about the P&L, there are opportunities to be mindful. And I think one of the first three strategic priorities a couple of years ago when Joe and team arrived was to bring forth some expense discipline. There were some real dramatic examples of that in the first, call it, 12 months. But the behavior has continued to perforate or permeate throughout the organization. And so I think there are levers. And certainly the gross margin is a big one because it starts with an eight. And we're going to continue to obviously try to find ways to scale that manufacturing footprint. Our sales and marketing kind of is what it is from a commissions structure standpoint. But G&A, we've demonstrated a considerable amount of leverage over the years, and that's likely to continue.
I don't think we're all the way there yet. So net, net, net, we feel good about what that looks like on an adjusted EBITDA basis.
Great. And then looking at next year on gross margin, how big of a deal is the PFS to gross margin?
Depends on where the number comes in.
If it stays the same or goes up.
Yeah, yeah, yeah. I mean, so right at 125.38, that's the number we all know right now. There's probably downward pressure to the tune of a few hundred points from a gross margin perspective, irrespective of benefits of scale to help offset that. But are there below the line, below the gross margin line opportunities to also kind of help soften that blow? I think the answer is yes. So we don't guide to gross margin. We don't feed our families with gross margin dollars. So we're trying to manage the P&L holistically and make sure that we're a cash flow adjusted EBITDA enterprise.
Great. And then looking at next year, what are the key catalysts or milestones we should be looking out for?
Do you want to take it?
Yeah, I think the first couple of months are going to be interesting to see the patient flow. I think with the physician fee schedule changing the way it's changed and then the OPPS changing the way it has, I think you're going to see pretty significant patient migration out of the private office back into the wound care center. So I think being ready for that, being structured for that, having the sales force ready to go, armed with the tools they need to serve those patients in a different care setting is going to be important. But I think kind of where that lands will be pretty telling.
Definitely. Any questions from the audience? Nope? If not, I'll leave you guys some time for closing remarks. Anything we missed you want to highlight?
No, just obviously want to thank you for the opportunity to get out and tell the story. We're very excited about what this business has been able to do even in pretty choppy waters. And in the face of reform, we think that reform is great for this category. We've kind of leaned into trying to position the business so that we are the best positioned in an environment where things get right-sized. And so we're living through these kind of three different chapters here in short order. The back half of this year is people trying to figure out what the final rules look like. As Butch mentioned, the first half of next year, what happens to the patient, what behaviors really change once this rule gets finalized, and then the long term.
And we're super bullish about the long term for this business, for the space becoming investable in a bigger way without sort of the overhang of all the negative headlines that this reimbursement environment has brought about for the space. So we appreciate the opportunity and certainly look forward to continuing the dialogue.
Perfect. Thanks for being here, guys.
Thank you, Ross.