On New Year’s Eve, MiMedx Group, Inc. announced that the feds are conducting a civil investigation of the company’s sales and marketing practices. In an unrelated matter, the company also announced it was suing a competitor, Organogenesis, Inc. for “tortuous interference.”
MiMedx develops, processes and markets regenerative biomaterial products and bioimplants processed from human amniotic membrane.
Company Chairman and CEO Parker H. Petit issued the following statement announcing the receipt of a federal subpoena:
“I can assure you that the corporate officers at MiMedx are not aware of anything that would stimulate this investigation. We have continually maintained and improved a robust compliance program. We have been very focused on the thoroughness of our compliance policies and our staff adhering to those policies. For instance, MiMedx employees participate in a thorough training program regarding our policies and the standards that have been established and enforced to assure their understanding and adherence to our compliance programs. Employees may convey anonymously and directly to senior management and our Board of Directors any form of concern, complaint or inquiry related to our compliance programs or other issues. With the significant growth we are experiencing, this has been and continues to be an initiative in which we devote considerable time, attention and resources.”
Advanced BioHealing Fallout?
Petit referenced another federal investigation into the sales and marketing practices of Advanced BioHealing (ABH), the original manufacturer of Dermagraft. “We anticipated that the ABH investigation could lead to a review of other industry participants, particularly in view of the fact that several industry participants, including MiMedx and some of our competitors, have hired former ABH employees. We screen all of our applicants very carefully. With respect to former ABH applicants, we sought additional input from some former ABH corporate management who joined MiMedx and who were familiar with the suspected violations and the individuals involved. Approximately 18 months ago, we had confirmation of a violation of our compliance policies, and within 24 hours, that individual was terminated.”
Petit says his expects this investigation will “confirm that our policies and procedures are working as intended. If any issues are uncovered, we will certainly address them promptly and take steps to ensure future compliance.”
Settlement Likely
Needham & Company analyst Mike Matson, urged investors to take the long view. Matson said 21 med tech companies have received subpoenas from the feds since 2003. He noted that 16 were settled with 14 requiring fines, 11 required corporate integrity agreements and 6 ended in deferred prosecution agreements. The average length of time from subpoena to settlement was 3.8 years and the average fine was $38 million. Some investigations took over six years and some fines were as low as $6 million.
Matson said he thinks it’s unlikely that the investigation will cause the company’s revenue growth to slow, though it may drive higher legal expenses.
Organogenesis Lawsuit
In the separate New Year’s Eve announcement, MiMedx said it filed the “tortious interference” lawsuit against Organogenesis after it discovered through a Freedom of Information Act request that Organogenesis allegedly provided misinformation about MiMedx’s products to the Veteran’s Administration (VA). The alleged misinformation caused the VA to remove MiMedx’s allograft from their supply schedule. The company says the VA ultimately determined that the action to remove their allografts was not warranted and issued an apology to the company.
Organogenesis is the maker of Apligraft and Dermagraft, products which compete with MiMedx allografts.
