MDXG - MiMedx Group Inc.'s (MDXG) CEO Tim Wright on Q2 2022 Results - Earnings Call Transcript
MiMedx Group, Inc. (MDXG)
Q2 2022 Earnings Conference Call
August 3, 2022 8:30 AM ET
Company Participants
Jack Howarth – Senior Vice President-Investor Relations
Tim Wright – Chief Executive Officer
Pete Carlson – Chief Financial Officer
Rohit Kashyap – President Wound Care and Surgical
Robert Stein – President, Regenerative Medicine and Biologics Innovation
Conference Call Participants
Anthony Petrone – Mizuho Group
RK – H.C. Wainwright
Carl Byrnes – Northland Capital Markets
John Vandermosten – Zacks
Presentation
Operator
Greetings, and welcome to the MiMedx Group Second Quarter 2022 Operational and Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host, Mr. Jack Howarth, Senior Vice President-Investor Relations for MiMedx Group. Thank you. You may begin.
Jack Howarth
Thank you, operator, and good morning, everyone. Welcome to the MiMedx second quarter 2022 operating and financial results conference call. With me on today's call are Chief Executive Officer, Tim Wright; Chief Financial Officer, Pete Carlson; President Wound Care and Surgical, Dr. Rohit Kashyap; and President, Regenerative Medicine and Biologics Innovation, Dr. Robert Stein. Tim and Pete will provide a summary of our operating highlights and financial results for the quarter. And at the conclusion of their remarks, Tim, Pete and Dr. Kashyap and Stein will be available for your questions.
Before we begin, I would like to remind you that our comments today will include forward-looking statements, including potential time lines 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, and 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, our interpretation of those results, the impact of COVID-19, actions by others that affect our time lines and other factors that the FDA deems important. Additional factors that could impact outcomes and our results include those described in the Risk Factors section of our annual report on Form 10-K and our quarterly reports on Form 10-Q.
Also, our comments today include non-GAAP financial measures and we provide a reconciliation to GAAP measures 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?
Tim Wright
Thank you, Jack, and good morning, everyone. I appreciate you calling in. I'm going to start off today with five very important news items. Number one, I want you to know how excited I’m about the strong commercial momentum. This momentum has led to four sequential quarters of double-digit revenue growth in our continuing portfolio of products.
I'm energized about the performance of our commercial team. We are on strategy and more patients are being treated with better outcomes. Number two, the MiMedx expanded research and product development team is creating new and novel products to meet the unmet clinical needs of our surgical community. I’m very pleased to share that two new launches are on track for September.
Number three, we are preparing for the launch of PURION engineered EPIFIX in Japan later this year, as early as September. PURION engineered EPIFIX is the first and only amniotic tissue product approved in Japan. And it's important to note that we have first mover advantage in this large and underserved market. Number four. I want you to know that we are on track to enroll the first patient in our knee osteoarthritis clinical trial by year-end. I'm confident that the important recent progress by our clinical, regulatory and manufacturing teams increases our overall probability of a successful drug registration.
And number five, I think it's worth repeating that our business is generating the cash needed to fuel future investments. And I'm bullish about what can be accomplished in the second half of the year. Starting with our second quarter growth, I'm pleased to report fourth consecutive quarter of double-digit revenue growth in our continuing portfolio of products. Tissue and cord revenue grew 11.6% over last year, with a strong performance in our surgical recovery business.
Surgeons are incorporating our products to biologically enhance procedures where patients are at risk of potential complications. This can be in surgeries where there are wounded patient, for example, podiatric surgical wounds or orthopedic lower extremity procedures, or in areas where we are leveraging our direct and agency relationships to expand our reach and our customer base.
We have strong momentum here. I would like to share with you that our two upcoming product launches are on track for full release in September. Innovation is an important part of our near and long-term growth potential. And I'm excited that our research and product development in June is developing new and novel products that meet specific unmet patient needs. In June, we initiated a limited market release of AMNIOEFFECT and surgeon feedback has been positive. AMNIOEFFECT offers a thicker graft with broad size availability and compliments our leading AMNIOEFFECTs and AMNIOCORD brands in the surgical suite.
AXIOFILL is a placental collagen matrix product. It offers a flexible form factor that can be easily applied to deep tunneling wounds or conform to a large uneven surface. AXIOFILL has impressive clinical utility and serves as an outstanding platform for further iterations of new products.
What I'd like you to remember is that AMNIOEFFECT and AXIOFILL are the first new important products we have internally developed for used in the surgical recovery market. The importance of these innovative products cannot be understated as they not only support our revenue growth goals but they act as important foundations for future product development. I'd like to turn your attention to the upcoming launch of EPIFIX in Japan.
We are on track for this launch as I stated. We plan to launch this as early as September, as I mentioned, EPIFIX is the first and only amniotic tissue product approved in a large underserved market and MiMedx has first mover advantage in this market. Our dialogue with the Ministry of Health has been productive and we believe we're in the final stages of the approval process, narrowing in on a specific reimbursement rate. We hired a general manager for this market.
And last month, an additional 100 physicians in Japan were trained on the proper use and application of EPIFIX. The product is in country and ready for use. And I'm pleased to share that we will anticipate treating the first patient in Japan later this month. MiMedx’s commitment to engineering new products, expanding our market and customer base and generating robust clinical, scientific and economic evidence, all position us to achieve our double-digit growth objective in our commercial business in 2022 and beyond.
Transitioning to our regenerative medicine and biologics innovation efforts, I think you'll be impressed with our recent progress. We have an upcoming Type B RMAT Meeting scheduled with the FDA to review the results from our Phase 2b knee osteoarthritis clinical trial and our protocol for the next knee OA study. We plan to use WOMAC pain and WOMAC function as co-primary endpoints that are on track to enroll the first patient before the end of the year.
We selected and engaged a world-class contract research organization, Nordic Bioscience Clinical Development, and Image Analysis Group, an expert imaging company. With their operational support, we can greatly streamline patient recruitment and accelerate study initiation and enrollment in our upcoming knee OA trials.
And I'm honored to have an exceptional industry and academic experts join MiMedx Regenerative Medicine Scientific Advisory Board, these multidisciplinary leaders will provide guidance on our pipeline initiatives and can help us optimize the overall value of our placental based biologics pipeline. We view our micronized dHACM platform as a significant future year growth opportunity and wants to stress how important it is to do things right.
These products are one of a kind and I'd like to reinforce that MiMedx has more than a decade of experience with these products. I’m confident these recent milestones increase our overall probability of successful drug registration. MiMedx is growing, creating value and innovate. The commercial business has strong momentum and is growing at double-digit rates. I think it's worth repeating that is that the business is generating the cash we need to fuel investments in our future.
I will now turn the call over to Pete.
Pete Carlson
Thank you, Tim, and good morning, everyone. Before I begin, unless otherwise specified, all results referenced in my prepared remarks are on a second quarter 2022 versus second quarter 2021 comparison basis. As Tim mentioned earlier, we had strong revenue growth in the quarter, once again, outperforming our expectations in our continuing portfolio of products.
I want to highlight that we now have a full trailing 12-month basis of revenue since the end of enforcement discretion. And going forward, total net sales comparisons on a quarterly basis will fully reflect our continuing portfolio of tissue and cord products along with the new product launches in the U.S. and our international expansion.
I hope you agree. This simplifies our message and that our business trends will be easier to understand. Over the last 12 months ended June 30, 2022. We reported net sales of $256.3 million, including $253.8 million representing our continuing product portfolio. This represents growth in that portfolio of over 12.5% compared to the 12 months ended June 30, 2021. For the second quarter of 2022, we recorded net sales of $66.9 million, a $1.3 million decrease from 2021. I want you to remember that the prior year period included net sales of $8.2 million of Section 351 products sold in the United States. As you know, these products can no longer be marketed domestically following the end of the FDA's period of enforcement discretion on May 31, 2021.
Our tissue and cord products grew $6.9 million or 11.6%. This fourth consecutive quarter of double digit sales growth was primarily driven by our strategic focus in the surgical recovery market. Along with the results from our prior initiatives to expand, train and realign our sales force. Gross margin was 82.3% compared to 81.3%. In the current quarter lower than planned production levels negatively impacted gross margin. In the second quarter of 2021 gross margin was impacted by similar negative production variances higher than planned compensation and reserves recorded for products affected by the end of enforcement discretion.
Selling, general and administrative expenses or SG&A were $55.8 million compared to $53.6 million. I want to draw your attention to the fact that the current year quarter included $2.2 million of bad debt expense and a $2.1 million expense related to the company's annual meeting of our shareholders. As a reminder our SG&A expenses in 2022 and 2021 were negatively impacted by $2.1 million and $3.8 million respectively as a result of a shareholder activist’s actions. The net effect was a reduction of $1.7 million between periods on a comparative basis.
Additionally, SG&A results reflect increases in sales commissions, driven by growth in the surgical recovery area and increased travel expenses compared to 2021 levels. I'd like you to remember that after the end of the FDA's period of enforcement discretion we made the strategic decision to maintain staffing levels including our sales force to support our commercial growth objectives. This results in a higher level of SG&A expenses as a percentage of net sales compared to our historical trends. We expect that level to decline over the remainder of 2022, reflecting our continued anticipated revenue growth as we put the revenue loss of Section 351 products behind us.
Research and development expenses were $5.5 million compared to $4.1 million. The increase reflects clinical research efforts connected to our commercial and late stage pipelines as well as increases in development and testing costs. Investigation, restatement and related expenses were $3.2 million compared to a benefit of $2.1 million. The prior year benefit reflected funds received from certain director and officer insurance policies as well as negotiated reductions in previously recognized legal expenses advanced on behalf of certain former members of management.
Net loss was $10.9 million compared to a net loss of $1.8 million. Adjusted EBITDA was a loss of $1 million compared to a gain of $3.1 million. As of June 30, 2022, the company had $72.5 million of cash and cash equivalents compared to $87.1 million as of December 31, 2021. The decrease reflects payments of annual employees’ incentives as well as payroll taxes previously deferred under the CARES Act. For the six months ended June 30, 2022 adjusted EBITDA was a loss of $2.7 million, including the annual shareholder meeting cost mentioned earlier.
Capital expenditures and patent acquisition costs, the other components of free cash flow were $601,000 in that period. We continue to expect to be free cash flow neutral for the full year 2022. We also expect overall revenue to return to pre-enforcement discretion levels during that period. Looking forward to revenue growth for the full year of 2022, I want to share that we are maintaining our expectations of 11% to 14% growth. This includes the anticipated full-launch of AMNIOEFFECT and AXIOFILL during the third quarter of this year and our current expectation of the timing of the launch of EPIFIX in Japan later this year.
Let me remind you that the gross percentage is based on our continuing portfolio of tissue and cord products, which generated $240 million in revenue in 2021. Importantly, I want to reemphasize that we remain well capitalized to invest in our growing commercial business and deep, innovative R&D pipeline.
I will now turn the call back to Tim. Tim?
Tim Wright
Thank you, Pete. In closing, I want to reiterate the five very important news items. Number one, I'm excited about the strong commercial momentum in our four sequential quarters of double digit revenue growth in our continuing portfolio, we are on strategy. Number two, I'm pleased to share that two new launches AMNIOEFFECT and AXIOFILL fill are on track for September. Number three, we are preparing for the launch of PURION engineered EPIFIX in Japan, which we anticipate as early as September.
Number four, we have an FDA scheduled meeting in the third quarter and are on track to enroll the first patient in our knee osteoarthritis clinical trial by year end. And five, the business is generating the cash to fuel future investments. I look forward to your questions. Operator, will you please open the lines?
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Our first question comes from the line of Anthony Petrone with Mizuho Group. Please proceed with your question.
Anthony Petrone
Thanks and congratulations on a great quarter here. Good to see the traction and the positive announcements in the quarter. So I'll have two upfront and then I'll circle back with a follow-up. The first Tim, you mentioned, Japan is on track EPIFIX for a launch in September. I'm just wondering if you can give us an update on timing around reimbursement specifically, I know there's a lag between product clearance and reimbursement. So an update on timing on Japan reimbursement would be helpful?
And then the second question would be around the FDA announcement here meeting is set in the next month or so. So can you walk us through what your expectations are for the Phase 3 protocols? What will those look like? How many patients would be targeted for enrollment and then maybe even as you look deeper into the calendar, what would be the projected timing to file a BLA? And then I'll have one follow-up.
Tim Wright
Okay. Thanks for joining the call, Anthony, the questions. First on Japan, we do know that the government looked at our application yesterday. And so we think the reimbursement in Japan is imminent until we have the official word. We can't make any commitments on that, but certainly we're – it's a very positive sign that EPIFIX is being reviewed for reimbursement. So let's say a firm reimbursement and let everyone know. I do – Rohit, I do believe that once we do have reimbursement. There are several things that we'll be able to get done in preparation for our launch.
Rohit Kashyap
That's correct Tim. Like I said, we believe reimbursement is imminent, but having more definitiveness around that allows us to also formalize some of our partner relationships that are essential in making sure that we can commercialize in Japan.
But over the last couple of quarters as we have been waiting for the flow of our reimbursement application we've been preparing and working with local societies and KOLs in establishing ourselves making sure we have about 250 trained customers in Japan by the society, which is a requirement and feel that we are well-positioned to take advantage of bringing the first of its kind amniotic product to the market in Japan and creating a whole new set of options for treatment of the diabetic foot ulcer and lower extremity ulcers patients that we will be able to access once this reimbursement is finalized, which we expect should take place as soon.
Tim Wright
Thank you, Rohit. The other question on our plans with the FDA just going into this meeting, it is a Type B meeting and it is an RMAT meeting. So there's a lot of consideration around that. Usually in these meetings, particularly the RMAT you get more attention from more people from the FDA. So we're looking for a big crowd there which is being helpful. This isn't our first interaction with the FDA regarding our biologics innovation program, which includes knee osteoarthritis.
We've had several meetings Dr. Stein and I in particular have had several meetings with the FDA regarding various approaches. And I'll let Bob go into that a little bit more deeply, Anthony, if that's good with you.
Robert Stein
Thank you, Tim. Hi Anthony.
Anthony Petrone
Hi. How are you?
Robert Stein
As Tim articulated we do have an RMAT Type B meeting scheduled. It will be an opportunity for us to review the Phase 2b data and why we're enthusiastic about the initial result there on reduction in pain and improvement in function while the investigational product was still potent. We also will be reviewing with the agency, our planned registrational trial which we expect to start before the end of the year.
We're still on our timelines for filing a BLA in late 2025 with an expectation of potential registration in 2026, likely in the latter part of the year, but because of the RMAT designation, we may have some opportunity to move that forward with the agency.
Anthony Petrone
That's very helpful. And one quick follow-up would just be to pivot to surgical recovery. It looks like some good traction in the quarter there, so couple of questions here. One would be, is the sales force fully staffed and trained at this point or is there still some building blocks that have to go in on that front? And then, as you look deeper with into recovery, which surgical categories are you seeing the most traction? Thanks again and congratulations.
Tim Wright
Thanks Anthony great questions on that. On the sales force side, in terms of servicing the surgical recovery market, we use both our direct sales team, as well as our agency partners in order to serve the market. We continue to evaluate and adjust our staffing levels in order to meet the needs off the market on both fronts direct as well as on the agency side.
As far as getting trained and being ready, we obviously invested a lot of time and energy in making sure that our sales team is proficient with both the clinical needs, as well as the value our products bring to the market and the clinical data and value that we can communicate. But honestly, as a leader, I can say that I'm always ever satisfied completely with it and continue to invest more time and energy in that process. In fact, we are making a lot more effort and energy, training some of our agency partners with our product and technology at a much higher level than we have done in the past. So that effort continues and will impact us going forward and as well.
With regards to the types of procedures, again our technology, as we have communicated many times is a platform, and it has application in multiple procedures around surgical recovery. Just to recap quickly, within surgical recovery our products are used in situations where you require augmentation or closure or barrier function in complex patients or complex procedures. The patients can be complex depending upon their comorbidities, whether they are obese, whether they have diabetes or smokers, as well as some of the procedures can be complex based on the location of the procedure and the risk associated with that.
We currently target multiple specialties across the spectrum with our product. And we are seeing traction in multiple areas. Some of them are wound adjacent areas like lower extremity, limb salvage situations and so on, like trauma associated in the lower extremities. But also we have seen good traction in other specialties including neuro-spine and OB-GYN and general surgery related procedures. So we are invested and committed to further develop that portfolio, at the same time also further generate data that will allow us to get more precise in our efforts of that kind of procedures we want to really focus a lot of our energy on as we generate that data.
Anthony Petrone
Thank you very much.
Operator
Thank you. Our next question comes from the line with RK from H.C. Wainwright. Please proceed with your question.
RK
Thank you. Good morning, gentlemen, congratulations. Looks like a great first half and looking for an even more exciting second half here. On Japan, let me just start off with Japan. So it looks like from Rohit’s comments that your initial target is about 250 physicians or so. What's the total target over there in Japan and what's still the commercial strategy in terms of, will it be slow and a concentrated start or is this going to be a larger initiative right from the get-go?
Tim Wright
Yeah, go ahead Rohit.
Rohit Kashyap
Thanks RK. Again, you're right we're very excited about the opportunity in Japan. The target wounds for lower extremity is about 100,000 wounds that we are targeting, in terms of the number of physicians, the 250 or so physicians that we have mentioned, there's a requirement based on our regulatory approval and establishing of reimbursement as it comes through that clinicians need to be trained by the society in order to first utilize our product. That's the physicians that we have already trained, the exact number of physicians we will be targeting, will go through phases of preliminary market, the Tier 1 market versus Tier 2 and so on.
And in terms of our commercial strategy, a big part of the art of effort in Japan will include developing a KOL network as mentioned before. This will be the first product of its kind in the market, the first effort in developing kind of the biologic space in Japan. So we know we have to make besides the KOL effort, a lot of market education about our product and the value, but also just the broad category itself. And in terms of our sales efforts, we plan on partnering with a distributor, now that we are closer to finalizing the exact parameters of our reimbursement we can finalize some of those discussions as Japan is a complex market with the dealers and distributors and all of that. But in order to formalize those relationships, you have to have clarity of reimbursement. I'm very excited that we are coming to the imminent stage of that, which is essentially bringing to closure probably a four to five year effort in trying to get there.
Tim Wright
Yeah, I think our regulatory team did an outstanding job in negotiating, the labeling here, which is bit broader than what we have in the United States. We're positive about that, but all hands are on deck to have a successful launch of that. And I appreciate all the efforts of the team.
RK
Yeah, absolutely. And then Tim over the last 12 months, the way as Pete put it out, you almost wiped out whatever revenue loss that you could incur from Section 351 products. So what in general terms, what are the factors that actually helped you to grow? Is it – what part of it is organic growth and what part of it is price increase? And from what you have done in the last 12 months what are the learnings such that you can at least sustain that growth, if not improve on what you've achieved so far?
Tim Wright
Yeah, our ability to sustain growth is based on three factors. Number one, our clinical data, number two, our economic data, number three is the medical education that we're providing in concert with a well trained sales organization. Look, there's a lot of head room here for future growth in wound care setting, as well as in the surgical recovery setting. As you recall, back in December at our Investor Day meeting Rohit, laid out what our pillars for growth would be. Wound care surgical recovery in Japan and we're right on track with that.
The launch of AMNIOEFFECT and AXIOFILL really says a couple things for me. Number one, our innovation engine is starting to produce products that we need. We have a goal of generating not only two new products every year, but also the data that should accompany those products, growth can be inhibited by the lack of clinical data or safety data and by the lack of payer response to that data.
As you recall, in February of 2020, AHRQ, which is a government body evaluated that, did a very extensive meta-analysis on this and frankly MiMedx won in several categories here, it's all based on the pioneering work that was done in randomized clinical trials. So we have a dedication to continue to generate data that is meaningful for the physician for allied healthcare workers and also payers. So that's been our strategy is to focus on things that really move the needle with our products.
We're in great markets, when you combine the wound care and the surgical recovery market, it's over $2 billion addressable market there then you add Japan in there. We think those are the really the strong elements for growth here. Downstream, as you know, Knee OA could have explosive growth there, but we need to get through the clinical trials there and really stay focused on getting that done right.
RK
One last question from me before I jump back into the queue, Tim you've been stating for more than a year now about, two products every year and you are delivering on that right now as we speak. But again how do you define two new products? Are you defining them as really novel products and independent from the ones that are already released into the market or are this going to iterations of the products such that you can use it for more indications?
Tim Wright
Yeah, I think there are a couple of things here. One, we see an opportunity in unmet need where we can modify our product to serve that need will do that. Where we see a need where we don't have, if you will a platform to develop a product we will – I think when you look at our efforts in research and product development we'll develop a novel and new product in those categories.
As we want to stay in frankly to a large extent in this Section 361 area, but also I envision 510(k)s that we would pursue there. So those are things all organically that would be developing, but there's a – we have a – if you will, long range portfolio that we've laid out, the products that we're going to develop over time, some are iterations of existing products, some are completely new. It doesn't rule out. Given that MiMedx is a pioneer in this area, we get a lot of inbound calls on new technologies, whether that's in an academic center or from a company that has a technology or has a product, but they don't have a, if you will, a commercial or distribution channel. So we will – we have been entertaining over the course of the last year or so new product opportunities that would come to us in the form of a licensing type of agreement.
RK
Thank you, Tim. Thanks for taking all my questions and good luck.
Tim Wright
Thank you, RK.
Operator
Thank you. Our next question comes from the line of Carl Byrnes with Northland Capital Markets. Please proceed with your question.
Carl Byrnes
Thanks for the question and congratulations on the strong quarter. Just a couple of things here, do you have any guidance with respect to gross profit margin trend in terms of what you anticipate in the second half of 2022? And then also I think you recorded around $3.2 million in investigational fees in the quarter, which was up sequential. When do you anticipate those fees to be eliminated in the near-term or whatever guidance you can provide there? And then I have one follow-up as well. Thanks.
Pete Carlson
Good morning, Carl. It's Pete. It did point out in my prepared remarks, a couple of things that were in the gross margin line. We continue to think that 82% 83% is where gross margin will play out. Our product mix moves it a little bit but I think that's a pretty good range to work with. On the investigational side, as we disclosed in our 10-K, they're really one remaining prior executive that these costs relate to, that process can continue for some time, but we don't control the timeline. We continue to see it as being small single-digit millions a year, really throughout most of the rest of the year. And we anticipate that that situation should wind itself down within the next six to 12 months.
Carl Byrnes
Great. Thanks. That's helpful. And then just one quick follow up, I mean, considering the strength of the beat within the first quarter and the second quarter, did you see or in those periods, any benefit from warehousing of patients that had deferred procedures for COVID or any other reasons that may have benefited those quarters and do you – if so, do you still see a potential benefit from a bake off of warehouse patients or is that not something that was factored all? Thanks.
Rohit Kashyap
Carl, it's a great question. This is Rohit. I think it's hard to clearly identify which patients were coming in with deferred treatment as a result of COVID versus patients who were new. Remember a lot of patients that we treat, especially in the wound side are chronic patients and very often they've had wounds for several years. So it's very hard to bifurcate the two. We definitely think there has been impact in the flow of patients from the impact of COVID and closures.
At this point, it's become very patchy all over the place to kind of really pick out a nationwide trend in terms of the implications. We still continue to see pockets where if there's impact from COVID, where facilities limit access and otherwise. So we continue to navigate our path through that. I think what benefits us in that situation is our strength in multiple channels. That includes hospital, the outpatient hospital setting, which typically the wound care clinic, as well as the private, because patients find a way of getting treatment if it's important in critical in one of those settings.
And we find that we are typically there to help them should – our products be the appropriate products for use. And again, there are other factors as well, that weigh in in terms of the flow of patients currently with shortage of staffing or vacations with in-patients as well as that with the opening up of the travel plan. So we continue to see what I would say is not completely predictable trends in patient volume over from a month to month, and even from first half of the month to second half of the month kind of basis as we go through in managing the business. But our effort is typically to be there ready to serve the patients wherever it might be across the care settings.
Carl Byrnes
Great. Thanks. That's very helpful again. Congratulations.
Rohit Kashyap
Thanks Carl.
Operator
Thank you. [Operator Instructions] Our next question comes from line of John Vandermosten with Zacks. Please proceed with your question.
John Vandermosten
Thank you, and good morning. I wanted to ask about the RMAT pathway and what benefits you might be taking advantage of by using that in the KOA trial?
Tim Wright
That's a good question, John. RMAT, as you know offers us more access to the agency in whether it's a type B meeting or otherwise. I also think the attendance at the RMAT meetings is broader. So it includes professionals from the agency that have a definitive subject matter expertise, for example, manufacturing expertise, or they have clinical trial expertise, or they have statistical expertise. So in addition to the product reviewer, you get a lot of adjacent reviewers, which helps in the review process. It helps eliminate some of the surprises that you may encounter.
It also helps in the approval process as well whether that's can be expedited or not, it's all based on your data, in their confidence, in the data and that data ranges from your clinical data, as well as your – frankly your chemical or your chemistry manufacturing and control data.
So it's very advantageous to have this, I think for the last couple of years, the agency has been so full of addressing some of the COVID types of questions they were getting and approving vaccines that they put RMAT on the side, but it's back on track now. Dr. Stein, do you have any other comments you'd like to make on RMAT?
Robert Stein
I think that covers it very well. We are excited that the meeting that we have upcoming is the Type B meeting with RMAT aspects. Having the designation as a regenerative medicine advanced therapy is a very useful aspect. As you mentioned, you get more attention from other ancillary experts at the FDA and you also have the opportunity to interact with them and ask questions. And sometimes it's more interactive than the standard interactions.
Tim Wright
And I'm really pleased John, the response that we've received from our colleagues at the FDA. They're very interested in what we're doing, how we're approaching the development of not only the knee OA program, but as you know, we've said it before. The way we produce our tissue is unique to our PURION process. We're looking to advance that process in different ways relative to our injectable products, which have very broad utility in other indications that we would like to explore. And we've certainly had some of those discussions with the agency as well.
John Vandermosten
Okay, great. Thanks Tim. And have a couple finance and accounting related questions as well. Regarding your debt, looking forward, does that seem to be about the appropriate amount you'd have going forward, or does it make sense to alter that if your growth trajectory continues and how do you think about that in terms of capital structure?
Pete Carlson
Carl, it's Pete – I'm sorry, John, it's Pete. Yes, we think that that's fine. It allows us the flexibility to have cash to invest in these businesses. Both sides of it, the commercial resources that Robert and team need to continue these strong sales growth, as well as the trial work that Dr. Stein is doing. The opportunity for us is that our business will turn the corner here in the second half of the year on generating cash.
And we will be positive generators of cash. So the debt is interest only, we don't use cash on the debt until 2025 from that standpoint. The one aspect I would say is, at some point we might want to invest in our manufacturing capabilities and we would look at ways to do that, but that would be about a growth opportunity for the company and supporting this long-term growth of 11% to 14%.
Again, the team needs resources. And as we've talked about, what I would remind people is that 11% to 14% reflects the two products that we're going to launch here later in the quarter. As we develop new products next year, going back to the earlier question, that's on top of that 11% to 14% growth. And if we do identify in licensing type opportunities, that's on top of it. And so those are items that have opportunity for future growth, but our debt levels supporting the business as it is, are fine.
John Vandermosten
Okay, great. Yes. So it sounds like that's going to continue going forward even after 2025. And on SG&A, you identified a couple items about $4 million worth. Should we expect those to – could we subtract those, I guess, sequentially for SG&A in the third quarter and come up with a good estimate of what that line item might be?
Pete Carlson
You certainly should isolate those as not being something that you would expect to recur in the third quarter. And again, the other part I would say is our yes, I think otherwise, our run rate of expenses is there, as we have revenue growth, there's obviously a little bit of growth on direct expenses from that, but overall our SG&A is, that's a good number to use.
John Vandermosten
Okay, great. And last one for me, Pete, for you is just can you walk me through from net income to cash from operations? So looks like I was estimating about a $7 million difference there, just where that difference came from between those two?
Pete Carlson
Sorry. It was between which two numbers?
John Vandermosten
Just net loss and cash from operations or free cash flow because you had a big benefit there, big difference between those, I'm wondering what the major factors there that were driving that difference in the second quarter?
Pete Carlson
We define free cash flow as adjusted EBITDA, less the capital expenditures and those patent acquisition costs that I mentioned. Between cash flow from operations and net loss, you've got obviously the non-cash items of amortization, et cetera, outside of free cash flow it's the debt service and cost for the indemnification or those investigations as well as just changes in working capital that's what's outside of the free cash flow number.
John Vandermosten
Okay, great. Well, thank you, Pete. Appreciate it. And thank all of you for the taking my question.
Pete Carlson
Take care, John.
Tim Wright
Bye John.
Operator
Thank you. Our next question is a follow up from the line of RK with H.C. Wainwright. Please proceed with your question.
RK
Thank you. Thank you folks for taking my follow up. This is on the KOA study, which should just going to be on the KOA. Dr. Stein, with almost all pieces in place and also having almost about a year or longer to reflect and dissect the last clinical trial and with the SAB in place, what are the things that you are focusing on now and going into this meeting, into the FDA in terms of how to plan for this study and what are the things that you are trying to make sure that you don't have to create at the end of the study.
Tim Wright
Thank you for the question, RK. We're very encouraged by the earlier results than the product that was tested was still fresh enough. And so we've made changes to how we make and store the product and how quickly we will use it in this upcoming study. We plan to have some discussion around that with the FDA, and we want to review our protocol in terms of the endpoints that we think they'll agree to our plan for dosing the patients and the number of patients in our statistical analysis plan.
So we want to make sure that they're bought into the approach that we're taking. And we are optimistic that that will go smoothly as was stated. We do expect to enroll a patient and before the end of the year, get the study launched and still on track for BLA filing in the second half of 2025 with approval in the second half of or perhaps earlier in 2026. So our biggest objective is to make sure that we recapitulate the positive result in the initial part of other study and make sure that carries through the entire study this time.
RK
Thank you. Thanks. Thanks for taking my question.
Tim Wright
Take care, RK.
Operator
Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Wright for any final comments.
Tim Wright
Thank you for the great questions. Just in summary, I'm proud of the progress MiMedx has made over the last four quarters. We still have a lot to do, yet I'm bullish about what we can get done in the second half. I appreciate your support. Thank you.
Operator
Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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MiMedx Group, Inc.'s (MDXG) CEO Tim Wright on Q2 2022 Results - Earnings Call Transcript