A major shakeup at MiMedx has given further credence to ex-employees' claims that the Marietta-based biopharma company inflated revenues by overshipping its product to VA hospitals.
Amid an internal investigation into “matters relating to certain sales and distribution practices and other matters,” the publicly-traded company announced Thursday that it must revise more than five years of financial statements. And a day earlier, MiMedx parted ways with two of its top finance officials: CFO Michael Senken and controller/treasurer John Cranston.
The developments could spell big trouble for the besieged company of roughly 950 employees, more than half of them based in Georgia. Stock values Thursday dropped 23 percent at the closing bell on Wall Street.
“Depending on what the discrepancy is in what they reported for the financials versus what is actual,” said Georgia State University law school professor Jessica Cino, “it can mean everything from a decent evaluation of the company’s worth all the way up to it’s insolvent and bankrupt.”
The company's Chairman and CEO, Parker "Pete" Petit, is one of Georgia's most successful and colorful businessmen, with connections to U.S. Sen. Johnny Isakson, former Secretary of Health and Human Services Tom Price, and even President Donald Trump. Georgia State University's new football field was named for Petit following his $10 million donation to the school's athletic program.
Last year his company reported more than $300 million in revenue. Thursday’s company announcement said that financial statements released by the company from 2012-2016 and the first three quarters of 2017 cannot be relied on, and that the company is withdrawing all previous financial guidance issued for 2018.
“The Company’s underlying business remains strong,” the statement added.
The company also said that the investigation continues to evaluate sales and distribution practices and “may ultimately result in the identification of additional issues” and additional actions by the company.
Since former employees have come forward over the past year with allegations of overshipping — known as “channel stuffing” — MiMedx has come under scrutiny from the U.S. Department of Justice, the U.S. Securities and Exchange Commission, the Department of Veterans Affairs and the Food and Drug Administration. It’s also entangled in lawsuits with both ex-employees and shareholders.
Petit has previously blamed his company’s travails on “rogue” salespeople and a misinformation campaign waged by greedy short sellers looking to drive down stock values.
But last month, three Department of Veterans Affairs workers were indicted on federal health care fraud charges, accused of excessive use of MiMedx products on South Carolina veterans after accepting gift cards, meals and other inducements from a company representative. Two of the three workers were also charged with accepting bribes.
Cino, a former white collar criminal defense attorney who specialized in pharmaceutical companies and banks, said it’s unlikely a smear campaign could cause all this.
“There’s one thing where the outcome is the stock price goes down significantly,” Cino said. “But given there’s investigations, there’s indictments involved, there’s bribery allegations — no, this isn’t the product of short selling.”
On Thursday, Petit continued touting the company’s strengths, but declined to take questions in a shareholder conference call and did not return messages from The Atlanta Journal-Constitution. A company spokesperson did not return a call from the AJC, either.
‘Underlings under the bus’
MiMedx sells regenerative injections and wound coverings derived from human placental tissue, used in orthopedic treatments and on burn victims, among others. The company has been embroiled in a controversy with the FDA over product safety.
The FDA said in 2013 that some of its products qualify as drugs and biologicals but were being sold without proper approval. Petit told the AJC last month that the company negotiated an agreement to start investigational new drug trials on one product, AmnioFix Injectable.
California short seller Marc Cohodes has written letters to the FDA this year questioning how MiMedx can legally market AmnioFix and expressing concerns about doctors and chiropractors improperly marketing it as “cure-all” stem cell therapy.
On his website, PetiteParkerTheBarker.com, Cohodes posted Thursday that he doesn't think Petit will last until July 4 as CEO, and he believes the company will be bankrupt by Labor Day.
“He’s just throwing his underlings under the bus,” Cohodes said. “In his prior interview with you, he talked about rogue employees, which is complete nonsense. He runs that company with an iron fist.”
THE STORY SO FAR
Parker “Pete” Petit, 78, served as Donald Trump’s campaign finance chairman in Georgia during the 2016 presidential campaign. But he has been involved in a series of controversies surrounding MiMedx, which he has led as chairman and CEO since 2009.
Facing allegations of flooding Veterans Affairs hospitals with the company’s products, and facing questions about whether some of its products qualify as drugs and biologicals, MiMedx as fallen under scrutiny from an alphabet soup of federal agencies — DOJ, the SEC, FDA and the VA.
Another controversy involves payments the company made to doctors and other health care professionals. Under a federal law, companies that make drugs, medical devices, biologics or medical supplies are required to file annual reports on those payments. MiMedx did not file the reports, although it has made payments to more than 20 physicians.
Last month, a federal indictment alleged that MiMedx showered gifts on three VA workers in South Carolina, leading them to commit health care fraud by stocking the company’s products. Petit told the AJC that the sales rep who worked with them has been fired, and that when the company discovered what the representative was doing, it took the information to the VA’s Office of Inspector General. But Petit’s critics view the indictment as a sign that the feds are digging deeper into MiMedx’s sales tactics.
