MiMedx Group, Inc.
- Company Name
- MiMedx Group, Inc.
- Stock Symbol
- Class Period
- March 7, 2013 to February 21, 2018
- Motion Deadline
- April 24, 2018
- Northern District of Georgia
The complaint charges MiMedx and certain of its officers with violations of the Securities Exchange Act of 1934. MiMedx is a biopharmaceutical company that focuses on biomaterials for soft tissue repair, such as tendons, ligaments and cartilage, as well as other biomaterial-based products for other medical applications. MiMedx utilizes a number of different distributors to deliver its products. Among those distributors is AvKARE, Inc., a federal contractor. The revenues derived from MiMedx’s distribution agreement with AvKARE make up a significant portion of the Company’s total revenue.
The complaint alleges that defendants made materially false and misleading statements and/or failed to disclose adverse information regarding the Company’s business and operations. Specifically, during the Class Period defendants concealed that MiMedx had been engaged in a “channel-stuffing” scheme designed to inappropriately recognize revenue that had not yet been realized and failed to disclose the Company’s financial ties to physicians as required by the Physician Payments Sunshine Act. As a result of these false statements and/or omissions, MiMedx securities traded at artificially inflated prices during the Class Period, with its stock price reaching a high of $17.96 per share.
In December 2016, two former employees of MiMedx filed a complaint against the Company alleging, among other things, retaliatory termination by MiMedx after they had reported fraudulent revenue recognition practices (the “Whistleblower Action”). In particular, the employees alleged that MiMedx had engaged in a “channel-stuffing scheme” to “fraudulently recognize revenue [purportedly earned under its distribution agreement with AvKARE] in its certified financial statements before the revenue had been realized or realizable and earned.” The Company denied the claims and, in fact, sued the employees for tortious interference, among other things.
In September 2017 several market research analysts published reports that focused on the allegedly fraudulent revenue recognition practices of MiMedx alleged in the Whistleblower Action. Again, MiMedx denied these allegations and sued each of the research companies for libel, slander and defamation.
On February 20, 2018, MiMedx announced that its audit committee “ha[d] engaged independent legal and accounting advisors to conduct an internal investigation into current and prior-period matters relat[ed] to allegations regarding certain sales and distribution practices at the Company.” MiMedx advised investors that “Company executives are also reviewing, among other items, the accounting treatment of certain distributor contracts.” The Company further announced that, because of this internal investigation, it would delay the release of its fourth quarter and fiscal year 2017 financial results. On this news, the price of MiMedx shares fell $5.72 per share, or nearly 40%, to close at $8.75 per share on February 20, 2018.
Then, on February 22, 2018, The Wall Street Journal reported that MiMedx “has financial ties to more than 20 doctors . . . but the company hasn’t reported these payments to the government under a 2013 law” that requires “drug and medical-device makers . . . to disclose payments or gifts they make annually to doctors and teaching hospitals.” According to The Wall Street Journal, “A company that knowingly fails to report doctor or hospital payments can face a maximum penalty of $1 million a year.” Following publication of this article, the price of MiMedx shares fell $1.22 per share, or another 13% over the next two trading sessions, to close at $7.83 per share on February 23, 2018.