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Why MiMedx Group Shares Imploded

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of MiMedx Group (NASDAQ: MDXG  ) , a manufacturer of patented regenerative biomaterial products (in essence, products designed to treat inflammation and help wounds heal), were eviscerated, falling as much as 70% at one point before recovering half of its losses after it announced the receipt of an untitled letter from the Food and Drug Administration alleging it does not possess the proper licensing to manufacture certain products.

So what: According to the FDA's untitled letter (note, an untitled letter is a notice of violation(s), but does not meet the threshold of a warning letter), because some of the products handled by MiMedx have been treated with a micronization process, they should be treated as drugs and therefore licensed by the FDA. Without the proper licenses, the assumption would be that MiMedx is unlawfully manufacturing some of its products.

Now what: It did not take long for MiMedx's management team to fire back, with COO and President Bill Taylor noting his surprise at the receipt of the letter and the company standing behind its full-year revenue guidance for 2013 and 2014. Although MiMedx's management does believe it's done everything to meet the pre-set guidelines, CEO Parker Petit noted that the company can alter its production to meet its revenue goals. MiMedx plans to meet with the FDA to determine the next course of action.

As of now this is a gigantic mess and the yellow caution tape should be flowing until further notice. On one hand, if MiMedx is found to be in the clear, then it could very easily recoup much of today's losses. Conversely, the confirmation of the receipt of an untitled letter solidifies the seriousness of these allegations and poses the potential to put a serious dent in MiMedx's revenue growth. Feel free to add it to your Watchlist, but I'd suggest keeping a distance in all walks from this stock until further notice.

MiMedx shares have been a dream stock for day-trader's today, but its implosion serves as a good reminder that the best investment strategy is to pick great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" not only shares stocks that could help you build long-term wealth, but also winning strategies that every investor should know. Click here to grab your free copy today.

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Related Tickers

9/23/2016 4:00 PM
MDXG $8.93 Down -0.41 -4.39%
MiMedx Group CAPS Rating: ***