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Why MiMedx Group, Inc. Is Crashing Today

By Brian Feroldi - Feb 20, 2018 at 10:45AM

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Shares plunged after the company announced that it is delaying its earnings release date in order to conduct an accounting review.

What happened

Shares of MiMedx Group (MDXG 2.88%), a biopharmaceutical company focused on regenerative medicine, fell 31% as of 10:25 a.m. EST Tuesday. The plunge is happening in response to the news that management is delaying the release of its fourth-quarter and full-year financial results in order to conduct an internal accounting investigation.

So what

MiMedx announced that its Board of Directors has hired independent legal and accounting advisors to review certain sales and distribution practices at the company. This review will cover both current and prior periods and will focus on the accounting treatment of certain distributor contracts.

The company has decided to delay the release of its financial results until the investigation is complete.

A person in a suit looking worried in front of their laptop.

Image source: Getty Images.

Management did communicate that this investigation is not expected to have a material impact on its revenue guidance for 2018. The company also stated that it spent $24 million on share buybacks in the fourth quarter and that its cash balance at year end was $33 million. Furthermore, management stated that this delay is not expected to affect its operational performance and clinical research activities.

Here's the commentary that Pete Petit, MiMedix Group's Chairman and CEO, shared with investors related to this matter:

"Our Board of Directors and executives believe it is in the best interests of our Company and shareholders for our Audit Committee to address these allegations in an internal investigation with the support of independent legal and accounting advisors. We look forward to releasing our 2017 financial results as soon as this process is complete. MiMedx has been experiencing rapid growth over the last few years as our product portfolio continues to meet significant, unmet needs in the marketplace. We are literally saving lives by saving limbs, and we expect to continue to deliver operational and clinical success in the months and years to come."

Nonetheless, this surprise news caught traders off guard, hence why shares are being thrashed on Tuesday.

Now what

MiMedx Group is a heavily shorted stock, so it isn't surprising to see shares falling so hard in response to Tuesday's news. This update also adds fuel to the long-term bear case against the company, so it is unknown how long it will take for MiMedx to regain Wall Street's trust.

Given the uncertainty, Tueaday's drop does not represent an opportunity to get in. Investors who are looking for bargains in the biotech sector would probably be better served by turning their attention elsewhere.

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