This article was first published on Activist Insight Online on Monday 01 February, 2021. For more information about the module, click here.
Short seller Prescience Point Capital Management rarely goes long, but when it does it makes a statement. The activist has held a stake of around 7% in MiMedx for around two years and appointed four new directors to the eight-member board in 2019. Recently, Prescience upped its stake slightly to 7.9% and said the company’s AmnioFix Injectable product is an asset worth billions of dollars, despite its small market capitalization of $1 billion.
AmnioFix Injectable, currently going through clinical trials, is a micronized form of the barrier membrane used by AmnioFix, reconstituted with saline, to be used to reduce pain and improve function in areas of musculoskeletal degeneration, according to the company.
Having discussed several matters with MiMedx to increase shareholder value, Prescience said it now primarily aims to engage with management to better communicate AmnioFix’s value to the investment market.
Prescience Chief Investment Officer Eiad Asbahi told Activist Insight Shorts that the company’s management team’s failure to communicate the “blockbuster potential” of Amniofix has led to a “chronic undervaluing of the company’s equity.” The 4% rise of MiMedx’s stock following Prescience’s research report reflects this failure, according to Asbahi.
Miscommunication of its products is arguably not the only reason for MiMedx’s current stock price. The stock has been home to numerous short sellers for years, ultimately leading to its near-demise in 2018. After several short sellers alleged channel-stuffing and doctor kickbacks at the company, regulators, along with the audit committee, began an investigation into its dealings. Its findings led to the termination of then-CEO Parker Petit, the delisting of MiMedx from the Nasdaq, and the need for the firm to restate its financials from 2012 to 2017.
The short positions could have pushed the stock price too far the other way though, potentially making MiMedx undervalued. Citron Research, which was once short MiMedx’s stock, told Activist Insight Shorts that it probably is a good stock to buy now. “These names often get overdone to the downside,” Citron founder Andrew Left noted.
Prescience agrees, telling Activist Insight Shorts that “the stock is worth multiples more than the current share price.”
Shorts going strong
But the hopeful words of the future have not convinced everyone that MiMedx’s murky dealings are a thing of the past, and Prescience will have to battle against the remaining short sellers in its fight to up MiMedx’s market cap.
Veteran short seller Marc Cohodes has certainly refused to move on. In a November report posted to his “petite parker the barker” website, Cohodes noted that while Petit was on trial, MiMedx released its third-quarter 2020 results that showed an ongoing struggle, with shareholders taking the brunt of the pain. “I will take these guys down if it is the last thing I do,” the short seller said in a Real Vision interview back in 2017. “I am focused on ending and exposing this fraud.”
Viceroy Research, still wrapped up in lawsuits against Petit and MiMedx for “malicious prosecution” to silence the short seller, also continues to have a negative view of the company. In an email to Activist Insight Shorts, Viceroy analyst Gabriel Bernarde cast doubt over Prescience’s thesis that the company failed to make the market aware of AmnioFix’s value “despite attending nigh-every wound-care and biomed conference in the U.S.”
“It is so valuable, in fact, that former management resorted to securities fraud in order to inflate revenues and channel stuff government facilities, and persecuted whistleblowers,” the short seller added.
Despite the short seller reports unveiling Petit’s fraud, the disgraced executive refused to leave without a fight. He launched a proxy battle in mid-2019 in an attempt to return to the company’s board. Following his loss against MiMedx’s nominees, the company called it an “unmistakable statement that it is time to move beyond the Pete Petit era.”
Petit was later indicted by the U.S. Department of Justice and was found guilty of securities fraud, which carries a maximum sentence of 20 years in prison. The former chief executive is due to be sentenced on February 23.
As investors on both the long and short side continue to go head-to-head over the stock, MiMedx is attempting to dig itself out of the mess created by Petit. “We believe we have made significant progress in working to restore investor confidence in the company,” the company told Activist Insight Shorts. “We continue to advance our efforts in realizing the significant potential of the advanced wound care business and our novel late-stage clinical pipeline.”