MARIETTA, Ga., Aug. 17, 2017 /PRNewswire/ -- MiMedx Group, Inc. (NASDAQ: MDXG), the leading biopharmaceutical company developing and marketing regenerative and therapeutic biologics utilizing human placental tissue allografts with patent-protected processes for multiple sectors of healthcare, provided an update on its litigation with certain former employees.
As previously disclosed in the Company's quarterly report on Form 10-Q as filed with the Securities and Exchange Commission on July 31, 2017, the Company filed lawsuits against certain former employees on December 13, 2016 for, among other things, selling competing products while full-time employees of MiMedx. The Company has already been successful in obtaining court orders enforcing the non-compete and other restrictive covenants against two of the former employees. The Company is also seeking monetary damages in an amount to be determined at trial.
In response, these former employees sued the Company and the Company's Chairman and Chief Executive Officer. In their lawsuits, the former employees claimed, among other things, that the Company terminated their employment in retaliation for their complaints about the Company's alleged business practices. It appears that those allegations were designed to intimidate the Company into eliminating the former employees' non-competition agreements and paying a large settlement.
As previously disclosed, all of these allegations were fully investigated over a three-month period by the Board of Directors and its Audit Committee and an external team, which included outside legal counsel, the Company's independent auditors, and a nationally-recognized expert on revenue recognition. No credible evidence of incorrect processes, procedures or wrongdoing by the Company or MiMedx management was found. Also, there was no credible evidence to indicate that any changes to the Company's previously issued financial statements were necessary in light of the former employees' allegations.
MiMedx has not been notified of any qui tam or private whistle-blower suit, and if such suit were filed, the Company believes it would be successful in quickly defending such a suit based on the investigation it has already conducted. Over two years ago, the Company successfully and quickly defended a qui tam lawsuit which was brought by an executive working for a competitor. In addition, the Company does not expect its operating progress and success to be disrupted if such actions were to occur.
The cases involving the terminated employees have now proceeded to the discovery phase of litigation. In discovery, the Company has been successful in identifying additional evidence that the terminated employees violated their restrictive covenants, and that their counterclaims lack merit.
Two terminated employees admitted in sworn declarations to selling competitive products to MiMedx customers on behalf of a competitor while they were employed full-time by MiMedx. One terminated employee admitted in sworn testimony that a company controlled by him received commissions for sales made on behalf of a competitor during the time he worked for MiMedx. He further admitted that this company controlled by him sold numerous competing products to MiMedx customers, and that he used certain MiMedx employees as agents to sell competing products while they continued to work as full-time MiMedx employees. To the extent this is known to the Company, those associated with this scheme have been disciplined or are no longer employed by the Company.
Further, one terminated employee admitted that his "channel stuffing" allegation is based on the fact that he heard from other people that the Department of Veterans Affairs ("VA") hospitals allegedly returned "massive" amounts of products even though he admits he did not know how much product was actually returned. This employee had no knowledge of the actual ordering process and procedures utilized for orders or returns from VA hospitals to MiMedx's government distributor, AvKARE, Inc.
Finally, one terminated employee admitted he has been dishonest. He admitted that he was actually lying in various emails regarding his sales activities. Additionally, he testified that he told one other terminated employee to lie to VA doctors about whether or not he would get commissions for selling to them a competing product. Moreover, that terminated employee admitted that he kept his limited liability company a secret from MiMedx.
Additionally, the Company has become aware of a recent "short-sale thesis" suggesting improprieties in certain VA procurement documents. The Company understands that it has been suggested that a MiMedx employee is listed as the "contact person" in a VA procurement document between AvKARE and the VA hospital. Although the Company does not typically comment on these types of theories and rumors, MiMedx believes it is appropriate to note here that the form was intended to be filled out by VA personnel and MiMedx was not a party to such a document and did not review it. This type of document would be forwarded to AvKARE for product fulfillment as AvKARE was solely responsible for distribution activities in the VA hospitals per its contract with MiMedx until MiMedx obtained its own FSS contract in 2015, which allowed it to do business directly as well. It should be noted that MiMedx was the manufacturer of the products, and as such, did manage product support inquiries, so MiMedx personnel were known to the procurement agents in the VA hospitals.
These civil cases are proceeding at a rapid pace toward trial and/or settlement; however, certain of these terminated employees are continuing their attempts to publicly defame the Company through misinformation, which has resulted in tortious interference civil actions taken against some of these individuals, and potentially further tortious interference civil actions against the others involved in the spread of fabricated information.
MiMedx' policy is to promote high standards of integrity by conducting its affairs honestly and ethically. MiMedx requires all employees to sign and adhere to a code of conduct, and holds compliance training on a regular basis. MiMedx also provides a confidential toll-free compliance hotline for employees to report unethical or illegal conduct and has established a procedure, which is available on our website, where any person may submit a good faith report or concern regarding business, accounting or auditing matters to the Company or its Board of Directors.
MiMedx® is a biopharmaceutical company developing and marketing regenerative biologics utilizing human placental tissue allografts with patent-protected processes for multiple sectors of healthcare. "Innovations in Regenerative Medicine" is the framework behind our mission to give physicians products and tissues to help the body heal itself. We process the human placental tissue utilizing our proprietary PURION® Process among other processes, to produce safe and effective allografts. MiMedx proprietary processing methodology employs aseptic processing techniques in addition to terminal sterilization. MiMedx is the leading supplier of placental tissue, having supplied over 1,000,000 allografts to date for application in the Wound Care, Burn, Surgical, Orthopedic, Spine, Sports Medicine, Ophthalmic and Dental sectors of healthcare. For additional information, please visit www.mimedx.com.
Important Cautionary Statement
This press release includes forward-looking statements, including statements regarding pending litigation, prospective litigation, and the impact of prior allegations. These statements also may be identified by words such as "believe," "except," "may," "plan," "potential," "will" and similar expressions, and are based on our current beliefs and expectations. Forward-looking statements are subject to significant risks and uncertainties, and we caution investors against placing undue reliance on such statements. Actual results may differ materially from those set forth in the forward-looking statements. Among the risks and uncertainties that could cause actual results to differ materially from those indicated by such forward-looking statements include the risk that triers of fact may rule against the Company, or that additional facts will be discovered which alter prior conclusions. For additional risks that might affect the Company, please review the Risk Factors section of our most recent annual report or quarterly report filed with the Securities and Exchange Commission. Any forward-looking statements speak only as of the date of this press release and we assume no obligation to update any forward-looking statement.
SOURCE MiMedx Group, Inc.