A Georgia biotech firm finds itself fighting the FDA and former workers

Axiofill is a powder made from human placentas that is used to treat wounded skin. MiMedx has said the product belongs in a category that permits its sale and use without FDA scrutiny. But in a warning letter late last year, the FDA disagreed.

In that warning letter, FDA officials said they had concluded Axiofill was in a product category requiring federal study first, and selling it was a violation of the Food Drug and Cosmetic Act and the Public Health Service Act.

The FDA says a product that is sold without review must “not be more than minimally manipulated,” processed or enhanced. The product must also perform the same functions in the recipient as in the body it came from and not be combined with other materials.

Axiofill does not meet those requirements, the FDA said, in formal letters last year and again this spring.

Without the FDA vetting the product, its sale is not legal, the agency said.

MiMedx continues to sell Axiofill after the warning, receiving a second formal reprimand from the FDA in March. In response, Joseph Capper, the MiMedx chief executive, said he was “disappointed.”

“We intend to exhaust all of our legal and regulatory options in an attempt to ensure continued access to this incredibly safe and effective product,” Capper said at the time.

In March, MiMedx sued the agency in U.S. District Court in Atlanta asking that a judge overturn the FDA’s classification of Axiofill. The FDA misinterpreted its regulations, MiMedx argued.

The FDA on Sept. 12 filed a response, asserting it had not made a mistake and asked the court to rule against MiMedx.

This is not the first time MiMedx has faced such scrutiny from the FDA.

In 2013, the company tussled with the FDA about selling injections containing human placenta that had not been approved. In 2019, the FDA said the company had been selling products for treating wounds that similarly did not comply with regulations.

That latter controversy centered on company sales to the Department of Veterans Affairs and led to convictions of two top executives for securities fraud in 2020. MiMedx was forced to pay $6.5 million in civil penalties to resolve charges of submitting false pricing to the VA.

Asked about the conflict with the FDA, Capper, the MiMedx chief executive, told a Cantor Fitzgerald investor conference on Sept. 18 the company had never received an order to pull Axiofill off the market. The company will continue to fight out the issue in court and keep selling Axiofill, he said.

“We’re very comfortable that we’re allowed to continue to market that product while we work through a resolution with the FDA,” Capper said. “There’s no safety concerns with the product, there’s no quality concerns with the product and the FDA never asked us to pull it from the market. Had any of those things occurred, we obviously would have pulled it from the market.”

The company does not break out sales by product, but according to a September note by an analyst at Northland Capital Markets, Axiofill accounts for less than 5% of MiMedx revenues. Company sales last year were $321 million. Another analyst at Craig Hallum Capital Group estimated Axiofill was 3% to 4% of revenue.

Dispute with former workers

In a separate case filed in Cobb County, the company has sued 10 former employees who resigned earlier this year.

The company says that when they left, the workers took company secrets to a rival, violating noncompetition agreements.

“The company paid each of these defendants hundreds of thousands of dollars — and, in some cases, millions of dollars — in exchange for their work and their agreements not to go to work for a direct competitor upon leaving MiMedx,” a statement from the company said.

The suit asks a judge to forbid the ex-employees from competing with MiMedx.

In the court filing, MiMedx also asked that the ex-employees pay the company for harm caused to its business by their work with the competitor. MiMedx asked the 10 be compelled “to account for” any and all money they had made by using secrets learned at MiMedx or “interfering” with MiMedx customers.

The amount of damages would be determined at a trial.

A MiMedx spokesman in a statement to the AJC compared the company’s complaint to a jury trial in which Massachusetts-based Cynosure in late September won $25 million in damages in a suit against 28 former employees who jumped to a rival.

But the Cynosure verdict should not be viewed as a precedent, said attorney Todd Rosenbaum of Mintz, the law firm representing the 10 ex-MiMedx employees. “We view the two cases very differently.”

The 10 ex-employees have each filed counterclaims against the company, arguing the noncompete agreements they signed were “overbroad” and “unenforceable.”

The ex-employees also describe what they say was unethical behavior by management that they say forced them to leave. The ex-employees allege in court filings they were pressured to sell Axiofill and, in some cases, to engage in “schemes to bilk Medicare and other government and third-party taxpayers.”

Most of the 10 former employees had been members of the MiMedx sales team. They resigned earlier this year, eventually going to work for Surgenex, a Phoenix-based competitor. The president of Surgenex is Mark Diaz, a former MiMedx executive.

The former employees contend in a court filing the company should not have tried to force them to keep selling Axiofill after the FDA said the product could not be marketed without FDA review.

The company rejected the ex-employees’ assertions.

“It is unfortunate that certain of the individual defendants, in partnership with their legal counsel, have chosen to resort to issuing and publicizing counterclaims that are both factually inaccurate and salacious,” MiMedx said in a statement to the AJC. “They have done so, we believe, in search of an excuse to justify their obvious violations of the contracts they entered into with MiMedx.”