Why MiMedx Group, Inc. Is Crashing Today

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What happened

Shares of MiMedx Group (NASDAQ: MDXG), 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.

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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.

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:

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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Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.