UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended | |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from to |
Commission File Number
Anika Therapeutics, Inc.
(Exact Name of Registrant as Specified in Its Charter)
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
|
|
|
| (Address of Principal Executive Offices) (Zip Code) | |
(
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered |
| | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | | Non-accelerated filer ☐ | Smaller reporting company | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of April 28, 2022, there were
ANIKA THERAPEUTICS, INC.
TABLE OF CONTENTS
References in this Quarterly Report on Form 10-Q to “we,” “us,” “our,” “our company,” and other similar references refer to Anika Therapeutics, Inc. and its subsidiaries unless the context otherwise indicates.
Anika, Anika Therapeutics, Arthrosurface, Cingal, Hyaff, Hyvisc, Monovisc, Orthovisc, Parcus Medical, Tactoset and WristMotion are our registered trademarks that appear in this Quarterly Report on Form 10-Q. For convenience, these trademarks appear in this Quarterly Report on Form 10-Q without ® and ™ symbols, but that practice does not mean that we will not assert, to the fullest extent under applicable law, our rights to the trademarks. This Quarterly Report on Form 10-Q also contains trademarks and trade names that are the property of other companies and licensed to us.
| PART I: | FINANCIAL INFORMATION |
| FINANCIAL STATEMENTS |
Anika Therapeutics, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
(unaudited)
| March 31, | December 31, | |||||||
| ASSETS | 2022 | 2021 | ||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, less allowance for credit losses of and at March 31, 2022 and December 31, 2021, respectively | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use assets | ||||||||
| Other long-term assets | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Contingent consideration | ||||||||
| Total current liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Deferred tax liability | ||||||||
| Lease liabilities | ||||||||
| Commitments and contingencies (Note 9) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, par value; shares authorized, shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively | ||||||||
| Common stock, par value; shares authorized, and shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Retained earnings | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Anika Therapeutics, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(in thousands, except per share data)
(unaudited)
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenue | $ | $ | ||||||
| Cost of revenue | ||||||||
| Gross Profit | ||||||||
| Operating expenses: | ||||||||
| Research and development | ||||||||
| Selling, general and administrative | ||||||||
| Change in fair value of contingent consideration | ( | ) | ||||||
| Total operating expenses | ||||||||
| (Loss) income from operations | ( | ) | ||||||
| Interest and other income (expense), net | ( | ) | ( | ) | ||||
| (Loss) income before income taxes | ( | ) | ||||||
| Benefit from income taxes | ( | ) | ( | ) | ||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Net (loss) income per share: | ||||||||
| Basic | $ | ( | ) | $ | ||||
| Diluted | $ | ( | ) | $ | ||||
| Weighted average common shares outstanding: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||
| Comprehensive (loss) income | $ | ( | ) | $ | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Anika Therapeutics, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity
(in thousands)
(unaudited)
| Three Months Ended March 31, 2022 | ||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||
| Common Stock | Other | Total | ||||||||||||||||||||||
| Number of | $.01 Par | Additional Paid | Retained | Comprehensive | Stockholders' | |||||||||||||||||||
| Shares | Value | in Capital | Earnings | Loss | Equity | |||||||||||||||||||
| Balance, January 1, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Issuance of common stock for equity awards | ||||||||||||||||||||||||
| Vesting of restricted stock units | ( | ) | - | - | - | |||||||||||||||||||
| Stock-based compensation expense | - | |||||||||||||||||||||||
| Retirement of common stock for minimum tax withholdings | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Other comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Three Months Ended March 31, 2021 | ||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||
| Common Stock | Other | Total | ||||||||||||||||||||||
| Number of | $.01 Par | Additional Paid | Retained | Comprehensive | Stockholders' | |||||||||||||||||||
| Shares | Value | in Capital | Earnings | Loss | Equity | |||||||||||||||||||
| Balance, January 1, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Issuance of common stock for equity awards | ||||||||||||||||||||||||
| Vesting of restricted stock units | ( | ) | - | - | - | |||||||||||||||||||
| Stock-based compensation expense | - | |||||||||||||||||||||||
| Retirement of common stock for minimum tax withholdings | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Net income | - | |||||||||||||||||||||||
| Other comprehensive loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Anika Therapeutics, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization of acquisition related intangible assets | ||||||||
| Amortization of acquisition related inventory step-up | ||||||||
| Non-cash operating lease cost | ||||||||
| Change in fair value of contingent consideration | ( | ) | ||||||
| Loss on disposal of fixed assets | ||||||||
| Stock-based compensation expense | ||||||||
| Deferred income taxes | ( | ) | ( | ) | ||||
| Provision (recovery) for credit losses | ( | ) | ||||||
| Provision for inventory | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses, other current and long-term assets | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Accrued expenses, other current and long-term liabilities | ( | ) | ( | ) | ||||
| Income taxes | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Acquisition of Parcus Medical and Arthrosurface, net of cash acquired | ( | ) | ||||||
| Proceeds from maturities of investments | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Net cash (used in) provided by investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Cash paid for tax withheld on vested restricted stock awards | ( | ) | ( | ) | ||||
| Proceeds from exercises of equity awards | ||||||||
| Payments made on finance leases | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Exchange rate impact on cash | ( | ) | ( | ) | ||||
| Decrease in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Non-cash Investing Activities: | ||||||||
| Purchases of property and equipment included in accounts payable and accrued expenses | $ | $ | ||||||
| Right-of-use assets obtained in exchange for operating lease liabilities | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Anika Therapeutics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(amounts in thousands, except share and per share amounts or as otherwise noted)
(unaudited)
| 1. | Nature of Business |
Anika Therapeutics, Inc. (the “Company”) is a global joint preservation company that creates and delivers meaningful advancements in early intervention orthopedic care, including in the areas of osteoarthritis (“OA”) pain management, regenerative solutions, soft tissue repair and bone preserving joint technologies.
In early 2020, the Company expanded its overall technology platform through its strategic acquisitions of Parcus Medical, LLC (“Parcus Medical”), a sports medicine implant and instrumentation solutions provider focused on sports medicine and soft tissue repair, and Arthrosurface, Inc. (“Arthrosurface”), a company specializing in less invasive, bone preserving partial and total joint replacement solutions. These acquisitions broadened the Company's product portfolio, developed over its 30 years of expertise in hyaluronic acid technology, into joint preservation and restoration space with higher market potential, added new revenue streams, increased and accelerated its commercial capabilities, diversified its revenue base, and expanded its product pipeline and research and development expertise.
The Company is subject to risks common to companies in the life sciences industry including, but not limited to, development by the Company or its competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, commercialization of existing and new products, and compliance with U.S. Food and Drug Administration and foreign regulations and approval requirements, as well as the ability to grow the Company’s business through appropriate commercial strategies.
There continue to be uncertainties regarding the pandemic of the novel coronavirus (“COVID-19”), and the Company is closely monitoring the impact of COVID-19 on all aspects of its business, including how it will impact its customers, employees, suppliers, vendors, business partners and broader impact on elective surgeries. The Company is unable to predict the specific impact that COVID-19 may have on its financial position and operations moving forward due to the numerous uncertainties. Any estimates made herein may change as new events occur and additional information is obtained, and actual results could differ materially from any estimates made herein under different assumptions or conditions. The Company will continue to assess the evolving impact of COVID-19.
| 2. | Basis of Presentation |
The accompanying unaudited condensed consolidated financial statements and related notes have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and in accordance with accounting principles generally accepted in the United States (“US GAAP”). The financial statements include the accounts of Anika Therapeutics, Inc. and its subsidiaries. Inter-company transactions and balances have been eliminated. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with US GAAP have been or omitted pursuant to SEC rules and regulations relating to interim financial statements. The December 31, 2021 balances reported herein were derived from the audited consolidated financial statements. In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to fairly state the condensed consolidated financial statements.
The accompanying unaudited condensed consolidated financial statements and related notes should be read in conjunction with the Company’s annual financial statements filed with its Annual Report on Form 10-K for the year ended December 31, 2021. The results of operations for the three-month period ended March 31, 2022 are not indicative of the results to be expected for the year ending December 31, 2022.
Segment Information
Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker as of March 31, 2022 was its President and Chief Executive Officer. Based on the criteria established by Accounting Standards Codification 280, Segment Reporting, the Company has one operating and reportable segment.
| 3. | Business Combinations |
Parcus Medical, LLC
On January 24, 2020, the Company completed the acquisition of Parcus Medical pursuant to the terms of the Agreement and Plan of Merger, dated as of January 4, 2020 (the “Parcus Medical Merger Agreement”). Parcus Medical is a sports medicine implant and instrumentation solutions provider focused on surgical repair and reconstruction of soft tissue.
Consideration Transferred
Pursuant to the Parcus Medical Merger Agreement, the Company acquired all outstanding equity of Parcus Medical for estimated total purchase consideration of $
| Cash consideration | $ | |||
| Deferred consideration | ||||
| Estimated fair value of contingent consideration | ||||
| Estimated total purchase consideration | $ |
Pursuant to the Parcus Medical Merger Agreement, contingent consideration represents additional payments that the Company may be required to make in the future which could total up to $
The fair value of contingent consideration related to net sales as of January 24, 2020, and at each reporting date, was determined based on a Monte Carlo simulation model in an option pricing framework, whereby a range of possible scenarios were simulated. The unobservable inputs used in the fair value determination are the net sales estimates, the weighted average cost of capital used for the Monte Carlo simulation, discount rate and the periods in which the milestones are expected to be achieved. The discount rates used as of March 31, 2022 ranged from
The deferred consideration related to certain purchase price holdbacks was resolved within one year of the acquisition date in accordance with the Parcus Merger. The liability for contingent consideration was included in current liabilities on the condensed consolidated balance sheets and will be remeasured at each reporting period until the contingency is resolved. As of March 31, 2022, the net sales related contingent consideration amounted to $
Acquisition-related costs were not included as a component of consideration transferred but were expensed in the periods in which the costs are incurred. The Company incurred approximately $
Fair Value of Net Assets Acquired
The estimate of fair value as of the acquisition date required the use of significant assumptions and estimates. Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates. These estimates were based on assumptions that the Company believes to be reasonable, however, actual results may differ from these estimates.
The allocation of purchase price to the identifiable assets acquired and liabilities assumed was based on estimates of fair value as of January 24, 2020, and was as follows:
| Recognized identifiable assets acquired and liabilities assumed: | ||||
| Cash and cash equivalents | $ | |||
| Accounts receivable | ||||
| Inventories | ||||
| Prepaid expenses and other current assets | ||||
| Property and equipment, net | ||||
| Right-of-use assets | ||||
| Intangible assets | ||||
| Accounts payable, accrued expenses and other current liabilities | ( | ) | ||
| Other long-term liabilities | ( | ) | ||
| Lease liabilities | ( | ) | ||
| Net assets acquired | ||||
| Goodwill | ||||
| Estimated total purchase consideration | $ |
Subsequent to the acquisition date, during the three-month period ended September 30, 2020, the Company completed the identification and confirmation of Parcus Medical inventory in the possession of its direct and distributor sales force, which resulted in an increase to the fair value of inventory of $
The acquired intangible assets based on estimates of fair value as of January 24, 2020 were as follows:
| Developed technology | $ | |||
| Trade name | ||||
| Customer relationships | ||||
| Total acquired intangible assets | $ |
The fair value of developed technology will be amortized over a useful life of
The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill and assigned to the newly established reporting unit for Parcus Medical and Arthrosurface. The goodwill was impaired in 2020 and there was no remaining goodwill as of December 31, 2020.
Arthrosurface, Inc.
On February 3, 2020, the Company completed the acquisition of Arthrosurface pursuant to the terms of the Agreement and Plan of Merger, dated as of January 4, 2020 (the “Arthrosurface Merger Agreement”). Arthrosurface is a joint preservation technology company specializing in less invasive, bone-preserving partial and total joint replacement solutions.
Consideration Transferred
Pursuant to the Arthrosurface Merger Agreement, the Company acquired all outstanding equity of Arthrosurface for estimated total purchase consideration of $
| Cash consideration | $ | |||
| Estimated fair value of contingent consideration | ||||
| Estimated total purchase consideration | $ |
Pursuant to the Arthrosurface Merger Agreement, the Company could be required to make future payments of up to $
Acquisition-related costs were not included as a component of consideration transferred but were expensed in the periods in which the costs are incurred. The Company incurred approximately $
Fair Value of Net Assets Acquired
The estimate of fair value required the use of significant assumptions and estimates. Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates. These estimates were based on assumptions that the Company believes to be reasonable. However, actual results may differ from these estimates.
The allocation of purchase price to the identifiable assets acquired and liabilities assumed was based on estimates of fair value as of February 3, 2020, as follows:
| Recognized identifiable assets acquired and liabilities assumed: | ||||
| Cash and cash equivalents | $ | |||
| Accounts receivable | ||||
| Inventories | ||||
| Prepaid expenses and other current assets | ||||
| Property, plant and equipment | ||||
| Other long-term assets | ||||
| Intangible assets | ||||
| Accounts payable, accrued expenses and other liabilities | ( | ) | ||
| Deferred tax liabilities | ( | ) | ||
| Net assets acquired | ||||
| Goodwill | ||||
| Estimated total purchase consideration | $ | |||
| Intangible assets acquired consist of: | ||||
| Developed technology | $ | |||
| Trade name | ||||
| Customer relationships | ||||
| IPR&D | ||||
| Total acquired intangible assets | $ |
The fair value of developed technology will be amortized over an estimated useful life of
The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill and assigned to the newly established reporting unit for Parcus Medical and Arthrosurface. The Goodwill was impaired in 2020 and there was no remaining goodwill as of December 31, 2020.
| 4. | Fair Value Measurements |
The Company has certain cash equivalents in money market funds that are classified within Level 1 of the fair value hierarchy and are valued based on quoted prices in active markets. For cash, accounts receivables, accounts payable, and accrued interest, the carrying amounts approximate fair value, because of the short maturity of these instruments, and therefore fair value information is not included in the table below. Contingent consideration related to the previously described business combinations are classified within Level 3 of the fair value hierarchy as the determination of fair value uses considerable judgement and represents the Company’s best estimate of an amount that could be realized in a market exchange for the asset or liability. There were no transfers between fair value levels during the three-month periods ended March 31, 2022 or 2021. See Note 3, Business Combinations for additional discussion of contingent consideration as of March 31, 2022.
The classification of the Company’s cash equivalents and other current liabilities within the fair value hierarchy was as follows:
| Active Markets | ||||||||||||||||||||
| for Identical Assets | Significant Other | Significant | ||||||||||||||||||
| (Unadjusted) | Observable Inputs | Unobservable Inputs | ||||||||||||||||||
| March 31, 2022 | (Level 1) | (Level 2) | (Level 3) | Amortized Cost | ||||||||||||||||
| Cash equivalents: | ||||||||||||||||||||
| Money Market Funds | $ | $ | $ | $ | $ | |||||||||||||||
| Other current liabilities: | ||||||||||||||||||||
| Contingent Consideration - Short Term | $ | $ | $ | $ | $ | |||||||||||||||
| Active Markets | ||||||||||||||||||||
| for Identical Assets | Significant Other | Significant | ||||||||||||||||||
| (Unadjusted) | Observable Inputs | Unobservable Inputs | ||||||||||||||||||
| December 31, 2021 | (Level 1) | (Level 2) | (Level 3) | Amortized Cost | ||||||||||||||||
| Cash equivalents: | ||||||||||||||||||||
| Money Market Funds | $ | $ | $ | $ | $ | |||||||||||||||
| Other current liabilities: | ||||||||||||||||||||
| Contingent Consideration - Short Term | $ | $ | $ | $ | $ | |||||||||||||||
The following table provides a rollforward of the contingent consideration related to business acquisitions discussed in Note 3, Business Combinations.
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Balance, beginning | $ | $ | ||||||
| Change in fair value | ( | ) | ||||||
| Balance, ending | $ | $ | ||||||
| 5. | Inventories |
Inventories consist of the following:
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Raw materials | $ | $ | ||||||
| Work-in-process | ||||||||
| Finished goods | ||||||||
| Total | $ | $ | ||||||
| Inventories | $ | $ | ||||||
| Other long-term assets | ||||||||
| Total | $ | $ | ||||||
Inventories are stated net of inventory reserves of approximately $
| 6. | Intangible Assets |
Intangible assets as of March 31, 2022 and December 31, 2021 consisted of the following:
| Three Months Ended March 31, 2022 | December 31, 2021 | |||||||||||||||||||||||
| Gross | Less: Accumulated | Less: | Net Book | Net Book | Weighted | |||||||||||||||||||
| Developed technology | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||
| IPR&D | ( | ) | Indefinite | |||||||||||||||||||||
| Customer relationships | ( | ) | ||||||||||||||||||||||
| Distributor relationships | ( | ) | ( | ) | ||||||||||||||||||||
| Patents | ( | ) | ( | ) | ||||||||||||||||||||
| Tradenames | ( | ) | ||||||||||||||||||||||
| Total | $ | $ | ( | ) | $ | ( | ) | $ | $ | |||||||||||||||
The aggregate amortization expense related to intangible assets was $
| 7. | Goodwill |
The Company assesses goodwill for impairment annually, or, under certain circumstances, more frequently, such as when events or changes in circumstances indicate there may be impairment.
Changes in the carrying value of goodwill for the three-month ended March 31, 2022 were as follows:
| Three Month Ended March 31, 2022 | ||||
| Balance, beginning | $ | |||
| Effect of foreign currency adjustments | ( | ) | ||
| Balance, ending | $ | |||
| 8. | Accrued Expenses |
Accrued expenses consist of the following:
| March 31, | December 31, | |||||||
| Compensation and related expenses | $ | $ | ||||||
| Professional fees | ||||||||
| Operating lease liability - current | ||||||||
| Clinical trial costs | ||||||||
| Financing lease liability - current | ||||||||
| Other | ||||||||
| Total | $ | $ | ||||||
| 9. | Commitments and Contingencies |
In certain of its contracts, the Company warrants to its customers that the products it manufactures conform to the product specifications as in effect at the time of delivery of the specific product. The Company may also warrant that the products it manufactures do not infringe, violate, or breach any U.S. or international patent or intellectual property right, trade secret, or other proprietary information of any third party. On occasion, the Company contractually indemnifies its customers against any and all losses arising out of, or in any way connected with, any claim or claims of breach of its warranties or any actual or alleged defect in any product caused by the negligent acts or omissions of the Company. The Company maintains a products liability insurance policy that limits its exposure to these risks. Based on the Company’s historical activity, in combination with its liability insurance coverage, the Company believes the estimated fair value of these indemnification agreements is immaterial. The Company had
The Company is also involved from time-to-time in various legal proceedings arising in the normal course of business. Although the outcomes of these legal proceedings are inherently difficult to predict, the Company does not expect the resolution of these occasional legal proceedings to have a material adverse effect on its financial position, results of operations, or cash flow.
On October 21, 2021, the Company received notice that the former unitholders of Parcus Medical had filed a request for arbitration regarding the earnout provisions agreed to in the Parcus Medical Merger Agreement. The Company has engaged in the arbitration process and does not anticipate a resolution during 2022. The Company is unable to estimate the potential liability with respect to this matter at this time. There are numerous factors that make it difficult to estimate reasonably possible loss or range of loss at this stage of the matter, including the significant number of legal and factual issues still to be resolved in the arbitration process. The Company intends to vigorously defend against the claims and believes it has strong defenses to the claims asserted.
| 10. | Revenue and Geographic Information |
Revenue by product family was as follows:
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| OA Pain Management | $ | $ | ||||||
| Joint Preservation and Restoration | ||||||||
| Non-Orthopedic | ||||||||
| Total | $ | $ | ||||||
Revenue from the Company’s sole significant customer, DePuy Synthes Mitek Sports Medicine, part of the Johnson & Johnson Medical Companies, as a percentage of the Company’s total revenue was
The Company receives payments from its customers based on billing schedules established in each contract. Up-front payments and fees are recorded as deferred revenue upon receipt or when due, and may require deferral of revenue recognition to a future period until the Company performs its obligations under these arrangements. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional. Deferred revenue was $
Total revenue by geographic location based on the location of the customer in total and as a percentage of total revenue were as follows:
| Three Months Ended March 31, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| Percentage of | Percentage of | |||||||||||||||
| Revenue | Revenue | Revenue | Revenue | |||||||||||||
| Geographic Location: | ||||||||||||||||
| United States | $ | % | $ | % | ||||||||||||
| Europe | % | % | ||||||||||||||
| Other | % | % | ||||||||||||||
| Total | $ | % | $ | % | ||||||||||||
| 11. | Equity Incentive Plan |
Equity Incentive Plan
The Anika Therapeutics, Inc. 2017 Omnibus Incentive Plan (the “2017 Plan”) was approved by the Company’s stockholders on June 13, 2017 and subsequently amended on June 18, 2019, June 16, 2020 and June 16, 2021. The 2017 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights (“SARs”), restricted stock awards, performance restricted stock units (“PSUs”), restricted stock units (“RSUs”), total shareholder return options (“TSRs”) and performance options that may be settled in cash, stock, or other property. In accordance with the 2017 Plan approved by the Company’s stockholders, including the amendments thereto, each share award other than stock options or SARs will reduce the number of total shares available for grant by
The Anika Therapeutics, Inc. 2021 Inducement Plan (the “Inducement Plan”) was adopted by the Company’s board of directors on November 4, 2021. The Inducement Plan reserves
The Company may satisfy the awards upon exercise, or upon fulfillment of the vesting requirements for other equity-based awards, with either newly issued shares or shares reacquired by the Company. Stock-based awards are granted with an exercise price equal to or greater than the market price of the Company’s stock on the date of grant. Awards contain service conditions or service and performance conditions, and they generally become exercisable ratably over years with a maximum contractual term of years.
The Company presents the expenses related to stock-based compensation awards in the same expense line items as cash compensation paid to each of its employees as follows (in thousands):
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Cost of revenue | $ | $ | ||||||
| Research and development | ||||||||
| Selling, general and administrative | ||||||||
| Total stock-based compensation expense | $ | $ | ||||||
Stock Options
Stock options are granted to purchase common shares at prices that are equal to the fair market value of the shares on the date the options are granted or, in the case of premium options, are granted with an exercise price at
The following summarizes the activity under the Company’s stock option plans:
| Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in thousands) | |||||||||||||
| Outstanding as of December 31, 2021 | $ | |||||||||||||||
| Granted | $ | |||||||||||||||
| Exercised | ( | ) | $ | $ | ||||||||||||
| Forfeited and canceled | ( | ) | $ | |||||||||||||
| Outstanding as of March 31, 2022 | $ | $ | ||||||||||||||
| Vested, March 31, 2022 | $ | $ | ||||||||||||||
| Vested or expected to vest, March 31, 2022 | $ | $ | ||||||||||||||
The aggregate intrinsic value of options exercised for the three-month period ended March 31, 2021 was immaterial.
The Company granted
The Company uses the Black-Scholes pricing model to determine the fair value of options granted. The calculation of the fair value of stock options is affected by the stock price on the grant date, the expected volatility of the Company’s common stock over the expected term of the award, the expected life of the award, the risk-free interest rate and the dividend yield. The Company estimates the fair value of TSRs using Monte-Carlo simulation model where the expected volatility assumption is evaluated over
The assumptions used in the Black-Scholes pricing model for options granted during the months ended March 31, 2022 and 2021, along with the weighted-average grant-date fair values, were as follows:
| Three Months Ended | ||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||
| Risk free interest rate | % | - | % | % | - | % | ||||||||||||||||||
| Expected volatility | % | - | % | % | - | % | ||||||||||||||||||
| Expected life (years) | ||||||||||||||||||||||||
| Expected dividend yield | % | % | ||||||||||||||||||||||
| Fair value per option | $ | $ | ||||||||||||||||||||||
As of March 31, 2022, there was $
Restricted Stock Units
RSUs generally vest in equal annual installments over a -year period. The grant-date fair value of RSUs is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. The Company determines the fair value of RSUs based on the closing price of its common stock on the date of grant.
RSU activity for the three-month period ended March 31, 2022 was as follows:
| Number of Shares | Weighted Average Fair Value | |||||||
| Outstanding as of December 31, 2021 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( | ) | $ | |||||
| Forfeited and cancelled | ( | ) | $ | |||||
| Outstanding as of March 31, 2022 | $ | |||||||
The weighted-average grant-date fair value per share of RSUs granted was $
As of March 31, 2022, there was $
Performance Stock Units
PSU activity for the three-month ended March 31, 2022 was as follows:
| Number of Shares | Weighted Average Fair Value | |||||||
| Outstanding as of December 31, 2021 | $ | |||||||
| Performance factor adjustment | $ | |||||||
| Vested | ( | ) | $ | |||||
| Forfeited and cancelled | ( | ) | $ | |||||
| Outstanding as of March 31, 2022 | $ | |||||||
The total fair value of PSUs vested was $
Employee Stock Purchase Plan
On March 17, 2021, the Company adopted the 2021 Employee Stock Purchase Plan (“ESPP”). The ESPP is authorized to issue up to
| 2022 | ||||
| Risk-free interest rate | % | |||
| Expected stock price volatility | % | |||
| Expected life of options (in years) | ||||
| Expected dividend yield | % | |||
| 12. | Income Taxes |
The Company recorded an income tax benefit of $
The Company files income tax returns in the United States on a federal basis, in certain U.S. states, and in certain foreign jurisdictions. The associated tax filings remain subject to examination by applicable tax authorities for a certain length of time following the tax year to which those filings relate, which varies by jurisdiction.
In connection with the preparation of the financial statements, the Company assessed whether it is more likely than that it will be able to utilize, in future periods, the Company’s deferred income tax assets to offset future taxable income and tax liabilities. The Company concluded that it is more likely than not that its deferred tax assets will be realized, after evaluation and consideration of both the positive and negative evidence. On December 31, 2021, the Company released a valuation allowance that had been previously recorded related to its net deferred tax assets in Italy in the amount of $
| 13. | Earnings Per Share (“EPS”) |
Basic EPS is calculated by dividing net income (loss) by the weighted average number of shares outstanding during the period. Unvested restricted shares, although legally issued and outstanding, are not considered outstanding for purposes of calculating basic EPS. Diluted EPS is calculated by dividing net income by the weighted average number of shares outstanding plus the dilutive effect, if any, of outstanding share-based awards using the treasury stock method
The following table provides share information used in the calculation of the Company's basic and diluted earnings per share (in thousands):
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Shares used in the calculation of basic EPS | ||||||||
| Effect of dilutive securities: | ||||||||
| Share based awards | ||||||||
| Diluted shares used in the calculation of EPS | ||||||||
The Company had a net loss during the three-month ended March 31, 2022, and therefore all potential common shares would have been anti-dilutive and accordingly were excluded from the computation of diluted EPS. Stock options of
| MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
You should read the following discussion in conjunction with our financial statements and related notes appearing elsewhere in this report and our audited consolidated financial statements and related notes contained in our Annual Report on Form 10-K for the year ended December 31, 2021, or our 2021 Form 10-K. In addition to historical information, this report contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 concerning our business, consolidated financial condition, and results of operations. The Securities and Exchange Commission, or the SEC, encourages companies to disclose forward-looking statements so that investors can better understand a company’s prospects and make informed investment decisions. Forward-looking statements are subject to risks and uncertainties, many of which are outside our control, which could cause actual results to differ materially from these statements. Therefore, you should not rely on any of these forward-looking statements. Forward-looking statements can be identified by such words as "will," "likely," "may," "believe," "expect," "anticipate," "intend," "seek," "designed," "develop," "would," "future," "can," "could," “estimate,” “potential,” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters. All statements other than statements of historical facts included in this report regarding our strategies, prospects, financial condition, operations, costs, plans, and objectives are forward-looking statements. Examples of forward-looking statements include, among others, statements regarding the effect of COVID-19 and related impacts on our business, operations, and financial results, expected future operating results, expectations regarding the timing and receipt of regulatory results, anticipated levels of capital expenditures, and expectations of the effect on our financial condition of claims, litigation, and governmental and regulatory proceedings.
Please also refer to those factors described in “Part I, Item 1A. Risk Factors” of our 2021 Form 10-K for important factors that we believe could cause actual results to differ materially from those in our forward-looking statements. Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.
Management Overview
We are a global joint preservation company that creates and delivers meaningful advancements in early intervention orthopedic care. Based on our collaborations with clinicians to understand what they need most to treat their patients, we develop minimally invasive products that restore active living for people around the world. We are committed to leading in high opportunity spaces within orthopedics, including osteoarthritis, or OA, pain management, regenerative solutions, sports medicine soft tissue repair and bone preserving joint technologies.
We have thirty years of global expertise developing, manufacturing and commercializing products based on and/or enhanced with our hyaluronic acid, or HA, technology platform. HA is a naturally occurring polymer found throughout the body that is vital for proper joint health and tissue function. Our proprietary technologies for modifying the HA molecule allow product properties to be tailored specifically to multiple uses, including enabling longer residence time to support OA pain management and creating a solid form of HA called Hyaff, which is a platform utilized in our regenerative solutions portfolio.
In early 2020, we expanded our overall technology platform, product portfolio, and significantly enhanced and accelerated our commercial infrastructure, especially in the United States, through our strategic acquisitions of Parcus Medical, a sports medicine and instrumentation solutions provider focused on soft tissue repair, and Arthrosurface, a company specializing in bone preserving partial and total joint replacement solutions. Through these acquisitions, we have transformed our company. We expanded our addressable market from the over $1 billion global OA pain management market to the over $8 billion global joint preservation market (which includes the faster growing sports medicine soft tissue repair and extremities segments), advanced our commercial capabilities, instituted systems and processes to support our transformation, and expanded our product pipeline and research and development expertise in our target markets.
As we look towards the future, our business is positioned to capture value within our target market of joint preservation. We believe our success will be driven by our:
| ● |
Decades of experience in HA-based regenerative solutions and early intervention orthopedics combined under new seasoned leadership with a strong financial foundation for future investment in meaningful solutions for our customers and their patients; |
| ● |
Robust network of stakeholders in our target markets to identify evolving unmet patient treatment needs; |
| ● |
Prioritized investment in differentiated pipeline of regenerative solutions, bone preserving implants and sports medicine soft tissue repair products; |
| ● |
Leveraging our global commercial expertise to drive growth across the portfolio, with an intentional and increased focus on the ambulatory surgery centers site of care in the United States; |