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Anika Therapeutics, Inc. (ANIK) SEC Filing 10-Q Quarterly Report for the period ending Thursday, March 31, 2022

Anika Therapeutics, Inc.

CIK: 898437 Ticker: ANIK

EXHIBIT 99.1

Anika Reports Fourth Quarter and Year-End 2021 Financial Results

Fourth quarter revenue growth of 10% year-over-year despite COVID headwinds
Full-year 2021 revenue up 13% driven by strong growth in Joint Preservation and Restoration

BEDFORD, Mass., March 08, 2022 (GLOBE NEWSWIRE) --

Anika Therapeutics, Inc. (NASDAQ: ANIK), a global joint preservation company in early intervention orthopedics, today reported financial results for its fourth quarter and full year ended December 31, 2021.

Fourth Quarter 2021 Financial Summary

  • Revenue in the fourth quarter of 2021 was $35.8 million, 10% higher than prior year, compared with $32.7 million in the fourth quarter of 2020, due primarily to favorable order timing in OA Pain Management despite COVID headwinds
    • OA Pain Management1 revenue of $19.7 million, up 17%
    • Joint Preservation and Restoration revenue of $13.3 million, up 1%
    • Non-Orthopedic1 revenue of $2.8 million, up 5%
  • Gross margin was 51%, reflecting $1.8 million of acquisition-related expenses and $0.4 million of product rationalization charges. Adjusted gross margin2, excluding these charges, was 57%, primarily reflecting unfavorable volume, supply chain and staffing challenges, and related reserves.
  • Net loss for the fourth quarter was ($5.8) million, or ($0.40) per diluted share, compared to net loss of ($15.7) million, or ($1.10) per diluted share, in the prior year.
  • Adjusted net loss2 for the quarter was ($3.2) million, or ($0.23) per diluted share, compared to adjusted net income of $1.7 million, or $0.12 per diluted share, in the prior year.
  • Adjusted EBITDA2 loss was ($0.2) million, compared to adjusted EBITDA2 of $4.0 million in the fourth quarter of 2020.
  • Operating cash flow was $5.0 million; cash balance was $94.4 million.

Full Year 2021 Financial Summary

  • Revenue for fiscal 2021 increased 13% to $147.8 million, compared with $130.5 million in 2020 and above the guidance range of 9-11%, driven by growth in Joint Preservation and Restoration and continued recovery from the initial COVID impact in OA Pain Management
    • Joint Preservation and Restoration of $48.6 million, up 23%
    • OA Pain Management1 revenue of $89.5 million, up 8%
    • Non-Orthopedic1 revenue of $9.7 million, up 20% on last-time buys of legacy products
  • Gross margin for the year was 56%, reflecting $12.7 million of acquisition related expenses and $2.4 million of product rationalization charges. Adjusted gross margin2, excluding these charges, was 66%, primarily reflecting unfavorable volume, due in part to supply chain and staffing challenges.
  • Net income for the fiscal year was $4.1 million, or $0.28 per diluted share, compared to net loss of ($24.0) million, or ($1.69) per diluted share, in 2020. Net income was favorably impacted from a reduction in the fair value of contingent consideration of $17.0 million, net of tax, or $1.16 per diluted share. Adjusted net loss2 for the year was ($0.4) million, or ($0.02) per diluted share, compared to adjusted net income of $10.1 million, or $0.71 per diluted share in 2020.
  • Adjusted EBITDA2 for the fiscal year was $16.4 million, compared to $23.9 million in 2020
  • Full year operating cash flow was $9.0 million

1 OA Pain Management was previously referred to as Joint Pain Management; Non-Orthopedic was previously referred to as Other.
2 See description of non-GAAP financial information contained in this release.

“We were pleased with how we ended 2021 given the significant and unpredictable COVID-related market challenges.” Cheryl R. Blanchard, Ph.D., Anika’s President and CEO, commented. “With double-digit revenue growth in the fourth quarter, we ended the year with 13% revenue growth over fiscal year 2020, above our expectations. Even with the impact of the COVID variants during 2021, our Joint Preservation and Restoration business delivered 23% revenue growth for the year and our OA Pain Management business experienced above-market performance. We made significant progress on our operational transformation as we establish the foundation for our multi-year growth strategy.”

Dr. Blanchard continued, “Given the near-term realities of the ongoing global COVID-related environment, including reduced access to elective procedures and supply chain and staffing challenges, we expect market headwinds to continue throughout 2022. At the same time, we are focused on the large and growing market opportunity in front of us and executing on our strategy to leverage our core strengths in early intervention orthopedics to drive accelerated revenue and profitability over the coming years.”

Fiscal 2021 Business Highlights

  • Completed enrollment in Q4 2021 of the U.S. pilot clinical trial of Cingal, Anika’s combination viscosupplement / steroid product for OA pain management.
  • Market launch of Tactoset Injectable Bone Substitute for augmentation of suture anchor fixation in Q4 2021; this new indication allows surgeons to use Tactoset for hardware fixation due to insufficient bone quality, increasing pull-out strength of suture anchors.
  • Launched a focused effort to advance its ESG strategy in Q4 2021 by completing an in-depth “Materiality Assessment” validating key environmental, social and governance issues of greatest importance to stakeholders.
  • Market launch in Q3 2021 of WristMotion Total Wrist Arthroplasty (TWA) system focused on alleviating pain and restoring full range of motion for patients with arthritic wrist joints; WristMotion TWA, along with WristMotion Hemiarthroplasty System, provide surgeons with multiple innovative and bone preserving treatment options for different stages and severities of wrist arthritis.
  • Received 510(k) clearance in Q3 2021 for a reverse shoulder implant system; this clearance sets the stage for the development and expansion of the Company’s shoulder implant portfolio targeted for the ASC.
  • Rolled out Anika’s ERP system, SAP, to legacy Parcus and Arthrosurface operations in Q3 2021, providing additional operational capabilities in support of the Company’s growth strategy.
  • Key team additions in 2021, including Kevin Stone as VP and GM of Sports Medicine, Anne Nunes as VP of Operations and Sheryl Conley as new independent director, each bringing deep knowledge and decades of orthopedic industry experience, as well as the addition in early 2022 of Lisa Funiciello as VP of Human Resources.

Fiscal 2022 Outlook

In light of the ongoing global COVID-related environment, and its expected impact on elective procedures throughout fiscal 2022, the Company expects its overall revenue for fiscal year 2022 to be up low to mid-single digit percent compared with 2021. Revenue ranges by product family are:

  • Joint Preservation and Restoration up mid-single to low-double digit percent
  • OA Pain Management up low-single digit percent
  • Non-Orthopedic revenue down approximately 30% due largely to legacy product rationalization  

There remains volatility and uncertainty in the global market associated with the direct and indirect impacts of the COVID pandemic. The Company’s outlook for fiscal 2022 is subject to the changing dynamics associated with COVID including additional variants, vaccine distribution, staffing shortages, supply chain disruption, and other related developments.

Conference Call Information

Anika’s management will hold a conference call and webcast to discuss its financial results and business highlights today, Tuesday March 8, 2022 at 5:00 pm ET. The conference call can be accessed by dialing 1-800-437-2398 (toll-free domestic) or 1-856-344-9206 (international) and providing the conference ID number 1077520. A live audio webcast will be available in the Investor Relations section of Anika’s website, www.anika.com. A slide presentation with highlights from the conference call will be available in the Investor Relations section of the Anika website. A replay of the webcast will be available on Anika’s website approximately two hours after the completion of the event.

Non-GAAP Financial Information

Non-GAAP financial measures should be considered supplemental to, and not a substitute for, the Company’s reported financial results prepared in accordance with GAAP. Furthermore, the Company’s definition of non-GAAP measures may differ from similarly titled measures used by others. Because non-GAAP financial measures exclude the effect of items that will increase or decrease the Company’s reported results of operations, Anika strongly encourages investors to review the Company’s consolidated financial statements and publicly filed reports in their entirety. The Company presents these non-GAAP financial measures because it uses them as supplemental measures in internally assessing the Company’s operating performance, and, in the case of Adjusted EBITDA, it is set as a key performance metric to determine executive compensation. The Company also recognizes that these non-GAAP measures are commonly used in determining business performance more broadly and believes that they are helpful to investors, securities analysts, and other interested parties as a measure of comparative operating performance from period to period.

Adjusted Gross Margin

In Q4 2021, adjusted gross margin is defined by the Company as adjusted gross profit divided by total revenue. The Company defines adjusted gross profit as GAAP gross profit excluding amortization of certain acquired assets, the impact of inventory fair-value step up associated with our recent acquisitions and non-cash product rationalization charges.

Adjusted EBITDA

In Q4 2021, adjusted EBITDA is defined by the Company as GAAP net income (loss) excluding depreciation and amortization, interest and other income (expense), income taxes, stock-based compensation expense, acquisition related expenses, non-cash charges related to goodwill impairment and changes in the fair value of contingent consideration associated with the Company’s recent acquisitions as a result of the COVID pandemic, and non-cash product rationalization charges.

Adjusted Net Income (Loss) and Adjusted EPS

Adjusted net income (loss) is defined by the Company as GAAP net income excluding acquisition related expenses, inclusive of the impact of purchase accounting, on a tax effected basis, and the non-cash product rationalization charges. In the context of adjusted net income (loss), the impact of purchase accounting includes amortization of inventory step up and intangible assets recorded as part of purchase accounting for acquisition transactions. The amortized assets contribute to revenue generation, and the amortization of such assets will recur in future periods until such assets are fully amortized. These assets include the estimated fair value of certain identified assets acquired in acquisitions in 2020 and beyond, including in-process research and development, developed technology, customer relationships and acquired tradenames. As a result of COVID, the Company is also specifically excluding the impacts of goodwill impairment charges and changes in the fair value of contingent consideration associated with the acquisition transactions, each on a tax effected basis. Adjusted diluted EPS is defined by the Company as GAAP diluted EPS excluding acquisition related expenses and the impact of purchase accounting, each on a tax-adjusted per share basis, and non-cash product rationalization charges. Again, the Company is also specifically excluding the impacts of goodwill impairment charges and changes in the fair value of contingent consideration associated with recent acquisition transactions, each on a tax effected basis if applicable.

A reconciliation of adjusted gross profit to gross profit (and the associated adjusted gross margin calculation), adjusted EBITDA to net income (loss), adjusted net income (loss) to net income (loss) and adjusted diluted EPS to diluted EPS, the most directly comparable financial measures calculated and presented in accordance with GAAP, is shown in the tables at the end of this release.

Forward-Looking Statements

This press release may contain forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, concerning the Company's expectations, anticipations, intentions, beliefs or strategies regarding the future which are not statements of historical fact, including those statements in the second paragraph of the quotation from Dr. Blanchard, and in the section captioned “Fiscal 2022 Outlook” related to potential future revenues and the impacts of COVID. These statements are based upon the current beliefs and expectations of the Company's management and are subject to significant risks, uncertainties, and other factors. The Company's actual results could differ materially from any anticipated future results, performance, or achievements described in the forward-looking statements as a result of a number of factors including, but not limited to, (i) the Company's ability to successfully commence and/or complete clinical trials of its products on a timely basis or at all; (ii) the Company's ability to obtain pre-clinical or clinical data to support domestic and international pre-market approval applications, 510(k) applications, or new drug applications, or to timely file and receive FDA or other regulatory approvals or clearances of its products; (iii) that such approvals will not be obtained in a timely manner or without the need for additional clinical trials, other testing or regulatory submissions, as applicable; (iv) the Company's research and product development efforts and their relative success, including whether we have any meaningful sales of any new products resulting from such efforts; (v) the cost effectiveness and efficiency of the Company's clinical studies, manufacturing operations, and production planning; (vi) the strength of the economies in which the Company operates or will be operating, as well as the political stability of any of those geographic areas; (vii) future determinations by the Company to allocate resources to products and in directions not presently contemplated; (viii) the Company's ability to successfully commercialize its products, in the U.S. and abroad; (ix) the Company's ability to provide an adequate and timely supply of its products to its customers; and (x) the Company's ability to achieve its growth targets. Additional factors and risks are described in the Company's periodic reports filed with the Securities and Exchange Commission, and they are available on the SEC's website at www.sec.gov. Forward-looking statements are made based on information available to the Company on the date of this press release, and the Company assumes no obligation to update the information contained in this press release.

About Anika
Anika Therapeutics, Inc. (NASDAQ: ANIK), is a global joint preservation company that creates and delivers meaningful advancements in early intervention orthopedic care. Leveraging our core expertise in hyaluronic acid and implant solutions, we partner with clinicians to provide minimally invasive products that restore active living for people around the world. Our focus is on high opportunity spaces within orthopedics, including osteoarthritis pain management, regenerative solutions, sports medicine soft tissue repair and bone preserving joint technologies, and our products are efficiently delivered in key sites of care, including ambulatory surgery centers. Anika’s global operations are headquartered outside of Boston, Massachusetts. For more information about Anika, please visit www.anika.com.

ANIKA, ANIKA THERAPEUTICS, CINGAL, WRISTMOTION and the Anika logo are registered trademarks of Anika Therapeutics, Inc. or its subsidiaries.

For Investor Inquiries:
Anika Therapeutics, Inc.
Mark Namaroff, 781-457-9287
Vice President, Investor Relations, ESG and Corporate Communications
investorrelations@anika.com


Anika Therapeutics, Inc. and Subsidiaries
Consolidated Statements of Operations

(in thousands, except per share data)

  For the Three Months Ended December 31,
  For the Years Ended December 31,
  2021  2020  2021  2020 
Revenue $                        35,821  $                 32,688  $          147,794  $               130,457 
Cost of Revenue 17,687  15,944  64,851  61,431 
Gross Profit 18,134  16,744  82,943  69,026 
             
Operating expenses:            
Research and development 6,000  7,632  27,327  23,431 
Selling, general and administrative 20,432  15,179  74,096  60,063 
Goodwill impairment -  24,376  -  42,520 
Change in fair value of contingent consideration 825  (12,490) (21,095) (28,666)
Total operating expenses 27,257  34,697  80,328  97,348 
Income (loss) from operations (9,123) (17,953) 2,615  (28,322)
Interest and other expense, net (47) (184) (188) (302)
Income (loss) before income taxes (9,170) (18,137) 2,427  (28,624)
Income taxes (3,377) (2,481) (1,707) (4,642)
Net income (loss) $                         (5,793) $                (15,656) $              4,134  $                (23,982)
             
Net income (loss) per share:            
Basic $                        (0.40) $                     (1.10) $                 0.29  $                      (1.69)
Diluted $                          (0.40) $                     (1.10) $                 0.28  $                      (1.69)
             
Weighted average common shares outstanding:            
  Basic 14,438  14,275  14,401                       14,222 
  Diluted 14,438  14,275  14,634                       14,222 
             
             

Anika Therapeutics, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except per share data)

 December 31, December 31,
ASSETS 2021   2020 
Current assets:   
Cash, cash equivalents and investments$94,386  $98,318 
Accounts receivable, net 29,843   24,102 
Inventories, net 36,010   46,209 
Prepaid expenses and other current assets 8,289   8,754 
Total current assets 168,528   177,383 
Property and equipment, net 47,602   50,613 
Right-of-use assets 20,957   22,619 
Other long-term assets 20,285   15,420 
Intangible assets, net 82,382   91,157 
Goodwill 7,781   8,413 
Total assets$347,535  $365,605 
    
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities:   
Accounts payable$7,633  $8,984 
Accrued expenses and other current liabilities 17,847   14,793 
Contingent consideration 4,315   13,090 
Total current liabilities 29,795   36,867 
Other long-term liabilities 1,258   1,244 
Contingent consideration -   22,320 
Deferred tax liability 10,157   11,895 
Lease liabilities 19,240   20,879 
    
Stockholders’ equity:   
Common stock, $0.01 par value 144   143 
Additional paid-in-capital 67,081   55,355 
Accumulated other comprehensive loss (5,718)  (4,542)
Retained earnings 225,578   221,444 
Total stockholders’ equity 287,085   272,400 
Total liabilities and stockholders’ equity$347,535  $365,605 
    


Anika Therapeutics, Inc. and Subsidiaries   
Reconciliation of GAAP Gross Profit to Adjusted Gross Profit    
(per share data)   
(unaudited)   
       
       
  For the Three Months Ended December 31, For the Years Ended December 31,
      in thousands 2021  2020   2021  2020 
Gross Profit $18,134 $16,744  $82,943 $69,026 
Product rationalization related charges  382  -   2,445  1,920 
Acquisition related intangible asset amortization  1,562  1,562   6,248  5,844 
Acquisition related inventory step up  221  3,686   6,465  11,082 
Adjusted Gross Profit $20,299 $21,992  $98,101 $87,872 
       
Adjusted Gross Margin  57% 67%  66% 67%
       
       
Anika Therapeutics, Inc. and Subsidiaries   
Reconciliation of GAAP Net Income to Adjusted EBITDA   
(in thousands, except per share data)   
(unaudited)   
       
  For the Three Months Ended December 31, For the Years Ended December 31,
      in thousands, except per share data  2021  2020   2021  2020 
Net income (loss) $(5,793)$(15,656) $4,134 $(23,982)
Interest and other expense, net  47  184   188  302 
Provision (benefit) for income taxes  (3,377) (2,481)  (1,707) (4,642)
Depreciation and amortization  1,943  1,714   7,169  6,844 
Share-based compensation  3,166  1,433   11,085  5,386 
Product rationalization  382  -   2,445  2,892 
IPR&D impairment  600  1,414   600  1,414 
Acquisition related expenses  -  -   -  4,168 
Acquisition related intangible asset amortization  1,787  1,789   7,148  6,620 
Acquisition related inventory step up  221  3,697   6,465  11,082 
Goodwill impairment  -  24,376   -  42,520 
Change in fair value of contingent consideration  825  (12,490)  (21,095) (28,666)
Adjusted EBITDA (loss) $(199)$3,980  $16,432 $23,938 
       
       
Anika Therapeutics, Inc. and Subsidiaries   
Reconciliation of GAAP Net Income to Adjusted Net Income   
(in thousands, except per share data)   
(unaudited)   
       
  For the Three Months Ended December 31, For the Years Ended December 31,
      in thousands, except per share data  2021  2020   2021  2020 
Net income (loss) $(5,793)$(15,656) $4,134 $(23,982)
Product rationalization, tax effected  311  -   1,830  2,376 
IPR&D impairment, tax effected  448  1,414   448  1,414 
Acquisition related expenses, tax effected  -  -   -  3,146 
Acquisition related intangible asset amortization, tax effected  1,488  1,304   5,386  4,997 
Acquisition related inventory step up, tax effected  184  2,696   4,810  8,365 
Goodwill impairment, tax effected  -  21,929   -  37,702 
Change in fair value of contingent consideration, tax effected  173  (9,999)  (16,979) (23,872)
Adjusted net (loss) income $(3,189)$1,687  $(371)$10,146 


Anika Therapeutics, Inc. and Subsidiaries   
Reconciliation of GAAP Diluted Earnings Per Share to Adjusted Diluted Earnings Per Share   
(per share data)   
(unaudited)   
       
  For the Three Months Ended December 31, For the Years Ended December 31,
      in thousands, except per share data  2021  2020   2021  2020 
Diluted earnings (loss) per share (EPS) $(0.40)$(1.10) $0.28 $(1.69)
Product rationalization, tax effected  0.02  -   0.13  0.17 
IPR&D impairment, tax effected  0.03  0.10   0.03  0.10 
Acquisition related expenses per share, tax effected  -  -   -  0.22 
Acquisition related intangible asset amortization, tax effected  0.10  0.09   0.37  0.35 
Acquisition related inventory step up, tax effected  0.01  0.19   0.33  0.59 
Goodwill impairment, tax effected  -  1.54   -  2.65 
Change in fair value of contingent consideration, tax effected  0.01  (0.70)  (1.16) (1.68)
Adjusted diluted earnings (loss) per share (EPS) $(0.23)$0.12  $(0.02)$0.71 


Revenue by Product Family
(in thousands, except percentages)
(unaudited)
          
 For the Three Months Ended December 31, For the Years Ended December 31,
      in thousands 2021 % of Total 2020 % of Total  2021 % of Total 2020 % of Total
OA Pain Management$19,713 55%$16,861 52% $89,503 61%$83,029 64%
Joint Preservation and Restoration 13,292 37% 13,135 40%  48,588 33% 39,368 30%
Non-Orthopedic 2,816 8% 2,692 8%  9,703 6% 8,060 6%
Revenue$35,821 100%$32,688 100% $147,794 100%$130,457 100%


The following information was filed by Anika Therapeutics, Inc. (ANIK) on Tuesday, March 8, 2022 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

  
 For the quarterly period ended March 31, 2022
  
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 001-14027

 

Anika Therapeutics, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

(State or Other Jurisdiction of

Incorporation or Organization)

04-3145961

(I.R.S. Employer Identification No.)

 

 

32 Wiggins Avenue, Bedford, Massachusetts 01730

(Address of Principal Executive Offices) (Zip Code)

 

(781) 457-9000

(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

   

Common Stock, par value $0.01 per share

ANIK

NASDAQ Global Select Market

 

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. Yes ☒  No ☐

 

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). Yes ☒ No ☐

 

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  ☐

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   No  ☒

 

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

As of April 28, 2022, there were 14,543,860 outstanding shares of Common Stock, par value $0.01 per share.

 

 

 

 

 

 

 

 

 

 

ANIKA THERAPEUTICS, INC.

TABLE OF CONTENTS

 

   

Page

Part I

Financial Information

 

Item 1.

Condensed Consolidated Financial Statements (unaudited):

3

 

Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

3

 

Condensed Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2022 and 2021

4

 

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2022 and 2021

5

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021

6

 

Notes to Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

27

Part II

Other Information

 

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

Item 6.

Exhibits

29

Signatures

30

 

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

 

ITEM 1.

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

 $90,325  $94,386 

Accounts receivable, less allowance for credit losses of $1,350 and $1,442 at March 31, 2022 and December 31, 2021, respectively

  29,313   29,843 

Inventories, net

  35,225   36,010 

Prepaid expenses and other current assets

  10,459   8,289 

Total current assets

  165,322   168,528 

Property and equipment, net

  47,954   47,602 

Right-of-use assets

  20,517   20,957 

Other long-term assets

  20,385   20,285 

Intangible assets, net

  80,436   82,382 

Goodwill

  7,625   7,781 

Total assets

 $342,239  $347,535 
         

LIABILITIES AND STOCKHOLDERS EQUITY

        

Current liabilities:

        

Accounts payable

 $7,444  $7,633 

Accrued expenses and other current liabilities

  15,233   17,847 

Contingent consideration

  4,315   4,315 

Total current liabilities

  26,992   29,795 

Other long-term liabilities

  684   1,258 

Deferred tax liability

  9,956   10,157 

Lease liabilities

  18,820   19,240 

Commitments and contingencies (Note 9)

          

Stockholders’ equity:

        

Preferred stock, $0.01 par value; 1,250 shares authorized, no shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

     - 

Common stock, $0.01 par value; 90,000 shares authorized, 14,518 and 14,441 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

  145   144 

Additional paid-in-capital

  68,796   67,081 

Accumulated other comprehensive loss

  (5,799)  (5,718)

Retained earnings

  222,645   225,578 

Total stockholders’ equity

  285,787   287,085 

Total liabilities and stockholders’ equity

 $342,239  $347,535 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

3

 

 

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

 $36,693  $34,292 

Cost of revenue

  14,889   13,318 

Gross Profit

  21,804   20,974 
         

Operating expenses:

        

Research and development

  6,157   6,361 

Selling, general and administrative

  19,201   18,175 

Change in fair value of contingent consideration

  -   (4,820

)

Total operating expenses

  25,358   19,716 

(Loss) income from operations

  (3,554)  1,258 

Interest and other income (expense), net

  (154)  (43

)

(Loss) income before income taxes

  (3,708)  1,215 

Benefit from income taxes

  (775)  (1,623

)

Net (loss) income

 $(2,933) $2,838 
         

Net (loss) income per share:

        

Basic

 $(0.20) $0.20 

Diluted

 $(0.20) $0.20 
         

Weighted average common shares outstanding:

        

Basic

  14,466   14,343 

Diluted

  14,466   14,435 
         

Net (loss) income

 $(2,933) $2,838 

Foreign currency translation adjustment

  (81)  (509

)

Comprehensive (loss) income

 $(3,014) $2,329 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4

 

 

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

  14,441  $144  $67,081  $225,578  $(5,718) $287,085 

Issuance of common stock for equity awards

  1   -   15   -   -   15 

Vesting of restricted stock units

  106   1   (1)  -   -   - 

Stock-based compensation expense

  -   -   2,545   -   -   2,545 

Retirement of common stock for minimum tax withholdings

  (30)  -   (844)  -   -   (844)

Net loss

  -   -   -   (2,933)  -   (2,933)

Other comprehensive loss

  -   -   -   -   (81)  (81)

Balance, March 31, 2022

  14,518  $145  $68,796  $222,645  $(5,799) $285,787 

 

  

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

  14,329  $143  $55,355  $221,444  $(4,542

)

 $272,400 

Issuance of common stock for equity awards

  -   -   1   -   -   1 

Vesting of restricted stock units

  46   1   (1)  -   -   - 

Stock-based compensation expense

  -   -   2,259   -   -   2,259 

Retirement of common stock for minimum tax withholdings

  (9)  -   (333)  -   -   (333)

Net income

  -   -   -   2,838   -   2,838 

Other comprehensive loss

  -   -   -   -   (509)  (509)

Balance, March 31, 2021

  14,366  $144  $57,281  $224,282  $(5,051) $276,656 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

5

 

 

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

 $(2,933

)

 $2,838 

Adjustments to reconcile net income to net cash provided by operating activities:

        

Depreciation

  1,671   1,545 

Amortization of acquisition related intangible assets

  1,946   1,963 

Amortization of acquisition related inventory step-up

  -   2,578 

Non-cash operating lease cost

  403   405 

Change in fair value of contingent consideration

  -   (4,820

)

Loss on disposal of fixed assets

  -   831 

Stock-based compensation expense

  2,545   2,259 

Deferred income taxes

  (273

)

  (1,162)

Provision (recovery) for credit losses

  5   (21)

Provision for inventory

  586   277 

Changes in operating assets and liabilities:

        

Accounts receivable

  383   (2,478)

Inventories

  (602

)

  (4,040)

Prepaid expenses, other current and long-term assets

  (1,189

)

  87 

Accounts payable

  (473

)

  188 

Operating lease liabilities

  (387

)

  (385)

Accrued expenses, other current and long-term liabilities

  (2,929

)

  (1,254)

Income taxes

  (622

)

  (1,242)

Net cash used in operating activities

  (1,869

)

  (2,431)
         

Cash flows from investing activities:

        

Acquisition of Parcus Medical and Arthrosurface, net of cash acquired

  -   (350)

Proceeds from maturities of investments

  -   2,501 

Purchases of property and equipment

  (1,326

)

  (417)

Net cash (used in) provided by investing activities

  (1,326

)

  1,734 
         

Cash flows from financing activities:

        

Cash paid for tax withheld on vested restricted stock awards

  (846

)

  (332)

Proceeds from exercises of equity awards

  15   - 

Payments made on finance leases

  (31

)

  (119)

Net cash used in financing activities

  (862

)

  (451)
         

Exchange rate impact on cash

  (4)  (70)
         

Decrease in cash and cash equivalents

  (4,061

)

  (1,218)

Cash and cash equivalents at beginning of period

  94,386   95,817 

Cash and cash equivalents at end of period

 $90,325  $94,599 

Supplemental disclosure of cash flow information:

        

Non-cash Investing Activities:

        

Purchases of property and equipment included in accounts payable and accrued expenses

 $728  $570 

Right-of-use assets obtained in exchange for operating lease liabilities

 $-  $220 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

6

 

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.

 

7
 

 

 

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 $75.1 million, as of January 24, 2020, which consisted of:

 

Cash consideration

 $32,794 

Deferred consideration

  1,642 

Estimated fair value of contingent consideration

  40,700 

Estimated total purchase consideration

 $75,136 

 

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 $60.0 million depending on the level of net sales of Parcus Medical products generated in 2020 through 2022.

 

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 3.2% - 4.1%. The weighted average cost of capital was 11.5% as of March 31, 2022.

 

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 $4.3 million which was included in current liabilities. As of March 31, 2022 the Company did not expect any further milestones to be achieved.

 

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 $1.9 million in transaction costs related to the Parcus Medical acquisition during the three-month period ending March 31, 2020. The transaction costs subsequent to March 31, 2020 were immaterial.

 

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.

 

8

 

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

 $196 

Accounts receivable

  2,029 

Inventories

  10,968 

Prepaid expenses and other current assets

  364 

Property and equipment, net

  1,099 

Right-of-use assets

  944 

Intangible assets

  44,000 

Accounts payable, accrued expenses and other current liabilities

  (2,763

)

Other long-term liabilities

  (594

)

Lease liabilities

  (735

)

Net assets acquired

  55,508 

Goodwill

  19,628 

Estimated total purchase consideration

 $75,136 

 

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 $1.9 million as of the January 24, 2020 acquisition date. As a result, the Company recorded this addition to inventory with a corresponding reduction to goodwill as a measurement period adjustment which was reflected to the Goodwill amount included in the table above.

 

The acquired intangible assets based on estimates of fair value as of January 24, 2020 were as follows:

 

Developed technology

 $41,100 

Trade name

  1,800 

Customer relationships

  1,100 

Total acquired intangible assets

 $44,000 

 

The fair value of developed technology will be amortized over a useful life of 15 years, the fair value of customer relationships over 10 years, and the fair value of the trade name over 5 years.

 

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 $90.3 million, as of February 3, 2020 which consisted of:

 

Cash consideration

 $61,909 

Estimated fair value of contingent consideration

  28,376 

Estimated total purchase consideration

 $90,285 

 

9

 

Pursuant to the Arthrosurface Merger Agreement, the Company could be required to make future payments of up to $40.0 million depending on the achievement of regulatory milestones and the level of net sales of Arthrosurface products from 2020 through 2021. The fair value of contingent consideration related to regulatory milestones as of February 3, 2020 was determined through a scenario-based discounted cash flow analysis using scenario probabilities and regulatory milestone dates. The fair value of contingent consideration related to net sales achievement as of February 3, 2020 was determined based upon a Monte Carlo simulation approach at acquisition date, whereby a range of possible scenarios were simulated. The Company paid $5.0 million in October 2020 and $10.0 million in July 2021 based upon the achievement of two distinct regulatory milestones. As of December 31, 2021, there were no milestones remaining.

 

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 $2.2 million in transaction costs related to the Arthrosurface acquisition during the three-month period ending March 31, 2020. The transaction costs subsequent to March 31, 2020 were immaterial.

 

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

 $1,072 

Accounts receivable

  5,368 

Inventories

  15,652 

Prepaid expenses and other current assets

  535 

Property, plant and equipment

  3,394 

Other long-term assets

  7,548 

Intangible assets

  48,900 

Accounts payable, accrued expenses and other liabilities

  (3,929

)

Deferred tax liabilities

  (11,147

)

Net assets acquired

  67,393 

Goodwill

  22,892 

Estimated total purchase consideration

 $90,285 
     

Intangible assets acquired consist of:

    

Developed technology

 $37,000 

Trade name

  3,400 

Customer relationships

  7,900 

IPR&D

  600 

Total acquired intangible assets

 $48,900 

 

The fair value of developed technology will be amortized over an estimated useful life of 15 years, the fair value of customer relationships over 10 years, and the fair value of trade names over 5 years. A total of $0.6 million represents the fair value of IPR&D with an indefinite useful life which was impaired during the quarter ended December 31, 2021.

 

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.

 

10
 

 

 

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

 $67,052  $67,052  $-  $-  $67,052 
                     

Other current liabilities:

                    

Contingent Consideration - Short Term

 $4,315  $-  $-  $4,315  $- 

 

      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

 $67,046  $67,046  $-  $-  $67,046 
                     

Other current liabilities:

                    

Contingent Consideration - Short Term

 $4,315  $-  $-  $4,315  $- 

 

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

 $4,315  $35,410 

Change in fair value

  -   (4,820

)

Balance, ending

 $4,315  $30,590 

 

 

5.

Inventories

 

Inventories consist of the following:

 

  

March 31,

  

December 31,

 
  

2022

  

2021

 

Raw materials

 $16,901  $16,881 

Work-in-process

  13,599   11,442 

Finished goods

  24,257   26,731 

Total

 $54,757  $55,054 
         

Inventories

 $35,225  $36,010 

Other long-term assets

  19,532   19,044 

Total

 $54,757  $55,054 

 

Inventories are stated net of inventory reserves of approximately $6.9 million and $9.1 million, as of March 31, 2022 and December 31, 2021, respectively.

 

11
 

 

 

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
Value

  

Less: Accumulated
Currency Translation
Adjustment

  

Less:
Accumulated
Amortization

  

Net Book
Value

  

Net Book
Value

  

Weighted
Average Useful
Life

 

Developed technology

 $89,580  $(1,608) $(19,340) $68,632  $70,081   15 

IPR&D

  2,656   (1,006)  -   1,650   1,650  

Indefinite

 

Customer relationships

  9,000   -   (1,952)  7,048   7,273   10 

Distributor relationships

  4,700   (415)  (4,285)  -   -   5 

Patents

  1,000   (189)  (644)  167   179   16 

Tradenames

  5,200   -   (2,261)  2,939   3,199   5 

Total

 $112,136  $(3,218) $(28,482) $80,436  $82,382   13 

 

The aggregate amortization expense related to intangible assets was $1.9 million for the three-month periods ended March 31, 2022 and 2021.

 

 

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

 $7,781 

Effect of foreign currency adjustments

  (156

)

Balance, ending

 $7,625 

 

 

8.

Accrued Expenses

 

Accrued expenses consist of the following:

 

  

March 31,
2022

  

December 31,
2021

 
         

Compensation and related expenses

 $7,457  $9,523 

Professional fees

  2,967   3,590 

Operating lease liability - current

  1,528   1,526 

Clinical trial costs

  2,014   1,961 

Financing lease liability - current

  122   188 

Other

  1,145   1,059 

Total

 $15,233  $17,847 

 

 

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 no accrued warranties as of March 31, 2022 or December 31, 2021 and has no history of claims paid.

 

12

 

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

 $22,733  $19,316 

Joint Preservation and Restoration

  12,139   12,219 

Non-Orthopedic

  1,821   2,757 

Total

 $36,693  $34,292 

 

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 39% and 41% for the three months ended March 31, 2022 and 2021, respectively.

 

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 $0.3 million and $1.0 million as of March 31, 2022 and December 31, 2021, respectively.

 

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

 $26,773   73

%

 $25,005   73

%

Europe

  5,796   16

%

  5,480   16

%

Other

  4,124   11

%

  3,807   11

%

Total

 $36,693   100

%

 $34,292   100

%

 

13
 

 

 

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 two shares. Subject to adjustment for specified types of changes in the Company’s capitalization, no more than 4.6 million shares of common stock may be issued under the 2017 Plan. There were 0.9 million shares available for future grant at March 31, 2022 under the 2017 Plan.

 

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 125,000 shares of common stock for issuance pursuant to equity-based awards granted under the Inducement Plan. Such awards may be granted only to an individual who was not previously the Company’s employee or director with the Company. The Inducement Plan provides for the grant of awards under terms substantially similar to the 2017 Plan (as amended). There were 70,591 shares available for future grant at March 31, 2022 under the Inducement Plan.

 

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 three years with a maximum contractual term of ten 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

 $176  $129 

Research and development

  367   241 

Selling, general and administrative

  2,002   1,889 

Total stock-based compensation expense

 $2,545  $2,259 

 

 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 110% of the market price of the Company’s common stock on the date of grant. Options generally vest in equal annual installments over a period of three years and expire 10 years after the date of grant. The grant-date fair value of options is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period.

 

14

 

  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

  1,175,993  $39.56         

Granted

  416,197  $28.37         

Exercised

  (437) $9.10      $10 

Forfeited and canceled

  (47,858) $38.23         

Outstanding as of March 31, 2022

  1,543,895  $36.59   8.6  $9 

Vested, March 31, 2022

  485,869  $41.89   7.5  $9 

Vested or expected to vest, March 31, 2022

  1,543,895  $36.59   8.6  $9 

 

The aggregate intrinsic value of options exercised for the three-month period ended March 31, 2021 was immaterial.

 

The Company granted 416,197 stock options during the three-month ended March 31, 2022, of which 382,201 shares were premium-priced options.

 

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 6.3 years. The actual number of TSR options that may be earned ranges from 0% to 150% of the target number, depending on the total shareholder return of the Company relative to the peer group over the vesting period of 2.7 years. There were 104,638 TSRs as of March 31, 2022.

 

 The assumptions used in the Black-Scholes pricing model for options granted during the three months ended March 31, 2022 and 2021, along with the weighted-average grant-date fair values, were as follows:

 

  

Three Months Ended
March 31,

 
  

2022

  

2021

 

Risk free interest rate

  1.3%  -   1.9%  0.3%  -   0.6%

Expected volatility

  53.8%  -   54.6%  54.8%  -   55.4%

Expected life (years)

      4.5           4.0     

Expected dividend yield

      0.0%          0.0%    

Fair value per option

     $11.37          $13.90     

 

As of March 31, 2022, there was $11.8 million of unrecognized compensation cost related to unvested stock options. This expense is expected to be recognized over a weighted average period of 2.1 years.

 

Restricted Stock Units

 

RSUs generally vest in equal annual installments over a three-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

  412,658  $36.33 

Granted

  420,452  $25.75 

Vested

  (87,953) $35.19 

Forfeited and cancelled

  (32,376) $35.27 

Outstanding as of March 31, 2022

  712,781  $30.28 

 

15

 

The weighted-average grant-date fair value per share of RSUs granted was $34.07 for the three-month ended March 31, 2021. The total fair value of RSUs vested was $3.3 million and $2.1 million for the three months period ended March 31, 2022 and 2021, respectively.

 

As of March 31, 2022, there was $18.4 million of unrecognized compensation cost related to time-based RSUs, which was expected to be recognized over a weighted-average period of 2.4 years.

 

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

  158,297  $37.44 

Performance factor adjustment

  2,125  $32.53 

Vested

  (19,125) $32.53 

Forfeited and cancelled

  (23,400) $41.86 

Outstanding as of March 31, 2022

  117,897  $34.98 

 

The total fair value of PSUs vested was $0.6 million for the three-month period ended March 31, 2022. As of March 31, 2022, none of the milestones related to the outstanding PSUs were expected to be achieved.

 

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 200,000 shares of common stock to participating employees. Employees that participate in the Company’s ESPP may purchase up to a maximum of 800 shares per six-month offering period or $25,000 worth of common stock per calendar year by authorizing payroll deductions of up to 10% of their base salary. The purchase price for each share purchased is 85% of the lower of the fair market value of the common stock on the first or last day of the offering period. The Company uses the Black-Scholes pricing model to determine the fair value of shares purchased under the ESPP. The calculation of the fair value of shares purchased is affected by the stock price on the grant date, the expected volatility of the Company’s stock over the expected term and the risk-free interest rate. The estimated fair value of shares purchased under the ESPP were based on the following assumptions:

 

  

2022

 

Risk-free interest rate

  0.06%

Expected stock price volatility

  32.58%

Expected life of options (in years)

  0.5 

Expected dividend yield

  0.0%

 

 

12.

Income Taxes

 

The Company recorded an income tax benefit of $0.8 million for the three-month period ended March 31, 2022, resulting in an effective tax rate of 20.9%. The income tax benefit was $1.6 million for the three-month period ended March 31, 2021, based on an effective tax rate of (133.6%). The net change in the effective tax rate for the three-month period ended March 31, 2022, as compared to the same period in 2021, was primarily due to the discrete tax benefit on the decrease in the fair value of contingent consideration that occurred in the first quarter of 2021. The Company’s effective tax rate for the first quarter of 2022 primarily reflects statutory rates, offset partially by a reduction of stock compensation related tax deductions.

 

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.

 

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In connection with the preparation of the financial statements, the Company assessed whether it is more likely than not 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 $0.9 million. The Company did not record a valuation allowance on its deferred tax balances as of March 31, 2022.

 

 

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

  14,466   14,343 

Effect of dilutive securities:

        

Share based awards

  -   92 

Diluted shares used in the calculation of EPS

  14,466   14,435 

 

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 1.2 million shares were outstanding for the three-month periods ended March 31, 2021 and were not included in the computation of diluted EPS because the awards’ impact on EPS would have been anti-dilutive.

 

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ITEM 2.

MANAGEMENTS 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.

 

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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;