ANIKA THERAPEUTICS, INC.

(ANIK)
  Report
Delayed Nasdaq  -  05/18 04:00:00 pm EDT
21.90 USD   -2.88%
05/13Anika Reports Inducement Grants Under Nasdaq Listing Rule 5635(c)(4)
AQ
05/09Anika to Participate in the UBS Global Healthcare Conference 2022
AQ
05/06ANIKA THERAPEUTICS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)
AQ
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisions 
SummaryMost relevantAll NewsAnalyst Reco.Other languagesPress ReleasesOfficial PublicationsSector news

ANIKA THERAPEUTICS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

11/05/2021 | 05:05am EDT
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, 2020, or our 2020 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 2020 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, soft tissue repair and bone preserving joint technologies.



We have over thirty years of global expertise developing, manufacturing and
commercializing products based on 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 the platform for our regenerative solutions portfolio.



In early 2020, we expanded our overall technology platform and significantly
enhanced our commercial infrastructure, especially in the United States, through
our strategic acquisitions of Parcus Medical, LLC, or Parcus Medical, a sports
medicine implant and instrumentation solutions provider focused on sports
medicine and soft tissue repair, and Arthrosurface, Inc., or 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 joint preservation market (which
includes the faster growing sports medicine and extremities segments), improved
our commercial capabilities, 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;

       ?   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 soft tissue solutions;

       ?   Leveraging global commercial expertise to drive growth across the
           portfolio;

       ?   Opportunity to pursue strategic inorganic growth opportunities,
           including potential partnerships and tuck-in acquisitions,

leveraging

           our strong financial foundation and operational capabilities; and

       ?   Energized and experienced team focused on strong values, talent, and
           culture.




                                       19
--------------------------------------------------------------------------------

Key Developments during the Three Months Ended September 30, 2021







       ?   We completed the launch activities for WristMotion Total Wrist
           Arthroplasty System. The product is a modular joint preservation
           system that replaces both the radial and carpal sides of the wrist
           joint for patients suffering from rheumatoid arthritis,
           osteoarthritis, or post-traumatic arthritis.

? We received 510(k) clearance for Tactoset Injectable Bone Substitute

           for hardware augmentation. This product is indicated for filling 

bone

           voids or defects of the skeletal system (i.e. extremities and 

pelvis)

           that are not intrinsic to the stability of bony structure.




COVID-19 Pandemic



In March 2020, the World Health Organization declared the spread of the COVID-19
virus a global pandemic. This pandemic has caused an economic downturn on a
global scale, as well as significant volatility in the financial markets. There
has been significant volatility in our results on a quarterly basis due to the
worldwide cancellation or delay of elective procedures, as well as the impact on
timelines associated with certain clinical studies. While elective procedure
volume had a limited recovery after the initial pandemic impacts seen in the
early parts of second quarter of 2020 due to the easing of COVID-19 related
restrictions in certain jurisdictions, areas of the United States and other
countries have recently seen, and continue to see, fluctuating infection rates
increasing as the result of emerging variants of COVID-19.Continuing
fluctuations in infection rates in the United States and other countries make
future results difficult to predict despite recent advances in the vaccination
rates of certain parts of the population. In this time of uncertainty as a
result of the COVID-19 pandemic, we have taken many precautions to provide a
safe work environment for our employees and customers, including the
establishment and implementation of a work from home policy, where possible.
While increasing vaccination rates and the loosening of restrictions, especially
in the United States, have resulted in a return to a more normalized business
environment, the pandemic continues to have an impact on our business in certain
jurisdictions and a resurgence of COVID-19 as a result of emerging variants or
other factors, as is currently occurring in certain jurisdictions, could result
in additional government lockdowns, quarantine requirements, or other
restrictions that could impact our business and operations. We may also have to
take further actions that we determine are in the best interests of our
employees or as required by federal, state, or local authorities. To date, we do
not anticipate disruption to our ability to supply products to our customers.
Our commercial day-to-day operations have been impacted due to the worldwide
cancellations and/or delays of elective procedures, and timelines associated
with certain clinical studies and research and development programs have been
delayed. While the impact has been limited to these items to date, we caution
that there continues to be a possibility for potential future implementation of
certain additional restrictions in certain jurisdictions. The impact of these
restrictions on our operations, if implemented, is currently unknown, but could
be significant.



Products



Joint Pain Management


Our Joint Pain Management product family consists of:



       ?  Monovisc and Orthovisc, our single- and multi-injection, HA-based
          viscosupplement offerings indicated to provide pain relief from OA
          conditions. Our Joint Pain Management products are generally

administered to patients in an office setting. In the United States,

          Monovisc and Orthovisc are marketed exclusively by DePuy Synthes Mitek
          Sports Medicine, part of the Johnson & Johnson Medical Companies, or

Mitek, and have been the market leaders, based on combined overall

revenue in the viscosupplement market, since 2018. Internationally, we

market our Joint Pain Management products through a worldwide network of

          commercial distributors.




       ?  Cingal, our novel, third-generation, single-injection OA product
          consisting of our proprietary cross-linked HA material combined with a
          steroid, is designed to provide both short- and long-term pain relief.
          Cingal is CE Mark approved and has been sold outside the United States
          in over 35 countries through our network of distributors for several

years. In the United States, Cingal is a pipeline product undergoing

          clinical trial and is not available for commercial sale.



? Hyvisc, our high molecular weight injectable HA veterinary product for

the treatment of joint dysfunction in horses due to non-infectious

synovitis associated with equine OA. Hyvisc is distributed by Boehringer

          Ingelheim Vetmedica, Inc., in the United States.



Joint Preservation and Restoration

Our Joint Preservation and Restoration product family consists of:

? Bone Preserving Joint Technologies. Our portfolio of more than 150 bone

preserving joint technologies, including partial joint replacement,

joint resurfacing, and minimally invasive and bone sparing implants, is

designed to treat upper and lower extremity orthopedic conditions as

well as knee and hip conditions caused by trauma, injury and arthritic

disease. These products span multiple joints including the shoulder,

          foot/ankle, wrist, knee and hip and are generally intended to mimic a
          patient's natural anatomy to the extent feasible. These products are
          often used to treat patients with OA progression beyond where our Joint
          Pain Management products can allow the patients to retain an active
          lifestyle, when early surgical intervention becomes preferable. We
          commercialize these products in the United States by selling to
          hospitals and surgery centers through an independent network of sales
          representatives and distributors, and utilize our distributor network
          for sales in certain international markets.




                                       20
--------------------------------------------------------------------------------



       ?  Soft Tissue Repair. Our line of soft tissue repair solutions is used by
          surgeons to repair and reconstruct damaged ligaments and tendons
          resulting from sports injuries, trauma and disease. These more
          traditional sports medicine solutions include screws, sutures, suture

anchors, and other surgical systems that facilitate surgical procedures

on the shoulder, knee, hip, upper and lower extremities, and other soft

          tissues. We commercialize these products in the United States by selling
          to hospitals and surgery centers through an independent network of sales
          representatives and distributors, and utilize our distributor network
          for sales in over 60 international markets.




       ?  Regenerative Solutions. Our portfolio of orthopedic regenerative
          solutions based on our proprietary technologies based on HA and Hyaff,

which is a solid form of HA. These products include Tactoset Injectable

Bone Substitute, an HA-enhanced injectable bone repair therapy designed

to treat insufficiency fractures and for augmenting suture anchor

fixation that we commercialize only in the United States, and Hyalofast,

a biodegradable support for human bone marrow mesenchymal stem cells

used for cartilage regeneration and as an adjunct for microfracture

surgery. Hyalofast is CE Mark approved and currently available in

Europe, South America, Asia, and certain other international markets. In

          the United States, Hyalofast is a pipeline product under clinical trial
          and is not available for commercial sale.




Other



Our Other product family consists of legacy HA-based products that do not fit
into one of our other primary product categories. These products include
Hyalobarrier, an anti-adhesion barrier indicated for use after abdomino-pelvic
surgeries, and Hyalomatrix, which is used for the treatment of complex wounds
such as burns and ulcers, products used in connection with the treatment of
ears, nose and throat disorders, and ophthalmic products, including injectable,
high molecular weight HA products used as viscoelastic agents in ophthalmic
surgical procedures such as cataract extraction and intraocular lens
implantation.





























                                       21
--------------------------------------------------------------------------------



Results of Operations



Three and Nine Months Ended September 30, 2021 Compared to Three and Nine Months
Ended September 30, 2020.



                             Three Months Ended September 30,                         Nine Months Ended September 30,
                      2021         2020        $ Change      % Change         2021          2020         $ Change      % Change
                            (in thousands, except percentages)                       (in thousands, except percentages)
Revenue             $ 39,536     $ 31,694     $   7,842             25 %    $ 111,973     $  97,769     $  14,204             15 %
Cost of revenue       16,513       14,351         2,162             15 %       47,164        45,487         1,677              4 %
Gross profit          23,023       17,343         5,680             33 %       64,809        52,282        12,527             24 %
Gross margin              58 %         55 %                                        58 %          53 %
Operating
expenses:
Research and
development            7,673        5,217         2,456             47 %       21,327        15,799         5,528             35 %
Selling, general
and
administrative        17,500       15,903         1,597             10 %       53,664        44,884         8,780             20 %
Goodwill
impairment                 -            -                                           -        18,144       (18,144 )        (100% )
Change in fair
value of
contingent
consideration         (3,450 )      4,150        (7,600 )         (183 %)     (21,920 )     (16,176 )      (5,744 )           36 %
Total operating
expenses              21,723       25,270        (3,547 )          (14 %)   

53,071 62,651 (9,580 ) (15% ) Income (loss) from operations 1,300 (7,927 ) 9,227

            116 %       11,738       (10,369 )      22,107            213 %
Interest and
other expense,
net                      (48 )       (228 )        (180 )          (79 %)        (141 )        (118 )          23             19 %
Income (loss)
before income
taxes                  1,252       (8,155 )       9,407            115 %       11,597       (10,487 )      22,084            211 %
Provision for
(benefit from)
income taxes             694       (1,744 )       2,438            140 %        1,670        (2,161 )       3,831            177 %
Net income (loss)   $    558     $ (6,411 )   $   6,969            109 %    $   9,927     $  (8,326 )   $  18,253            219 %




Revenue



Revenue for the three-month period ended September 30, 2021 was $39.5 million,
an increase of $7.9 million as compared to $31.7 million for the three-month
period ended September 30, 2020. Revenue for the nine-month period ended
September 30, 2021 was $112.0 million, an increase of $14.2 million as compared
to $97.8 million for the nine-month period ended September 30, 2020. For the
three- and nine-month periods ended September 30, 2021, the increases in revenue
were primarily driven by partial recovery from the initial impact of the
COVID-19 pandemic on sales volumes and related strategic partner ordering
patterns. The increase for the nine-month period ended September 30, 2021, was
also in part due to inclusion of full first quarter results of Parcus Medical
and Arthrosurface, which we acquired on January 24, 2020 and February 3, 2020,
respectively.


The following tables present product revenue by product family:



                                               Three Months Ended September 30,
                                        2021          2020        $ change      % change
                                              (in thousands, except percentages)
Joint Pain Management                $   26,153     $ 18,439     $    7,714            42 %
Joint Preservation and Restoration       11,193       11,715           (522 )         (4% )
Other                                     2,190        1,540            650            42 %
                                     $   39,536     $ 31,694     $    7,842            25 %




                                               Nine Months Ended September 30,
                                       2021          2020       $ change       % change
                                             (in thousands, except percentages)
Joint Pain Management                $  69,790     $ 66,168     $   3,622              6 %

Joint Preservation and Restoration 35,296 26,233 9,063

          35 %
Other                                    6,887        5,368         1,519             28 %
                                     $ 111,973     $ 97,769     $  14,204             15 %




Revenue from our Joint Pain Management product family increased 42% and 6% for
the three- and nine-month periods ended September 30, 2021, respectively, as
compared to the same periods in 2020 due primarily to partial recovery from the
initial impact of the COVID-19 pandemic on sales volumes and related strategic
partner ordering patterns. In 2020, customer ordering patterns delayed a portion
of the initial impact of the COVID-19 pandemic on this product family from the
second quarter into the second half of 2020.



Revenue from our Joint Preservation and Restoration product family decreased 4%
for the three-month period ended September 30, 2021 as compared to the same
period in 2020, due primarily to the impact of the COVID-19 pandemic, including
rolling suspensions of elective procedures by hospitals in certain regions as
well as the limitations on access to customers during the period. For the
nine-month period ended September 30, 2021, revenue from our Joint Preservation
and Restoration product family increased 35% as compared to the same period in
2020 due primarily to organic growth as the initial impact of the COVID-19
pandemic on elective procedures begins to lift in various worldwide
jurisdictions, especially in the United States during the first half of 2021, as
well as due to the inclusion of full quarter results from Parcus Medical and
Arthrosurface in the first quarter.



Revenue from our Other product family increased 42% for the three-month period
ended September 30, 2021, as compared to the same period in 2020 primarily due
to timing of distributor sales. For the nine-month period ended September 30,
2021 revenue increased 28% as compared to the same period in 2020 primarily due
to timing of distributor sales as well as due to the sell through of legacy
wound care products during the first quarter.



Gross Profit and Margin



Gross profit for the three- and nine-month periods ended September 30, 2021
increased $5.7 million and $12.5 million to $23.0 million and $64.8 million,
respectively, representing 58% of revenue for each of the periods. Gross profit
for the three- and nine-month periods ended September 30, 2020 was $17.3 million
and $52.3 million, respectively, or 55% and 53% of revenue for the periods,
respectively. The increase in gross profit for the three- and nine-month periods
ended September 30, 2021, primarily resulted from increased revenue. The
increase for the nine-month period ended September 30, 2021 was partially offset
by product rationalization charges in the second quarter of 2021. Gross margins
include the impact of inventory step-up associated with the Arthrosurface and
Parcus Medical acquisitions, as well as acquisition-related amortization
expenses. These expenses together increased cost of revenue by $3.0 million, or
8 points of gross margin, and $10.9 million, or 10 points of gross margin, for
the three- and nine-month periods ended September 30, 2021, respectively, as
compared to increased cost of revenue of $4.8 million, or 15 points of gross
margin, and $11.7 million, or 12 points of gross margin, respectively, for the
same periods in 2020.



Research and Development



Research and development expenses for the three- and nine-month periods ended
September 30, 2021 were $7.7 million and $21.3 million, representing an increase
of $2.5 million and $5.5 million, respectively, as compared to the same periods
in 2020. The increase in research and development expense for the three- and
nine-month periods ended September 30, 2021 was primarily due to product
development activities associated with the development of new product candidates
in our research and development pipeline, execution of the CINGAL Pilot study
and certain European post-market clinical studies. Research and development
activities were curtailed in the three- and nine-months ended September 30, 2020
due to cost optimization in the light of the early stages of the COVID-19
pandemic.



Selling, General and Administrative




Selling, general and administrative, or SG&A expenses, for the three- and
nine-month periods ended September 30, 2021 were $17.5 million and $53.7
million, an increase of $1.6 million and $8.8 million, respectively, as compared
to the same periods in 2020. The increase in SG&A expenses for the three-month
period ended September 30, 2021 was primarily related to an increase in
share-based compensation expense due largely to forfeitures of unvested shares
during the comparable period and higher sales and marketing activities and
events during 2021 which had been suspended in 2020 due to the impact of the
COVID-19 pandemic.



The increase in SG&A expenses for the nine-month period ended September 30, 2021
was primarily related to full period expenses from Parcus Medical and
Arthrosurface, increased spending to support our commercial capability in the
United States and expanded marketing activities, and a non-cash loss on disposal
of fixed assets, partially offset by the absence of transaction costs incurred
in 2020 related to acquisitions of Parcus and Arthrosurface. Certain activities
were curtailed in the three- and nine-months ended September 30, 2020 due to
cost optimization in light of the early stages of the COVID-19 pandemic.



Goodwill Impairment Charge



We assess goodwill for impairment annually, as of end of November, or, under
certain circumstances, more frequently, such as when events or changes in
circumstances indicate there may be impairment. U.S. and other country
government policy responses to the COVID-19 pandemic and the resulting changes
in healthcare guidelines caused a temporary suspension of domestic elective
surgical procedures. As a result of these events, during the three-month period
ended March 31, 2020, we performed a quantitative assessment of goodwill
impairment related to the Parcus and Arthrosurface reporting unit as of March
31, 2020. The results of these interim impairment tests indicated that the
estimated fair value of this reporting unit was less than its carrying value.
Consequently, a non-cash goodwill impairment charge of $18.1 million was
recorded in the three-month period ended March 31, 2020. The decline in fair
value was primarily due to a decrease in immediate term revenue and related cash
flows as a result of the temporary suspension of domestic elective procedures,
which directly impacted the Parcus and Arthrosurface reporting units. There were
no goodwill impairment charges during the three- and nine-month period ended
September 30, 2021.



                                       22
--------------------------------------------------------------------------------

Contingent Consideration Fair Value Change




We recorded a $3.5 million and $21.9 million net benefit related to changes in
the fair value of contingent consideration for the three- and nine-month periods
ended September 30, 2021, respectively. We recorded a $4.2 million net expense
and $16.2 million net benefit related to changes in the fair value of contingent
consideration for the three- and nine-month periods ended September 30, 2020,
respectively. The increase in net benefit in the three- and nine-month periods
ended September 30, 2021 compared to the same period in 2020 is due primarily to
the decrease in the likelihood that certain contingent milestones would be
achieved.



Income Taxes



For the three- and nine-month periods ended September 30, 2021, the provision
for income taxes was $0.7 million and $1.7 million, resulting in effective tax
rates of 55.1% and 14.3%, respectively. For the three- and nine-month periods
ended September 30, 2020, due to losses in those periods, we incurred benefits
from income taxes of $1.7 million and $2.2 million, resulting in effective tax
rates of 21.4% and 20.6%, respectively. The net increase in the effective tax
rate for the three-month period ended September 30, 2021, as compared to the
same period in 2020, was primarily due to stock option activity and an
adjustment to the Foreign Derived Intangible Income (FDII) deduction expected
for 2021. The year-to-date net tax benefit on the change in the fair value of
the contingent consideration, in the amount of $1.1 million in 2021, resulted in
a net decrease in the effective tax rate for the nine-month period ended
September 30, 2021, as compared to the same period in 2020.



Non-GAAP Financial Measures



We present certain information with respect to adjusted gross profit and
adjusted gross margin, adjusted Earnings Before Interest, Tax, Depreciation and
Amortization, or (EBITDA), adjusted net income, adjusted diluted earnings per
share or adjusted EPS, which are financial measures not based on any
standardized methodology prescribed by accounting principles generally accepted
in the United States, or GAAP, and is not necessarily comparable to similarly
titled measures presented by other companies.



We have presented adjusted gross profit and adjusted gross margin, adjusted
EBITDA, adjusted net income, adjusted EPS, because they are key measures used by
our management and board of directors to understand and evaluate our operating
performance and to develop operational goals for managing our business. We
believe these financial measures help identify underlying trends in our business
that could otherwise be masked by the effect of the expenses that we exclude. In
particular, we believe that the exclusion of these items in calculating these
measures can provide a useful tool for period-to-period comparisons of our core
operating performance. Accordingly, we believe that these measures provide
useful information to investors and others in understanding and evaluating our
operating results, enhancing the overall understanding of our past performance
and future prospects and allowing for greater transparency with respect to key
financial metrics used by our management in its financial and operational
decision-making.



Adjusted Gross Profit and Adjusted Gross Margin




We define adjusted gross profit as our gross profit excluding amortization of
certain acquired assets, the impact of inventory fair-value step up associated
with our recent acquisitions and product rationalization charges. 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 fair value of certain identified assets acquired in acquisitions,
including developed technology and acquired tradenames. We define adjusted gross
margin as adjusted gross profit divided by total revenue.



The following is a reconciliation of adjusted gross profit to gross profit for the three- and nine-month periods ended September 30, 2021 and 2020, respectively:



                                             Three Months Ended September 30,           Nine Months Ended September 30,
                                                2021                  2020                2021                  2020
Gross profit                               $        23,023       $        17,343     $        64,809       $        52,282
Product rationalization charges                          -                     -               2,063                 1,920
Acquisition related intangible asset
amortization                                         1,562                 1,562               4,686                 4,283
Acquisition related inventory step up                1,458                 3,273               6,244                 7,396
Adjusted gross profit                      $        26,043       $        22,178     $        77,802       $        65,881

Adjusted gross margin                                   66 %                  70 %                69 %                  67 %




Adjusted gross profit for the three- and nine-month periods ended September 30,
2021 increased $3.9 million and $11.9 million to $26.0 million and $77.8
million, respectively, representing 66% and 69% of revenue. Adjusted gross
profit for the three- and nine-month periods ended September 30, 2020 was $22.2
million and $65.9 million, respectively, or 70% and 67% of revenue for the
periods, respectively. This increase in adjusted gross profit for the
three-month period ended September 30, 2021 as compared with the same period in
2020, primarily resulted from organic growth of Joint Pain Management revenue as
COVID-19 pandemic related restrictions started lifting in various worldwide
jurisdictions, especially in the United States. The decrease in adjusted gross
margin for the three-month period ended September 30, 2021 as compared with the
same period in 2020, is due primarily to unfavorable revenue mix and lower
production volumes based on timing related to the COVID-19 pandemic.



                                       23
--------------------------------------------------------------------------------




This increase in adjusted gross profit and adjusted gross margin for the
nine-month period ended September 30, 2021 as compared with the same period in
2020, primarily resulted from higher revenue due to the inclusion of full period
results from Parcus Medical and Arthrosurface in 2021 as we acquired these
businesses in early 2020 and organic growth of Joint Pain Management revenue as
COVID-19 pandemic related restrictions started lifting in various worldwide
jurisdictions, especially in the United States.



Adjusted EBITDA



We present information below with respect to adjusted EBITDA, which we define as
our net income (loss) excluding interest and other income, net, income tax
benefit (expense), depreciation and amortization, stock-based compensation,
product rationalization, and acquisition related expenses. In light of the
COVID-19 pandemic, we have also excluded the impacts of goodwill impairment
charges and changes in the fair value of contingent consideration associated
with our acquisition transactions in early 2020.



Adjusted EBITDA is not prepared in accordance with US GAAP, and should not be
considered in isolation of, or as an alternative to, measures prepared in
accordance with US GAAP. There are a number of limitations related to the use of
adjusted EBITDA rather than net income (loss), which is the nearest US GAAP
equivalent. Some of these limitations are:



? adjusted EBITDA excludes depreciation and amortization, and, although

these are non-cash expenses, the assets being depreciated or amortized

may have to be replaced in the future, the cash requirements for which

         are not reflected in adjusted EBITDA?



? we exclude stock-based compensation expense from adjusted EBITDA although

(a) it has been, and will continue to be for the foreseeable future, a

significant recurring expense for our business and an important part of

our employee compensation strategy and (b) if we did not pay out a

portion of our compensation in the form of stock-based compensation, the

         cash salary expense included in operating expenses likely would be
         higher, which would affect our cash position?



? we exclude acquisition related expenses, including transaction costs and

other related expenses, amortization and depreciation of acquired assets

in recent acquisitions, and the impact of inventory fair-value step up on

         cost of revenue?




      ?  we exclude certain impairment charges, including certain product

rationalization charges as a result of managing our financial position in

light of our recent acquisitions, the impact of COVID-19 and changing

         regulatory requirements?



? we exclude goodwill impairment charges and changes in the fair value of

         contingent consideration?




      ?  the expenses and other items that we exclude in our calculation of

adjusted EBITDA may differ from the expenses and other items, if any,

that other companies may exclude from adjusted EBITDA when they report

         their operating results?




      ?  adjusted EBITDA does not reflect changes in, or cash requirements for,
         working capital needs?



? adjusted EBITDA does not reflect provision for (benefit from) income

         taxes or the cash requirements to pay taxes? and



? adjusted EBITDA does not reflect historical cash expenditures or future

         requirements for capital expenditures or contractual commitments.




                                       24
--------------------------------------------------------------------------------

The following is a reconciliation of adjusted EBITDA to net income (loss) for the three- and nine-month periods ended September 30, 2021 and 2020, respectively:




                                                                                     Nine Months Ended September
                                             Three Months Ended September 30,                    30,
                                                2021                  2020              2021             2020
                                                                      (in thousands)
Net income (loss)                          $           558       $        (6,411 )   $    9,927       $   (8,326 )
Interest and other expense, net                         48                   228            141              118
Provision for (benefit) from income
taxes                                                  694                (1,744 )        1,670           (2,161 )
Depreciation and amortization                        1,789                 1,718          5,226            5,132
Stock-based compensation                             2,863                 1,920          7,919            3,953
Product rationalization charges                          -                     -          2,063            2,892
Acquisition related expenses                             -                     -              -            4,157
Acquisition related intangible asset
amortization                                         1,787                 1,760          5,361            4,831
Acquisition related inventory step up                1,458                 3,273          6,244            7,396
Goodwill impairment                                      -                     -              -           18,144
Change in fair value of contingent
consideration                                       (3,450 )               4,150        (21,920 )        (16,176 )
Adjusted EBITDA                            $         5,747       $         4,894     $   16,631       $   19,960




Adjusted EBITDA for the three-month period ended September 30, 2021, increased
$0.9 million as compared with the same periods in 2020. The increase in adjusted
EBITDA for the period was primarily due to higher revenues as COVID-19 pandemic
related restrictions started lifting in various worldwide jurisdictions,
especially in the United States, partially offset by an increase in operating
expenses primarily attributable to the increase in clinical trial activity. In
2020, customer ordering patterns delayed a portion of the initial impact of the
COVID-19 pandemic on this product family from the second quarter into the second
half of 2020.



Adjusted EBITDA for the nine-month period ended September 30, 2021, decreased
$3.3 million as compared with the same period in 2020. The decrease in adjusted
EBITDA for the period was primarily due to an increase in operating expenses
primarily attributable to expansion of our commercial capability in the United
States, increase in clinical trial activity, as well as a non-cash impairment
charge related to fixed assets during the first quarter of 2021, partially
offset by an increase in revenue.



Adjusted Net Income and Adjusted EPS




We present information below with respect to adjusted net income and adjusted
EPS. We define adjusted net income as our net income excluding
acquisition-related expenses, amortization and depreciation of acquired assets,
the impact of inventory fair-value step up on cost of revenue and the impacts of
goodwill impairment charges and changes in the fair value of contingent
consideration, as well as certain impairment charges, including product
rationalization charges, on a tax effected basis. Acquisition related expenses
are those that we would not have incurred except as a direct result of
acquisition transactions. Acquisition related expenses consist of investment
banking, legal, accounting, and other professional and related expenses. 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, including in-process research and development, developed
technology, customer relationships and acquired tradenames. We define adjusted
EPS as US GAAP diluted earnings (loss) per share excluding the above adjustments
to net income used in calculating adjusted net income, each on a per share and
tax effected basis.


The following is a reconciliation of adjusted net income to net income (loss) for the three- and nine-month periods ended September 30, 2021 and 2020, respectively:




                                                                                     Nine Months Ended September
                                             Three Months Ended September 30,                    30,
                                                2021                  2020              2021             2020
                                                                      (in thousands)
Net income (loss)                          $           558       $        (6,411 )   $    9,927       $   (8,326 )
Product rationalization charges, tax
effected                                                 -                     -          1,590            2,377
Acquisition related expenses, tax
effected                                                 -                     -              -            3,174
Acquisition related intangible asset
amortization, tax effected                           1,146                 1,340          3,898            3,688
Acquisition related inventory step up,
tax effected                                           935                 2,492          4,626            5,646
Goodwill impairment, tax effected                        -                     -              -           15,773
Change in fair value of contingent
consideration, tax effected                         (1,865 )               3,336        (17,152 )        (13,873 )
Adjusted net income                        $           774       $           757     $    2,889       $    8,459




                                       25
--------------------------------------------------------------------------------




The following is a reconciliation of adjusted EPS to diluted earnings (loss) per
share for the three- and nine-month periods ended September 30, 2021 and 2020:



                                               Three Months Ended September 30,               Nine Months Ended September 30,
                                                 2021                     2020                 2021                     2020
Diluted earnings (loss) per share          $           0.04         $          (0.45 )   $           0.68         $          (0.59 )
Product rationalization charges, tax
effected                                                  -                        -                 0.11                     0.17
Acquisition related expenses per share,
tax effected                                              -                        -                    -                     0.22
Acquisition related intangible asset
amortization, tax effected                             0.08                     0.09                 0.27                     0.26
Acquisition related inventory step up,
tax effected                                           0.06                     0.18                 0.32                     0.40
Goodwill impairment, tax effected                         -                        -                    -                     1.11
Change in fair of value contingent
consideration, tax effected                           (0.13 )                   0.23                (1.18 )                  (0.98 )
Adjusted EPS                               $           0.05         $           0.05     $           0.20         $           0.59




Adjusted net income in the three- month period ended September 30, 2021 was
unchanged from the same period in 2020 as the increase in gross profit was
offset by an increase in operating expenses due to higher research and
development expenses and increased marketing efforts. Adjusted net income for
the period increased in 2021 due to higher revenues as COVID-19 pandemic related
restrictions started lifting in various worldwide jurisdictions, especially in
the United States. This was offset by an increase in operating expenses
primarily attributable to an increase in research and development expenses,
sales and marketing expenses and share based compensation expenses.



Adjusted net income in the nine-month period ended September 30, 2021, decreased
$5.6 million as compared with the same period in 2020. The decrease in adjusted
net income for the period was primarily due to an increase in selling and
marketing expenses primarily attributable to increased cost to support our
commercial capability in the United States, an increase in research and
development expenses, an increase in share-based compensation expense due to
forfeitures of unvested shares during the comparable period, a non-cash
impairment charge related to fixed assets in the first quarter of 2021 and an
increase in tax expenses.


Liquidity and Capital Resources




We require cash to fund our operating expenses and to make capital expenditures
and other investments in the business. We expect that our requirements for cash
to fund these uses will increase as our operations expand. Historically we have
generated positive cash flow from operations, which, together with our available
cash, cash equivalents, investments, and debt, have met our cash requirements.
Cash, cash equivalents, and investments aggregated $91.0 million and $98.3
million, and working capital totaled $137.0 million and $140.5 million as of
September 30, 2021 and December 31, 2020, respectively.  We are closely
monitoring our liquidity and capital resources for any potential impact that the
COVID-19 pandemic may have on our operations.



Cash provided by operating activities was $3.9 million for the nine-month period
ended September 30, 2021, as compared to cash provided by operating activities
of $10.5 million for the same period in 2020. The change was primarily
attributable to timing of collections, timing of certain state tax payments and
change in contingent consideration and a decrease in cash outflows related to
acquisition related expenses for the nine-month period ended September 30, 2021.
In July 2021, the Company paid contingent consideration in the amount of $10.0
million, $2.8 million of which was classified within operating activities and
the remaining $7.2 million was classified within financing activities.



Cash used in investing activities was $1.9 million for the nine-month period
ended September 30, 2021, as compared to cash used in investing activities of
$88.1 million for the same period in 2020. The change was primarily due to the
consideration paid for the acquisitions of Parcus Medical and Arthrosurface in
the nine-month period ended September 30, 2020.



Cash used in financing activities was $6.8 million for the nine-month period
ended September 30, 2021, as compared to cash provided by financing activities
of $24.3 million for the same period in 2020. The change was primarily due to a
drawdown of $50.0 million from our existing credit facility in the nine-month
period ended September 30, 2020 and the portion of the contingent consideration
payment related to financing activities, as described above, in the nine-month
period ended September 30, 2021.



Critical Accounting Policies and Estimates




The preparation of our consolidated financial statements in conformity with US
GAAP requires management to use judgment in making estimates and assumptions
that affect the reported amounts of assets, liabilities, revenue and expenses,
and related disclosure of contingent assets and liabilities. We believe that our
accounting policies for revenue recognition, accounts receivable and allowance
for credit losses, goodwill, acquired in-process research and development,
inventory and contingencies are based on, among other things, judgments and
assumptions made by management that include inherent risks and uncertainties.
There have been no significant changes to the above critical accounting policies
or in the underlying accounting assumptions and estimates used in such policies
from those disclosed in our annual consolidated financial statements and
accompanying notes included in our 2020 Form 10-K for the year ended December
31, 2020. We monitor our estimates on an ongoing basis for changes in facts and
circumstances, and material changes in these estimates could occur in the
future. Changes in estimates are recorded in the period in which they become
known. We base our estimates on historical experience and other assumptions that
we believe to be reasonable under the circumstances. Actual results may differ
from our estimates, if past experience or other assumptions do not turn out to
be substantially accurate.



                                       26
--------------------------------------------------------------------------------

Recent Accounting Pronouncements

A discussion of Recent Accounting Pronouncements is included in our 2020 Form 10-K and is updated in the Notes to the consolidated financial statements included in this report.

Contractual Obligations and Other Commercial Commitments




Our contractual obligations and other commercial commitments are summarized in
the section captioned "Part II, Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity and Capital
Resources-Contractual Obligations and Other Commercial Commitments" in our 2020
Form 10-K. There were no material changes to our contractual obligations
reported in our 2020 Form 10-K during the nine months ended September 30, 2021.
For additional discussion, see Note 9 to the consolidated financial statements
included in this report.



To the extent that funds generated from our operations, together with our
existing capital resources, are insufficient to meet future requirements, we
will be required to obtain additional funds through equity or debt financings,
strategic alliances with corporate partners and others, or through other
sources. No assurance can be given that any additional financing will be made
available to us or will be available on acceptable terms should such a need
arise.



Off-Balance Sheet Arrangements




We do not use special purpose entities or other off-balance sheet financing
techniques that we believe have, or are reasonably likely to have, a current or
future material effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, or capital
resources.

© Edgar Online, source Glimpses

All news about ANIKA THERAPEUTICS, INC.
05/13Anika Reports Inducement Grants Under Nasdaq Listing Rule 5635(c)(4)
AQ
05/09Anika to Participate in the UBS Global Healthcare Conference 2022
AQ
05/06ANIKA THERAPEUTICS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION A..
AQ
05/05TRANSCRIPT : Anika Therapeutics, Inc., Q1 2022 Earnings Call, May 05, 2022
CI
05/05ANIKA : Q1 Earnings Snapshot
AQ
05/05Earnings Flash (ANIK) ANIKA THERAPEUTICS Posts Q1 Loss $-0.11
MT
05/05Earnings Flash (ANIK) ANIKA THERAPEUTICS Reports Q1 Revenue $36.7M, vs. Street Est of $..
MT
05/05Anika Reports First Quarter Fiscal 2022 Financial Results
AQ
05/05Anika Therapeutics, Inc. Reports Earnings Results for the First Quarter Ended March 31,..
CI
05/05Anika Therapeutics, Inc. Provides Revenue Guidance for the Year 2022
CI
More news
Analyst Recommendations on ANIKA THERAPEUTICS, INC.
More recommendations