Anika Therapeutics, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2021; filed August 5, 2021. The financial statements are unaudited and prepared under U.S. GAAP. Anika is a global joint preservation company focused on osteoarthritis pain management, regenerative solutions, soft-tissue repair, and bone-preserving joint technologies. The company operates as one reportable segment.
Key Financial Metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $38.1 million, up 24% | $72.4 million, up 10% |
| Gross profit | $20.8 million | $41.8 million |
| Gross margin | 55%, versus 45% | 58%, versus 53% |
| Income from operations | $9.2 million | $10.4 million |
| Net income | $6.5 million, or $0.45 diluted EPS | $9.4 million, or $0.64 diluted EPS |
| Prior-year net income | $(7.7) million | $(1.9) million |
| Adjusted EBITDA | $6.1 million | $10.9 million |
| Cash flow from operations | Not separately provided for the quarter | $1.9 million |
Liquidity: Cash and cash equivalents were $97.2 million at June 30, 2021, compared with $95.8 million at December 31, 2020. Cash, cash equivalents, and investments totaled $97.2 million at June 30, 2021, versus $98.3 million at year-end 2020. Working capital was $136.4 million, compared with $140.5 million at December 31, 2020.
Balance sheet: Total assets were $363.1 million and stockholders’ equity was $286.8 million at June 30, 2021. The balance sheet shows lease liabilities of $20.1 million and contingent consideration of $16.9 million; the filing does not present a separate long-term debt balance at quarter-end.
Cash flows: Operating cash flow was $1.9 million, investing cash outflow was $0.6 million, and financing cash inflow was $0.1 million for the six months ended June 30, 2021. Capital expenditures were $2.7 million. Cash increased by $1.4 million during the period.
Business and Revenue Drivers
- Joint Pain Management revenue was $24.3 million in the second quarter, up 9%, and $43.6 million year to date, down 9%.
- Joint Preservation and Restoration revenue was $11.9 million in the second quarter, up 79%, and $24.1 million year to date, up 66%.
- Other product revenue was $1.9 million in the second quarter, up 7%, and $4.7 million year to date, up 23%.
- Revenue growth primarily reflected recovery from COVID-19-related reductions in elective procedures, organic growth in joint preservation products, and inclusion of full first-quarter results from the Parcus Medical and Arthrosurface acquisitions.
- DePuy Synthes Mitek Sports Medicine accounted for 46% of second-quarter revenue and 44% of year-to-date revenue, creating significant customer concentration.
Material Changes Versus the Prior Comparable Period
- Second-quarter revenue increased $7.5 million, while six-month revenue increased $6.4 million.
- Gross margin expanded by 10 percentage points in the quarter and 5 percentage points year to date, despite $2.5 million of inventory reserves related to product rationalization in the second quarter.
- Research and development expense increased 61% in the quarter and 29% year to date, driven by product development, Cingal clinical preparation, and European post-market studies.
- SG&A increased 24% in the quarter and 25% year to date, primarily reflecting expansion of the U.S. commercial organization, higher clinical activity, and full-period acquisition-related operating costs.
- The prior-year periods included an $18.1 million goodwill impairment charge. No goodwill impairment was recorded in 2021.
- The change in fair value of contingent consideration produced an operating benefit of $13.7 million in the second quarter and $18.5 million year to date. The liability declined from $35.4 million at December 31, 2020 to $16.9 million at June 30, 2021, primarily because certain milestones became less likely to be achieved.
- Adjusted EBITDA increased $0.5 million in the quarter but decreased $4.2 million year to date, reflecting higher operating expenses and clinical investment.
Outlook, Risks, Contingencies, and Unusual Items
- Management did not provide quantitative revenue or earnings guidance in the filing.
- COVID-19 remains a material uncertainty. Elective-procedure volumes and clinical-study timelines remain exposed to infection rates, variants, government restrictions, and potential lockdowns. Management stated that it did not anticipate product-supply disruption as of the filing date.
- Contingent consideration related to the Parcus Medical and Arthrosurface acquisitions could total up to $100 million under the acquisition agreements, subject to sales and regulatory milestones. A $10.0 million regulatory milestone payment was recorded as a current liability at June 30 and paid in July 2021.
- Inventory reserves of $2.5 million were recorded in the second quarter as part of product rationalization efforts, including $0.4 million associated with acquisition-related inventory step-up.
- Acquisition-related amortization and inventory step-up reduced reported gross margin by approximately 10 percentage points in the second quarter and 11 percentage points year to date.
- Key continuing risks include regulatory approvals, clinical development, commercialization, competition, intellectual-property protection, dependence on key personnel, customer concentration, supply and manufacturing execution, and the ability to pursue growth investments.
- The company reported no material changes to previously disclosed risk factors, no material legal proceedings expected to adversely affect financial results, and no material changes to contractual obligations.
- Stockholders approved an increase of 1.1 million shares available under the 2017 equity plan and adopted a 2021 employee stock purchase plan.
Investor Verification Items
- Verify the sustainability of post-pandemic elective-procedure recovery and the effect of future COVID-19 variants or restrictions.
- Monitor revenue concentration with Mitek and the year-to-date decline in Joint Pain Management revenue.
- Assess whether rapid growth in Joint Preservation and Restoration products can offset higher commercial, research, and clinical spending.
- Reconcile reported earnings and adjusted measures, particularly the effects of contingent-consideration remeasurement, inventory reserves, acquisition amortization, inventory step-up, stock compensation, and other excluded items.
- Track remaining acquisition earn-out obligations, milestone outcomes, and cash payments following the July 2021 $10.0 million payment.
- Evaluate liquidity after working-capital investment, capital expenditures, lease obligations, contingent consideration, and potential future acquisitions or development programs.