Anika Therapeutics, Inc. — FY2020 Form 10-K Summary
Business context and reporting period
Anika Therapeutics is a global joint-preservation company focused on osteoarthritis pain management, regenerative solutions, soft-tissue repair, and bone-preserving joint technologies. This Form 10-K covers the fiscal year ended December 31, 2020; it is an annual filing rather than a quarterly filing. The company completed acquisitions of Parcus Medical on January 24, 2020 and Arthrosurface on February 3, 2020, significantly expanding its product portfolio and U.S. commercial infrastructure.
Key financial metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | $130.5 million | $114.6 million | 14% increase |
| Product revenue | $130.5 million | $114.5 million | 14% increase |
| Gross profit | $69.0 million | $85.9 million | 20% decrease |
| Gross margin | 53% | 75% | Down 22 percentage points |
| Operating income (loss) | $(28.3) million | $34.2 million | Decline of $62.6 million |
| Net income (loss) | $(24.0) million | $27.2 million | Decline of $51.2 million |
| Diluted EPS | $(1.69) | $1.89 | Decline of $3.58 |
| Adjusted EBITDA | $23.9 million | $49.2 million | 51% decrease |
| Cash flow from operations | $13.1 million | $37.0 million | Decrease of $23.9 million |
Joint Pain Management revenue was $83.0 million, down 20%, while Joint Preservation and Restoration revenue was $39.4 million, up 1,801%, primarily reflecting the acquisitions. Other product revenue was $8.1 million, down 10%.
Cash, cash equivalents, and investments totaled $98.3 million at year-end, including $95.8 million of cash and cash equivalents and $2.5 million of U.S. Treasury bills. Working capital was $140.5 million. The company had no outstanding borrowings at December 31, 2020, although it temporarily drew and repaid $50.0 million under its revolving credit facility during the year. Stockholders’ equity was $272.4 million and total assets were $365.6 million.
Material changes versus the prior comparable period
- Revenue increased because acquired Parcus Medical and Arthrosurface products more than offset COVID-19-related declines in elective procedures and Joint Pain Management sales.
- Gross margin fell principally because of acquisition-related inventory fair-value step-up and amortization, which increased cost of revenue by approximately $16.9 million, as well as lower volumes and a $1.9 million inventory impairment charge.
- Research and development expense increased 41% to $23.4 million, reflecting Cingal and Hyalofast clinical activities, European post-market studies, and new product development.
- SG&A increased 72% to $60.1 million due primarily to acquired operations, integration of the commercial infrastructure, and incentive compensation.
- The company recorded a $42.5 million non-cash goodwill impairment charge related to the acquired Parcus Medical and Arthrosurface reporting unit: $18.1 million in the first quarter and $24.4 million in the fourth quarter.
- The company recorded a $28.7 million benefit from reducing the fair value of contingent consideration, largely because COVID-19 reduced projected revenue and earn-out probabilities.
- Investing activities used $71.3 million, including $94.6 million for the acquisitions. The company also paid a $5.0 million regulatory milestone related to Arthrosurface.
- Product concentration declined but remained material: Mitek represented 49% of product revenue in 2020 versus 71% of total revenue in 2019. Five customers represented 58% of 2020 product revenue.
Guidance, outlook, risks, contingencies, and unusual items
- The company withdrew financial guidance and had not reinstated it as of the filing because COVID-19 made projections uncertain.
- COVID-19 reduced elective procedures, revenue, operating results, clinical-trial enrollment, product development timelines, and projected cash flows. The filing does not provide a clear timetable for a return to pre-pandemic procedure levels.
- Cingal is approved and sold internationally but requires an additional Phase III trial for potential U.S. approval. A pilot study began in 2020, with the first patient enrolled in September, but enrollment and timing remain uncertain.
- Hyalofast remains under clinical development for the U.S. market, with international sales continuing in selected regions.
- Remaining contingent consideration from the acquisitions was estimated at $35.4 million at year-end, including $13.1 million due within one year and $22.3 million thereafter. Total contractual earn-out milestones could reach $100 million through 2022.
- Lease and purchase commitments totaled $33.2 million, including $30.6 million of lease obligations and $2.5 million of purchase commitments.
- The company recorded $1.4 million of impairment for HyaloBone and HyaloNect in-process research and development assets and approximately $2.9 million of product-rationalization charges.
- Key risks include customer concentration, dependence on Mitek, regulatory approval and clinical-trial risk, reimbursement and pricing pressure, supply-chain concentration, acquisition integration, goodwill and intangible-asset impairment, cybersecurity, product liability, and continuing pandemic effects.
- Management and Deloitte reported effective internal control over financial reporting, but the assessment excluded certain controls of the acquired businesses, representing approximately 14% of consolidated assets and 27% of consolidated revenue.
Most important facts an investor should verify
- Whether elective procedure volumes and Joint Pain Management revenue recover without renewed COVID-19 disruption.
- Whether the acquired Parcus Medical and Arthrosurface businesses achieve expected growth and integration benefits after the 2020 goodwill write-off.
- The timing, enrollment progress, cost, and ultimate results of the Cingal pilot and required Phase III trial, and the Hyalofast U.S. clinical program.
- Whether Mitek maintains its purchasing and distribution relationship, given its 49% contribution to 2020 product revenue.
- The amount and timing of remaining acquisition earn-out payments and the assumptions supporting their fair value.
- Whether cash generation remains sufficient to fund operations, clinical development, capital expenditures, and potential earn-outs without additional financing.
- The sustainability of the company’s non-GAAP adjusted EBITDA and adjusted net income after excluding acquisition, impairment, inventory step-up, and contingent-consideration items.