Anika Therapeutics, Inc. — Q3 2022 Form 10-Q Summary
Business context and reporting period
Anika is a global joint-preservation company focused on osteoarthritis pain management, regenerative solutions, soft-tissue repair, and bone-preserving joint technologies. The company reports one operating segment. This unaudited Form 10-Q covers the three and nine months ended September 30, 2022, compared with the corresponding 2021 periods.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Revenue | $40.3 million | $39.5 million | $116.6 million | $112.0 million |
| Gross profit | $22.8 million | $23.0 million | $69.4 million | $64.8 million |
| Gross margin | 57% | 58% | 60% | 58% |
| Operating income (loss) | $(5.8) million | $1.3 million | $(12.7) million | $11.7 million |
| Net income (loss) | $(4.2) million | $0.6 million | $(10.0) million | $9.9 million |
| Diluted EPS | $(0.29) | $0.04 | $(0.68) | $0.68 |
| Adjusted EBITDA | $4.1 million | $5.7 million | $10.7 million | $16.6 million |
- Revenue increased 2% in the quarter and 4% year to date. Nine-month growth was led by OA Pain Management and Joint Preservation and Restoration products.
- Q3 gross profit included a $2.6 million product-rationalization inventory charge, primarily for legacy Non-Orthopedic products that the company no longer expects to sell.
- SG&A increased 22% in Q3 and 15% year to date due primarily to expanded U.S. commercial, marketing, medical-education, and operating capabilities, as well as higher stock-based compensation.
- Research and development declined 5% in Q3 and 4% year to date, primarily because of lower clinical-trial spending following conclusion of the Cingal Phase III trial.
- Cash provided by operating activities was $3.9 million for the first nine months of 2022, essentially unchanged from 2021. Capital expenditures were $5.0 million, and cash used in financing activities was $5.5 million, including the $4.3 million Parcus contingent-consideration payment.
- Cash and cash equivalents were $87.8 million at September 30, 2022, compared with $94.4 million at December 31, 2021. Working capital was $141.4 million versus $138.7 million.
- The company had no outstanding borrowings under its $75 million senior revolving credit facility and was in compliance with its terms. Subject to conditions, total commitments may be increased to $150 million.
- Operating lease liabilities totaled $29.2 million at September 30, 2022. The filing reports no material off-balance-sheet financing arrangements.
Material changes versus the prior comparable periods
- Profitability deteriorated materially: the company moved from net income to net loss in both the quarter and year-to-date period.
- The 2021 results benefited from a $3.5 million Q3 and $21.9 million year-to-date non-cash reduction in the fair value of contingent consideration. No comparable benefit was recorded in 2022.
- Q3 OA Pain Management revenue declined 2%, primarily because of prior-year ordering patterns from Mitek. Year-to-date OA Pain Management revenue increased 6%, driven by international viscosupplement distributors and Hyvisc equine sales.
- Joint Preservation and Restoration revenue increased 6% in Q3 and 2% year to date as hospitals and ambulatory surgery centers recovered from pandemic-related procedure disruptions.
- Adjusted EBITDA declined 30% in Q3 and 35% year to date, reflecting increased commercial spending, higher manufacturing costs, production inefficiencies, and supply-chain and staffing challenges.
- Revenue concentration in Mitek decreased but remained significant: Mitek represented 45% of Q3 revenue and 43% of nine-month revenue, compared with 51% and 46%, respectively, in 2021.
- The company paid the remaining $4.3 million of Parcus Medical contingent consideration during Q3 and does not expect further milestones under the disclosed acquisition arrangements.
Outlook, commentary, risks, and unusual items
Management states that cash on hand, expected operating cash flow, and available credit are sufficient for anticipated operating needs and continued investment in research, clinical studies, commercial infrastructure, and capital expenditures. The filing does not provide specific revenue, earnings, or margin guidance.
- COVID-19-related disruptions, elective-procedure volatility, staffing shortages, supply constraints, back orders, and shipment delays remain significant risks. Management expects certain supply-chain disruptions to continue.
- The company relies on a limited number of suppliers, including a single third-party contract manufacturer for bone-preserving joint technologies. Alternative suppliers may be costly, unavailable, or require regulatory approval.
- Inflation has increased shipping, labor, materials, and other costs and could reduce demand for elective orthopedic procedures.
- The former Parcus Medical unitholders have initiated arbitration concerning earnout provisions. The company cannot estimate a potential liability or loss range, does not expect resolution during 2022, and intends to defend the claims.
- The company extended Mitek’s Orthovisc licensing arrangement in August 2022; the current term expires December 20, 2028 unless extended at Mitek’s option. Monovisc’s U.S. licensing agreement runs through December 2026.
- Management identifies regulatory approvals, product commercialization, clinical development, intellectual-property protection, key personnel, competition, and potential future acquisitions or partnerships as continuing business risks.
- Q3 results included $2.6 million of product-rationalization charges. Nine-month results also reflect $10.5 million of stock-based compensation and $5.8 million of acquisition-related intangible amortization.
Important facts for investors to verify
- Whether supply-chain, manufacturing, and staffing constraints continue to limit product availability, revenue, and margins.
- The timing and outcome of the Parcus earnout arbitration and any resulting financial exposure.
- Progress toward converting increased U.S. commercial spending into sustained Joint Preservation and Restoration growth and improved adjusted EBITDA.
- Customer concentration and the renewal, performance, and ordering patterns associated with Mitek.
- Cash-flow generation relative to planned research, clinical, commercial, and capital investments.
- The effect of legacy product rationalization, inventory reserves, and other unusual charges on future gross margins.
- Regulatory and clinical progress for pipeline products, including Cingal in the United States and Hyalofast.