Anika Therapeutics, Inc. — Q2 2015 Form 10-Q Summary
Business Context and Reporting Period
Anika develops, manufactures, and commercializes hyaluronic-acid-based therapeutic products for tissue protection, healing, and repair. The company reports one operating segment across orthobiologics, dermal, surgical, ophthalmic, and veterinary products. This filing covers the three and six months ended June 30, 2015; financial statements are unaudited.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2015 | Six Months Ended June 30, 2015 |
|---|---|---|
| Total revenue | $22.9 million | $38.4 million |
| Product revenue | $22.9 million | $38.4 million |
| Product gross profit | $17.6 million | $28.8 million |
| Product gross margin | 77% | 75% |
| Income from operations | $12.4 million | $17.9 million |
| Operating margin | Approximately 54% | Approximately 47% |
| Net income | $7.8 million | $11.3 million |
| Net margin | Approximately 34% | Approximately 30% |
| Diluted EPS | $0.51 | $0.74 |
| Cash flow from operations | Not separately reported | $14.9 million |
At June 30, 2015, cash and cash equivalents were $103.9 million and investments were $18.5 million, totaling approximately $122.4 million. Working capital was approximately $147.8 million. Total assets were $208.0 million and stockholders’ equity was $190.6 million. The balance sheet does not separately disclose a debt balance; current liabilities were $8.0 million, and long-term liabilities included $8.6 million of deferred tax liabilities and $0.8 million of other long-term liabilities.
Material Changes Versus the Prior Comparable Period
- Second-quarter total revenue declined 13% to $22.9 million, while six-month revenue declined 36% to $38.4 million. The declines primarily reflect significant MONOVISC licensing and milestone revenue recognized in 2014.
- Product revenue increased 8% in both the quarter and year-to-date period. Product gross margin improved from 75% to 77% in the quarter and from 73% to 75% year to date, reflecting favorable product mix and manufacturing efficiencies.
- Second-quarter net income decreased 16% to $7.8 million; six-month net income decreased 53% to $11.3 million. The prior-year period included approximately $24.7 million of MONOVISC licensing and milestone revenue.
- Research and development expense decreased 3% in the quarter and 6% year to date, primarily because 2014 included higher CINGAL pivotal-study activity. Management expects research and development spending to increase as new clinical trials begin.
- SG&A expense decreased 12% in the quarter and 5% year to date, primarily due to the full amortization of certain intangible assets in December 2014.
- Cash flow from operations decreased from $17.8 million to $14.9 million year to date, primarily because of lower earnings and higher accounts receivable, partly offset by lower inventory.
- Cash used in investing activities increased to $12.9 million, primarily because of purchases of investments. The company also expects approximately $8 million of 2015 spending to establish Bedford manufacturing capacity for HYAFF-based products.
Guidance, Outlook, Risks, and Unusual Items
- Management expects orthobiologics revenue to grow in 2015, led by MONOVISC in the United States and viscosupplementation products internationally. Mitek’s inventory reduction is expected to be completed during the third quarter.
- Management expects advanced wound-care revenue to increase, surgical revenue to be slightly lower, ophthalmic revenue to decrease because the AMVISC supply agreement ended in 2014, and veterinary revenue to increase.
- Second-quarter product revenue included approximately $1.8 million of non-recurring revenue related to an agreed adjustment for MONOVISC sold to Mitek before the fourth quarter of 2014. Excluding this item, quarterly product revenue was approximately comparable with the prior year.
- Management expects licensing, milestone, and contract revenue to decline in 2015 because major MONOVISC milestones were achieved and recognized in 2014.
- HYALOFAST received FDA IDE approval in July 2015, and management planned to begin a Phase III trial in the second half of 2015. The FDA also approved an IDE for an expanded hip-pain indication for MONOVISC in July 2015.
- CINGAL regulatory discussions with the FDA were ongoing. Management expected a fall 2015 meeting with the FDA’s Office of Combination Products regarding the product’s regulatory pathway.
- The company received CE Mark approval for HYALOSPINE in January 2015 and began amortizing the related developed-technology asset.
- Principal risks include regulatory approval and commercialization, clinical-trial outcomes, competition, pricing pressure, product quality or supply disruptions, intellectual-property protection, foreign operations and currency movements, dependence on key personnel and partners, and changing healthcare policies.
- The company stated that it had adequate financial resources for at least the next twelve months. It has historically generated positive operating cash flow but noted that additional equity, debt, strategic alliance, or other financing could be required if existing resources become insufficient.
- Routine legal proceedings are not expected to have a material adverse effect. No material changes to previously reported risk factors or contractual obligations were disclosed.
Most Important Facts for Investors to Verify
- Whether MONOVISC U.S. demand and Mitek inventory normalization support recurring product-revenue growth after excluding the $1.8 million non-recurring adjustment.
- The timing, cost, and regulatory outcome of CINGAL, HYALOFAST, and expanded-use MONOVISC programs.
- Progress and actual spending on the approximately $8 million Bedford manufacturing-capacity project.
- Whether improved product gross margins are sustainable given product mix and foreign-currency effects.
- The extent to which 2015 earnings and cash flow are affected by the absence of 2014 MONOVISC milestone revenue.
- Potential exposure from regulatory, intellectual-property, product-liability, supply, partner, and international-market risks.