Anika Therapeutics, Inc. — 2022 Second-Quarter Form 10-Q Summary
Business context and reporting period
Anika is a global joint-preservation company developing and commercializing products for osteoarthritis pain management, regenerative solutions, soft-tissue repair, and bone-preserving joint technologies. The company operates as one reportable segment and sells globally through direct commercial operations, distributors, strategic partners, hospitals, and ambulatory surgery centers.
This unaudited Form 10-Q covers the three and six months ended June 30, 2022, compared with the corresponding 2021 periods. The filing was dated August 4, 2022. Anika had 14.6 million common shares outstanding as of July 29, 2022.
Key financial metrics
| Metric | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 |
|---|---|---|---|---|
| Revenue | $39.7 million | $38.1 million | $76.4 million | $72.4 million |
| Gross profit | $24.9 million | $20.8 million | $46.7 million | $41.8 million |
| Gross margin | 63% | 55% | 61% | 58% |
| Operating income (loss) | $(3.4) million | $9.2 million | $(6.9) million | $10.4 million |
| Net income (loss) | $(2.8) million | $6.5 million | $(5.8) million | $9.4 million |
| Diluted EPS | $(0.20) | $0.45 | $(0.40) | $0.64 |
| Net cash provided by operating activities | Not provided for quarter | Not provided for quarter | $1.2 million | $1.9 million |
| Adjusted EBITDA | $4.4 million | $6.1 million | $7.0 million | $10.9 million |
Revenue increased 4% in the second quarter and 5% year to date. OA Pain Management revenue increased 6% in the quarter and 11% year to date; Joint Preservation and Restoration increased 2% and 1%, respectively; and Non-Orthopedic revenue declined 6% and 22%, respectively.
Cash and cash equivalents were $91.4 million at June 30, 2022, compared with $94.4 million at December 31, 2021. Working capital was $138.4 million versus $138.7 million at year-end. The company had no outstanding borrowings under its $75.0 million senior revolving credit facility, which may be increased to a maximum aggregate commitment of $150.0 million subject to conditions.
Total liabilities included $29.7 million of long-term lease liabilities and $4.3 million of current contingent consideration. Total assets were $354.1 million and stockholders’ equity was $286.2 million at June 30, 2022.
Material changes versus the prior comparable period
- Gross margin improved because the 2021 periods included acquisition-related inventory step-up charges and product-rationalization charges. These benefits were partly offset by unfavorable revenue mix and production inefficiencies in 2022.
- Operating expenses rose 143% in the second quarter and 71% year to date. The comparison was significantly affected by 2021 non-cash benefits from reductions in the fair value of contingent consideration: $13.7 million in the quarter and $18.5 million year to date.
- SG&A increased 18% in the quarter and 12% year to date as Anika expanded U.S. commercial, marketing, medical education, and operational capabilities. Stock-based compensation increased to $4.1 million in the quarter and $6.6 million year to date.
- Research and development expense declined 4% in both the quarter and year to date, primarily because of lower clinical-trial spending on the Cingal pilot study, which management expected to complete in 2022.
- Adjusted EBITDA declined 28% in the quarter and 36% year to date, reflecting increased commercial spending, lower adjusted gross profit, unfavorable product mix, and supply-chain and staffing-related production inefficiencies.
- Cash decreased by $3.0 million during the first six months of 2022. Operating cash flow of $1.2 million was more than offset by $3.3 million of capital expenditures, $0.9 million of financing cash outflows, and foreign-exchange effects.
Guidance, outlook, commentary, risks, and unusual items
- Management stated that cash on hand, expected operating cash flow, and available credit capacity should be sufficient to fund operations, research and development, commercial investments, and anticipated near-term cash needs. No formal revenue or earnings guidance was provided.
- Management expects continued investment in new products, clinical studies, and commercial infrastructure. The filing states that future cash requirements are expected to increase as operations expand.
- COVID-19 continued to affect elective procedures, clinical-study timelines, staffing, manufacturing, logistics, and customer shipments. The company experienced supply disruptions, back orders, and shipment delays during the first half of 2022 and expects certain supply constraints to continue.
- Inflation and higher labor, shipping, and other operating costs may adversely affect results. Anika relies on a limited number of suppliers, including a single third-party contract manufacturer for bone-preserving joint technologies.
- Revenue concentration remains significant: DePuy Synthes Mitek Sports Medicine represented 45% of second-quarter revenue and 42% of year-to-date revenue.
- The former Parcus Medical unitholders filed an arbitration claim concerning earnout provisions. Anika does not expect resolution during 2022, cannot estimate a potential liability or loss range, and intends to defend the claims vigorously.
- Parcus-related contingent consideration was $4.3 million at June 30, 2022, and management did not expect additional milestones to be achieved. Arthrosurface had no remaining milestones.
- Adjusted gross margin was 67% for the quarter and 65% year to date, below the prior-year adjusted margins of 70% and 71%. Adjusted net loss was $1.6 million for the quarter and $3.2 million year to date.
- The company renewed or extended several facility leases. Total lease liabilities were $29.8 million, including $29.7 million of operating lease liabilities.
- Disclosure controls and procedures were deemed effective, and no material changes to internal control over financial reporting were reported.
Most important facts for investors to verify
- Whether revenue growth and elective-procedure recovery continue despite COVID-19-related staffing and supply-chain constraints.
- The sustainability of gross-margin improvement after excluding 2021 acquisition-related and product-rationalization charges, particularly given the 2022 decline in adjusted gross margin.
- The timing and outcome of the Parcus Medical earnout arbitration and any resulting cash liability beyond the recorded $4.3 million contingent consideration.
- The effect of increased U.S. commercial investment and stock-based compensation on operating leverage and cash generation.
- The company’s dependence on Mitek and the potential impact of changes in that relationship or ordering patterns.
- The filing contains an internal inconsistency requiring verification: the MD&A narrative describes year-to-date diluted EPS as $(0.44), while the consolidated financial statements and EPS reconciliation report $(0.40).