2 0 0 9
Annual Report
D E A R
Shareholders,
In a year that culminated with the transformative acquisition of Fidia
Advanced Biopolymers S.r.l. (“FAB”), Anika performed well financially
and achieved many important strategic milestones.
During 2009, we grew product revenue year-over-year by 13% and broke
the $40 million threshold in overall revenue for the first time with a 12%
year-over-year increase to $40.1 million. We also completed our seventh-
consecutive profitable year and increased Non-GAAP EPS to $0.48 from
$0.32 a year ago, while continuing to make significant investments in
infrastructure and product development.
From a revenue standpoint, the highlight of the year was our success
in increasing sales of ORTHOVISC.® We achieved another record year for
ORTHOVISC sales on the strength of U.S. demand, growing revenue by 28%.
Internationally, we continued to sign new distributors for ORTHOVISC in
order to broaden our market presence. We began selling product in Latin
America in the second quarter and expect approvals in new countries in
that region in 2010. In terms of international revenue growth, sales to
France, Hungary and Egypt drove an 8% increase in international sales.
Anika’s joint heath franchise is the growth engine for the Company, and
our single-injection osteoarthritis treatment, MONOVISC,TM looms large in
our strategic plans. MONOVISC, which we believe has exciting growth
potential, benefits patients and physicians by minimizing the number
of office visits, and thereby increasing convenience and lowering costs
to the patient.
0 9 A N N U A L R E P O R T
Anika Therapeutics
Internationally, we are working to expand our geographic reach and
establish MONOVISC as the premier single-injection product on the
“market worldwide. In the third quarter, we secured regulatory approval
for MONOVISC in Canada, and began selling the product through Rivex
Pharma, our long-term Canadian ORTHOVISC distribution partner.
The real growth potential for MONOVISC, however, is in the U.S., which is
the largest market for HA-based viscosupplementation treatments. During
2009 we completed the retreatment phase of our MONOVISC clinical study,
during which we re-injected and then evaluated 250 of the original patients
from our pivotal trial. The purpose was to confirm the safety of repeat
treatments. Our pivotal study report was the final important component of
our PMA filing with the U.S. FDA, which we completed on schedule by the
end of 2009. We expect a domestic launch of the product in 2010.
At the end of the year, we announced
that we will develop our own U.S.
direct sales capability to capture higher
margins from the domestic sales of
MONOVISC. Direct commercialization gives us much greater
control of our product success in the market and a significantly greater
share of the profits generated. By the expected launch of the product in
the second half of 2010, we plan to have our direct salespeople in place,
complemented by contract sales organizations.
Our acquisition of FAB synergizes exceptionally well with our decision
to go direct. These two strategic initiatives are mutually reinforcing
milestones that we expect to propel Anika to a new stage of growth.
FAB, which develops HA-based therapeutic products in several areas,
has a number of commercialized joint health products as well as an
0 9 A N N U A L R E P O R T
Anika Therapeutics
exciting product pipeline. We expect that FAB’s joint health product portfolio
will provide a critical mass of products to sell into the U.S. market, along with
MONOVISC, upon its approval. While FAB does not currently have any U.S.
joint health product approvals, we believe that many of the products will only
need FDA 510K clearance to begin commercialization. Our goal is to obtain
FDA clearance for three key orthopedic products before the end of 2010.
Internationally, we are planning to
leverage FAB’s distributor partners
in Europe and Asia to enhance sales
of MONOVISC and Anika’s other
products in new and existing
international markets. FAB also has commercialized
products in a number of other therapeutic areas that we believe show the
potential for growth including surgical anti-adhesion, treatment of ear,
nose and throat disorders, advanced wound care, and urogynecology.
Another important reason FAB was so appealing to us is their innovative
regenerative tissue technology. Through a patented process, FAB has
developed a solid form of HA to create a filament fabric structure that
promotes the attachment and growth of cells. This scaffolding technology,
which has been applied to the growth of skin and cartilage tissues, advances
our vision to offer therapeutic products that go beyond pain relief to protect
and restore damaged tissue. While FAB currently sells its tissue technology
product predominantly in Italy, we expect to expand distribution into
additional European countries in 2010.
0 9 A N N U A L R E P O R T
Anika Therapeutics
FAB also has strong research expertise that complements Anika’s
excellent mid- and late-stage development capabilities and manufacturing
resources. During the year, we will be integrating FAB’s R&D activities with
Anika. Together, we will be a much stronger organization in terms of the
entire product lifecycle.
From a financial perspective, reducing FAB’s net loss to less than $2
million in 2010 through cost synergies and product rationalization is
a key near-term goal for us. We expect that FAB will be accretive to
Anika’s earnings in 2011 and will generate significant opportunities
for long-term growth and increased profitability.
While joint health was certainly
our focus in 2009, we also made
accomplishments in the areas of
aesthetics and surgical products
during the year. We signed our U.S. distribution partner,
Coapt Systems, and launched “Hydrelle” in the third quarter. We also
filed a CE Mark approval for a lighter version of Hydrelle to be used for the
treatment of fine lines, and are planning to launch the product in Europe
in 2010. Another area coming into focus with the FAB acquisition is the use
of HA products in connection with a variety of surgical procedures. While
joint health is unquestionably our primary growth driver, we see attractive
growth potential in the surgical anti-adhesion area and are beginning to
explore how we might carve out an effective niche position there.
0 9 A N N U A L R E P O R T
Anika Therapeutics
As we look to 2010, never before has Anika had so much opportunity before
it, and so many important milestones to meet. Our dedicated employees
will be working to accomplish five key goals in 2010.
First, we plan to continue to grow sales of ORTHOVISC in the United
States and internationally.
Second, we are focused on developing our hybrid direct sales model
and launching MONOVISC domestically upon its approval by the FDA.
Third, we expect to receive approval and launch key FAB orthopedic
products in the United States.
Fourth, we will work toward expanding FAB’s innovative tissue
technology products beyond Italy into other areas of Europe.
And finally, we plan to reduce FAB’s operating loss through cost
synergies and product rationalization, positioning us to generate
profits from FAB in 2011.
In closing, I would like to thank you
for your continued support of Anika.
We have accomplished a tremendous amount in 2009, and we expect
to achieve so much more in 2010. We look forward to sharing our
progress with you throughout the year.
Sincerely,
Charles H. Sherwood, Ph.D
President and Chief Executive Officer
April 22, 2010
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
For the transition period from to
Commission File Number 000-21326
Anika Therapeutics, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Massachusetts
(State or Other Jurisdiction of Incorporation or Organization)
04-3145961
(IRS Employer Identification No.)
32 Wiggins Avenue, Bedford, Massachusetts 01730
(Address of Principal Executive Offices) (Zip Code)
(781) 457-9000
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $.01 per share
Preferred Stock Purchase Rights
Name of Each Exchange on Which Registered: NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller
reporting company)
Smaller reporting company
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
The aggregate market value of voting and non-voting stock held by non-affiliates of the Registrant as of June 30, 2009, the
last day of the Registrant’s most recently completed second fiscal quarter, was $54,330,410 based on the close price per share of
Common Stock of $4.75 as of such date as reported on the NASDAQ Global Select Market. Shares of our Common Stock held by
each executive officer, director and each person or entity known to the registrant to be an affiliate have been excluded in that such
persons may be deemed to be affiliates; such exclusion shall not be deemed to constitute an admission that any such person is an
“affiliate” of the registrant. At March 1, 2010, there were issued and outstanding 13,449,210 shares of Common Stock, par value $.01
per share.
Documents Incorporated By Reference
The registrant intends to file a proxy statement pursuant to Regulation 14A within 120 days of the end of the fiscal year
ended December 31, 2009. Portions of such proxy statement are incorporated by reference into Part III of this Annual Report on
Form 10-K.
2
Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Item 15.
Signatures
ANIKA THERAPEUTICS, INC.
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
(Removed and Reserved)
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
3
Page
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14
24
24
25
25
26
27
28
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44
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75
FORM 10-K
ANIKA THERAPEUTICS, INC.
For Fiscal Year Ended December 31, 2009
This Annual Report on Form 10-K, including the documents incorporated by reference into this Annual Report on Form 10-
K, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including, without limitation, statements regarding:
•
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our future sales and product revenue, including geographic expansions, possible retroactive price adjustments, and
expectations of unit volumes or other offsets to price reductions;
our manufacturing capacity and efficiency gains and work-in-process manufacturing operations;
the timing, scope and rate of patient enrollment for clinical trials;
the development of possible new products;
our ability to achieve or maintain compliance with laws and regulations;
the timing of and/or receipt of the Food and Drug Administration (“FDA”), foreign or other regulatory approvals
and/or reimbursement approvals of current, new or potential products, and any limitations on such approvals;
our intention to seek patent protection for our products and processes, and protect our intellectual property;
our ability to effectively compete against current and future competitors;
negotiations with potential and existing partners, including our performance under any of our existing and future
distribution or supply agreements or our expectations with respect to sales and sales threshold milestones pursuant to
such agreements;
the level of our revenue or sales in particular geographic areas and/or for particular products, and the market share
for any of our products;
our current strategy, including our corporate objectives and research and development and collaboration
opportunities;
our and Bausch & Lomb’s performance under the existing supply agreement for certain of our ophthalmic
viscoelastic products, our ability to remain the exclusive global supplier for AMVISC and AMVISC Plus to
Bausch & Lomb beyond the December 31, 2010 expiration date, and our expectations regarding revenue from
ophthalmic products;
our ability, and the ability of our distribution partner, to market our aesthetic dermatology product;
our expectations regarding our joint health products, including expectations regarding new products, expanded uses
of existing products, new distribution and revenue growth;
4
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our intention to increase market share for joint health products in international and domestic markets or otherwise
penetrate growing markets for osteoarthritis of the knee and other joints;
our expectations regarding next generation osteoarthritis/joint health product developments, clinical trials, regulatory
approvals and commercial launches;
our expectations regarding HYVISC sales;
our expectations regarding the development and commercialization of INCERT, and the market potential for
INCERT;
our expectations regarding HYDRELLE™ product sales in the United States;
our ability to license our aesthetics product to new distribution partners outside of the United States;
our expectations regarding product gross margin;
our expectations regarding our U.S. MONOVISC trials and the results of the related premarket approval (“PMA”)
filing with the FDA, including the anticipated timing thereof;
our expectations regarding the commencement of a clinical trial for CINGAL and our ability to obtain regulatory
approvals for CINGAL;
our expectations regarding our existing aesthetics product’s line extensions;
our expectation for increases in operating expenses, including research and development and selling, general and
administrative expenses;
the rate at which we use cash, the amounts used and generated by operations, and our expectation regarding the
adequacy of such cash;
our expectation for capital expenditures spending and decline in interest income;
possible negotiations or re-negotiations with existing or new distribution or collaboration partners;
our expectations regarding our existing manufacturing facility and the Bedford, MA facility, our expectations related
to costs, including financing costs, to build-out and occupy the new facility, the timing of construction, and our
ability to obtain FDA licensure for the facility;
our abilities to comply with debt covenants;
our ability to obtain additional funds through equity or debt financings, strategic alliances with corporate
partners and other sources, to the extent our current sources of funds are insufficient;
our plans to address the FDA’s Warning Letter and Form 483 Notice of Observations and the impact any associated
regulatory action would have on our business and operations;
our expectations regarding the timing of receipt of clearance of the FDA Warning Letter;
our abilities to successfully integrate Fidia Advanced Biopolymers, our recently acquired subsidiary (“FAB”) into the
Company and turnaround the operation from one with losses, into a company generating profits.
Our ability to obtain U.S. approval for the products of Fidia Advanced Biopolymers and to expand sales of these
products in the U.S., including our ability to obtain FDA approval for FAB’s suite of orthopedic products; and
Our ability to directly commercialize MONOVISC and the FAB products directly to customers
Furthermore, additional statements identified by words such as “will,” “likely,” “may,” “believe,” “expect,” “anticipate,”
“intend,” “seek,” “designed,” “develop,” “would,” “future,” “can,” “could” and other expressions that are predictions of or
indicate future events and trends and which do not relate to historical matters, also identify forward-looking statements.
You should not rely on forward-looking statements because they involve known and unknown risks, uncertainties and other
factors, some of which are beyond our control, including those factors described in the section titled “Risk Factors” in this Annual
Report on Form 10-K. These risks, uncertainties and other factors may cause our actual results, performance or achievement to be
materially different from the anticipated future results, performance or achievement, expressed or implied by the forward-looking
statements. These forward-looking statements are based upon the current assumptions of our management and are only expectations
of future results. You should carefully review all of these factors, and you should be aware that there may be other factors that could
cause these differences, including those factors discussed in the sections titled “Business” and “Management’s Discussions and
Analysis of Financial Condition and Results of Operations” elsewhere in this Annual Report on Form 10-K. We undertake no
obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new
information, future events or other changes.
5
ITEM 1. BUSINESS
Overview
PART I
Anika Therapeutics, Inc. (“Anika,” and together with its subsidiaries, the “Company,” “we,” “us,” or “our”) was
incorporated in 1992 as a Massachusetts company. Anika develops, manufactures and commercializes therapeutic products for tissue
protection, healing and repair. These products are based on hyaluronic acid (“HA”), a naturally occurring, biocompatible polymer
found throughout the body. Due to its unique biophysical and biochemical properties, HA plays an important role in a number of
physiological functions such as the protection and lubrication of soft tissues and joints, the maintenance of the structural integrity of
tissues, and the transport of molecules to and within cells.
On December 30, 2009, Anika Therapeutics, Inc. entered into a Sale and Purchase Agreement (the “Purchase Agreement”)
with Fidia Farmaceutici S.p.A., a privately held Italian corporation, pursuant to which the Company acquired 100% of the issued and
outstanding stock of Fidia Advanced Biopolymers S.r.l. (“FAB”), a privately held Italian corporation for a purchase price consisting of
$17.1 million in cash and 1,981,192 shares of the Company’s common stock valued at $16.8 million based on the closing stock price
of $8.49 per share. See Item 8: Financial Statements, Note 19, "Acquisition of Fidia Advanced Biopolymers, S.r.l." for additional
information regarding the acquisition.
FAB has over 20 products currently commercialized, primarily in Europe. These products are also all made from
hyaluronic acid, and based on two technologies “HYAFF”, which is a solid form of HA, and ACP gel, an autocross-linked polymer of
HA. Both technologies are protected by an extensive portfolio of owned and licensed patents. With the acquisition of FAB,
beginning in 2010, the Company now offers therapeutic products in the following areas:
Orthopedic/joint health
Advanced wound care
Ophthalmic surgery
Surgical/Anti-adhesion
Ear, nose & throat care
(Otolaryngology)
Aesthetic dermatology
Veterinary
Anika FAB
X
X
X
X
X
X
X
X
X
The Company plans to directly commercialize MONOVISC and certain FAB products in the U.S. once we receive FDA
approval to market. In 2010 we will begin adding resources and materials to implement this plan.
The following sections provide more specific information on our products and related activities:
Orthopedic/Joint Health Business
Osteoarthritis is a debilitating disease causing pain, swelling and restricted movement in joints. It occurs when the cartilage
in a joint gradually deteriorates due to the effects of mechanical stress, which can be caused by a variety of factors including the
normal aging process. In an osteoarthritic joint, particular regions of articulating surfaces are exposed to irregular forces, which result
in the remodeling of tissue surfaces that disrupt the normal equilibrium or mechanical function. As osteoarthritis advances, the joint
gradually loses its ability to regenerate cartilage tissue and the cartilage layer attached to the bone deteriorates to the point where
eventually the bone becomes exposed. Advanced osteoarthritis often requires surgery and the possible implantation of artificial joints.
The current treatment options for osteoarthritis before joint replacement surgery include viscosupplementation, analgesics, non-
steroidal anti-inflammatory drugs and steroid injections.
6
Our joint health products include ORTHOVISC, ORTHOVISC mini, and MONOVISC. ORTHOVISC is available in the
U.S., Canada, Turkey and other international markets for the treatment of osteoarthritis of the knee, and in Europe for the treatment of
osteoarthritis in all joints. ORTHOVISC mini is available in Europe, and is designed for the treatment of osteoarthritis in small joints.
MONOVISC is our single injection osteoarthritis treatment indicated for all joints in Europe, and for the knee in Turkey and Canada.
ORTHOVISC mini and MONOVISC are our two newest joint health products and became available during the second quarter of
2008. Our revenue from joint health products has increased 22% in 2009 from 2008.
In the U.S., ORTHOVISC is indicated for the treatment of pain caused by osteoarthritis of the knee in patients who have
failed to respond adequately to conservative non-pharmacologic therapy and to simple analgesics, such as acetaminophen.
ORTHOVISC has been approved for use in all joints in Europe and certain other international markets. It is a sterile, clear,
viscoelastic solution of hyaluronan dissolved in physiological saline, and dispensed in a single-use syringe. A complex sugar of the
glycosaminoglycan family, hyaluronan is a high molecular weight polysaccharide composed of repeating disaccharide units of sodium
glucuronate and N-acetylglucosamine. ORTHOVISC is injected into joints in a series of three intra-articular injections one week
apart. ORTHOVISC became available for sale in the U.S. on March 1, 2004, and is marketed by DePuy Mitek, under the terms of a
ten-year licensing, distribution, supply and marketing agreement (the “JNJ Agreement”).
We have a number of distribution relationships servicing international markets including Canada, Europe, Turkey, the
Middle East, Latin America, and Asia. We will continue to seek to establish distribution relationships in other regions. See the
sections captioned “ Management’s Discussion and Analysis of Financial Condition and Results of Operations—Management
Overview ” and “ Risk Factors. ”
With the acquisition of FAB, we now offer several additional products used in connection with orthopedic regenerative
medicine. The products currently available in Europe, include Hyalograft C Autograft for cartilage regeneration; Hyalofast, a
biodegradable support for human bone marrow mesenchymal stem cells; Hyalonect, a woven gauze used as a graft wrap; and Hyaloss,
HYAFF fibers used to mix blood/bone grafts to form a paste for bone regeneration. FAB also offers Hyaloglide, an ACP gel used in
tenolysis treatment, but with potential for flexor tendon adhesion prevention, and in the shoulder for adhesive capsulitis. FAB’s
products are commercialized directly in Italy, and through a network of distributors, primarily in Europe, the Middle East, Argentina,
and Korea. One of Anika’s area of focus is to seek U.S. approval of a number of these products, as Anika believes it has the
opportunity to expand its sales of these products in the U.S.
Advanced Wound Care Business
With the FAB acquisition, the Company has now entered the field of advanced wound care products. FAB offers over
seven products for treatment of skin wounds ranging from burns to diabetic ulcers. The products cover a variety of wound treatment
solutions including debridement agents, advanced therapies and skin substitutes. Leading products include Hyalograft 3D, for the
regeneration of skin; and Hyalomatrix, for treatment of burns and ulcers and the only product not contra-indicated for 3 rd degree
burns. FAB’s products are commercialized directly in Italy, and through a network of distributors, primarily in Europe, the Middle
East, Argentina, and Korea. Several of the products are also approved for sale in the United States, and the Company is exploring
distribution opportunities.
Ophthalmic Business
Our ophthalmic business includes HA viscoelastic products used in ophthalmic surgery. The ophthalmic products we
manufacture include the AMVISC and AMVISC Plus product line, STAARVISC-II, and ShellGel. They are injectable, high
molecular weight HA products used as viscoelastic agents in ophthalmic surgical procedures such as cataract extraction and
intraocular lens implantation. These products coat, lubricate and protect sensitive tissue such as the endothelium, and maintain the
shape of the eye, thereby facilitating ophthalmic surgical procedures.
Anika manufactures the AMVISC product line for Bausch & Lomb under the terms of a supply agreement through
December 31, 2010 (the “2004 B&L Agreement”) for viscoelastic products used in ophthalmic surgery. B&L accounts for 27% of
product revenue for the year ended 2009. Under the 2004 B&L Agreement, we will continue to be the exclusive global supplier (other
than with respect to Japan) for AMVISC and AMVISC Plus to Bausch & Lomb through December 31, 2010. The 2004 B&L
Agreement also provides us with a right to negotiate to manufacture future surgical ophthalmic viscoelastic products developed by
Bausch & Lomb, while Bausch & Lomb has been granted rights to commercialize certain future surgical ophthalmic viscoelastic
products developed by us. Under the 2004 B&L Agreement, we are entitled to continue providing surgical viscoelastic products to our
existing customers (STAAR Surgical Company and Hoya Surgical Optics, Inc.) who currently receive such products from us. See also
Item 1A. “ Risk Factors. ”
7
Surgical/Anti-adhesion Business
INCERT, approved for sale in Europe and Turkey, is designed as a family of HA based products, with chemically modified,
cross-linked HA, for prevention of post-surgical adhesions. Surgical adhesions occur when fibrous bands of tissues form between
adjacent tissue layers during the wound healing process. Although surgeons attempt to minimize the formation of adhesions, they
nevertheless occur quite frequently after surgery. Adhesions in the abdominal and pelvic cavity can cause particularly serious
problems such as intestinal blockage following abdominal surgery, and infertility following pelvic surgery. Fibrosis following spinal
surgery can complicate re-operation and may cause pain. INCERT is currently marketed in three countries. We see potential for
expanded indications for the use of INCERT, but have made this a secondary goal to the successful launch and expanded distribution
of our joint health and aesthetic dermatology products. There are currently no plans at this time to distribute INCERT in the U.S.
Anika co-owns issued U.S. patents covering the use of INCERT for adhesion prevention. See the section captioned “ Patent
and Propriety Rights. ”
Hyalobarrier and Hyalobarrier Endo are a clinically proven post operative adhesion barrier approved for abdominal
indications. The products are currently commercialized by FAB in Europe, the Middle East and certain Asian countries through a
distribution network, but are not approved in the U.S.
Ear, Nose and Throat (“ENT”) Business
FAB offers eight products used in connection with the treatment of ENT disorders. The lead product is Merogel, a thick,
viscous hydrogel composed of cross-linked hyaluronic acid—a biocompatible agent that creates a moist wound- healing
environment. FAB is partnered with Medtronic for worldwide distribution.
Aesthetic Dermatology Business
Our aesthetic dermatology business is designed to have a family of products for facial wrinkles and scar remediation, and is
intended to compete with collagen-based and other HA-based products currently on the market. Our initial aesthetic dermatology
product is a dermal filler based on our proprietary chemically modified, cross-linked HA, and is approved in Europe, Canada, the U.S
and certain countries in South America. This product is marketed in the U.S. by Coapt under the name of HYDRELLE™. Our
distribution agreement with Coapt was signed in May 2009. Coapt began selling the product in the third quarter of
2009. Internationally the product is marketed under the ELEVESS™ name, and in 2010 expected to also be marketed under the
HYDRELLE™ brand. We continue to focus on the development and expansion of the product in additional countries.
In late 2009, Anika received a CE mark for a less concentrated formulation product branded ELEVESS Light. We plan to
begin marketing this product in Europe in 2010 through our existing distribution network.
Veterinary Business
HYVISC is a high molecular weight injectable HA product for the treatment of joint dysfunction in horses due to non-
infectious synovitis associated with equine osteoarthritis. HYVISC has viscoelastic properties that lubricate and protect the tissues in
horse joints. HYVISC is distributed by Boehringer Ingelheim Vetmedica, Inc. in the United States.
See Note 15 to our consolidated financial statements, “Revenue by Product Group, by Significant Customer and by
Geographic Region,” for a discussion regarding our segments and geographic sales.
Research and Development of Potential Products
Anika’s research and development efforts primarily consist of the development of new medical applications for our HA-
based technology, the management of clinical trials for certain product candidates, the preparation and processing of applications for
regulatory approvals at all relevant stages of development, and process development and scale-up manufacturing activities relative to
our Bedford manufacturing facility. Our development focus includes chemically modified formulations of HA designed for longer
residence time in the body. For the years ended December 31, 2009, 2008 and 2007, these expenses were $8.2 million, $7.4 million,
and $4.4 million, respectively. We anticipate that we will continue to commit significant resources to research and development,
including clinical trials, in the future.
8
With the acquisition of FAB, we have enhanced both our research and development capabilities and our pipeline of
candidate products. FAB has significant research and development programs for new products including Hyalobone, a bone tissue
filler; Hyalospine, an adhesion prevention gel for use after spinal surgery; and Hyalofast, to repair small cartilage defects.
In addition to the FAB products in the preceding paragraph, additional products in development include MONOVISC for
U.S. marketing approval, and additional next generation joint health products. Our first next generation osteoarthritis product is
MONOVISC, a single-injection treatment product that uses a non-animal source HA. MONOVISC is also our first osteoarthritis
product based on our proprietary crosslinked HA-technology. We received Conformité Européene (“CE”) Mark approval for the
MONOVISC product in October 2007, and began sales in Europe during the second quarter of 2008, following a small, post-
marketing clinical study. In the U.S., we filed an investigational device exemption, or an IDE application, with the FDA, and
completed the clinical segment of the U.S. MONOVISC pivotal trial in June 2009, and a follow-on retreatment study in September
2009. We filed the final module of our MONOVISC PMA containing the clinical data in December 2009, and we expect to receive
FDA approval in the second half of 2010. Our second single-injection osteoarthritis product under development is CINGAL™, which
is based on the same technology platform used in MONOVISC, with an added active therapeutic molecule to provide broad pain relief
for a long period of time. One of our primary goals for the upcoming year is to integrate the research and development efforts of both
companies, and rationalize and optimize our new product development activities.
There is a risk that our efforts will not be successful in (1) developing our existing product candidates, (2) expanding the
therapeutic applications of our existing products, or (3) resulting in new applications for our HA technology. There is also a risk that
we may choose not to pursue development of potential product candidates. We may not be able to obtain regulatory approval for any
new applications we develop. Furthermore, even if all regulatory approvals are obtained, there can be no assurances that we will
achieve meaningful sales of such products or applications. See Item 1A. “Risk Factors.”
Patent and Proprietary Rights
Our products and trademarks, including our Company name, product names and logos, are proprietary. We rely on a
combination of patent protection, trade secrets and trademark laws, license agreements, confidentiality and other contractual
provisions to protect our proprietary information.
We have a policy of seeking patent protection for patentable aspects of our proprietary technology. Our issued patents expire
between 2010 and 2023. Anika co-owns certain U.S. patents and a patent application with claims relating to the chemical modification
of HA and certain adhesion prevention uses and certain drug delivery uses of HA. Anika also solely own patents covering composition
of matter and certain manufacturing processes. FAB’s issued patents expire between 2010 and 2026. The FAB patent estate is
extensive and intertwined with its former parent company, Fidia Farmaceutici S.p.A, through a cross-licensing agreement which
provides both companies with access to each others patents to the extent required to support their own products. We intend to seek
patent protection for products and processes developed in the course of our activities when we believe such protection is in our best
interest and when the cost of seeking such protection is not inordinate relative to the potential benefits. See also the section captioned
“ Risk Factors—We may be unable to adequately protect our intellectual property rights. ”
Other entities have filed patent applications for or have been issued patents concerning various aspects of HA-related
products or processes. In addition, the products or processes we develop may infringe the patent rights of others in the future. Any
such infringement may have a material adverse effect on our business, financial condition, and results of operations. See also the
section captioned “ Risk Factors—We may be unable to adequately protect our intellectual property rights. ”
We also rely upon trade secrets and proprietary know-how for certain non-patented aspects of our technology. To protect
such information, we require certain customers and vendors, and all employees, consultants and licensees to enter into confidentiality
agreements limiting the disclosure and use of such information. These agreements, however, may not provide adequate protection. See
also the section captioned “ Risk Factors—We may be unable to adequately protect our intellectual property rights. ”
9
We have granted Depuy Mitek an exclusive, non-transferable royalty bearing license to use and sell ORTHOVISC (and
other products developed pursuant to the JNJ Agreement) in the U.S., as well as a license to manufacture and have manufactured such
products in the event that we are unable to supply them with products in accordance with the terms of the JNJ Agreement.
Government Regulation
United States Regulation
Our research (including clinical research), development, manufacture, and marketing of products are subject to regulation by
numerous governmental authorities in the U.S. and other countries. Medical devices and pharmaceuticals are subject to extensive and
rigorous regulation by the FDA and by other federal, state and local authorities. The Federal Food, Drug and Cosmetic Act (“FDC
Act”) governs the conditions of safety, efficacy, clearance, approval, manufacture, quality system requirements, labeling, packaging,
distribution, storage, record keeping, reporting, marketing, advertising, and promotion of our products. Noncompliance with
applicable requirements can result in, among other things, fines, injunctions, civil penalties, recall or seizure of products, total or
partial suspension of production, failure of the government to grant premarket clearance or approval of products, withdrawal of
clearances and approvals, and criminal prosecution.
Medical products regulated by the FDA are generally classified as drugs, biologics, and/or medical devices. Medical devices
intended for human use are classified into three categories (Class I, II or III), on the basis of the controls deemed reasonably necessary
by the FDA to assure their safety and efficacy. Class I devices are subject to general controls, for example, labeling and adherence to
the FDA’s Good Manufacturing Practices/Quality System Regulation (“GMP/QSR”). Most Class I devices are exempt from the FDA
review process and some are exempt from Good Manufacturing Practice. Class II devices are subject to general and special controls
(for example, performance standards, postmarket surveillance, and patient registries). Most Class II devices are subject to premarket
notification and may be subject to clinical testing for purposes of premarket notification and clearance for marketing. Class III is the
most stringent regulatory category for medical devices. Most Class III devices require premarket approval (“PMA”) from the FDA.
All of our existing products, with the exception of HYVISC, are subject to the applicable rules related to Class III devices.
AMVISC, AMVISC Plus, ShellGel and STAARVISC are approved as Class III medical devices in the U.S. for intraocular
ophthalmic surgical procedures in intraocular use in humans. ORTHOVISC is approved as a Class III medical device in the U.S. for
treatment of pain resulting from osteoarthritis of the knee in humans. HYDRELLE™ is approved as a Class III medical device in the
U.S. for treatment of facial wrinkles and folds, such as nasolabial folds. HYVISC is approved as an animal drug for intra-articular
injection in horse joints to treat degenerative joint disease associated with synovitis. Most HA products for human use are regulated as
medical devices. We believe that our INCERT product, should we decide to seek U.S. approval to market, will have to meet the
regulatory requirements for Class III devices and will require clinical trials and a PMA submission. Our new subsidiary, FAB, has
three advanced wound care products approved in the U.S. as Class II devices through premarket notification (510(k))--Hyalomatrix
PA, Hyalofill-R, and Hyalfill-F. All of FAB’s ENT products are 510(k) cleared through Medtronic as Class II devices.
Unless a new device is exempted from premarket notification, its manufacturer must obtain marketing clearance from the
FDA through premarket notification (510(k)) or approval through PMA before the device can be introduced to the market. Product
development and approval within the FDA regulatory framework takes a number of years and involves the expenditure of substantial
resources. This regulatory framework may change or additional regulations may arise at any stage of our product development process
and may affect approval of, or delay an application related to, a product, or require additional expenditures by us. There can be no
assurance that the FDA review of marketing applications will result in product approval on a timely basis, if at all. The PMA approval
process is lengthy, expensive, and typically requires, among other things, valid scientific evidence which generally includes extensive
data such as pre-clinical and clinical trial data to demonstrate a reasonable assurance of safety and effectiveness.
Human clinical trials in the U.S. for significant risk devices must be conducted under a Good Clinical Practice (“GCP”)
regulations through Investigational Device Exemption (“IDE”), which must be submitted to the FDA and either be approved or be
allowed to become effective before the trials may commence. There can be no assurance that submission of an IDE will result in the
ability to commence clinical trials. In addition, the IDE approval process could result in significant delays. Even if the FDA approves
an IDE or allows an IDE for a clinical investigation to become effective, clinical trials may be suspended at any time for a number of
reasons. Among others, these reasons may include: a) failure to comply with applicable requirements; b) inadequacy of informed
consent; and c) the data generated suggests that: the risks to clinical subjects are not outweighed by the anticipated benefits to clinical
subjects and the importance of the knowledge to be gained, the investigation is scientifically unsound, or there is reason to believe that
the device, as used, is ineffective. A trial may be terminated if serious unanticipated adverse events present an unreasonable risk to
subjects. If clinical studies are suspended or terminated, we may be unable to continue the development of the investigational products
affected.
10
Upon completion of required clinical trials, for Class III medical devices, results are presented to the FDA in a PMA
application. In addition to the results of clinical investigations, the New Drug Application (“NDA”) applicant must submit other
information relevant to the safety and efficacy of the device, including, among other things, the results of non-clinical tests and
clinical trials; a full description of the device and its components; a full description of the methods, facilities and controls used for
manufacturing; and proposed labeling. The FDA also conducts an on-site inspection to determine whether an applicant conforms with
the FDA’s current Quality System Regulation (“QSR”), formerly known as GMP. FDA review of the PMA may not result in timely,
or any, PMA approval, and there may be significant conditions on approval, including limitations on labeling and advertising claims
and the imposition of post-market testing, tracking, or surveillance requirements.
Upon completion of required clinical trials for pharmaceuticals, results are presented to the FDA in a NDA or New Animal
Drug Application (“NADA”). In addition to the results of clinical investigations, the PMA applicant must submit other information
relevant to the safety and efficacy of the product, including, among other things, the results of non-clinical tests and clinical trials; a
full description of the product formulation; a full description of the methods, facilities and controls used for manufacturing; and
proposed labeling. The FDA also conducts an on-site inspection to determine whether an applicant conforms with the FDA’s current
QSR related to pharmaceuticals. FDA review of the NDA or NADA may not result in timely, or any, FDA approval, and there may be
significant conditions on approval, including limitations on labeling and advertising claims and the imposition of post-market testing,
tracking, or surveillance requirements.
Product or manufacturing changes after approval where such change affects safety and efficacy of the medical products as
well as the use of a different facility for manufacturing, could necessitate additional review and approval by the FDA. Post approval
changes in labeling, packaging or promotional materials may also necessitate further review and approval by the FDA.
Legally marketed products are subject to continuing requirements by the FDA relating to design control, manufacturing,
quality control and quality assurance, maintenance of records and documentation, reporting of adverse events, and labeling and
promotion. The FDC Act requires medical product manufacturers to comply with QSR for medical devices and other quality system
regulations related to pharmaceuticals. The FDA enforces these requirements through periodic inspections of manufacturing facilities.
To ensure full compliance with requirements set forth in the GMP/QSR regulations, manufacturers must continue to expend time,
money and effort in the area of production and quality control to ensure full technical compliance. Other federal, state, and local
agencies may inspect manufacturing establishments as well.
A set of regulations known as the Medical Device Reporting regulations obligates manufacturers to inform the FDA
whenever information reasonably suggests that one of their devices may have caused or contributed to a death or serious injury, or
when one of their devices malfunctions and if the malfunction were to recur, the device or a similar device would be likely to cause or
contribute to a death or serious injury.
The process of obtaining approvals from the FDA and foreign regulatory authorities can be costly, time consuming, and
subject to unanticipated delays. Approvals of our products, processes or facilities may not be granted on a timely basis or at all, and
we may not have available resources or be able to obtain the financing needed to develop certain of such products. Any failure or
delay in obtaining such approvals could adversely affect our ability to market our products in the U.S. and in other countries.
In addition to regulations enforced by the FDA, we are subject to regulation under the Occupational Safety and Health Act,
the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other existing
and future federal, state and local laws and regulations as well as those of foreign governments. Federal, state and foreign regulations
regarding the manufacture and sale of medical products are subject to change. We cannot predict what impact, if any, such changes
might have on our business.
FDA Warning Letter
In July 2008, we received a Warning Letter (the “Warning Letter”) from the FDA in response to an earlier FDA Form 483
Notice of Observations issued to us following an inspection at our current manufacturing facility in Woburn, Massachusetts. We have
fully cooperated with the FDA to address the issues in the Form 483 filing and have issued a response to the FDA’s Warning Letter.
We have developed a corrective action plan and we have provided the FDA with progress reports. On September 15, 2008, the FDA
issued a letter to us indicating that the responses submitted by us were sufficient. The FDA did conduct follow up inspections of the
Company’s Woburn facility in March and December 2009. Follow on deficiencies were noted in each of those inspections as
documented on Form 483. The Company has submitted additional corrective action plans which have been accepted by the FDA.
Discussions are ongoing to address all issues and clear the Warning Letter as rapidly as possible. We have no major disagreements
with the FDA, and expect to have a successful re-inspection and clearance of the Warning Letter in the near future. Failure to comply
with applicable regulatory requirements and to address the issues raised by the FDA in the Warning Letter could result in regulatory
action. Any such regulatory action would be expected to have a material adverse effect on our business and operations.
11
Foreign Regulation
In addition to regulations enforced by the FDA, we and our products are subject to certain foreign regulations. International
regulatory bodies often establish regulations governing product standards, packing requirements, labeling requirements, import
restrictions, tariff regulations, duties and tax requirements. ORTHOVISC is approved for sale and is marketed in Canada, Europe,
Turkey, and parts of the Middle East. In the European Union (“EU”), ORTHOVISC is sold under Conformité Européene (CE mark)
authorization, a certification required under European Union medical device regulations. The CE mark, achieved in 1996, allows
ORTHOVISC to be marketed without further approvals in most of the EU nations as well as other countries that recognize EU device
regulations. ORTHOVISC ® mini, a treatment for osteoarthritis targeting small joints is available in Europe under CE mark
authorization received in 2008. In August 2004, we received an EC Design Examination Certificate which entitled us to affix a CE
mark to INCERT-S as a barrier to adhesion formation following surgery. AMVISC ® and AMVISC ® Plus are CE marked, and in
May 2005, we received an EC Design Examination Certificate which entitled us to affix a CE mark to ShellGel™ as an ophthalmic
viscoelastic surgical device. Staarvisc, an ophthalmic viscoelastic surgical device is licensed in Canada from May 2002. We received
EU CE Mark approval for ELEVESS during the second quarter of 2007. Monovisc, a medical device for treatment of pain associated
with osteoarthritis, was approved in the EU in October 2007 and in Canada in August 2009. Almost all of FAB’s products are CE
marked for European sale. In addition, FAB has received approval for several of its products in Argentina, Egypt, Hong Kong, Iran,
Israel, Lorea, Malaysia, Singapore, Mexico, Cyprus, Saudi Arabia, Taiwan, Turkey, and the United Arab Emirates. FAB’s tissue
engineered products Hyalograft C Autograft, Hyalograft 3D Autograft and Laserskin Autograft are currently marketed in Europe.
However, the regulations for marketing of these products in Europe have been changed. Effective January 1, 2013 new regulations
mandate these products to be approved by the European Medicines Agency (EMA) in order to remain on the EU market. FAB
continues to be in discussion with the EMA and is implementing a plan to qualify for the new status. There can be no assurance that
approval will be timely obtained. We may not be able to achieve and/or maintain compliance required for CE marking or other foreign
regulatory approvals for any or all of our products. The requirements relating to the conduct of clinical trials, product licensing,
marketing, pricing, advertising, promotion and reimbursement also vary widely from country to country. In the third quarter of 2006,
the government of Turkey eliminated reimbursement for over 100 drugs including ORTHOVISC, designated as a drug in Turkey, and
its competing products. International sales declined in 2007 compared to 2006 due to the reimbursement change in Turkey. We did not
ship product to our Turkish distributor during the 10 months ended May 2007. Starting in June 2007, sales to Turkey have been at a
lower level reflective of a private pay business.
Competition
We compete with many companies, including, among others, large pharmaceutical firms and specialized medical products
companies across all of our product lines. Many of these companies have substantially greater financial resources, larger research and
development staffs, more extensive marketing and manufacturing organizations and more experience in the regulatory process than us.
We also compete with academic institutions, governmental agencies and other research organizations, which may be involved in
research, development and commercialization of products. Many of our competitors also compete against us in securing relationships
with collaborators for their research and development and commercialization programs.
Competition in our industry is based primarily on product efficacy, safety, timing and scope of regulatory approvals,
availability of supply, marketing and sales capability, reimbursement coverage, product pricing and patent protection. Some of the
principal factors that may affect our ability to compete in our HA development and commercialization markets include:
•
•
•
the quality and breadth of our technology and technological advances;
our ability to complete successful clinical studies and obtain FDA marketing and foreign regulatory approvals prior
to our competitors;
our ability to recruit and retain skilled employees; and
12
•
the availability of substantial capital resources to fund discovery, development and commercialization activities or
the ability to defray such costs through securing relationships with collaborators for our research and development
and commercialization programs.
We are aware of several companies that are developing and/or marketing products utilizing HA for a variety of human
applications. In some cases, competitors have already obtained product approvals, submitted applications for approval or have
commenced human clinical studies, either in the U.S. or in certain foreign countries. All of the Company’s products face substantial
competition. There exist major worldwide competing products, made from HA and other materials, for use in ophthalmic surgery,
orthopedics, surgical adhesion prevention, advanced wound care, ENT and cosmetic dermal fillers. There is a risk that we will be
unable to compete effectively against our current or future competitors.
Employees
As of December 31, 2009, we had 133 employees, 50 of whom are located outside the U.S. and were added as a result of the
FAB acquisition. We consider our relations with our employees to be good. None of our U.S. employees are represented by labor
unions, and most of the employees based in Italy are represented by unions adding complexity and additional risks to the wage and
employment decision process.
Environmental Laws
We believe that we are in compliance with all federal, state and local environmental regulations with respect to our
manufacturing facilities and that the cost of ongoing compliance with such regulations does not have a material effect on our
operations. Our leased manufacturing facility is located within the Wells G&H Superfund site in Woburn, Massachusetts. We have not
been named and are not a party to any legal proceedings regarding the Wells G&H Superfund site.
Product Liability
The testing, marketing and sale of human health care products entail an inherent risk of allegations of product liability, and
we cannot assure you that substantial product liability claims will not be asserted against us. Although we have not received any
material product liability claims to date and have coverage under our insurance policy of $5,000,000 per occurrence and $5,000,000 in
the aggregate, we cannot assure you that if material claims arise in the future, our insurance will be adequate to cover all situations.
Moreover, we cannot assure you that such insurance, or additional insurance, if required, will be available in the future or, if available,
will be available on commercially reasonable terms. Any product liability claim, if successful, could have a material adverse effect on
our business, financial condition, and results of operation.
Available Information
Our Annual Reports on Form 10-K, including our consolidated financial statements, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and other information, including amendments and exhibits to such reports, filed or furnished pursuant to
the Securities Exchange Act of 1934, are available free of charge in the “SEC Filings” section of our website located at
http://www.anikatherapeutics.com, as soon as reasonably practicable after the reports are filed with or furnished to the Securities and
Exchange Commission. The information on our website is not part of this Annual Report on Form 10-K. Reports filed with the SEC
may be viewed at www.sec.gov or obtained at the SEC Public Reference Room at 100F Street NE, Washington, D.C. Information
regarding the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
13
ITEM 1A. RISK FACTORS
Our operating results and financial condition have varied in the past and could in the future vary significantly depending on
a number of factors. From time to time, information provided by us or statements made by our employees contain “forward-looking”
information that involves risks and uncertainties. In particular, statements contained in this Annual Report on Form 10-K, and in the
documents incorporated by reference into this Annual Report on Form 10-K, that are not historical facts, including, but not limited to
statements concerning new products, product development and offerings, product and price competition, competition and strategy,
customer diversification, product price and inventory, contingent consideration payments, deferred revenues, economic and market
conditions, potential government regulation, seasonal factors, international expansion, revenue recognition, profits, growth of
revenues, composition of revenues, cost of revenues, operating expenses, sales, marketing and support expenses, general and
administrative expenses, product gross profit, interest income, interest expense, anticipated operating and capital expenditure
requirements, cash inflows, contractual obligations, tax rates, SFAS 123R, leasing and subleasing activities, acquisitions, liquidity,
litigation matters, intellectual property matters, distribution channels, stock price, third party licenses and potential debt or equity
financings constitute forward-looking statements and are made under the safe harbor provisions of Section 27 of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are neither promises nor
guarantees. Our actual results of operations and financial condition have varied and could in the future vary significantly from those
stated in any forward-looking statements. The following factors, among others, could cause actual results to differ materially from
those contained in forward-looking statements made in this Form 10-K, in the documents incorporated by reference into this Form 10-
K or presented elsewhere by our management from time to time. Such factors, among others, could have a material adverse effect
upon our business, results of operations and financial condition.
Our business is subject to comprehensive and varied government regulation and, as a result, failure to obtain FDA or other U.S.
and foreign governmental approvals for our products may materially adversely affect our business, results of operations and
financial condition.
Product development and approval within the FDA framework takes a number of years and involves the expenditure of
substantial resources. There can be no assurance that the FDA will grant approval for our new products on a timely basis if at all, or
that FDA review will not involve delays that will adversely affect our ability to commercialize additional products or expand
permitted uses of existing products, or that the regulatory framework will not change, or that additional regulation will not arise at any
stage of our product development process which may adversely affect approval of or delay an application or require additional
expenditures by us. In the event our future products are regulated as human drugs or biologics, the FDA’s review process of such
products typically would be substantially longer and more expensive than the review process to which they are currently subject as
devices.
Products in development include a next generation HYDRELLE/ELEVESS™ line extension, and joint health related
products. Our first next generation osteoarthritis product is MONOVISC, a single-injection treatment product that uses a non-animal
source HA. MONOVISC is also our first osteoarthritis product based on our proprietary crosslinked HA- technology. We received
CE Mark approval for the MONOVISC product in October 2007. We have completed a pivotal trial in the U.S., and submitted the
results for a PMA application during December 2009. Our second single-injection osteoarthritis product is Cingal, which is based on
the technology platform used in MONOVISC, with an added active therapeutic molecule to provide broad pain relief for a long period
of time. FAB’s tissue engineered products Hyalograft C Autograft, Hyalograft 3D Autograft and Laserskin Autograft are
currently marketed in Europe. However, the regulations for marketing of these products in Europe have been changed. Effective
January 1, 2013 new regulations mandate these products to be approved by the European Medicines Agency (EMA) in order to remain
on the EU market. FAB continues to be in discussion with the EMA and is implementing plan to qualify for the new status. There can
be no assurance that approval will be timely obtained.
We cannot assure you that:
•
•
•
•
we will begin or successfully complete U.S. clinical trials for next generation products;
the clinical data will support the efficacy of these products;
we will be able to successfully complete the FDA or foreign regulatory approval process, where required; or
additional clinical trials will support a PMA application and/or FDA approval or other foreign regulatory approvals,
where required, in a timely manner or at all.
14
•
•
European and other regulations may not change for the marketing of cell base products and thus impact our ability to
continue commercialization of these products; or
Lack of timely clearance of the Warning Letter will not impact revenues due to the limits placed on expansion of
products into new territories, delays in U.S. and foreign regulatory approvals of new products, and potential impact
on sale of current products.
We also cannot assure you that any delay in receiving FDA approvals will not adversely affect our competitive position.
Furthermore, even if we do receive FDA approval:
•
•
•
the approval may include significant limitations on the indications and other claims sought for use for which the
products may be marketed;
the approval may include other significant conditions of approval such as post-market testing, tracking, or
surveillance requirements; and
meaningful sales may never be achieved.
Once obtained, marketing approval can be withdrawn by the FDA for a number of reasons, including, among others, the
failure to comply with regulatory requirements, or the occurrence of unforeseen problems following initial approval. We may be
required to make further filings with the FDA under certain circumstances. The FDA’s regulations require a PMA supplement for
certain changes if they affect the safety and effectiveness of an approved device, including, but not limited to, new indications for use,
labeling changes, process or manufacturing changes, the use of a different facility to manufacture, process or package the device, and
changes in performance or design specifications. Our failure to receive approval of a PMA supplement regarding the use of a different
manufacturing facility or any other change affecting the safety or effectiveness of an approved device on a timely basis, or at all, may
have a material adverse effect on our business, financial condition, and results of operations. The FDA could also limit or prevent the
manufacture or distribution of our products and has the power to require the recall of such products. It also might be necessary for us,
in applicable circumstances, to initiate a voluntary recall per FDA regulations of one or several of our products. Significant delay or
cost in obtaining, or failure to obtain FDA approval to market products, any FDA limitations on the use of our products, or any
withdrawal or suspension of approval or rescission of approval by the FDA could have a material adverse effect on our business,
financial condition, and results of operations.
In addition, all FDA approved or cleared products manufactured by us must be manufactured in compliance with the FDA’s
Good Manufacturing Practices (“GMP”) regulations and, for medical devices, the FDA’s Quality System Regulations (“QSR”).
Ongoing compliance with QSR and other applicable regulatory requirements is enforced through periodic inspection by state and
federal agencies, including the FDA. The FDA may inspect our facilities, from time to time, to determine whether we are in
compliance with regulations relating to medical device and pharmaceutical companies, including regulations concerning
manufacturing, testing, quality control and product labeling practices. We cannot assure you that we will be able to comply with
current or future FDA requirements applicable to the manufacture of our products.
FDA regulations depend heavily on administrative interpretation and we cannot assure you that the future interpretations
made by the FDA or other regulatory bodies, with possible retroactive effect, will not adversely affect us. In addition, changes in the
existing regulations or adoption of new governmental regulations or policies could prevent or delay regulatory approval of our
products.
Failure to comply with applicable regulatory requirements could result in, among other things, warning letters, fines,
injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, refusal of the FDA to grant pre-
market clearance or pre-market approval for devices or drugs, withdrawal of approvals and criminal prosecution. In July 2008, we
received a Warning Letter (the “Warning Letter”) from the FDA in response to an earlier FDA Form 483 Notice of Observations
issued to us following an inspection at our Woburn facility. We have fully cooperated with the FDA to address the issues in the
Form 483 filing and have issued a response to the FDA’s Warning Letter. We have developed a corrective action plan and we have
provided the FDA with progress reports. On September 15, 2008, the FDA issued a letter to us indicating that the responses submitted
by us were sufficient. The FDA did conduct follow up inspections of the Company’s Woburn facility in March and December 2009.
Follow on deficiencies were noted in each of those inspections as documented on Form 483. The Company has submitted additional
corrective action plans which have been accepted by the FDA. Discussions are ongoing to address all issues and clear the Warning
Letter as rapidly as possible. Failure to comply with applicable regulatory requirements and to address the issues raised by the FDA in
the Warning Letter could result in regulatory action. Any such regulatory action would be expected to have a material adverse effect
on our business and operations.
15
In addition to regulations enforced by the FDA, we are subject to other existing and future federal, state, local and foreign
regulations. International regulatory bodies often establish regulations governing product standards, packing requirements, labeling
requirements, quality system and manufacturing requirements, import restrictions, tariff regulations, duties and tax requirements. We
cannot assure you that we will be able to achieve and/or maintain compliance required for CE marking or other foreign regulatory
approvals for any or all of our products or that we will be able to produce our products in a timely and profitable manner while
complying with applicable requirements. Federal, state, local and foreign regulations regarding the manufacture and sale of medical
products are subject to change. We cannot predict what impact, if any, such changes might have on our business.
The process of obtaining approvals from the FDA and other regulatory authorities can be costly, time consuming, and
subject to unanticipated delays. We cannot assure you that approvals or clearances of our products will be granted or that we will have
the necessary funds to develop certain of our products. Any failure to obtain, or delay in obtaining such approvals or clearances, could
adversely affect our ability to market our products.
Current economic conditions, including the credit crisis affecting the financial markets and global recession, could adversely
affect our business, results of operations and financial condition.
The worldwide financial markets are currently experiencing turmoil, characterized by volatility in security prices, rating
downgrades of investments and reductions in available credit. These events have materially and adversely impacted the availability of
financing to a wide variety of businesses, and the resulting uncertainty has led to reductions in capital investments, overall spending
levels, future product plans, and sales projections across industries and markets. These trends could have a material adverse impact on
our business, our ability to achieve planned results of operations and our financial condition as a result of:
•
•
•
•
•
reduced demand for our products;
increased risk of order cancellations or delays;
increased pressure on the prices for our products;
greater difficulty in collecting accounts receivable; and
risks to our liquidity, including the possibility that we might not have sufficient access to cash when needed.
We are unable to predict the likely duration and severity of the current disruption in financial markets and adverse economic
conditions in the U.S. and other countries, but the longer the duration the greater the risks we face in operating our business.
Substantial competition could materially affect our financial performance.
We compete with many companies, including, among others, large pharmaceutical companies, specialized medical products
companies and healthcare companies. Many of these companies have substantially greater financial resources, larger research and
development staffs, more extensive marketing and manufacturing organizations and more experience in the regulatory process than us.
We also compete with academic institutions, governmental agencies and other research organizations that may be involved in
research, development and commercialization of products. Because a number of companies are developing or have developed HA
products for similar applications and have received FDA approval, the successful commercialization of a particular product will
depend in part upon our ability to complete clinical studies and obtain FDA marketing and foreign regulatory approvals prior to our
competitors, or, if regulatory approval is not obtained prior to our competitors, to identify markets for our products that may be
sufficient to permit meaningful sales of our products. For example, we are aware of several companies that are developing and/or
marketing products utilizing HA for a variety of human applications. In some cases, competitors have already obtained product
approvals, submitted applications for approval or have commenced human clinical studies, either in the U.S. or in certain foreign
countries. There exist major competing products for the use of HA in ophthalmic surgery. In addition, certain HA products made by
our competitors for the treatment of osteoarthritis in the knee have received FDA approval before ours and have been marketed in the
U.S. since 1997, as well as select markets in Canada, Europe and other countries. To date, the FDA approved nine HA products for the
treatment of facial wrinkles which have been marketed internationally for a number of years. There can be no assurance that we will
be able to compete against current or future competitors or that competition will not have a material adverse effect on our business,
financial condition and results of operations.
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We are uncertain regarding the success of our clinical trials.
Several of our products do require clinical trials to determine their safety and efficacy for U.S. and international marketing
approval by regulatory bodies, including the FDA. There can be no assurance that we will be able to successfully complete the U.S. or
international regulatory approval process for products in development. In addition, there can be no assurance that we will not
encounter additional problems that will cause us to delay, suspend or terminate our clinical trials. In addition, we cannot make any
assurance that clinical trials will be deemed sufficient in size and scope to satisfy regulatory approval requirements, or, if completed,
will ultimately demonstrate these products to be safe and efficacious. Our current product in a pivotal clinical trial is MONOVISC.
We are dependent upon marketing and distribution partners and the failure to maintain strategic alliances on acceptable terms will
have a material adverse effect on our business, financial condition and results of operations.
Our success will be dependent, in part, upon the efforts of our marketing and distribution partners and the terms and
conditions of our relationships with such partners. We cannot assure you that such partners will not seek to renegotiate their current
agreements on terms less favorable to us or terminate such agreements. We are continuing to seek to establish long-term distribution
relationships in regions not covered by existing agreements, but can make no assurances that we will be successful in doing so. There
can be no assurance that we will be able to identify or engage appropriate distribution or collaboration partners or effectively transition
to any such partners. There can be no assurance that we will obtain European or other reimbursement approvals or, if such approvals
are obtained, they will be obtained on a timely basis or at a satisfactory level of reimbursement.
We may need to obtain the assistance of additional marketing partners to bring new and existing products to market and to
replace certain marketing partners. The failure to establish strategic partnerships for the marketing and distribution of our products on
acceptable terms will have a material adverse effect on our business, financial condition, and results of operations.
Anika has never directly commercialized products on our own before.
We have announced our intention to directly commercialize MONOVISC and certain FAB orthopedic products in the United
States. Historically Anika has sold its products through a network of distributors, and there can be no assurance that we will
successfully find and hire the appropriate people to succeed in a direct commercialization effort. We will be competing against larger
companies with greater resources and portfolios of products for access to the customer. In addition, we will have limited resources for
advertising and promotion of the products.
Our future success depends upon market acceptance of our existing and future products.
Our success will depend in part upon the acceptance of our existing and future products by the medical community,
hospitals and physicians and other health care providers, third-party payers, and end-users. Such acceptance may depend upon the
extent to which the medical community and end-users perceive our products as safer, more effective or cost-competitive than other
similar products. Ultimately, for our new products to gain general market acceptance, it may also be necessary for us to develop
marketing partners for the distribution of our products. There can be no assurance that our new products will achieve significant
market acceptance on a timely basis, or at all. Failure of some or all of our future products to achieve significant market acceptance
could have a material adverse effect on our business, financial condition, and results of operations.
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We may be unable to adequately protect our intellectual property rights.
Our efforts to enforce our intellectual property rights may not be successful. We rely on a combination of copyright,
trademark, patent and trade secret laws, confidentiality procedures and contractual provisions to protect our proprietary rights. Our
success will depend, in part, on our ability to obtain and enforce patents, protect trade secrets, obtain licenses to technology owned by
third parties when necessary, and conduct our business without infringing on the proprietary rights of others. The patent positions of
pharmaceutical, medical products and biotechnology firms, including ours, can be uncertain and involve complex legal and factual
questions. There can be no assurance that any patent applications will result in the issuance of patents or, if any patents are issued,
whether they will provide significant proprietary protection or commercial advantage, or will not be circumvented by others. In the
event a third party has also filed one or more patent applications for any of its inventions, we may have to participate in interference
proceedings declared by the United States Patent and Trademark Office (“PTO”) to determine priority of invention, which could result
in failure to obtain, or the loss of, patent protection for the inventions and the loss of any right to use the inventions. Even if the
eventual outcome is favorable to us, such interference proceedings could result in substantial cost to us, and diversion of
management’s attention away from our operations. Filing and prosecution of patent applications, litigation to establish the validity and
scope of patents, assertion of patent infringement claims against others and the defense of patent infringement claims by others can be
expensive and time consuming. There can be no assurance that in the event that any claims with respect to any of our patents, if
issued, are challenged by one or more third parties, that any court or patent authority ruling on such challenge will determine that such
patent claims are valid and enforceable. An adverse outcome in such litigation could cause us to lose exclusivity covered by the
disputed rights. If a third party is found to have rights covering products or processes used by us, we could be forced to cease using the
technologies or marketing the products covered by such rights, could be subject to significant liabilities to such third party, and could
be required to license technologies from such third party. Furthermore, even if our patents are determined to be valid, enforceable, and
broad in scope, there can be no assurance that competitors will not be able to design around such patents and compete with us using
the resulting alternative technology. We have a policy of seeking patent protection for patentable aspects of our proprietary
technology. We intend to seek patent protection with respect to products and processes developed in the course of our activities when
we believe such protection is in our best interest and when the cost of seeking such protection is not inordinate. However, no
assurance can be given that any patent application will be filed, that any filed applications will result in issued patents or that any
issued patents will provide us with a competitive advantage or will not be successfully challenged by third parties. The protections
afforded by patents will depend upon their scope and validity, and others may be able to design around our patents.
Other entities have filed patent applications for or have been issued patents concerning various aspects of HA-related
products or processes. There can be no assurance that the products or processes developed by us will not infringe on the patent rights
of others in the future. Any such infringement may have a material adverse effect on our business, financial condition, and results of
operations.
We also rely upon trade secrets and proprietary know-how for certain non-patented aspects of our technology. To protect
such information, we require all employees, consultants and licensees to enter into confidentiality agreements limiting the disclosure
and use of such information. There can be no assurance that these agreements provide meaningful protection or that they will not be
breached, that we would have adequate remedies for any such breach, or that our trade secrets, proprietary know-how, and our
technological advances will not otherwise become known to others. In addition, there can be no assurance that, despite precautions
taken by us, others have not and will not obtain access to our proprietary technology. Further, there can be no assurance that third
parties will not independently develop substantially equivalent or better technology.
Pursuant to the 2004 B&L Agreement, we have agreed to transfer to Bausch & Lomb, upon expiration of the term of the
2004 B&L Agreement on December 31, 2010, or in connection with earlier termination in certain circumstances, our manufacturing
process, know-how and technical information, which relate to only AMVISC products. Upon expiration of the 2004 B&L Agreement,
there can be no assurance that Bausch & Lomb will continue to use us to manufacture AMVISC and AMVISC Plus. If Bausch &
Lomb discontinues the use of us as a manufacturer after such time, our business, financial condition, and results of operations would
likely be materially and adversely affected.
Our manufacturing processes involve inherent risks and disruption could materially adversely affect our business, financial
condition and results of operations.
The operation of biomedical manufacturing plants involves many risks, including the risks of breakdown, failure or
substandard performance of equipment, the occurrence of natural and other disasters, and the need to comply with the requirements of
directives of government agencies, including the FDA. In addition, we rely on a single supplier for certain key raw materials and a
small number of suppliers for a number of other materials required for the manufacturing and delivery of our HA products. Although
we believe that alternative sources for many of these and other components and raw materials that we use in our manufacturing
processes are available, any supply interruption could harm our ability to manufacture our products until a new source of supply is
identified and qualified. We may not be able to find a sufficient alternative supplier in a reasonable time period, or on commercially
reasonable terms, if at all, and our ability to produce and supply our products could be impaired.
Furthermore, our manufacturing processes and research and development efforts involve animals and products derived from
animals. We procure our animal-derived raw materials from qualified vendors, control for contamination and have processes that
effectively inactivate infectious agents; however, we cannot assure you that we can completely eliminate the risk of transmission of
infectious agents. Furthermore, regulatory authorities could in the future impose restrictions on the use of animal-derived raw
materials that could impact our business.
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The utilization of animals in research and development and product commercialization is subject to increasing focus by
animal rights activists. The activities of animal rights groups and other organizations that have protested animal based research and
development programs or boycotted the products resulting from such programs could cause an interruption in our manufacturing
processes and research and development efforts. The occurrence of material operational problems, including but not limited to the
events described above, could have a material adverse effect on our business, financial condition, and results of operations during the
period of such operational difficulties.
Our new facility construction and validation processes could materially adversely affect our operations.
We entered into a new lease on January 4, 2007, for a new headquarters facility consisting of approximately 134,000 square
feet of general office, research and development and manufacturing space located in Bedford, Massachusetts. The lease has an initial
term of ten and a half years, and commenced on approximately May 1, 2007 when certain agreed upon landlord improvements were
completed. We commenced the buildout of the new facility during the second quarter of 2007. Our administrative, marketing,
regulatory, and research and development personnel moved into the Bedford facility in November 2007. The remaining buildout was
completed in mid-2008 and validation and approval for operation in the new manufacturing space is expected to be completed in the
second half of 2010. We provide no assurance that the validation and approval processes will be completed on time, if at all.
Furthermore, we cannot assure you that the transition from the existing facilities to the new facility will be seamless and successful. In
the event the construction is delayed or the move transition is unsuccessful, it may result in business interruptions. We may also incur
additional expenditures in the event that we have to maintain two facilities for a prolonged period.
Our financial performance depends on the continued growth and demand for our products and we may not be able to successfully
manage the expansion of our operations.
Our future success depends on substantial growth in product sales. There can be no assurance that such growth can be
achieved or, if achieved, can be sustained. There can be no assurance that even if substantial growth in product sales and the demand
for our products is achieved, we will be able to:
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develop the necessary manufacturing capabilities;
obtain the assistance of additional marketing partners;
attract, retain and integrate the required key personnel; and
implement the financial, accounting and management systems needed to manage growing demand for our products.
Our failure to successfully manage future growth could have a material adverse effect on our business, financial condition,
and results of operations.
We engage in acquisitions as a part our growth strategy in which we will incur a variety of costs and may never realize the
anticipated benefits of such acquisitions.
Our business strategy includes the acquisition of businesses, technologies, services or products that we believe are a strategic
fit with our business. Such acquisitions could reduce stockholders’ ownership, cause us to incur debt, expose us to liabilities and result
in amortization expenses related to intangible assets with definite lives. In addition, acquisitions involve other risks, including
diversion of management resources otherwise available for ongoing development of our business and risks associated with entering
new markets with which we have limited experience or where distribution alliances with experienced distributors are not available.
Our future profitability may depend in part upon our ability to develop further our resources to adapt to these new products or business
areas and to identify and enter into satisfactory distribution networks. Moreover, we may fail to realize the anticipated benefits of any
acquisition as rapidly as expected or at all, or the acquired business may not perform in accordance with our expectations. We may
also incur significant expenditures in anticipation of an acquisition that is never realized.
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We may not realize the expected benefits from acquisitions due to difficulties integrating the businesses, operations and product
lines.
Our ability to achieve the benefits of acquisitions depends in part on the integration and leveraging of technology, products,
operations, sales and marketing channels and personnel. If we undertake any acquisition, the process of integrating an acquired
business may result in unforeseen operating difficulties and expenditures and may absorb significant management attention that would
otherwise be available for ongoing development of our business even if completed in a timely and efficient manner.
We may have difficulty successfully integrating acquired businesses, the domestic and foreign operations or the product lines, and as a
result, we may not realize any of the anticipated benefits of the acquisitions. Moreover, we may lose key clients or employees of
acquired businesses as a result of the change in ownership to us. Additionally, we cannot assure that our growth rate will equal the
growth rates that have been experienced by us and the acquired companies, respectively, operating as separate companies in the past.
Customer, vendor and employee uncertainty about the effects of any acquisitions could harm us.
We and the customers of any companies we acquire may, in response to the consummation of any acquisitions, delay or
defer purchasing decisions. Any delay or deferral in purchasing decisions by customers could adversely affect our business. Similarly,
employees of acquired companies may experience uncertainty about their future role until or after we execute our strategies with
regard to employees of acquired companies. This may adversely affect our ability to attract and retain key management, sales,
marketing and technical personnel following an acquisition.
The acquisitions we have made or may make in the future may make us the subject of lawsuits from either an acquired company’s
stockholders, an acquired company’s previous stockholders or our current stockholders.
We may be the subject of lawsuits from either an acquired company’s stockholders, an acquired company’s previous
stockholders or our current stockholders. These lawsuits could result from the actions of the acquisition target prior to the date of the
acquisition, from the acquisition transaction itself or from actions after the acquisition. Defending potential lawsuits could cost us
significant expense and detract management’s attention from the operation of the business. Additionally, these lawsuits could result in
the cancellation of or the inability to renew, certain insurance coverage that would be necessary to protect our assets.
Attractive acquisition opportunities may not be available to us in the future.
We will consider the acquisition of other businesses. However, we may not have the opportunity to make suitable acquisitions on
favorable terms in the future, which could negatively impact the growth of our business. In order to pursue such opportunities, we may
require significant additional financing, which may not be available to us on favorable terms, if at all. The availability of such
financing is limited by the recent tightening of the global credit markets. We expect that our competitors, many of which have
significantly greater resources than we do, will compete with us to acquire compatible businesses. This competition could increase
prices for acquisitions that we would likely pursue.
Sales of our products are largely dependent upon third party reimbursement and our performance may be harmed by health care
cost containment initiatives.
In the U.S. and other markets, health care providers, such as hospitals and physicians, that purchase health care products,
such as our products, generally rely on third party payers, including Medicare, Medicaid and other health insurance and managed care
plans, to reimburse all or part of the cost of the health care product. We depend upon the distributors for our products to secure
reimbursement and reimbursement approvals. Reimbursement by third party payers may depend on a number of factors, including the
payer’s determination that the use of our products is clinically useful and cost-effective, medically necessary and not experimental or
investigational. Since reimbursement approval is required from each payer individually, seeking such approvals can be a time
consuming and costly process which, in the future, could require us or our marketing partners to provide supporting scientific, clinical
and cost-effectiveness data for the use of our products to each payer separately. Significant uncertainty exists as to the reimbursement
status of newly approved health care products, and any failure or delay in obtaining reimbursement approvals can negatively impact
sales of our new products. In addition, third party payers are increasingly attempting to contain the costs of health care products and
services by limiting both coverage and the level of reimbursement for new therapeutic products and by refusing in some cases to
provide coverage for uses of approved products for disease indications for which the FDA has not granted marketing approval. Also,
Congress and certain state legislatures have considered reforms that may affect current reimbursement practices, including controls on
health care spending through limitations on the growth of Medicare and Medicaid spending. There can be no assurance that third party
reimbursement coverage will be available or adequate for any products or services developed by us. Outside the U.S., the success of
our products is also dependent in part upon the availability of reimbursement and health care payment systems. Domestic and
international reimbursement laws and regulations may change from time to time. Lack of adequate coverage and reimbursement
provided by governments and other third party payers for our products and services, including change of classification by CMS for
ORTHOVISC under a unique Q-code for Medicare/Medicaid reimbursement, could have a material adverse effect on our business,
financial condition, and results of operations.
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We may seek financing in the future, which could be difficult to obtain and which could dilute your ownership interest or the value
of your shares.
We had cash and cash equivalents of approximately $24.4 million at December 31, 2009. Our future capital requirements
and the adequacy of available funds will depend, however, on numerous factors, including:
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market acceptance of our existing and future products;
the success and sales of our products under various distributor agreements;
the successful commercialization of products in development;
progress in our product development efforts;
the magnitude and scope of such product development efforts;
any potential acquisitions of products, technologies or businesses;
progress with preclinical studies, clinical trials and product clearances by the FDA and other agencies;
the cost and timing of our efforts to manage our manufacturing capabilities and related costs;
the cost and timing of validation and approval processes for our new manufacturing space;
the cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights;
competing technological and market developments;
the development of strategic alliances for the marketing of certain of our products;
the terms of such strategic alliances, including provisions (and our ability to satisfy such provisions) that provide
upfront and/or milestone payments to us;
our abilities to meet debt covenant and repayment requirements; and
the cost of maintaining adequate inventory levels to meet current and future product demands.
To the extent that funds generated from our operations, together with our existing capital resources are insufficient to meet
future requirements, we will be required to obtain additional funds through equity or debt financings, strategic alliances with corporate
partners and others, or through other sources. The terms of any future equity financings may be dilutive to you and the terms of any
debt financings may contain restrictive covenants, which limit our ability to pursue certain courses of action. Our ability to obtain
financing is dependent on the status of our future business prospects as well as conditions prevailing in the relevant capital markets.
No assurance can be given that any additional financing will be made available to us or will be available on acceptable terms should
such a need arise.
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We are subject to debt covenants and any failure to comply with these could materially adversely affect our business, financial
condition and results of operations.
On January 31, 2008, we entered into a Credit Agreement (the “Credit Agreement”). Under the Credit Agreement, our
lender made periodic loans to us through December 31, 2008. We borrowed $16,000,000 in 2008, the maximum allowed amount
under the Credit Agreement. At December 31, 2008, the borrowings were converted into a 7-year term loan. On December 30, 2009,
the Credit Agreement was amended as part of the FAB acquisition. The Credit Agreement was entered into to finance the construction
and validation of our Bedford facility. Construction of the new facility commenced in the spring of 2007 and was substantially
completed in mid-2008. Validation of our new manufacturing facility will continue into late 2010. There can be no assurance that we
will be successful in qualifying the new facility under the FDA and European Union regulations. The Credit Agreement contains
certain debt covenants, representations and warranties that we must comply with. If we do not comply with the specified covenants
and restrictions, we could be in default under our Credit Agreement. Our ability to comply with these provisions of our Credit
Agreement governing our other indebtedness may be affected by changes in the economic or business conditions or other events
beyond our control.
We could become subject to product liability claims, which, if successful, could materially adversely affect our business, financial
condition and results of operations.
The testing, marketing and sale of human health care products entail an inherent risk of allegations of product liability, and
there can be no assurance that substantial product liability claims will not be asserted against us. Although we have not received any
material product liability claims to date and have an insurance policy of $5,000,000 per occurrence and $5,000,000 in the aggregate to
cover such claims should they arise, there can be no assurance that material claims will not arise in the future or that our insurance will
be adequate to cover all situations. Moreover, there can be no assurance that such insurance, or additional insurance, if required, will
be available in the future or, if available, will be available on commercially reasonable terms. Any product liability claim, if
successful, could have a material adverse effect on our business, financial condition and results of operations.
Our business is dependent upon hiring and retaining qualified management and technical personnel.
We are highly dependent on the members of our management and technical staff, the loss of one or more of whom could
have a material adverse effect on us. We have experienced a number of management changes in recent years. There can be no
assurances that such management changes will not adversely affect our business. We believe that our future success will depend in
large part upon our ability to attract and retain highly skilled, technical, managerial and manufacturing personnel. We face significant
competition for such personnel from other companies, research and academic institutions, government entities and other organizations.
There can be no assurance that we will be successful in hiring or retaining the personnel we require. The failure to hire and retain such
personnel could have a material adverse effect on our business, financial condition and results of operations.
We are subject to environmental regulations and any failure to comply with applicable laws could subject us to significant
liabilities and harm our business.
We are subject to a variety of local, state and federal government regulations relating to the storage, discharge, handling,
emission, generation, manufacture and disposal of toxic, or other hazardous substances used in the manufacture of our products. Any
failure by us to control the use, disposal, removal or storage of hazardous chemicals or toxic substances could subject us to significant
liabilities, which could have a material adverse effect on our business, financial condition, and results of operations.
As our international sales and operations grow, including through our recent acquisition of Fidia Advanced Biopolymers S.r.l.
(“FAB”), we could become increasingly subject to additional economic, political and other risks that could harm our business.
Since we manufacture and sell our products worldwide, our business is subject to risks associated with doing business
internationally. During the years ended December 31, 2009 and 2008, approximately, 26% and 27%, respectively, of our product sales
were to international distributors. However, as a result of our acquisition of Fidia Advanced Biopolymers S.r.l., we anticipate the
percentage of our product sales resulting from international operations to increase in fiscal year 2010. As a result of this international
growth, we have become increasingly subject to a variety of risks, which could cause fluctuations in the results of our international
and domestic operations. These risks include:
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the impact of recessions and other economic conditions in economies, including Europe in particular, outside the
United States;
instability of foreign economic, political and labor conditions;
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unfavorable labor regulations applicable to European operations, such as severance and the unenforceability of non-
competition agreements in the European Union;
difficulties in complying with restrictions imposed by regulatory or market requirements, tariffs or other trade
barriers or by U.S. export laws;
imposition of governmental controls limiting the volume of international sales;
longer accounts receivable payment cycles;
potentially adverse tax consequences, including, if required, difficulties transferring funds generated in non-U.S.
jurisdictions to the U.S. in a tax efficient manner;
difficulties in protecting intellectual property;
difficulties in managing international operations; and
burdens of complying with a wide variety of foreign laws.
Our success depends, in part, on our ability to anticipate and address these risks. We cannot guarantee that these or other
factors will not adversely affect our business or operating results.
Currency exchange rate fluctuations may have a negative impact on our reported earnings.
A very small percentage of our business from continuing operations during fiscal year 2009 was conducted in functional
currencies other than the U.S. dollar, which is our reporting currency. As a result of our acquisition of Fidia Advanced Biopolymers
S.r.l., we anticipate this percentage to increase to approximately 20% during fiscal year 2010. Thus, currency fluctuations among the
U.S. dollar and the other currencies in which we do business have caused and will continue to cause foreign currency transaction gains
and losses. Currently, we attempt to manage foreign currency risk through the matching of assets and liabilities. In the future, we may
undertake to manage foreign currency risk through additional hedging methods. We recognize foreign currency gains or losses arising
from our operations in the period incurred. We cannot guarantee that we will be successful in managing foreign currency risk or in
predicting the effects of exchange rate fluctuations upon our future operating results because of the variability of currency exposure
and the potential volatility of currency exchange rates.
Our stock price has been and may remain highly volatile, and we cannot assure you that market making in our common stock will
continue.
The market price of shares of our common stock may be highly volatile. Factors such as announcements of new commercial
products or technological innovations by us or our competitors, disclosure of results of clinical testing or regulatory proceedings,
governmental regulation and approvals, developments in patent or other proprietary rights, public concern as to the safety of products
developed by us and general market conditions may have a significant effect on the market price of our common stock. The trading
price of our common stock could be subject to wide fluctuations in response to quarter-to-quarter variations in our operating results,
material announcements by us or our competitors, governmental regulatory action, conditions in the health care industry generally or
in the medical products industry specifically, or other events or factors, many of which are beyond our control. In addition, the stock
market has experienced extreme price and volume fluctuations which have particularly affected the market prices of many medical
products companies and which often have been unrelated to the operating performance of such companies. Our operating results in
future quarters may be below the expectations of equity research analysts and investors. In such event, the price of our common stock
would likely decline, perhaps substantially.
No person is under any obligation to make a market in the common stock or to publish research reports on us, and any
person making a market in the common stock or publishing research reports on us may discontinue market making or publishing such
reports at any time without notice. There can be no assurance that an active public market in our common stock will be sustained.
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Our charter documents contain anti-takeover provisions that may prevent or delay an acquisition of us.
Certain provisions of our Restated Articles of Organization and Amended and Restated By-laws could have the effect of
discouraging a third party from pursuing a non-negotiated takeover of us and preventing certain changes in control. These provisions
include a classified Board of Directors, advance notice to the Board of Directors of stockholder proposals, limitations on the ability of
stockholders to remove directors and to call stockholder meetings, the provision that vacancies on the Board of Directors be filled by
vote of a majority of the remaining directors. In addition, the Board of Directors renewed a Shareholders Rights Plan in April 2008.
We are also subject to Chapter 110F of the Massachusetts General Laws which, subject to certain exceptions, prohibits a
Massachusetts corporation from engaging in any of a broad range of business combinations with any “interested stockholder” for a
period of three years following the date that such stockholder became an interested stockholder. These provisions could discourage a
third party from pursuing a takeover of us at a price considered attractive by many stockholders, since such provisions could have the
effect of preventing or delaying a potential acquirer from acquiring control of us and our Board of Directors.
Our revenues are derived from a small number of customers, the loss of which could materially adversely affect our business,
financial condition and results of operations.
We have historically derived the majority of our revenues from a small number of customers, most of whom resell our
products to end-users and most of whom are significantly larger companies than us. For the year ended December 31, 2009, four
customers accounted for 83% of product revenue. We expect to continue to be dependent on a small number of large customers for the
majority of our revenues. Our failure to generate as much revenue as expected from these customers or the failure of these customers
to purchase our products would seriously harm our business. In addition, if present and future customers terminate their purchasing
arrangements with us, significantly reduce or delay their orders, or seek to renegotiate their agreements on terms less favorable to us,
our business, financial condition, and results of operations will be adversely affected. If we accept terms less favorable than the terms
of the current agreement, such renegotiations may have a material adverse effect on our business, financial condition, and/or results of
operations. Furthermore, in any future negotiations we may be subject to the perceived or actual leverage that these customers may
have given their relative size and importance to us. Any termination, change, reduction or delay in orders could seriously harm our
business, financial condition, and results of operations. Accordingly, unless and until we diversify and expand our customer base, our
future success will significantly depend upon the timing and size of future purchases by our largest customers and the financial and
operational success of these customers. The loss of any one of our major customers or the delay of significant orders from such
customers, even if only temporary, could reduce or delay our recognition of revenues, harm our reputation in the industry, and reduce
our ability to accurately predict cash flow, and, as a consequence, could seriously harm our business, financial condition, and results
of operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
We have received no written comments regarding our periodic or current reports from the staff of the Securities and
Exchange Commission that were issued 180 days or more preceding the end of our 2009 fiscal year and that remain unresolved.
ITEM 2. PROPERTIES
Our corporate headquarters is located in Bedford, Massachusetts, where we lease approximately 134,000 square feet of
administrative, research and development and manufacturing space. We entered into this lease on January 4, 2007, and the lease
commenced on May 1, 2007 for an initial term of ten and a half years. We have an option under the Lease to extend its terms for up to
four periods beyond the original expiration date subject to the condition that we notify the landlord that we are exercising each option
at least one year prior to the expiration of the original or current term thereof. The first three renewal options each extend the term an
additional five years with the final renewal option extending the term six years. Our administrative, marketing, regulatory, and
research and development personnel moved into the Bedford facility in November of 2007. The remaining buildout at the Bedford
facility was completed in mid-2008 and validation for the manufacturing space will continue into 2010. Our prior corporate
headquarters was located in Woburn, Massachusetts and the lease for that facility ended on December 31, 2007. We also lease
approximately 37,000 square feet of space at a separate location in Woburn, Massachusetts, which currently houses our manufacturing
facility and warehouse. This facility has received all FDA, state and European regulatory approvals to operate as a sterile device and
drug manufacturer. We extended our lease for this facility to May 31, 2010. As part of the acquisition of FAB, we now lease
approximately 26,000 square feet of laboratory, warehouse and office space in Abano Terme, Italy. The lease commenced on
December 30, 2009 for an initial term of six (6) years. For the year ended December 31, 2009, we had aggregate facility lease
expenses of approximately $1,651,713.
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Our aggregate expenditures to build out the Bedford facility that will serve as our corporate headquarters and manufacturing
facility for the foreseeable future are expected to be approximately $34 million. Through December 31, 2009, approximately
$33 million has already been spent in connection with the buildout. We have borrowed $16 million under our Credit Agreement which
we entered into on January 31, 2008. There can be no assurance that we will be successful in re-qualifying the new facility under the
FDA and European Union regulations, in which case we may need to further extend our Woburn lease.
ITEM 3. LEGAL PROCEEDINGS
On December 12, 2007, Colbar Lifescience Ltd., a subsidiary of Johnson and Johnson, filed an opposition proceeding before
the U.S. Patent & Trademark Office’s Trademark Trial & Appeal Board (“Trademark Board”), objecting to one of the Company’s
applications to register the trademark ELEVESS, alleging that the mark is confusingly similar to Colbar’s previous mark
EVOLENCE. In October 2008, Colbar filed a petition with the Trademark Board requesting cancellation of the Company’s second
ELEVESS trademark that had been registered in September 2008. Throughout the discussions, the Company has maintained that
Colbar’s claim and petition are without merit, and has denied all substantive allegations in the notice of opposition. In November
2009, Colbar and Anika settled the matter and the parties signed was a stipulation filed with the court, whereby Anika abandoned the
US applications and registrations, and Colbar dismissed the opposition/cancellation proceedings. The Trademark Board has approved
the stipulation and dismissed the case.
ITEM 4. (Removed and Reserved).
25
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
COMMON STOCK INFORMATION
Our common stock has traded on the NASDAQ Global Select Market since November 25, 1997, under the symbol “ANIK.”
The following table sets forth, for the periods indicated, the high and low sales prices of our common stock on the NASDAQ Global
Select Market. These prices represent prices between dealers and do not include retail mark-ups, markdowns, or commissions and may
not necessarily represent actual transactions.
Year Ended December 31, 2009
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year Ended December 31, 2008
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
$
High
Low
5.01 $
5.80
7.15
9.05
3.05
4.51
4.81
6.11
High
Low
15.18 $
10.46
9.37
7.67
8.10
8.42
7.10
3.00
At December 31, 2009, the closing price per share of our common stock was $7.63 as reported on the NASDAQ Global
Select Market and there were approximately 272 holders of record. We believe that the number of beneficial owners of our common
stock at that date was substantially greater.
We have never declared or paid any cash dividends on our common stock. We currently intend to retain earnings, if any, for
use in our business and do not anticipate paying cash dividends on our common stock in the foreseeable future. Payment of future
dividends, if any, on our common stock will be at the discretion of our Board of Directors after taking into account various factors,
including our financial condition, operating results, anticipated cash needs, and plans for expansion.
Performance Graph (Unaudited)
Set forth below is a graph comparing the total returns of the Company, the NASDAQ Composite Index and the NASDAQ
Biotechnology Index. The graph assumes $100 is invested on December 31, 2004 in the Company's Common Stock and each of the
indicies.
Anika Therapeutics
NASDAQ Composite Index
NASDAQ Biotechnology
Index
$
$
$
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
100.00 $
100.00 $
127.76 $
101.37 $
145.03 $
111.03 $
159.02 $
121.92 $
33.22 $
72.49 $
83.39
104.31
100.00 $
102.84 $
103.89 $
108.65 $
94.93 $
109.77
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information concerning the Company’s equity compensation plan as of December 31, 2009.
Plan category
Equity compensation plans
approved by security
holders
Equity compensation plans
not approved by security
holders
Total
Equity Compensation Plan Information
Number of securities
to be issued upon
exercise of outstanding
options, stock appreciation
rights, and restricted stock
Weighted Average
exercise price
of outstanding
options, stock appreciation
rights, and restricted stock
(a)
(b)
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column (a))
(c)
1,467,910
$
7.43
887,840
—
1,467,910
$
26
—
7.43
—
887,840
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements
and the Notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included
elsewhere in this Annual Report on Form 10-K. The Balance Sheet Data at December 31, 2009 and 2008 and the Statement of
Operations Data for each of the three years ended December 31, 2009 have been derived from the audited Consolidated Financial
Statements for such years, included elsewhere in this Annual Report on Form 10-K. The Balance Sheet Data at December 31, 2007,
2006 and 2005, and the Statement of Operations Data for each of the two years in the period ended December 31, 2006 have been
derived from the audited Consolidated Financial Statements for such years not included in this Annual Report on Form 10-K.
Statement of Operations Data
(In thousands, except per share data)
Product revenue
Licensing, milestone and contract revenue
Total revenue
Cost of product revenue
Product gross profit
Product gross margin
Total operating expenses
Net income
Diluted net income per common share
Diluted common shares outstanding
$
2009
37,321
2,815
40,136
13,670
23,651
Years ended December 31,
2007
2006
2008
$
33,055
2,725
35,780
13,189
19,866
$
26,905
3,925
30,830
11,881
15,024
$
23,953
2,887
26,840
11,118
12,835
2005
20,534
9,301
29,835
11,144
9,390
63 %
60 %
56 %
54 %
46 %
34,549
3,688
0.32
11,562
$
$
31,553
3,629
0.32
11,461
$
$
24,242
6,035
0.53
11,454
$
$
21,413
4,604
0.41
11,155
$
$
21,284
5,893
0.52
11,428
$
$
$
Balance Sheet Data
(In thousands)
2009
2008
December 31,
2007
2006
2005
Cash, cash equivalents and short-term investments
Working capital
Total assets
Retained earnings
Stockholders’ equity
$
24,427 $
33,270
130,702
21,470
82,144
43,194 $
46,798
95,821
17,782
60,757
39,406 $
41,805
79,497
14,153
54,961
47,167 $
52,145
68,114
8,118
45,488
44,747
46,584
62,618
3,514
37,892
On June 30, 2006, the Company entered into a License and Development Agreement and a Supply Agreement with
Galderma for the exclusive worldwide development and commercialization of hyaluronic acid based aesthetic dermatology products.
Due to disagreements concerning certain aspects of the formulation of the current and future products as well as some elements of the
strategy and timing for commercialization, in November 2007 the Galderma agreements were terminated. As a result, we reacquired
the worldwide rights and control of the future development and marketing of ELEVESS. As a result of the contract terminations,
during the fourth quarter of 2007, we recorded net revenue of approximately $1.2 million for the upfront and milestone payments
received and termination payment made to Galderma.
On September 1, 2005, the Company announced that it had mutually agreed with OrthoNeutrogena to terminate its
development and commercialization agreement. Under the terms of the termination agreement, we received a final payment of
$3.1 million from OrthoNeutrogena including $0.8 million for all outstanding clinical study costs incurred and committed to by the
Company at the termination date, plus a mutually agreed upon termination fee of $2.1 million. Given that there were no continuing
performance obligations with respect to the development and commercialization agreement or the related termination agreement, all
amounts were recognized as contract revenue during the third quarter of 2005, including $0.3 million of previously deferred revenue
under the performance-based model.
27
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following section of this Annual Report on Form 10-K titled “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” contains statements that are not statements of historical fact and are forward-looking
statements within the meaning of the federal securities laws. These statements involve known and unknown risks, uncertainties, and
other factors that may cause our actual results, performance, or achievement to differ materially from anticipated results,
performance, or achievement, expressed or implied in such forward-looking statements. These statements reflect our current views
with respect to future events and are based on assumptions and subject to risks and uncertainties. We discuss many of these risks and
uncertainties at the beginning of this Annual Report on Form 10-K and under Item 1 “Business” and Item 1A “Risk Factors.” The
following discussion should also be read in conjunction with the Consolidated Financial Statements of Anika Therapeutics, Inc. and
the Notes thereto appearing elsewhere in this report.
Management Overview
Anika Therapeutics, Inc. (“Anika,” and together, with its subsidiaries, the “Company”) develops, manufactures and
commercializes therapeutic products for tissue protection, healing, and repair. These products are based on hyaluronic acid (“HA”), a
naturally occurring, biocompatible polymer found throughout the body. Due to its unique biophysical and biochemical properties, HA
plays an important role in a number of physiological functions such as the protection and lubrication of soft tissues and joints, the
maintenance of the structural integrity of tissues, and the transport of molecules to and within cells. See Item 1: “Business” in this
Form 10-K for details regarding the Company’s currently manufactured and marketed products.
On December 30, 2009, Anika entered into a Sale and Purchase Agreement (the “Purchase Agreement”) with Fidia
Farmaceutici S.p.A., a privately held Italian corporation (the “Seller”) pursuant to which the Company acquired 100% of the issued
and outstanding stock of Fidia Advanced Biopolymers S.r.l., a privately held Italian corporation (“FAB”) for a purchase price
consisting of $17.1 million in cash and 1,981,192 shares of the Company’s common stock valued at $16.8 million based on the closing
stock price of $8.49 per share. FAB’s operating results and cash flow changes were immaterial for the one day of post-acquisition
activity. (See Item 8: Financial Statements, Note 19, "Acquisition of Fidia Advanced Biopolymers, S.r.l." for additional information
regarding the acquisition).
FAB has over 20 products currently commercialized, primarily in Europe. These products are all made from hyaluronic
acid, and based on two technologies “HYAFF”, which is a solid form of HA, and ACP gel, an autocross-linked polymer of HA. Both
technologies are protected by an extensive portfolio of patents. With the acquisition of FAB, beginning in 2010, the Company will be
offering therapeutic products in the following areas:
Orthopedic/joint health
Advanced wound care
Ophthalmic surgery
Surgical/Anti-adhesion
Ear, nose & throat care
(Otolaryngology)
Aesthetic dermatology
Veterinary
Anika FAB
X X
X
X
X X
X
X
X
Orthopedic/Joint Health Business
Anika’s joint health business contributed 61% to our product revenue in the year ended December 31, 2009 compared to
57% in the year ended December 31, 2008, reflecting an increase in sales of 22% in 2009 compared to 2008. Our joint health products
include ORTHOVISC, ORTHOVISC mini , and MONOVISC. ORTHOVISC is available in the U.S., Canada, and some international
markets for the treatment of osteoarthritis of the knee, and in Europe for the treatment of osteoarthritis in all joints. ORTHOVISC
mini is available in Europe and is designed for the treatment of osteoarthritis in small joints. MONOVISC is our single injection
osteoarthritis treatment indicated for all joints in Europe, and for the knee in Turkey and Canada. ORTHOVISC mini , and
MONOVISC are our two newest joint health products and became available during the second quarter of 2008.
28
Anika has marketed ORTHOVISC, our product for the treatment of osteoarthritis of the knee, internationally since 1996
through various distribution agreements. International sales of ORTHOVISC contributed 14% of product revenue for the year ended
December 31, 2009 and increased $385,013, or 8% compared to 2008. This increase in many countries is reflective of our continued
focus in this therapeutic area, an area with favorable demographics of an aging population looking to remain active. Our strategy is to
continue to add new products, to expand the indications for usage of these products, and to add additional countries to our distribution
network. The joint health area has been the fastest growing area for the Company, growing from 39% of our product revenue in 2005
to 61% of our product revenue in 2009. We continue to seek new distribution partnerships around the world and we expect total joint
health product sales to increase in 2010 compared to 2009.
With the acquisition of FAB, we now offer several additional products used in connection with orthopedic regenerative
medicine. The products currently available in Europe, include Hyalograft C Autograft for cartilage regeneration; Hyalofast, a
biodegradable support for human bone marrow mesenchymal stem cells; Hyalonect, a woven gauze used as a graft wrap; and Hyaloss,
HYAFF fibers used to mix blood/bone grafts to form a paste for bone regeneration. FAB also offers Hyaloglide, an ACP gel used in
tenolysis treatment, but with potential for flexor tendon adhesion prevention, and in the shoulder for adhesive capsulitis. FAB’s
products are commercialized directly in Italy, and through a network of distributors, primarily in Europe, the Middle East, Argentina,
and Korea. Anika believes that the U.S. market offers excellent expansion potential to increase revenue, and this will be a major focus
area for the Company.
Advanced Wound Care Business
With the FAB acquisition, the Company has now entered the field of advanced wound care products. FAB offers over
seven products for treatment of skin wounds ranging from burns to diabetic ulcers. The products cover a variety of wound treatment
solutions including debridement agents, advanced therapies and skin substitutes. Leading products include Hyalomatix 3D, for the
regeneration of skin; and Hyalomatrix, for treatment of burns and ulcers and the only product not contra-indicated for 3 rd degree
burns. FAB’s products are commercialized directly in Italy, and through a network of distributors, primarily in Europe, the Middle
East, Argentina, and Korea. Several of the products are also approved for sale in the United States, and the Company is exploring
distribution opportunities.
Ophthalmic Business
Our ophthalmic business includes HA viscoelastic products used in ophthalmic surgery. For the year ended December 31,
2009, sales of ophthalmic products contributed 28% of our product revenue reflecting a decrease in sales of ophthalmic products of
1% compared to 2008. Sales to Bausch & Lomb accounted for 94% of ophthalmic sales for 2009 and contributed 27% of product
revenue for the period.
Surgical/Anti-adhesion Business
INCERT, approved for sale in Europe and Turkey, is designed as a family of HA based products, with chemically modified,
cross-linked HA, for prevention of post-surgical adhesions. INCERT is currently marketed in three countries. We see potential for
expanded indications for the use of INCERT, but have made this a secondary goal to the successful launch and expanded distribution
of our joint health and aesthetic products. Sales of INCERT ® were $121,445 and $134,780 for the years 2009 and 2008, respectively.
There are currently no plans to distribute INCERT in the U.S.
Hyalobarrier and Hyalobarrier Endo are a clinically proven post operative adhesion barrier approved for abdominal
indications. The products are currently commercialized by FAB in Europe, the Middle East and certain Asian countries through a
distribution network.
29
Ear, Nose and Throat Care Business
FAB offers eight products used in connection with the treatment of ENT disorders. The lead product is Merogel, a thick,
viscous hydrogel composed of cross-linked hyaluronic acid—a biocompatible agent that creates a moist wound- healing
environment. FAB is partnered with Medtronic for worldwide distribution.
Aesthetic Dermatology Business
Our aesthetic dermatology business is designed as a family of products for facial wrinkles and scar remediation, and is
intended to supplant collagen-based products and to compete with other HA-based products currently on the market. Our initial
aesthetic dermatology product is a dermal filler based on our proprietary chemically modified, cross-linked HA. We received
European and United States FDA approvals for this product in April and July of 2007, respectively. We recorded $1,471,465 and
$505,273 of aesthetic dermatology revenue in 2009 and 2008, respectively. Aesthetic dermatology revenue in 2008 was primarily
from Artes Medical, Inc., our former U.S. ELEVESS distributor. Our distribution agreement with Artes was terminated in the fourth
quarter of 2008 as a result of Artes’ Chapter 7 bankruptcy filing. This product is now marketed in the U.S. by Coapt Systems, Inc.
under the name of HYDRELLE™. Coapt began selling the product in the third quarter of 2009. Internationally, this product is
marketed under the ELEVESS™ name, and in 2010 expected to also be marketed under the HYDRELLE™ brand. We continue to
focus on the development and expansion of the product in additional countries and added distributors in Poland, Egypt, and Korea
during the fourth quarter of 2009.
Veterinary Business
U.S. sales of HYVISC, our product for the treatment of equine osteoarthritis, contributed 6% to product revenue for the year
ended December 31, 2009, reflecting a decrease of 25% from 2008. We believe the decrease for these periods was primarily due to
inventory management by our partner, Boehringer Ingelheim Vetmedica. We expect HYVISC sales to be relatively flat in 2010. We
continue to look at other veterinary applications and opportunities to expand geographic territories.
Research and Development
Products in development include MONOVISC for U.S. marketing approval, and additional next generation joint health
related products. Our first next generation osteoarthritis product is MONOVISC, a single-injection treatment product that uses a non-
animal source HA, and is our first osteoarthritis product based on our proprietary crosslinked HA-technology. We received CE Mark
approval for the MONOVISC product in October 2007 and began sales in Europe during the second quarter of 2008, following a
small, post marketing clinical study. In the U.S., we filed an investigational device exemption, or an IDE application, with the FDA,
and completed the clinical segment of the U.S. MONOVISC pivotal trial in June 2009, and a follow-on retreatment study in
September 2009. We completed a PMA filing with the FDA in December 2009 which is currently under review. Our second single-
injection osteoarthritis product is CINGAL, which is based on the same technology platform used in MONOVISC, with an added
active therapeutic molecule to provide broad pain relief for a long period of time.
Our new subsidiary, FAB, has a number of research and development projects underway. Key projects include obtaining
FDA approval to market FAB’s suite of orthopedic products in the U.S. These products consist of Hyalofast ® , Hyaloglide ® ,
Hyalograft ® and Hyalonect ® . A key objective for 2010 will be to integrate our research and development activities, and to
prioritize the many projects currently underway at both companies.
Summary of Critical Accounting Policies; Significant Judgments and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We monitor our estimates on an on-going
basis for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates
are recorded in the period in which they become known. We base our estimates on historical experience and other assumptions that we
believe to be reasonable under the circumstances. Actual results may differ from our estimates if past experience or other assumptions
do not turn out to be substantially accurate.
We have identified the policies below as critical to our business operations and the understanding of our results of
operations. The impact and any associated risks related to these policies on our business operations is discussed throughout
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” where such policies affect our reported
and expected financial results. For a detailed discussion on the application of these and other accounting policies, see Note 2 in the
Notes to the Consolidated Financial Statements of this Annual Report on Form 10-K for the year ended December 31, 2009.
30
Business Combinations
The Company assigns the value of the consideration transferred to acquire a business to the tangible and identifiable
intangible assets acquired and liabilities assumed on the basis of their fair values at the date of acquisition. The Company assesses the
fair value of assets, including intangible assets such as in-process research and development, using a variety of methods including
present-value models. Each asset is measured at fair value from the perspective of a market participant. The establishment of fair value
for intangible assets in a stock purchase transaction frequently results in a different treatment for tax return purposes. Under Italian
tax law, the tax basis of the assets may not be stepped-up to fair value, and the additional depreciation and amortization expense is not
deductible, which creates a deferred tax liability over the amortization period that is recorded on the opening balance sheet.
In-process research and development assets acquired in a business combination are recorded as of the acquisition date at fair
value and accounted for as indefinite-lived intangible assets. These assets are maintained on the Company's consolidated balance sheet
until either the project underlying them is completed or the assets become impaired. If a project is completed, the carrying value of the
related intangible asset is amortized over the remaining estimated life of the asset beginning in the period in which the project is
completed. If a project becomes impaired or is abandoned, the carrying value of the related intangible asset is written down to its fair
value and an impairment charge is taken in the period in which the impairment occurs. In-process research and development assets are
tested for impairment on an annual basis, or earlier, if impairment indicators are present.
The method used to estimate the fair values of in-process research and development assets incorporates significant
assumptions regarding the estimates market participants would make in order to evaluate an asset. These include assumptions
regarding the probability of completing development projects, obtaining regulatory approval for marketing, estimates regarding the
timing of and the expected costs to complete, and estimates of future cash flows from potential product sales.
The difference between the purchase price and the fair value of assets acquired and liabilities assumed in a business
combination is allocated to goodwill. Goodwill is evaluated for impairment on an annual basis, or earlier if impairment indicators are
present.
Revenue Recognition
Our revenue recognition policies are in accordance with Accounting Standards Codification 605, Revenue Recognition (ASC
605), and Accounting Standards Codification 808, Collaborative Arrangements (ASC 808), (formerly the SEC SAB No. 101,
Revenue Recognition in Financial Statements , as amended by SEC SAB No. 104, Revenue Recognition , and EITF No. 00-21,
Revenue Arrangements with Multiple Deliverables , and EITF No. 07-1 Accounting for Collaborative Arrangements ), which became
effective on January 1, 2009. Adoption of ASC 808 did not impact our financial statements for the year ended December 31, 2009.
Product Revenue
We recognize revenue from the sales of products we manufacture upon confirmation of regulatory compliance and shipment
to the customer as long as there is (1) persuasive evidence of an arrangement, (2) delivery has occurred and risk of loss has passed,
(3) the sales price is fixed or determinable and (4) collection of the related receivable is reasonably assured. Amounts billed or
collected prior to recognition of revenue are classified as deferred revenue. When determining whether risk of loss has transferred to
customers on product sales or if the sales price is fixed or determinable we evaluate both the contractual terms and conditions of our
distribution and supply agreements as well as our business practices. Product revenue also includes royalties. Royalties earned are
recorded as product revenue and is based on our distributor’s sales and recognized in the same period our distributor records their sale
of the product.
31
Licensing, Milestone and Contract Revenue
Licensing, milestone and contract revenue consists of revenue recognized on initial and milestone payments, as well as
contractual amounts received from partners. The Company’s business strategy includes entering into collaborative license,
development and/or supply agreements with partners for the development and commercialization of the Company’s products. The
terms of the agreements typically include non-refundable license fees, funding of research and development, payments based upon
achievement of certain milestones, supply of products and royalties on product sales. The Company evaluates each agreement and
elements within each agreement in accordance with ASC 605. Under ASC 605, in order to account for an element as a separate unit of
accounting, the element must have stand-alone value and there must be objective and reliable evidence of fair value of the undelivered
elements. In general, non-refundable upfront fees and milestone payments are recognized as revenue over the term of the arrangement
as the Company completes its performance obligations. In October 2009 the FASB issued Accounting Standards Update 2009-13,
Revenue Recognition (Topic 605), a new accounting standard for the recognition of revenue arrangements with multiple deliverables.
This standard provides accounting principles and application guidance on whether multiple deliverables exist, how the arrangement
should be separated, and how the consideration should be allocated. This new approach is effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. While we do not expect the
adoption of this standard to have a material impact on our financial position and results of operations, this standard may impact us in
the event we complete future transactions or modify existing collaborative relationships. See the accompanying notes to the Financial
Statements in the Form 10-K under Recent Accounting Pronouncements for additional discussion of this standard and its impact on
us.
Grant Research Revenue
With the FAB acquisition, the Company assumed two grant contracts with the European Community related to cell-based
tissue engineered products and disc regeneration research. FAB coordinates the fiscal activities for a group of participating companies
and universities, and accounts for these contracts by recording an account receivable for the reimbursable expenses incurred under the
contract, and records a liability for any amounts due to the other participants. Expenses are recorded as incurred.
Reserve for Obsolete/Excess Inventory
Inventories are stated at the lower of cost or market. We regularly review our inventories and record a provision for excess
and obsolete inventory based on certain factors that may impact the realizable value of our inventory including, but not limited to,
technological changes, market demand, inventory cycle time, regulatory requirements and significant changes in our cost structure. If
ultimate usage varies significantly from expected usage or other factors arise that are significantly different than those anticipated by
management, additional inventory write-down or increases in obsolescence reserves may be required.
We generally produce finished goods based upon specific orders or in anticipation of specific orders. As a result, we
generally do not establish reserves against finished goods. We evaluate the value of inventory on a quarterly basis and may, based on
future changes in facts and circumstances, determine that a write-down of inventory is required in future periods.
Fair Value Measurements
Effective January 1, 2009, the Company adopted the authoritative guidance for fair value measurements and the fair value
option for financial assets and financial liabilities in accordance with Accounting Standards Codification 820, Fair Value
Measurements and Disclosures (ASC 820), (Formerly SFAS No. 157, Fair Value Measurements and Disclosures ). ASC 820
establishes a three-level hierarchy which prioritizes the inputs used in measuring fair value. In general, fair value determined by
Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize
data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are
unobservable data points for the asset or liability, and includes situations where there is little, if any, market activity for the asset or
liability. The fair value of our cash equivalents was $20,212,992 and $34,197,953 at December 31, 2009 and December 31, 2008,
respectively, based on Level 1 inputs. Effective January 1, 2009, the Company adopted the provisions under ASC 820 for valuation of
nonfinancial assets and nonfinancial liabilities. The adoption of such provisions did not impact the Company’s financial position,
results of operations, or cash flows.
During the second quarter of 2009, the Company implemented Accounting Standards Codification 825, Financial Instruments (ASC
825), (Formerly FSP 107-1 and APB 28-1 Interim Disclosures about Fair Value of Financial Instruments ). ASC 825 requires
disclosures about the fair value of financial instruments in interim as well as in annual financial statements. The adoption of this
standard has resulted in the disclosure of the fair value of the Company’s long term debt instrument on a quarterly basis. Since ASC
825 addresses disclosure requirements, the adoption of this ASC did not impact our financial position or results of operations. The
carrying value of our debt instrument was $14,400,000 at December 31, 2009. The estimated fair value of our debt instrument was
approximately $13,800,000 using market observable inputs and interest rate measurements.
32
Asset Valuation
Asset valuation includes assessing the recorded value of certain assets, including accounts receivable, investments,
inventories, and intangible assets. We use a variety of factors to assess valuation, depending upon the asset. Accounts receivable are
evaluated based upon the credit-worthiness of our customers, our historical experience, and the age of the receivable. The
determination of whether unrealized losses on investments are other than temporary is based upon the type of investments held,
market conditions, length of the impairment, magnitude of the impairment and ability to hold the investment to maturity. Should
current market and economic conditions deteriorate, our ability to recover the cost of our investments may be impaired. The
recoverability of inventories is based upon the types and levels of inventory held and forecasted demand. Should current market and
economic conditions deteriorate, our actual recovery could be less than our estimate. Intangible assets are evaluated based upon the
expected period the asset will be utilized, forecasted cash flows, and customer demand. Our intangible assets consist of our ELEVESS
trade name, as well as Developed Technology, IPR&D, Goodwill and other items related to the FAB acquisition. Significant
assumptions underlying the recoverability of the intangible assets include: future cash flow, growth projections, product life cycle and
useful life assumptions. The ultimate recoverability of the asset is dependent on us securing additional distributors, or directly
commercializing the product. Changes in these assumptions could materially impact the Company’s ability to realize the value of its
intangible asset. Refer to Note 19 on the acquisition of FAB.
Property and equipment
Property and equipment are carried at cost less accumulated depreciation, subject to review for impairment whenever events
or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Costs of major additions and
improvements are capitalized; maintenance and repairs that do not improve or extend the life of the respective assets are charged to
operations. On disposal, the related accumulated depreciation or amortization is removed from the accounts and any resulting gain or
loss is included in results of operations. Depreciation is computed using the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized over the lesser of the useful life or the expected term of the respective lease. Machinery
and equipment are depreciated from 5 to 10 years, furniture and fixtures from 5 to 7 years and computer software and hardware from 3
to 5 years. Interest costs incurred during the construction of major capital projects are capitalized in accordance with Accounting
Standards Codification 835-20, Capitalization of Interest (ASC 835-20), (Formerly SFAS No. 34, “ Capitalization of Interest Costs
”). The interest is capitalized until the underlying asset is ready for its intended use, at which point the interest cost is amortized as
interest expense over the life of the underlying assets. The Company began expensing all interest costs incurred commencing after
July 1, 2009. We capitalize certain direct and incremental costs associated with the validation effort related to FDA approval of our
manufacturing facility and equipment for the production of our commercial products. These costs include construction costs,
equipment costs, direct labor and materials incurred in preparing the facility and equipment for their intended use. The validation costs
are amortized over the life of the related facility and equipment. We will commence depreciation upon receiving FDA approval to
manufacture our products.
Stock-based Compensation
The Company accounts for stock-based compensation under the provisions of Accounting Standards Codification 718,
Compensation – Stock Compensation (ASC 718), (Formerly SFAS No. 123R, Share-Based Payment ), which establishes accounting
for equity instruments exchanged for employee services. Under the provisions of ASC 718, share-based compensation cost is
measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s
requisite service period (generally the vesting period of the equity grant). For awards with a performance condition vesting feature,
when achievement of the performance condition is deemed probable, the Company recognizes compensation cost on a graded-vesting
basis over the awards’ expected vesting periods. The Company assesses probability on a quarterly basis.
The Company estimates the fair value of stock options and stock appreciation rights using the Black-Scholes valuation
model. Key input assumptions used to estimate the fair value of stock options include the exercise price of the award, the expected
award term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate over the award’s
expected term, and the Company’s expected annual dividend yield. The Company uses historical data on exercise of stock options and
other factors to estimate the expected term of share-based awards. The Company also evaluates forfeitures periodically and adjusts
accordingly. The expected volatility assumption is based on the unadjusted historical volatility of the Company’s common stock. The
risk-free interest rate assumption is based on U.S. Treasury interest rates at the time of grants. Estimates of fair value are not intended
to predict actual future events or the value ultimately realized by persons who receive equity awards.
33
Income Taxes
Beginning January 1, 2007, the Company began accounting for uncertain income tax positions using a benefit recognition
model with a two-step approach, a more-likely-than-not recognition criterion and a measurement attribute that measures the position
as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement in accordance with
Accounting Standards Codification 740, Income Taxes (ASC 740), (Formerly FIN 48, “ Accounting for Uncertainty in Income Taxes,
an Interpretation of FASB Statement No. 109” ). If it is not more likely than not that the benefit will be sustained on its technical
merits, no benefit will be recorded. Uncertain tax positions that relate only to timing of when an item is included on a tax return are
considered to have met the recognition threshold. As a result of the adoption of ASC 740 there was no change to the tax reserve for
unrecognized tax benefits. As such, there was no change to retained earnings as of January 1, 2007. It is the Company’s policy to
classify accrued interest and penalties as part of the accrued ASC 740 liability and record the expense in the provision for income
taxes. As of December 31, 2009, income tax related interest and penalties were immaterial. The DOR is currently auditing the
Company’s taxes for the years ended December 31, 2007 and December 31, 2006. Our U.S. federal income tax returns for the years
2006 to 2008 remain subject to examination, and our state income tax return for 2008 remains subject to examination.
We record a deferred tax asset or liability based on the difference between the financial statement and tax basis of assets and
liabilities, as measured by the enacted tax rates assumed to be in effect when these differences reverse. As of December 31, 2009,
management determined that it is more likely than not that the deferred tax assets will be realized and, therefore, a valuation allowance
has not been recorded.
Results of Operations
Year ended December 31, 2009 compared to year ended December 31, 2008
The historical results of operations discussion below pertains only to Anika Therapeutics, Inc. and does not include a discussion of
FAB’s operation or its impact on Anika’s historical results.
Statement of Operations Detail
Product revenue
Licensing, milestone and contract revenue
Total revenue
Operating Expenses:
Cost of product revenue
Research and development
Selling, general and administrative
Acquisition-related expenses
Total operating expenses
Income from operations
Interest income (expense), net
Income before income taxes
Provision for income taxes
Net income
Product gross profit
Product gross margin
Year Ended December 31,
2009
$ 37,320,906
2,814,798
40,135,704
2008
$ 33,054,787
2,725,000
35,779,787
13,670,228
8,181,532
10,545,351
2,151,854
34,548,965
5,586,739
5,512,259
1,824,692
$ 3,687,567
$ 23,650,678
13,188,516
7,399,049
10,965,493
—
31,553,058
4,226,729
498,512
4,725,241
1,096,046
$ 3,629,195
$ 19,866,271
(74,480 )
63 %
60 %
Total Revenue. Total revenue for the year ended December 31, 2009 increased by $4,355,917 to $40,135,704. The increase
in total revenue was primarily due to increased Joint Health and Aesthetic Dermatology product revenue in 2009.
34
Product revenue by product line. Product revenue for the year ended December 31, 2009 was $37,320,906, an increase of
$4,266,119, or 13%, compared to the prior year.
Joint Health
Ophthalmic
Veterinary
Aesthetics
Others
Year Ended December 31,
2009
$ 22,879,899
10,573,915
2,274,482
1,471,165
121,445
$ 37,320,906
2008
$ 18,707,669
10,678,615
3,028,450
505,273
134,780
$ 33,054,787
Our joint health products consist of ORTHOVISC, ORTHOVISC mini and MONOVISC, the latter two of which are
currently only available outside the United States. Revenue from joint health products increased $4,172,230, or 22%, in 2009. The
improvement in joint health product revenue was due to increases in both international and domestic ORTHOVISC revenue, as well as
increased sales of MONOVISC and ORTHOVISC mini in Europe, Turkey and Canada in 2009 compared with only a partial period
during 2008. Our U.S. joint health product revenue for 2009 totaled $16,930,420, compared to $13,222,454 in 2008, an increase of
28%. This increase reflects DePuy Mitek’s underlying volume driven sales increases to end-users as a result of their continued
marketing efforts. International joint health product revenue in 2009 increased 8% to $5,949,479, from $5,485,215, in 2008. The
increase in international revenue was due to increased product shipments to Canada, France, Egypt, Hungary and Austria. We expect
joint health product revenue to increase in 2010 compared to 2009, both domestically and internationally.
Ophthalmic products sales decreased $104,700, or 1%, to $10,573,915. The decrease was primarily attributable to order
timing and inventory management by our partners.
HYVISC revenue decreased $753,968, or 25%, to $2,274,482 in 2009 as compared with $3,028,450 in 2008. We believe the
decrease for the period was primarily due to inventory management by our partner, Boehringer Ingelheim Vetmedica. Sales of
HYVISC are made to a single customer under an exclusive agreement which was extended in April 2006 to December 31, 2010. We
expect HYVISC revenue to be relatively flat in 2010 compared to 2009.
AESTHETICS revenue increased $965,892, or 191%, to $1,471,165 in 2009 from $505,273 in 2008. The increase was
primarily due to the commencement of sales in the third quarter of 2009 by our new United States distributor, Coapt Systems,
Inc. Coapt is marketing the product in the U.S. under the brand name HYDRELLE™. AESTHETICS revenue in 2008 was primarily
from Artes Medical, Inc., our former U.S. ELEVESS distributor. Our distribution agreement with Artes Medical, Inc. was terminated
in the fourth quarter of 2008 as a result of Artes’ Chapter 7 bankruptcy filing. We added several additional international distributors in
the second half of 2009, and we continue to seek additional marketing and distribution partners to commercialize our aesthetic
products outside the U.S. The aesthetics’ market is crowded with many large companies, and our growth expectations in this area are
modest.
Licensing, milestone and contract revenue. Licensing, milestone and contract revenue for the year ended December 31,
2009 was $2,814,798, compared to $2,725,000 for 2008. The increase was due to a short term product development contract with an
existing partner. Licensing and milestone revenue includes the ratable recognition of the $27,000,000 in up-front and milestone
payments related to the JNJ agreement. These amounts are being recognized in income ratably over the ten-year expected life of the
agreement, or $2,700,000 per year.
Product gross profit and margin. Product gross profit for the year ended December 31, 2009 was $23,650,678, or 63% of
product revenue, compared with $19,866,271, or 60% of product revenue, for the year ended December 31, 2008. The increase in
product gross profit dollars and margin was primarily due to increased sales of our more profitable joint health products resulting in a
more favorable product mix compared to 2008, and increased manufacturing activity in our Woburn facility to build inventory in
preparation for moving our operations to the Bedford facility. We expect a small decline in gross margin in 2010 due to lower
manufacturing activity during the time we transition operations to our Bedford facility. The transition will take place by product line
and result in manufacturing activities occurring in both facilities for a significant portion of the year. The Bedford facility is expected
to add in excess of $2.2 million to annual depreciation once completely on-line.
Research and development. Research and development expenses for the year ended December 31, 2009 increased by
$782,483, or 11%, to $8,181,532 from $7,399,049 for the prior year. The increase in research and development expenses was
primarily related to our ongoing U.S.-based clinical trials for MONOVISC, the post-marketing aethetics dermatology “people of
color” study, manufacturing validation activities at our Bedford facility, as well as other continuing new product development
projects. We expect research and development expenses will increase significantly in the future with the addition of FAB’s activities.
35
Selling, general and administrative. Selling, general and administrative expenses for the year ended December 31, 2009,
excluding acquisition-related expense, decreased by $420,142 or 4%, to $10,545,351 from $10,965,493 in the prior year. The decrease
was primarily due to a decrease in marketing expenses. The prior year’s spending included additional marketing expenses as a result
of the MONOVISC and ORTHOVISC mini product launches in Europe. We expect that general and administrative expenses will
increase modestly in 2010, but selling expenses to significantly increase as we prepare for the direct commercialization of
MONOVISC in the U.S.
Acquisition-related Expenses. We incurred $2.2 million of acquisition-related non-recurring expenses in 2009 in
connection with our acquisition of FAB. We did not have corresponding acquisition-related expenses in 2008 or 2007.
Interest income, net. Net interest expense was $74,480 for the year ended December 31, 2009, compared to a net interest
income of $498,512 in 2008. The decrease was primarily attributable to lower interest rates as a result of the current rate environment,
and lower available cash and invested balances in 2009 compared to 2008. The net interest expense for 2009 represents interest
expense for facility related asset retirement obligations, and the interest expense on our outstanding debt balance, which was
capitalized during the construction/validation stages prior to July 1, 2009.
Income taxes. Provisions for income taxes were $1,824,692 and $1,096,046 for 2009 and 2008, respectively. The increase
in effective tax rate in 2009 of 9.9% and difference from the U.S. federal statutory rate is primarily due to two factors: approximately
$1.3 million of the FAB acquisition expenses are non-deductible for income tax purposes, and lower capital spending on the Bedford
facility as the project spending peaked in 2008, resulting in lower state investment tax credits in 2009. Partially offsetting this
increase was greater state and federal research and development spending resulting in higher credits in 2009 compared to 2008.
A reconciliation of the U.S. federal statutory tax rate to the effective tax rate for the periods ending December 31 is as
follows:
Computed expected tax expense
State tax expense (net of federal benefit)
State deferred tax assets rate change
Permanent items, including nondeductible expenses
State investment tax credit
Federal and state research and development credits
Other
Tax expense
Years ended December 31,
2008
2007
2009
34.0 %
6.2 %
(0.8 )%
8.8 %
(5.6 )%
(8.4 )%
(1.1 )%
33.1 %
34.0 %
4.6 %
2.6 %
0.6 %
(11.1 )%
(5.8 )%
(1.7 )%
23.2 %
34.0 %
4.2 %
-
(1.1 )%
(3.9 )%
(2.4 )%
(0.3 )%
30.5 %
During the third quarter of 2008, the Company concluded its audit by the Massachusetts Department of Revenue (“DOR”)
for its 2004 and 2005 tax returns, which resulted in a reduction to its FIN 48 tax reserves and a related income tax benefit of
approximately $100,000. In 2008, the Company recorded additional provision of approximately $121,000 related to the reduction of
its deferred tax assets as a result of newly enacted changes in the Commonwealth of Massachusetts to gradually reduce future
corporate income tax rates. The DOR is currently auditing the Company’s taxes for the years ended December 31, 2007 and December
31, 2006. Our U.S. federal income tax returns for the years 2006 to 2008 remain subject to examination, and our state income tax
return for 2008 remains subject to examination.
Net income. For the year ended December 31, 2009 net income was $3,687,567 or $0.32 per diluted share compared to
$3,629,195 or $0.32 per diluted share for the same period last year. The primary driver for the increase in net income was an increase
in product sales with a more favorable product mix.
36
Year ended December 31, 2008 compared to year ended December 31, 2007
Statement of Operations Detail
Product revenue
Licensing, milestone and contract revenue
Total revenue
Operating Expenses:
Cost of product revenue
Research and development
Selling, general and administrative
Total operating expenses
Income from operations
Interest income, net
Income before income taxes
Provision for income taxes
Net income
Product gross profit
Product gross margin
Year Ended December 31,
2008
33,054,787
2,725,000
35,779,787
13,188,516
7,399,049
10,965,493
31,553,058
4,226,729
498,512
4,725,241
1,096,046
3,629,195
19,866,271
$
$
$
2007
26,905,100
3,924,721
30,829,821
11,880,989
4,364,620
7,996,781
24,242,390
6,587,431
2,100,663
8,688,094
2,652,840
6,035,254
15,024,111
$
$
$
60 %
56 %
Total Revenue. Total revenue for the year ended December 31, 2008 increased by $4,949,996 to $35,779,787 compared to
$30,829,821 for the year ended December 31, 2007 primarily due to increased ORTHOVISC revenue and the introduction of new
joint health products in 2008. Product revenue for 2008 increased by $6,149,687 to $33,054,787 primarily due to increased
ORTHOVISC revenue from our U.S. distributor, Depuy Mitek. See below for further details.
Product revenue by product line. Product revenue for the year ended December 31, 2008 was $33,054,787, an increase of
$6,149,687, or 23%, compared with $26,905,100 for the year ended December 31, 2007.
Joint Health
Ophthalmic
Veterinary
Aesthetics
Others
Year Ended December 31,
2008
$ 18,707,669
10,678,615
3,028,450
505,273
134,780
$ 33,054,787
2007
$ 13,602,494
10,517,156
2,370,898
224,220
190,332
$ 26,905,100
Our Joint health revenue was from sales of ORTHOVISC, ORTHOVISC mini and MONOVISC, the latter two of which
were only available outside the United States. Revenue from joint health products increased $5,105,175, or 38%, to $18,707,669 in
2008. The improvement in joint health product revenue for 2008 was primarily due to increases in both international and domestic
ORTHOVISC revenue, as well as the launch of MONOVISC and ORTHOVISC mini in Europe and Turkey during the second
quarter of 2008. Our U.S. joint health product revenue for 2008 totaled $13,222,454, compared to $10,071,776 in 2007, an increase of
31%. This increase reflects DePuy Mitek’s underlying sales increases to end-users of 26% in 2008 compared to 2007. International
joint health product revenue increased 36% to $4,806,082 from $3,530,717 in 2008 compared to the same period in 2007. The
increase in international sales was due to increased product shipments to Turkey, Germany, Italy, Egypt, Hungary and Austria.
Ophthalmic products sales increased $161,459, or 2%, to $10,678,615 in 2008 compared with $10,517,156 in 2007. The
increase was primarily attributable to an increase in sales to Bausch & Lomb in 2008 compared to 2007 due to their inventory
management efforts.
HYVISC sales increased $657,552, or 28%, to $3,028,450 in 2008 as compared with $2,370,898 in 2007. Sales of HYVISC
were made to a single customer under an exclusive agreement which was extended in April 2006 to December 31, 2010.
37
AESTHETIC product sales increased $281,053, or 125%, to $505,273 in 2008 as compared with $224,220 in 2007.
AESTHETICS revenue in 2008 was primarily from Artes Medical, Inc., our former U.S. ELEVESS distributor. Our distribution
agreement with Artes Medical, Inc. was terminated in the fourth quarter of 2008 as a result of Artes’ Chapter 7 bankruptcy
filing. AETHETICS revenue in 2007 represented sales of samples to a former distributor.
Licensing, milestone and contract revenue. Licensing, milestone and contract revenue for the year ended December 31,
2008 was $2,725,000, compared to $3,924,721 for 2007. Licensing and milestone revenue includes the ratable recognition of the
$27,000,000 in up-front and milestone payments from Ortho Biotech. These amounts are being recognized in income ratably over the
ten-year expected life of the agreement, or $2,700,000 per year. On November 16, 2007, the Company, Galderma and Galderma S.A.
entered into a Termination Agreement. As a result the Company recorded non-recurring revenue of $1,199,722 in 2007 primarily from
the balance of the upfront and milestone payments made that were recorded as deferred revenue at the time of receipt. All amounts
due and contractual obligations by both parties have been satisfied.
Product gross profit and margin. Product gross profit for the year ended December 31, 2008 was $19,866,271, or 60% of
product revenue, compared with $15,024,111, or 56% of product revenue, for the year ended December 31, 2007. The improvement in
product gross margin was primarily related to a more favorable product mix in 2008 than 2007.
Research and development. Research and development expenses for the year ended December 31, 2008 increased by
$3,034,429, or 70%, to $7,399,049 from $4,364,620 for the prior year. The increase in research and development expenses during
2008 related to our U.S.-based clinical trials for MONOVISC, and post-approval clinical studies for MONOVISC and ORTHOVISC
mini in Europe, manufacturing scale-up and related activities for MONOVISC and AESTHETICS, the development of our next
generation osteoarthritis product, CINGAL, and additional personnel.
Selling, general and administrative. Selling, general and administrative expenses for the year ended December 31, 2008
increased by $2,928,712 or 37%, to $10,965,493 from $7,996,781 in 2007. The increase was primarily the result of duplicate expense
related to the Company’s new manufacturing facility and existing manufacturing facility, as well as marketing expenses associated
with the launch of our new products, increased personnel costs, and higher legal and consulting costs related to corporate governance,
trademark matters, shareholder rights plan, and strategic programs.
Interest income, net. Net interest income was $498,512 for the year ended December 31, 2008, a decrease of $1,602,151, or
76%, compared to $2,100,663 in 2007. The decrease in net interest income was primarily attributable to lower interest rates as a result
of Federal Reserve Bank reductions, movement to conservative U.S. treasury securities in mid-2007, and lower available cash and
invested balances in 2008 compared to 2007.
Income taxes. Income tax provision was $1,096,046 and $2,652,840 for 2008 and 2007, respectively. The reduction in
effective tax rate in 2008 and difference from the U.S. federal statutory rate is primarily due to a favorable impact of a state
investment tax credit as a result of the new facility project, and increases in state and federal research and development credits. These
favorable factors were partially offset by an increase in provision due to a State of Massachusetts law change to gradually reduce
future corporate income tax rates.
A reconciliation of the U.S. federal statutory tax rate to the effective tax rate for the periods ending December 31 is as
follows:
Computed expected tax expense
State tax expense (net of federal benefit)
State deferred tax assets rate change
Permanent items, including nondeductible expenses
State investment tax credit
Federal and state research and development credits
Other
Tax expense
38
Year Ended December 31,
2007
2006
2008
34.0 %
4.6 %
2.6 %
0.6 %
(11.1 )%
(5.8 )%
(1.7 )%
23.2 %
34.0 %
4.2 %
—
(1.1 )%
(3.9 )%
(2.4 )%
(0.3 )%
30.5 %
34.0 %
3.8 %
—
1.8 %
—
(1.6 )%
0.8 %
38.8 %
Liquidity and Capital Resources
We require cash to fund our operating expenses and to make capital expenditures. We expect that our requirements for cash
to fund these uses will increase as the scope of our operations expand, particularly as a result of our acquisition of FAB. Historically
we have funded our cash requirements from available cash and investments on hand. In 2008, we financed a portion of our long-term
facility project with long-term debt of $16 million. On December 30, 2009, we utilized $17,055,000 of cash to acquire 100% of the
equity of Fidia Advanced Biopolymers S.r.l. (see Management Overview above), thereby significantly reducing our cash balance. We
believe that our existing cash and cash equivalents and future cash provided by operating activities will be sufficient to meet our
working capital and capital expenditure needs over the next 12 months.
At December 31, 2009, cash, cash equivalents and short-term investments totaled $24,426,990 compared to $43,193,655 at
December 31, 2008.
Cash provided by operating activities was $3,094,705, $3,407,231 and $4,492,642 for 2009, 2008, and 2007 respectively.
Cash provided by operating activities decreased by $312,526 in 2009 from 2008. This decrease in operating cash was primarily due to
a $1,597,330 net decrease in assets and liabilities, offset by an increase in non-cash expenses of $1,226,432, and an increase in net
income of $58,372.
Cash used in investing activities was $20,217,869, $12,804,552 and $18,282,467 in 2009, 2008 and 2007 respectively. Cash
used for investing activities in 2009 was primarily due to the acquisition of FAB, as well as additional capital expenditures related to
the buildout of our new facility. Cash used in investing activities in 2008 was primarily the result of an increase in capital
expenditures related to the buildout of our new facility. We expect the new facility capital project to cost approximately $34 million in
total (including interior construction, equipment, furniture and fixtures). Through December 31, 2009, approximately $33 million has
been spent in connection with the buildout. Buildout at the new facility commenced in May 2007 and validation of the facility is
expected to be completed in 2010. There can also be no assurance that we will be successful in qualifying the new facility under the
FDA and European Union regulations.
Cash used in financing activities was $1,643,501 for 2009, compared to cash provided by financing activities of $16,687,407
and $2,525,962 for 2008, and 2007 respectively. Cash used in financing activities in 2009 was primarily due to our principal payments
on long-term debt in the amount of $1.6 million. On January 31, 2008, the Company entered into an unsecured credit facility and
during 2008 borrowed $16 million to finance its new facility project. The credit facility was converted to a 7 year term loan on
December 31, 2008. Also reflected in the cash provided by financing activities were proceeds from the exercise of stock options,
including any associated tax benefits, as well as debt issuance costs related to our loan amendment with Bank of America.
Off Balance Sheet Arrangements
We do not use special purpose entities or other off-balance sheet financing techniques except for operating leases as
disclosed in the contractual obligations table below that we believe have or are reasonably likely to have a current or future material
effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital
resources.
Recent Accounting Pronouncements
During 2009, we adopted the following new accounting pronouncements:
Accounting Standards Codification 808, Collaborative Arrangements (ASC 808), (Formerly EITF No. 07-1 Accounting for
Collaborative Arrangements ). ASC 808 defines collaborative arrangements and establishes reporting requirements for transactions
between participants in a collaborative arrangement and between participants in the arrangement and third parties. ASC 808 requires
collaborators to present the results of activities for which they act as the principal on a gross basis and report any payments received
from (made to) other collaborators based on other applicable GAAP or, in the absence of other applicable GAAP, based on analogous
authoritative accounting literature, or a reasonable, rational, and consistently applied accounting policy election. Further, ASC 808
clarifies that the determination of whether transactions within a collaborative arrangement are part of a vendor-customer (or
analogous) relationship subject to ASC 605 (Formerly EITF No. 01-9). ASC 808 was applied retrospectively to all prior periods
presented for all collaborative arrangements existing as of the effective date. Adoption of ASC 808 did not impact our financial
statements for the year ended December 31, 2009.
Accounting Standards Codification 260-10, Earnings Per Share (ASC 260), (Formerly FSP EITF 03-6-1 Determining
Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities ). The standard clarifies that share-
based payment awards that entitle their holders to receive non-forfeitable dividends before vesting should be considered participating
securities. As participating securities, these instruments are included in the calculation of basic earnings per share. ASC 260 is
effective for the Company in 2009. The adoption of ASC 260-10 did not have a material impact on the Company’s earnings per share
calculations.
39
Accounting Standards Codification 805, Business Combinations (ASC 805), (Formerly SFAS No. 141(R), Business
Combinations , which revised SFAS No. 141, Business Combinations ). The standard retains the purchase method of accounting for
acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase
accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the
capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred.
Accounting Standards Codification 350, Intangibles – Goodwill and Other (ASC 350), (Formerly FSP No.142-3,
Determination of the Useful Life of Intangible Assets ), amends the factors that should be considered in developing renewal or
extension assumptions used to determine the useful life of a recognized intangible asset under former SFAS No. 142, Goodwill and
Other Intangible Assets . The intent of this standard is to improve the consistency between the useful life of a recognized intangible
asset under former SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under ASC 805,
Business Combinations , and other U.S. generally accepted accounting principles. The adoption of this pronouncement did not impact
our financial statements in years ended December 31, 2009 and 2008.
On June 3, 2009, the FASB approved the FASB Accounting Standards Codification, (the "Codification"), as the single
source of authoritative nongovernmental Generally Accepted Accounting Principles, or GAAP, in the United States. The Codification
is effective for interim and annual periods ending after September 15, 2009. Upon the effective date, the Codification will be the
single source of authoritative accounting principles to be applied by all nongovernmental U.S. entities. All other accounting literature
not included in the Codification will be nonauthoritative. The Codification does not change or alter existing GAAP and there was no
impact on our consolidated financial position or results of operations.
Effective during the third quarter of 2009, we implemented Accounting Standards Codification 855, Subsequent Events
(ASC 855), (Formerly SFAS No. 165, Subsequent Events ). This standard establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before financial statements are issued. The adoption of ASC 855 did not
impact our financial position or results of operations. We evaluated all events or transactions that occurred through March 16, 2010,
the date we issued these financial statements. During this period we did not have any material recognizable subsequent events.
Effective during the third quarter of 2009, the Company also implemented Accounting Standards Codification 825,
Financial Instruments (ASC 825), (Formerly FSP 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial
Instruments ). The adoption of this standard has resulted in the disclosure of the fair value of the Company’s long term debt instrument
on a quarterly basis. Since ASC 825 addresses disclosure requirements, the adoption of this ASC did not impact our financial position
or results of operations. The carrying value of our debt instrument was $14,400,000 at December 31, 2009. The estimated fair value
of our debt instrument was approximately $13,800,000 at December 31, 2009 using market observable inputs and interest rate
measurements.
In August 2009, the FASB issued Accounting Standards Update 2009-05, Fair Value Measurements and Disclosures (Topic
820). The purpose of this Update is to clarify that in circumstances in which a quoted price in an active market for the identical
liability is not available, a reporting entity is required to measure fair value using a valuation technique that uses either the quoted
price of the identical liability when traded as an asset or quoted prices for similar liabilities or similar liabilities when traded as assets
or another valuation technique that is consistent with the principles of Topic 820. This guidance is effective upon issuance. There was
no material impact to the Company from the adoption of this update.
In October 2009, the FASB issued Accounting Standards Update 2009-13, Revenue Recognition (Topic 605). The purpose
of this Update is to provide updated guidance (1) on whether multiple deliverables exist, how the deliverables in a revenue
arrangement should be separated, and how the consideration should be allocated; (2) requiring an entity to allocate revenue in an
arrangement using estimated selling prices of deliverables if a vendor does not have vendor-specific objective evidence or third-party
evidence of selling price; and (3) eliminating the use of the residual method and requiring an entity to allocate revenue using the
relative selling price method. This new approach is effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010, which for Anika means no later than January 1, 2011. Early adoption is
permitted; however, adoption of this guidance as of a date other than January 1, 2011, will require us to apply this guidance
retrospectively effective as of January 1, 2010 and will require disclosure of the effect of this guidance as applied to all previously
reported interim periods in the fiscal year of adoption. The Company is currently evaluating the impact this guidance will have, if any,
on our financial statements, but does not anticipate that this updated guidance will have a material impact on our financial statements.
40
Contractual Obligations and Other Commercial Commitments
To-date, we have limited commitments for purchases of inventories. We have incurred significant capital investments
related to the buildout of our new facility in Bedford, Massachusetts, as well as the FAB acquisition. Our future capital requirements
and the adequacy of available funds will depend, on numerous factors, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
market acceptance of our existing and future products;
the success and sales of our products under current and future distribution agreements;
the successful commercialization of products in development;
progress in our product development efforts;
the magnitude and scope of such efforts;
any potential acquisitions of products, technologies or businesses;
progress with pre-clinical studies, clinical trials and product clearances by the FDA and other agencies;
the cost of maintaining adequate manufacturing capabilities;
the cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights;
competing technological and market developments;
the development of strategic alliances for the marketing of certain of our products;
the terms of such strategic alliances, including provisions (and our ability to satisfy such provisions) that provide
upfront and/or milestone payments to us;
the cost of maintaining adequate inventory levels to meet current and future product demands;
the contractual obligation to make principal and interest debt payments;
our success with respect to our recently announced plan to utilize a direct sales force; and
the successful integration of our subsidiary FAB.
We cannot assure you that we will record profits in future periods. To the extent that funds generated from our operations,
together with our existing capital resources are insufficient to meet future requirements, we will be required to obtain additional funds
through equity or debt financings, strategic alliances with corporate partners, or through other sources. No assurance can be given that
any additional financing will be made available to us or will be available on acceptable terms should such a need arise. However, we
believe that our existing cash and cash equivalents and future cash provided by operating activities will be sufficient to meet our
working capital and capital expenditure needs over the next 12 months. See Item 1A. “Risk Factors.”
The terms of any future equity financings may be dilutive to our stockholders and the terms of any debt financings may
contain restrictive covenants, which could limit our ability to pursue certain courses of action. Our ability to obtain financing is
dependent on the status of our future business prospects as well as conditions prevailing in the relevant capital markets. No assurance
can be given that any additional financing may be made available to us or may be available on acceptable terms should such a need
arise.
41
The table below summarizes our non-cancelable operating leases and contractual obligations at December 31, 2009:
Operating Leases(1)
New Facility Build-out
Clinical Trials
Purchase Commitments
Long Term Debt(2)
Total
Payments due by period
Total
Less than
1 year
1,744,690 $
$ 11,769,422 $
1,337,442
1,337,442
2,235,762
2,235,762
2,971,184
2,971,184
15,284,499
1,807,587
$ 33,598,309 $ 10,096,665 $
1-3 years
2,988,342 $
—
—
—
3,542,969
6,531,311 $
3-5 years
More than
5 years
3,922,987
3,113,403 $
—
—
—
—
—
—
3,446,697
6,487,246
6,560,100 $ 10,410,233
(1)
(2)
Included in this line is a lease we entered into on January 4, 2007, pursuant to which we lease a corporate headquarters
facility, consisting of approximately 134,000 square feet of general office, research and development and manufacturing
space located in Bedford, Massachusetts. The Lease has an initial term of ten and a half years, and commenced on May 1,
2007. We have an option under the Lease to extend its terms for up to four periods beyond the original expiration date subject
to the condition that we notify the landlord that we are exercising each option at least one year prior to the expiration of the
original or current term thereof. The first three renewal options each extend the term an additional five years with the final
renewal option extending the term six years. The lease covering the Company’s existing manufacturing facility located in
Woburn, Massachusetts is also included in the table above. Our administrative, research and development personnel began
occupying the Bedford facility in November of 2007, and the buildout and validation for the new manufacturing space is
expected to be completed in 2010. Also included in the table above is the lease entered into in Italy related to FAB. The
lease commenced on December 30, 2009 and is for the next 6 years.
On January 31, 2008, the Company entered into an unsecured Credit Agreement (the “Agreement”) with Bank of America.
Pursuant to the terms of the Agreement, our lender has agreed to provide the Company with an unsecured revolving credit
facility through December 31, 2008 of up to a maximum principal amount at any time outstanding of $16,000,000. The
Company borrowed the maximum amount as of December 31, 2008. On December 31, 2008, all outstanding revolving credit
loans were converted into a term loan with quarterly principal payments of $400,000 and a final installment of $5,200,000
due on the maturity date of December 31, 2015. In connection with the acquisition of FAB, the Company entered into a
Consent and First Amendment to our original loan with Bank of America. As part of this amendment, the interest rate for
Eurodollar based loans was increased and is payable at a rate based upon (at the Company’s election) either Bank of
America’s prime rate or LIBOR plus 125 basis points. This increased from the original loan amount of prime rate or LIBOR
plus 75 basis points. In addition, the Company has pledged to the lender sixty-five percent (65%) of the stock of FAB. The
Agreement contains customary representations and warranties of the Company, affirmative and negative covenants regarding
the Company’s operations, financial covenants regarding the maintenance by the Company of a specified quick ratio and
consolidated fixed charge coverage ratio, and events of default. The table includes expected principal and interest payments.
For the purpose of this calculation, interest payments are based on the carrying rate of the debt at December 31, 2009,
throughout the life of the obligation.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 2009, we did not utilize any derivative financial instruments, market risk sensitive instruments or other
financial and commodity instruments for which fair value disclosure would be required under Accounting Standards Codification 825,
Financial Instruments (ASC 825), (Formerly SFAS No. 107). Our investments consist of money market funds primarily invested in
U.S. Treasury obligations and repurchase agreements secured by U.S. Treasury obligations, and municipal bonds that are carried on
our books at amortized cost, which approximates fair market value.
Primary Market Risk Exposures
Our primary market risk exposures are in the areas of interest rate risk and currency rate risk. We have two supplier
contracts denominated in foreign currencies. Unfavorable fluctuations in exchange rates would have a negative impact on our financial
statements. The impact of changes in currency exchange rates for the two contracts on our financial statements was immaterial in
2009. Our investment portfolio of cash equivalents and long-term debt are subject to interest rate fluctuations. As of December 31,
2009, the Company is subject to interest rate risk on $14.4 million of variable rate debt. The interest payable on our debt is determined
based (at the Company’s election) on either an interest rate based on LIBOR plus 1.25% or the lender’s prime rate, therefore, is
affected by changes in market interest rates. Based on the outstanding debt amount as of December 31, 2009, we would have a
decrease (increase) in future annual cash flows of approximately $137,000 for every 1% increase (decrease) in the interest rate.
A significant portion of FAB revenue and all operating expenses are denominated in Euro’s, which leaves the Company
vulnerable to foreign exchange risk.
42
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43
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ANIKA THERAPEUTICS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2009 and 2008
Consolidated Statements of Operations for the Years Ended December 31, 2009, 2008 and 2007
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2009, 2008 and 2007
Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and 2007
Notes to Consolidated Financial Statements
45
46
47
48
49
50
44
To the Board of Directors and Stockholders of Anika Therapeutics, Inc.
Report of Independent Registered Public Accounting Firm
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders'
equity and cash flows present fairly, in all material respects, the financial position of Anika Therapeutics, Inc. and its subsidiaries at
December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2009 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on
criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included
in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express
opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all
material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As described in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A, in 2009 the Company
has excluded Fidia Advanced Biopolymers S.r.l. from its assessment of internal control over financial reporting as of December 31,
2009 as it was acquired by the Company in a purchase business combination on December 30, 2009. We have also excluded Fidia
Advanced Biopolymers S.r.l. from our audit of internal control over financial reporting. Fidia Advanced Biopolymers S.r.l. is a
wholly-owned subsidiary whose total assets (excluding amounts resulting from the purchase price allocation) represent 7% of the
consolidated total assets as of December 31, 2009.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 16, 2010
45
Anika Therapeutics, Inc. and Subsidiaries
Consolidated Balance Sheets
Current assets:
ASSETS
Cash and cash equivalents
Accounts receivable, net of reserves of $29,261 and $60,000 at December 31, 2009 and 2008,
$ 24,426,990
$ 43,193,655
December 31,
2009
2008
respectively
Inventories
Current portion of deferred income taxes
Prepaid expenses and other
Total current assets
Property and equipment, at cost
Less: accumulated depreciation
Long-term deposits and other
Intangible assets, net
Deferred income taxes
Goodwill
Total Assets
Current liabilities:
Accounts payable
Accrued expenses
Deferred revenue
Current portion of long-term debt
Total current liabilities
Other long-term liabilities
Long-term deferred revenue
Deferred tax liability
Long-term debt
Commitments and contingencies (Notes 11 and 18)
Stockholders’ equity
LIABILITIES AND STOCKHOLDERS’ EQUITY
$
11,831,438
8,441,079
2,183,827
2,921,283
5,418,421
5,519,754
1,235,364
463,284
55,830,478
49,804,617
42,436,827
47,172,403
(11,424,788 ) (10,190,144 )
32,246,683
35,747,615
506,787
413,228
936,275
33,577,451
6,300,665
3,506,362
—
7,652,253
$ 130,701,526 $ 95,820,888
6,366,944
5,816,170
2,751,467
1,600,000
16,534,581
1,818,383
8,099,996
9,305,064
12,800,000
$
2,375,340
2,325,219
2,732,293
1,600,000
9,032,852
831,051
10,800,001
—
14,400,000
Preferred stock, $.01 par value; 1,250,000 shares authorized, no shares issued and
outstanding at December 31, 2009 and 2008
Common stock, $.01 par value; 30,000,000 shares authorized, 13,418,772 shares issued
and outstanding at December 31, 2009, 30,000,000 shares authorized, 11,377,623
shares issued and outstanding at December 31, 2008
Additional paid-in-capital
Retained earnings
Total stockholders’ equity
Total Liabilities and Stockholders’ Equity
—
—
113,776
134,188
60,539,768
42,861,229
21,469,546 17,781,979
82,143,502 60,756,984
$ 130,701,526 $ 95,820,888
The accompanying notes are an integral part of these consolidated financial statements.
46
Anika Therapeutics, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Years Ended December 31,
2008
2007
2009
$ 37,320,906
2,814,798
40,135,704
$ 33,054,787 $ 26,905,100
3,924,721
35,779,787 30,829,821
2,725,000
2,151,854
13,670,228
8,181,532
10,545,351
7,399,049
10,965,493
—
13,188,516 11,880,989
4,364,620
7,996,781
—
34,548,965 31,553,058 24,242,390
6,587,431
2,100,663
8,688,094
2,652,840
$ 3,687,567 $ 3,629,195 $ 6,035,254
4,226,729
498,512
4,725,241
1,096,046
5,512,259
1,824,692
(74,480 )
5,586,739
Product revenue
Licensing, milestone and contract revenue
Total revenue
Operating expenses:
Cost of product revenue
Research & development
Selling, general & administrative
Acquisition-related expenses
Total operating expenses
Income from operations
Interest income (expense), net
Income before income taxes
Provision for income taxes
Net income
Basic net income per share:
Net income
Basic weighted average common shares outstanding
Diluted net income per share:
Net income
Diluted weighted average common shares outstanding
$
0.32
11,386,989
$
0.55
11,308,124 11,059,582
0.32 $
$
0.32
11,562,304
$
0.53
11,460,801 11,453,600
0.32 $
The accompanying notes are an integral part of these consolidated financial statements.
47
Anika Therapeutics, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
Common Stock
Number of
Shares
10,772,654 $
$.01 Par
Value
107,727 $
Additional
Paid-in
Capital
37,262,768 $
Retained
Earnings
Total
Stockholders’
Equity
8,117,530 $
45,488,025
Balance, December 31, 2006
Issuance of common stock for
employee equity awards
Tax benefit related to stock based
compensation
Stock based compensation expense
Net income
Balance, December 31, 2007
Issuance of common stock for
employee equity awards
Tax benefit related to stock based
compensation
Stock based compensation expense
Net income
Balance, December 31, 2008
Issuance of common stock for
employee equity awards
Acquisition of Fidia Advanced
Biopolymers S.r.l.
Tax shortfall related to stock based
compensation
450,619
4,506
1,878,105
—
—
643,351
—
—
—
—
11,223,273
—
—
112,233
911,716
—
40,695,940
—
6,035,254
14,152,784
154,350
1,543
515,439
—
—
258,146
—
—
—
—
11,377,623
—
—
113,776
1,391,704
—
42,861,229
—
3,629,195
17,781,979
59,957
600
2,550
1,981,192
19,812
16,800,508
—
—
(82,544 )
—
—
—
Stock based compensation expense
Net income
Balance, December 31, 2009
—
—
13,418,772 $
—
—
134,188 $
958,025
—
60,539,768 $
—
3,687,567
21,469,546 $
The accompanying notes are an integral part of these consolidated financial statements.
48
1,882,611
643,351
911,716
6,035,254
54,960,957
516,982
258,146
1,391,704
3,629,195
60,756,984
3,150
16,820,320
(82,544 )
958,025
3,687,567
82,143,502
Anika Therapeutics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31,
2008
2007
2009
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
Loss on fixed asset disposals
Amortization of premium on short-term investment
Stock-based compensation expense
Deferred income taxes
Provision for inventory write downs
Tax benefit from exercise of stock options
Changes in operating assets and liabilities, net of effect of acquisition:
Accounts receivable
Inventories
Prepaid expenses and other
Long-term deposits and other
Accounts payable
Accrued expenses
Deferred revenue
Income taxes payable
Other long-term liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Proceeds from maturity of short-term investment
Purchase of short-term investment
Purchase of property and equipment, net
Purchase of intangible
Payment for the acquisition of FAB, net of cash acquired
Other assets
Net cash used in investing activities
Cash flows from financing activities:
Principal payments on debt
Proceeds from long-term debt
Debt issuance costs
Proceeds from exercise of stock options
Tax benefit from exercise of stock options
Net cash provided by (used in) financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
$
3,687,567
$
3,629,195
$
6,035,254
1,293,468
—
—
958,025
1,735,947
350,220
(27,349 )
1,433,012
—
1,974
1,391,704
377,045
138,290
(258,146 )
793,716
6,906
25,011
911,716
696,516
154,931
(643,351 )
(1,697,673 )
(1,871,545 )
(774,764 )
93,559
141,083
1,718,307
(2,680,831 )
—
168,691
3,094,705
377,552
(1,267,926 )
876,576
(73,706 )
(129,662 )
(733,070 )
(2,774,485 )
54,192
364,686
3,407,231
(2,286,465 )
850,547
(973,636 )
(240,031 )
1,133,278
562,370
(3,698,032 )
830,072
333,840
4,492,642
—
—
3,500,000
—
—
(3,526,985 )
(3,962,232 ) (16,246,494 ) (13,755,482 )
(1,000,000 )
—
—
(20,217,869 ) (12,804,552 ) (18,282,467 )
(16,255,637 )
—
—
—
(58,058 )
—
(1,600,000 )
—
16,000,000
—
(74,000 )
3,150
27,349
(87,721 )
516,982
258,146
(1,643,501 ) 16,687,407
—
—
—
1,882,611
643,351
2,525,962
(11,263,863 )
(18,766,665 )
43,193,655 35,903,569 47,167,432
$ 24,426,990 $ 43,193,655 $ 35,903,569
7,290,086
Supplemental disclosure of cash flow information:
Cash paid for income taxes
Interest paid
Supplemental disclosure of non-cash investing and financing activities:
Fair value of common stock issued to acquire FAB
Non-cash activities:
Fair value of assets of FAB and product lines
Cash paid for FAB and product lines
Fair value of common stock issued to acquire FAB
Liabilities assumed of acquired businesses and product lines
$
$
1,210,000
208,053
$
$
10,000
191,137
$
$
1,813,278
—
$ 16,820,320 $
— $
$ 50,539,846 $
17,055,000
16,820,320
$ 16,664,611 $
— $
—
—
— $
—
—
—
—
—
The accompanying notes are an integral part of these consolidated financial statements.
49
Anika Therapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Nature of Business
Anika Therapeutics, Inc. (“Anika,” the “Company,” “we,” “us,” or “our”) develops, manufactures and commercializes
therapeutic products for tissue protection, healing and repair. These products are based on hyaluronic acid (“HA”), a naturally
occurring, biocompatible polymer found throughout the body. Due to its unique biophysical and biochemical properties, HA plays an
important role in a number of physiological functions such as the protection and lubrication of soft tissues and joints, the maintenance
of the structural integrity of tissues, and the transport of molecules to and within cells.
On December 30, 2009, Anika Therapeutics, Inc. entered into a Sale and Purchase Agreement (the “Purchase Agreement”)
with Fidia Farmaceutici S.p.A., a privately held Italian corporation, pursuant to which the Company acquired 100% of the issued and
outstanding stock of Fidia Advanced Biopolymers S.r.l. (“FAB”), a privately held Italian corporation, for a purchase price consisting
of $17.1 million in cash and 1,981,192 shares of the Company’s common stock valued at $16.8 million based on the closing stock
price of $8.49 per share.
The Company is subject to risks common to companies in the biotechnology and medical device industries including, but
not limited to, development by the Company or its competitors of new technological innovations, dependence on key personnel,
protection of proprietary technology, commercialization of existing and new products, and compliance with FDA government
regulations and approval requirements as well as the ability to grow the Company’s business.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Anika Therapeutics, Inc. and its wholly owned
subsidiaries, Anika Securities, Inc. (a Massachusetts Securities Corporation), and Fidia Advanced Biopolymers S.r.l. All intercompany
balances and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents consists of cash and highly liquid investments with original maturities of 90 days or less. The
Company accounts for short-term investments in accordance with Accounting Standards Codification 320, Investments - Debt and
Equity Securities (ASC 320), (Formerly SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities ). The
Company determines the appropriate classification of all short-term investments as held-to-maturity, available-for-sale or trading at
the time of purchase and re-evaluates such classifications as of each balance sheet date. At December 31, 2009, cash equivalents
consisted of funds primarily invested in U.S. Treasury obligations and repurchase agreements secured by U.S. Treasury obligations,
which approximates fair market value.
Fair Value Measurements
Effective January 1, 2009, the Company adopted the authoritative guidance for fair value measurements and the fair value
option for financial assets and financial liabilities in accordance with Accounting Standards Codification 820, Fair Value
Measurements and Disclosures (ASC 820), (Formerly SFAS No. 157, Fair Value Measurements and Disclosures ). ASC 820
establishes a three-level hierarchy which prioritizes the inputs used in measuring fair value. In general, fair value determined by
Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize
data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are
unobservable data points for the asset or liability, and includes situations where there is little, if any, market activity for the asset or
liability. The fair value of our cash equivalents were $20,212,992 and $34,197,953 at December 31, 2009 and December 31, 2008,
respectively, based on Level 1 inputs. Effective January 1, 2009, the Company adopted the provisions under ASC 820 for valuation of
nonfinancial assets and nonfinancial liabilities. The adoption of such provisions did not impact the Company’s financial position,
results of operations, or cash flows.
50
Accounting Standards Codification 825, Financial Instruments (ASC 825) requires disclosures about the fair value of financial
instruments in interim as well as in annual financial statements. The carrying value of our debt instrument was $14,400,000 at
December 31, 2009. The estimated fair value of our debt instrument was approximately $13,800,000 at December 31, 2009 using
market observable inputs and interest rate measurements.
Revenue Recognition
The Company’s revenue recognition policies are in accordance with the Accounting Standards Codification 605, Revenue
Recognition (ASC 605), and Accounting Standards Codification 808, Collaborative Arrangements (ASC 808), (Formerly SEC SAB
No. 101, Revenue Recognition in Financial Statements , as amended by SEC SAB No. 104, Revenue Recognition, and EITF Issue
No. 00-21, Revenue Arrangements with Multiple Deliverables , and EITF No. 07-1 Accounting for Collaborative Arrangements ,
which became effective on January 1, 2009).
Product Revenue
The Company recognizes revenue from the sales of products it manufactures upon confirmation of regulatory compliance
and shipment to the customer as long as there is (1) persuasive evidence of an arrangement, (2) delivery has occurred and risk of loss
has passed, (3) the sales price is fixed or determinable and (4) collection of the related receivable is reasonably assured. Amounts
billed or collected prior to recognition of revenue are classified as deferred revenue. When determining whether risk of loss has
transferred to customers on product sales or if the sales price is fixed or determinable the Company evaluates both the contractual
terms and conditions of its distribution and supply agreements as well as its business practices. Product revenue also includes
royalties. Royalty revenue is based on our distributor’s sales and recognized in the same period our distributor records their sale of the
product.
On May 15, 2009, the Company entered into a Distribution Agreement (“the Agreement”) with Coapt Systems, Inc.
(“Coapt”). The agreement grants Coapt an exclusive, non-transferable right to market HYDRELLE™ in the United States. The
Company will receive payments for the supply of HYDRELLE™ to Coapt and royalties on future Coapt net product sales to its
customers. Per unit prices are determined based on contractual rates which vary based on volumes levels measured annually. Initial
royalty rates include reimbursement for the Company's ongoing research and development expenditures for the Company's aesthetic
dermatology product, up to a maximum of $1,000,000. All royalties will be recognized as product revenue by the Company in the
period Coapt makes sales to its customers. The Company concluded that the agreement contains one unit of accounting for revenue
recognition purposes.
Licensing, Milestone and Contract Revenue
Licensing, milestone and contract revenue consist of revenue recognized on initial and milestone payments, as well as
contractual amounts received from partners. The Company’s business strategy includes entering into collaborative license,
development and/or supply agreements with partners for the development and commercialization of the Company’s products. The
terms of the agreements typically include non-refundable license fees, funding of research and development, payments based upon
achievement of certain milestones and royalties on product sales. The Company evaluates each agreement and elements within each
agreement in accordance with Accounting Standards Codification 605-25, Multiple Element Arrangements (ASC 605-25), (Formerly
EITF No. 00-21). Under ASC 605-25, in order to account for an element as a separate unit of accounting, the element must have had
stand-alone value and there must have been objective and reliable evidence of fair value of the undelivered elements. In general, non-
refundable upfront fees and milestone payments were recognized as revenue over the term of the arrangement as the Company
completes its performance obligations.
51
On June 30, 2006, the Company entered into a License and Development Agreement with Galderma Pharma S.A., a joint
venture between Nestlé and L’Oréal, and a Supply Agreement with Galderma Pharma S.A. and Galderma S.A., an affiliate of
Galderma Pharma S.A., for the exclusive worldwide development and commercialization of hyaluronic acid based ELEVESS
products used in aesthetic dermatology, formerly referenced as cosmetic tissue augmentation. Galderma Pharma S.A. and
Galderma S.A. are hereinafter jointly referred to as Galderma. Under the agreements, the Company was responsible for the
development and manufacturing of aesthetic dermatology products, and Galderma was responsible for the commercialization,
including distribution and marketing, of aesthetic dermatology products worldwide. The agreements included an upfront payment,
milestones upon achievement of predefined regulatory goals, funding of certain ongoing development activities, payments for the
supply of aesthetic dermatology products, royalties on sales and sales threshold achievement payments for meeting certain net sales
targets. The Company accounted for the agreements in accordance with ASC 605. Under the terms of the agreements, the Company
received on June 30, 2006 a non-refundable, upfront payment of $1,000,000 which the Company was amortizing over a 10 year
period. During the third quarter of 2007, the Company received $3,500,000 in milestone payments under the agreements related to
regulatory approvals of ELEVESS in the United States and Europe. In November 2007, the agreements were terminated and the
Company reacquired the worldwide rights and control of the future development and marketing of ELEVESS. In connection with the
termination, the Company paid Galderma $4,250,000 for the ELEVESS trade name and an expedited exit from the June 30, 2006
agreements. The ELEVESS trade name was valued at approximately $1,000,000. See footnotes 2 and 8 for more information on the
intangible asset acquired. After consideration of Accounting Standards Codification 605-50, Revenue Recognition – Customer
Payments and Incentive s (ASC 605-50), (Formerly EITF 01-09 Accounting for Consideration Given by Vendor to a Customer
(Including a Reseller of the Vendor’s Products) , the termination of the Galderma agreements contributed approximately $1,200,000
to licensing, milestone and contract revenue for 2007.
Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts
is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company determines
the allowance based on specific identification. The Company reviews its allowance for doubtful accounts at least quarterly. Past due
balances over 90 days are reviewed individually for collectibility. Account balances are charged off against the allowance when the
Company feels it is probable the receivable will not be recovered.
Inventories
Inventories are stated at the lower of cost or market, with cost being determined using the first-in, first-out (FIFO) method.
Work-in-process and finished goods inventories include materials, labor, and manufacturing overhead.
Long Lived Assets
The Company accounts for impairment of long-lived assets in accordance with Accounting Standards Codification 360,
Property, Plant and Equipment , (Formerly SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ). ASC
360 establishes a uniform accounting model for long-lived assets to be disposed of. This Statement also requires that long-lived assets
be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to estimated
undiscounted future net cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated
future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value
of the asset. As of December 31, 2009, long-lived assets consisted of machinery, equipment, leasehold improvements and intangible
assets. The Company’s intangible assets consist of its ELEVESS trade name, as well as the Developed Technology, IPR&D, Goodwill
and other items related to the acquisition of FAB. Significant assumptions underlying the recoverability of the intangible assets
include: future cash flow, growth projections, product life cycle and useful life assumptions. The ultimate recoverability of the assets
is dependent on the Company securing additional distributors, or directly commercializing the product. Changes in these assumptions
could materially impact the Company’s ability to realize the value of its intangible assets. Refer to Note 19 on the acquisition of FAB.
52
During the years ended December 31, 2009, 2008, and 2007, the Company did not record impairment losses.
Property and equipment are carried at cost less accumulated depreciation, subject to review for impairment whenever events
or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Costs of major additions and
improvements are capitalized; maintenance and repairs that do not improve or extend the life of the respective assets are charged to
operations. On disposal, the related accumulated depreciation or amortization is removed from the accounts and any resulting gain or
loss is included in results of operations. Depreciation is computed using the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized over the lesser of the useful life or the expected term of the respective lease. Machinery
and equipment are depreciated from 5 to 10 years, furniture and fixtures from 5 to 7 years and computer software and hardware from 3
to 5 years. Interest costs incurred during the construction of major capital projects are capitalized in accordance with Accounting
Standards Codification 835-20 , Capitalization of Interest (ASC 835-20) , (Formerly SFAS No. 34, Capitalization of Interest Costs
). The interest is capitalized until the underlying asset is ready for its intended use, at which point the interest cost is amortized as
interest expense over the life of the underlying assets. We capitalize certain direct and incremental costs associated with the validation
effort related to FDA approval of our manufacturing facility and equipment for the production of our commercial products. These
costs include construction costs, equipment costs, direct labor and materials incurred in preparing the facility and equipment for their
intended use. The validation costs are amortized over the life of the related facility and equipment.
Research and Development
Research and development costs consist primarily of salaries and related expenses for personnel and fees paid to outside
consultants and outside service providers, including costs associated with licensing, milestone and contract revenue. Research and
development costs are expensed as incurred.
Income Taxes
The Company provides for income taxes in accordance with Accounting Standards Codification 740, Income Taxes (ASC
740), (Formerly SFAS No. 109, Accounting for Income Taxes ). ASC 740 requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and
liabilities.
Beginning January 1, 2007, the Company began accounting for uncertain income tax positions using a benefit recognition
model with a two-step approach, a more-likely-than-not recognition criterion and a measurement attribute that measures the position
as the largest amount of tax benefit that is greater than 50% likely of being ultimately realized upon ultimate settlement in accordance
with Accounting Standards Codification 740, Income Taxes (ASC 740), (Formerly FIN 48, Accounting for Uncertainty in Income
Taxes, an Interpretation of FASB Statement No. 109 ). If it is not more likely than not that the benefit will be sustained on its technical
merits, no benefit will be recorded. Uncertain tax positions that relate only to timing of when an item is included on a tax return are
considered to have met the recognition threshold. As a result of adoption of ASC 740 there was no change to the tax reserve for
unrecognized tax benefits. As such, there was no change to retained earnings as of January 1, 2007. It is the Company’s policy to
classify accrued interest and penalties as part of the accrued ASC 740 liability and record the expense in the provision for income
taxes.
Stock-Based Compensation
Effective January 1, 2006, the Company adopted the provisions of Accounting Standards Codification 718, Compensation –
Stock Compensation (ASC 718), (Formerly SFAS 123R, Share-Based Payment ), which establishes accounting for equity
instruments exchanged for employee services. Under the provisions of ASC 718, share-based compensation cost is measured at the
grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service
period (generally the vesting period of the equity grant). For awards with a performance condition vesting feature, when achievement
of the performance condition is deemed probable, the Company recognizes compensation cost on a graded-vesting basis over the
awards’ expected vesting periods. The Company assesses probability on a quarterly basis. See Note 12 for additional disclosures.
Concentration of Credit Risk and Significant Customers
The Company has no significant off-balance sheet risks related to foreign exchange contracts, option contracts or other
foreign hedging arrangements. The Company currently maintains its cash equivalent balance with one major national financial
institution. The Company, by policy, routinely assesses the financial strength of its customers. As a result, the Company believes that
its accounts receivable credit risk exposure is limited and has not experienced significant write-downs in its accounts receivable
balances. As of December 31, 2009, Bausch & Lomb, Johnson and Johnson, Boehringer Ingelheim Vetmedica, Coapt, and Rivex,
combined, represented 53% of the Company’s accounts receivable balance. As of December 31, 2008, Bausch & Lomb, Johnson and
Johnson, Biomeks, Plasmaconcept AG, and Rivex, combined, represented 90% of the Company’s accounts receivable balance.
53
Reporting Comprehensive Income
Accounting Standards Codification 220, Comprehensive Income (ASC 220), (Formerly SFAS No. 130, Reporting
Comprehensive Income ), establishes standards for reporting and display of comprehensive income and its components in the financial
statements. Comprehensive income is the total of net income and all other non-owner changes in equity including such items as
unrealized holding gains/losses on securities, foreign currency translation adjustments and minimum pension liability adjustments.
The Company had no such items for the years ended December 31, 2009, 2008, and 2007, and as a result, comprehensive income is
the same as reported net income for all periods presented.
Disclosures About Segments of an Enterprise and Related Information
Operating segments are identified as components of an enterprise about which separate discrete financial information is
available for evaluation by the chief operating decision maker, or decision-making group, in making decisions regarding how to
allocate resources and assess performance. The Company’s chief operating decision maker is its Chief Executive Officer. Based on the
criteria established by Accounting Standards Codification 280, Segment Reporting (ASC 280), (Formerly SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information ), the Company has one reportable operating segment, the
results of which are disclosed in the accompanying consolidated financial statements. As a result of the acquisition of FAB on
December 30, 2009, the Company is currently evaluating its segments.
Business Combinations
The Company assigns the value of the consideration transferred to acquire a business to the tangible and identifiable intangible
assets acquired and liabilities assumed on the basis of their fair values at the date of acquisition. The Company assesses the fair value
of assets, including intangible assets such as in-process research and development, using a variety of methods including present-value
models. Each asset is measured at fair value from the perspective of a market participant. The establishment of fair value for
intangible assets in a stock purchase transaction frequently results in a different treatment for tax return purposes. Under Italian tax
law, the tax basis of the assets may not be stepped-up to fair value, and the additional depreciation and amortization expense is not
deductible, which creates a deferred tax liability over the amortization period that is recorded on the opening balance sheet.
In-process Research and Development Assets
In-process research and development assets acquired in a business combination are recorded as of the acquisition date at fair
value and accounted for as indefinite-lived intangible assets. These assets are maintained on the Company's consolidated balance sheet
until either the project underlying them is completed or the assets become impaired. If a project is completed, the carrying value of the
related intangible asset is amortized over the remaining estimated life of the asset beginning in the period in which the project is
completed. If a project becomes impaired or is abandoned, the carrying value of the related intangible asset is written down to its fair
value and an impairment charge is taken in the period in which the impairment occurs. In-process research and development assets are
tested for impairment on an annual basis, or earlier, if impairment indicators are present.
The method used to estimate the fair values of in-process research and development assets incorporates significant
assumptions regarding the estimates market participants would make in order to evaluate an asset. These include assumptions
regarding the probability of completing development projects, obtaining regulatory approval for marketing, estimates regarding the
timing of and the expected costs to complete, and estimates of future cash flows from potential product sales.
Goodwill
The difference between the purchase price and the fair value of assets acquired and liabilities assumed in a business
combination is allocated to goodwill. Goodwill is evaluated for impairment on an annual basis, or earlier if impairment indicators are
present.
54
Foreign Currency Translation
The functional currency of the Company's foreign subsidiary is the euro. Assets and liabilities of the foreign subsidiary are
translated into U.S. dollars at rates of exchange in effect at the end of the year. Revenue and expense amounts are translated using the
average exchange rates for the period. Net unrealized gains and losses resulting from foreign currency translation are included in other
comprehensive income (loss), which is a separate component of stockholders' equity. As a result of FAB being acquired on December
30, 2009, the foreign currency effect is immaterial for the year ended December 31, 2009. All assets and liabilities of the Company’s
foreign subsidiary are translated at year-end exchange rates.
Recent Accounting Pronouncements
During 2009, we adopted the following new accounting pronouncements:
Accounting Standards Codification 808, Collaborative Arrangements (ASC 808), (Formerly EITF No. 07-1 Accounting for
Collaborative Arrangements ). ASC 808 defines collaborative arrangements and establishes reporting requirements for transactions
between participants in a collaborative arrangement and between participants in the arrangement and third parties. ASC 808 requires
collaborators to present the results of activities for which they act as the principal on a gross basis and report any payments received
from (made to) other collaborators based on other applicable GAAP or, in the absence of other applicable GAAP, based on analogous
authoritative accounting literature, or a reasonable, rational, and consistently applied accounting policy election. Further, ASC 808
clarifies that the determination of whether transactions within a collaborative arrangement are part of a vendor-customer (or
analogous) relationship subject to ASC 605 (Formerly EITF No. 01-9). ASC 808 was applied retrospectively to all prior periods
presented for all collaborative arrangements existing as of the effective date. Adoption of ASC 808 did not impact our financial
statements for the year ended December 31, 2009.
Accounting Standards Codification 260-10, Earnings Per Share (ASC 260), (Formerly FSP EITF 03-6-1 Determining
Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities ) clarifies that share-based payment
awards that entitle their holders to receive non-forfeitable dividends before vesting should be considered participating securities. As
participating securities, these instruments are included in the calculation of basic earnings per share. ASC 260 is effective for the
Company in 2009. The adoption of ASC 260-10 did not have a material impact on the Company’s earnings per share calculations.
Accounting Standards Codification 805, Business Combinations (ASC 805), (Formerly SFAS No. 141(R), Business
Combinations , which revised SFAS No. 141, Business Combinations ) retains the purchase method of accounting for acquisitions,
but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. It also
changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process
research and development at fair value, and requires the expensing of acquisition-related costs as incurred. The adoption of this was
taken into account during the purchase accounting related to the acquisition of FAB during 2009. Please refer to Note 19 for further
discussion.
Accounting Standards Codification 350, Intangibles – Goodwill and Other (ASC 350), (Formerly FSP No.142-3,
Determination of the Useful Life of Intangible Assets ), amends the factors that should be considered in developing renewal or
extension assumptions used to determine the useful life of a recognized intangible asset under former SFAS No. 142, Goodwill and
Other Intangible Assets . The intent of this standard is to improve the consistency between the useful life of a recognized intangible
asset under former SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under ASC 805,
Business Combinations , and other U.S. generally accepted accounting principles. The adoption did not have a material impact on our
financial statements.
On June 3, 2009, the Financial Accounting Standards Board (FASB) approved the FASB Accounting Standards Codification
, or the Codification, as the single source of authoritative nongovernmental Generally Accepted Accounting Principles, or GAAP, in
the United States. The Codification is effective for interim and annual periods ending after September 15, 2009. Upon the effective
date, the Codification will be the single source of authoritative accounting principles to be applied by all nongovernmental
U.S. entities. All other accounting literature not included in the Codification will be nonauthoritative. The Codification does not
change or alter existing GAAP and there was no impact on our consolidated financial position or results of operations.
Effective during the third quarter of 2009, we implemented Accounting Standards Codification 855, Subsequent Events
(ASC 855), (Formerly SFAS No. 165, Subsequent Events ). This standard establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before financial statements are issued. The adoption of ASC 855 did not
impact our financial position or results of operations. We evaluated all events or transactions that occurred through March 16, 2010,
the date we issued these financial statements. During this period we did not have any material recognizable subsequent events.
55
In August 2009, the FASB issued Accounting Standards Update 2009-05, Fair Value Measurements and Disclosures (Topic
820). The purpose of this Update is to clarify that in circumstances in which a quoted price in an active market for the identical
liability is not available, a reporting entity is required to measure fair value using a valuation technique that uses either the quoted
price of the identical liability when traded as an asset or quoted prices for similar liabilities or similar liabilities when traded as assets
or another valuation technique that is consistent with the principles of Topic 820. This guidance is effective upon issuance. There was
no material impact to the Company from the adoption of this update.
In October 2009, the FASB issued Accounting Standards Update 2009-13, Revenue Recognition (Topic 605). The purpose
of this Update is to provide updated guidance (1) on whether multiple deliverables exist, how the deliverables in a revenue
arrangement should be separated, and how the consideration should be allocated; (2) requiring an entity to allocate revenue in an
arrangement using estimated selling prices of deliverables if a vendor does not have vendor-specific objective evidence or third-party
evidence of selling price; and (3) eliminating the use of the residual method and requiring an entity to allocate revenue using the
relative selling price method. This new approach is effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010, which for Anika means no later than January 1, 2011. Early adoption is
permitted; however, adoption of this guidance as of a date other than January 1, 2011, will require us to apply this guidance
retrospectively effective as of January 1, 2010 and will require disclosure of the effect of this guidance as applied to all previously
reported interim periods in the fiscal year of adoption. The Company is currently evaluating the impact this guidance will have, if any,
on our financial statements, but does not anticipate that this updated guidance will have a material impact on our financial statements.
3. Net Income per Common Share
The Company reports earnings per share in accordance with Accounting Standards Codification 260, Earnings Per Share
(Formerly SFAS No. 128, Earnings per Share) , which establishes standards for computing and presenting earnings per share. Basic
earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the
period. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding
and the number of dilutive potential common share equivalents during the period. Under the treasury stock method, unexercised “in-
the-money” stock options are assumed to be exercised at the beginning of the period or at issuance, if later. The assumed proceeds are
then used to purchase common shares at the average market price during the period.
Effective January 1, 2009, the Company adopted Accounting Standards Codification 260-10, Earnings Per Share (ASC
260-10), (formerly FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities ). ASC 260-10 clarifies that share-based payment awards that entitle their holders to receive non-forfeitable
dividends before vesting should be considered participating securities. As participating securities, these instruments are included in the
calculation of basic and diluted earnings per share. Adoption of this pronouncement is retroactive to prior reporting periods. Basic and
diluted earnings per share for the years ended December 31, 2009, 2008 and 2007 are as follows:
2009
2008
2007
Basic earnings per share
Net income
Income allocated to participating securities
Income available to common stockholders
Basic weighted average common shares outstanding
Basic earnings per share
Diluted earnings per share
Net income
Income allocated to participating securities
Income available to common stockholders
Weighted average common shares outstanding
Diluted potential common shares
Diluted weighted average common shares and potential common shares
Diluted earnings per share
(14,961 )
$ 3,687,567 $ 3,629,195 $ 6,035,254
(9,685 )
$ 3,672,606 $ 3,607,891 $ 6,025,569
11,386,989 11,308,124 11,059,582
0.54
$
(21,304 )
0.32 $
0.32 $
(14,375 )
(21,022 )
$ 3,687,567 $ 3,629,195 $ 6,035,254
(9,353 )
$ 3,673,192 $ 3,608,173 $ 6,025,901
11,386,989 11,308,124 11,059,582
394,018
11,562,304 11,460,801 11,453,600
0.53
$
152,677
175,315
0.31 $
0.32 $
Options to purchase approximately 924,007, 757,153 and 85,000 shares were outstanding at December 31, 2009, 2008 and
2007, respectively, but not included in the computation of diluted earnings per share because the options’ exercise prices were greater
than the average market price during the period. At December 31, 2009, 2008 and 2007, 46,965, 83,395 and 17,225 shares of issued
and outstanding unvested restricted stock were excluded from the basic earnings per share calculation in accordance with ASC 260.
4. Short-term Investment
In February 2007, the Company purchased a tax exempt municipal bond with a par value of $3,500,000 and an interest rate
of 4.25%, which matured on February 1, 2008 for a cost of $3,526,985. The Company classifies its investments in debt and equity
securities into held-to-maturity, available-for-sale or trading categories in accordance with the provisions Accounting Standards
Codification 320, Investments – Debt and Equity Securities (ASC 320), (Formerly SFAS No. 115, Accounting For Certain
Investments in Debt and Equity Securities ). The tax exempt municipal bond was classified as held-to-maturity in 2007 because the
Company intended, and held the security to maturity. Held-to-maturity securities are stated at amortized cost.
56
5. Allowance for Doubtful Accounts
A summary of the allowance for doubtful account activity is as follows:
Balance, beginning of the year
Amounts provided
Amounts written off
Balance, end of the year
6. Inventories
Inventories consist of the following:
Raw materials
Work-in-process
Finished goods
Total
2009
December 31,
2008
$
$
60,000 $
62,745
(93,484 )
29,261 $
60,000 $
—
—
60,000 $
2007
49,724
10,276
—
60,000
December 31,
2009
$ 2,535,496
3,188,241
2,717,342
2008
$ 2,556,588
2,354,736
608,430
$ 8,441,079 $ 5,519,754
The above amounts include $232,484 of raw materials and $1,167,516 of finished goods from the FAB acquisition.
7. Property & Equipment
Property and equipment is stated at cost and consists of the following:
December 31,
Machinery and equipment
Furniture and fixtures
Leasehold improvements
Construction in progress
Less accumulated depreciation
Total
$
$
2008
2009
8,674,679
9,859,867
579,824
608,361
11,552,091
12,117,091
21,630,233
24,587,084
42,436,827
47,172,403
(11,424,788 )
(10,190,144 )
$ 35,747,615 $ 32,246,683
Depreciation expense was $1,234,644, $1,374,189 and $788,814 for the years ended December 31, 2009, 2008 and 2007,
respectively. The above amounts include $1,109,000 of machinery and equipment, $17,000 of furniture and fixtures, and $565,000 of
leasehold improvements from the FAB acquisition.
8. Intangible Assets
In November 2007, in connection with the termination of the Galderma agreements, the Company purchased an intangible
asset related to the ELEVESS trade name, which is being amortized over its estimated useful life of seventeen years. The Company
periodically reviews its long-lived assets for impairment. The Company initiates a review for impairment whenever events or changes
in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of the
assets are no longer appropriate, such as a significant reduction in cash flows associated with the assets. Each impairment test will be
based on a comparison of the undiscounted cash flows to the recorded value of the asset. If an impairment is indicated, the asset is
written down to its estimated fair value.
57
As of December 31, 2009, amortization expense on the intangible asset for the next five years is expected to be $58,824
annually. Amortization expenses were $58,824, $58,823 and $4,902 for the years ended December 31, 2009, 2008 and 2007,
respectively. The ELEVESS intangible asset is at stated cost and consists of the following:
December 31,
ELEVESS trade name
Accumulated amortization
Total
2009
$ 1,000,000
(122,549 )
877,451 $
$
2008
$ 1,000,000
(63,725 )
936,275
On December 30, 2009, in connection with the acquisition of FAB, the Company purchased various intangible assets. The
Company is currently finalizing the purchase price allocation, and evaluating the useful lives and amortization methods related to
these intangibles. The in-process research and development intangible assets initially have indefinite lives and will be reviewed
periodically to assess the project status, valuation and disposition including write-off for abandoned projects. Until such
determination, they are not amortized. See Note 2 "Summary of Significant Accounting Policies" for further details on the treatment
of in-process research and development. Intangible assets related to FAB are at stated cost and consist of the following:
Developed Technology.
In-Process Research & Development
Distributor Relationships
Patents
Accumulated amortization
Total
9. Accrued Expenses
Accrued expenses consist of the following:
Payroll and benefits
Professional fees
Clinical trial costs
Advanced payments received and due to participants under FAB research grants
Other
Total
10. Deferred Revenue
December 31,
2009
15,700,000
11,300,000
4,700,000
1,000,000
—
32,700,000
$
$
December 31,
2009
$ 2,137,067
1,470,007
129,509
1,625,044
2008
$ 1,380,901
332,570
285,500
—
326,248
$ 5,816,170 $ 2,325,219
454,543
In December 2003, the Company entered into a ten-year licensing and supply agreement (the “JNJ Agreement”) with Ortho
Biotech Products, L.P., a member of the Johnson & Johnson family of companies, to market ORTHOVISC in the U.S. In mid-2005,
the agreement was assigned to DePuy Mitek, Inc., a subsidiary of Johnson & Johnson. Under the JNJ Agreement, DePuy Mitek
performs sales, marketing and distribution functions and licensed the right to further develop and commercialize ORTHOVISC as well
as other new products for the treatment of pain associated with osteoarthritis based on the Company’s viscosupplementation
technology. In support of the license, the JNJ Agreement provides that DePuy Mitek will fund post-marketing clinical trials for new
indications of ORTHOVISC. The Company received an initial payment of $2,000,000 upon entering into the JNJ Agreement, a
milestone payment of $20,000,000 in February 2004, as a result of obtaining FDA approval of ORTHOVISC and a milestone payment
of $5,000,000 in December 2004 for planned upgrades to our manufacturing operations. The Company evaluated the terms of the JNJ
Agreement and determined that the upfront fee and milestone payments did not meet the conditions to be recognized separately from
the supply agreement, therefore, the Company has deferred non-refundable payments received of $27,000,000 which we are
recognizing ratably over the expected ten year term of the JNJ Agreement. Current and long-term deferred revenue related to the JNJ
Agreement were $10,799,996 and $13,500,000 at December 31, 2009 and 2008, respectively.
58
11. Commitments and Contingencies
The Company’s corporate headquarters is located in Bedford, Massachusetts, where the Company leases approximately
134,000 square feet of administrative and research and development space. This lease was entered into on January 4, 2007, and the
lease commenced on May 1, 2007 for an initial term of ten and a half years. The Company has an option under the lease to extend its
terms for up to four periods beyond the original expiration date subject to the condition that we notify the landlord that we are
exercising each option at least one year prior to the expiration of the original or current term thereof. The first three renewal options
each extend the term an additional five years with the final renewal option extending the term six years. The Company’s
administrative, research and development personnel moved into the Bedford facility in November of 2007, and the buildout and
validation for the manufacturing space will be completed during 2010. The Company’s prior corporate headquarters was located in
Woburn, Massachusetts and the lease for that facility ended on December 31, 2007. We also lease approximately 37,000 square feet of
space at a separate location in Woburn, Massachusetts, for our manufacturing facility and warehouse. The Woburn manufacturing
lease is scheduled to end on May 31, 2010. As part of the acquisition of FAB, we now lease approximately 26,000 square feet of
laboratory, warehouse and office space in Abano Terme, Italy. The lease commenced on December 30, 2009 for an initial term of six
(6) years. Rental expense in connection with the various facility leases totaled $1,651,713, $1,486,472 and $1,319,160, for the years
ended December 31, 2009, 2008, and 2007, respectively. The Company’s future lease commitments as of December 31, 2009 are as
follows:
2010
2011
2012
2013
2014 and thereafter
$ 1,744,690
1,473,063
1,515,278
1,556,702
5,479,689
$ 11,769,422
Warranty/Guarantor Arrangements. In certain of its contracts, the Company warrants to its customers that the products it
manufactures conform to the product specifications as in effect at the time of delivery of the product. The Company may also warrant
that the products it manufactures do not infringe, violate or breach any U.S. patent or intellectual property rights, trade secret or other
proprietary information of any third party. On occasion, the Company contractually indemnifies its customers against any and all
losses arising out of or in any way connected with any claim or claims of breach of its warranties or any actual or alleged defect in any
product caused by the negligence or acts or omissions of the Company. The Company maintains a products liability insurance policy
that limits its exposure. Based on the Company’s historical activity in combination with its insurance policy coverage, the Company
believes the estimated fair value of these indemnification agreements is minimal. The Company has no accrued warranties and has no
history of claims paid.
12. Stock Option Plan
Effective January 1, 2006, the Company adopted the provisions of Accounting Standards Codification 718, Compensation –
Stock Compensation (ASC 718), (Formerly SFAS 123R, Share-Based Payment ), which established accounting for equity
instruments exchanged for employee services. The Company estimates the fair value of stock options and stock appreciation rights
using the Black-Scholes valuation model. Fair value of restricted stock is measured by the grant-date price of the Company’s shares.
Key input assumptions used to estimate the fair value of stock options and stock appreciation rights include the exercise price of the
award, the expected award term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest
rate over the award’s expected term, and the Company’s expected annual dividend yield. The Company uses historical data on
exercise of stock options and other factors to estimate the expected term of share-based awards. The Company also evaluates
forfeitures periodically and adjusts accordingly. The expected volatility assumption is based on the unadjusted historical volatility of
the Company’s common stock. The risk-free interest rate assumption is based on U.S. Treasury interest rates at the time of grant. The
fair value of each stock option and stock appreciation rights award during 2009, 2008 and 2007 was estimated on the grant date using
the Black-Scholes option-pricing model with the following assumptions:
Risk-free interest rate
Expected volatility
Expected lives (years)
Expected dividend yield
December 31,
2009
Twelve Months Ended
December 31,
2008
December 31,
2007
1.54% -
1.89 %
1.44% -
2.82 %
59.35% -
58.15% -
61.03 %
4
0.00 %
63.37 %
4 - 5
0.00 %
3.11% -
4.80 %
56.67% -
64.11 %
4
0.00 %
59
The Company recorded $958,025, $1,391,704 and $911,716 of share-based compensation expense for the years ended
December 31, 2009, 2008 and 2007, respectively, for stock options, stock appreciation rights and restricted stock awards. The
Company presents the expenses related to stock-based compensation awards in the same expense line items as cash compensation paid
to the same employees. Equity awards were granted under the 2003 Stock Option and Incentive Plan approved by the Board of
Directors on April 4, 2003.
On April 4, 2003 the Board of Directors approved the 2003 Anika Therapeutics, Inc. Stock Option and Incentive Plan (the
“2003 Plan”). The Company initially reserved 1,500,000 shares of common stock for grant of equity-based awards to employees,
directors, consultants and advisors under the 2003 Plan, which was approved by stockholders on June 4, 2003. On May 29, 2009, the
Board of Directors approved changes to the 2003 Plan and adopted the Amended and Restated 2003 Stock Option and Incentive Plan
(the “Amended 2003 Plan”), to increase the number of shares available to grant by 850,000. The Amended 2003 Plan was approved
by the Company’s shareholders on June 5, 2009, and resulted in a total of 2,350,000 shares of common stock being reserved for
issuance under the Amended 2003 Plan. The Company issues new shares from its authorized common stock upon share option
exercises or satisfaction of vesting requirements for other equity-based awards. Stock-based awards are granted with an exercise price
equal to the market price of the Company’s stock on the date of grant. Awards contain service or performance conditions and
generally vest annually over 3-or-4 year terms. Awards have 10-year contractual terms. As of December 31, 2009, there were 307,118
shares still outstanding under the Company’s original 1993 Stock Option Plan included in the total outstanding options of
1,372,933. There are 887,840 options available for future grant at December 31, 2009.
Combined stock options and stock appreciation rights activity under the three plans is summarized as follows for the years
end December 31, 2009, 2008, and 2007:
2009
2008
2007
Weighted
Average
Exercise
Price per
Share
Number of
Shares
Weighted
Average
Exercise
Price per
Share
Weighted
Average
Exercise
Price per
Share
Number of
Shares
Number of
Shares
1,094,683 $
365,000 $
(76,750 ) $
(7,000 ) $
(3,000 ) $
1,372,933 $
9.00
4.33
20.93
4.80
1.05
7.13
1,093,479 $
179,130 $
(29,126 ) $
—
(148,800 ) $
1,094,683 $
7.93
10.50
6.43
—
3.47
9.00
1,547,412 $
115,000 $
(134,714 ) $
(3,295 ) $
(430,924 ) $
1,093,479 $
6.39
19.22
10.83
12.06
4.48
7.93
Outstanding at beginning of
year
Granted
Cancelled
Expired
Exercised
Outstanding at end of year
Options exercisable at end of
year
824,598 $
7.46
713,453 $
7.06
772,154 $
5.43
Weighted average fair value
of options granted at fair
value
$
2.03
$
5.22
$
9.31
The restricted stock activity for the years ended December 31, 2009, 2008 and 2007 are as follows:
2009
2008
2007
Number of
Shares
Weighted
Average
Grant Date
Fair Value
Number of
Shares
Weighted
Average
Grant Date
Fair Value
Number of
Shares
Weighted
Average
Grant Date
Fair Value
Nonvested at beginning of
year
Granted
Cancelled
Vested
Expired
Nonvested at end of year
83,395 $
47,600 $
(7,082 ) $
(28,936 ) $
—
94,977 $
10.71
3.05
9.62
10.74
—
6.94
17,225 $
77,170 $
(5,850 ) $
(5,150 ) $
—
83,395 $
11.82
10.58
11.39
11.76
—
10.71
23,900 $
200 $
(1,100 ) $
(5,775 ) $
—
17,225 $
11.80
13.09
11.86
11.78
—
11.82
The aggregate intrinsic value of stock options and stock appreciation rights fully vested at December 31, 2009, 2008 and
2007 were $1,646,441, $482,853 and $7,042,267, respectively. The aggregate intrinsic value of stock options and stock appreciation
rights outstanding at December 31, 2009, 2008 and 2007, were $2,880,716, $482,853 and $7,797,706, respectively. The total intrinsic
value of options and stock appreciation rights exercised were $12,770, $729,313 and $4,204,142 for the years ended December 31,
2009, 2008 and 2007, respectively. The total fair value of options and stock appreciation rights vested during the years ended
December 31, 2009, 2008, and 2007 were $812,732, $727,765, and $889,256 respectively. The Company received $3,150, $516,982
and $1,882,611 for exercises of stock options during the years ended December 31, 2009, 2008 and 2007, respectively. As of
December 31, 2009 the weighted average remaining contractual life of the outstanding and vested shares, for options and stock
appreciation rights, were 6.01 years and 4.15 years, respectively.
60
A total of 1,342,887 vested and expected to vest options were outstanding as of December 31, 2009. These vested and
expected to vest options had a weighted average exercise price of $7.16 and an aggregated intrinsic value of $2,804,119. The weighted
average remaining contractual term of vested and expected to vest options as of December 31, 2009 was 5.9 years.
For the year ended December 31, 2009, the weighted average fair value per share for options and stock appreciation rights
for shares outstanding and vested were $3.93 and $4.38, respectively. As of December 31, 2009, there was approximately $1,598,890,
of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Company’s
stock plans. That cost is expected to be recognized over a weighted average period of 2.3 years.
13. Shareholder Rights Plan
On April 4, 2008 the Board of Directors of the Company adopted a Shareholder Rights Plan that replaced the Company’s
former Shareholder Rights Plan. Under the Shareholder Rights Plan, the Rights generally become exercisable if: (1) a person becomes
an “Acquiring Person” by acquiring 15% or more of the Company’s Common Stock, or (2) a person commences a tender offer that
would result in that person owning 15% or more of the Company’s Common Stock. In the event that a person becomes an “Acquiring
Person,” each holder of a Right (other than the Acquiring Person) would be entitled to acquire such number of shares of preferred
stock which are equivalent to shares of the Company’s Common Stock having a value of twice the exercise price of the Right. If, after
any such event, the Company enters into a merger or other business combination transaction with another entity, each holder of a
Right would then be entitled to purchase, at the then-current exercise price, shares of the acquiring company’s common stock having a
value of twice the exercise price of the Right. The current exercise price per Right is $75.00. The Rights may be redeemed in whole,
but not in part, at a price of $0.01 per Right (payable in cash, shares of the Company’s Common Stock or other consideration deemed
appropriate by the Board of Directors) by the Board of Directors only until the earlier of (1) the time at which any person becomes an
“Acquiring Person”, or (2) the Expiration Date. At any time after any person becomes an “Acquiring Person”, the Board of Directors
may, at its option, exchange all or any part of the then outstanding and exercisable Rights for shares of the Company’s Common Stock
at an exchange ratio specified in the Rights Plan. Notwithstanding the foregoing, the Board of Directors generally will not be
empowered to affect such exchange at any time after any person becomes the beneficial owner of 50% or more of the Company’s
Common Stock.
In connection with the establishment of the Rights Plan, the Board of Directors approved the creation of Preferred Stock of
the Company designated as Series B Junior Participating Cumulative Preferred Stock with a par value of $0.01 per share. The Board
also reserved 175,000 shares of preferred stock for issuance upon exercise of the Rights. Until a Right is exercised, the holder will
have no rights as a stockholder of the Company (beyond those as an existing stockholder), including the right to vote or to receive
dividends.
14. Employee Benefit Plan
United States based employees are eligible to participate in the Company’s 401(k) savings plan. Employees may elect to
contribute a percentage of their compensation to the plan, and the Company will make matching contributions up to a limit of 5% of
an employee’s compensation. In addition, the Company may make annual discretionary contributions. For the years ended
December 31, 2009, 2008, and 2007, the Company made matching contributions of $323,876, $301,155 and $241,982 respectively.
61
15. Revenue by Product Group, by Significant Customer and by Geographic Region; Geographic Information
Product revenue by product group is as follows:
Joint Health
Ophthalmic
Veterinary
Aesthetics
Others
2009
2007
Years Ended December 31,
2008
$ 22,879,899 $ 18,707,669 $ 13,602,494
10,573,915 10,678,615 10,517,156
2,370,898
224,220
190,332
$ 37,320,906 $ 33,054,787 $ 26,905,100
3,028,450
505,273
134,780
2,274,482
1,471,165
121,445
Product revenue by significant customers as a percent of product revenues is as follows:
Depuy Mitek / Ortho Biotech
Bausch & Lomb Incorporated
Boehringer Ingelheim Vetmedica
Pharmaren AG / Biomeks
Percent of Product Revenue
Years Ended December 31,
2009
45.4 %
26.6 %
6.1 %
4.4 %
82.5 %
2008
40.0 %
29.8 %
9.2 %
5.7 %
84.7 %
2007
37.4 %
35.4 %
8.8 %
6.1 %
87.7 %
Revenues by geographic location in total and as a percentage of total revenues are as follows:
2009
Years Ended December 31,
2008
2007
Revenue
Percent of
Revenue
Revenue
Percent of
Revenue
Revenue
Percent of
Revenue
Geographic location:
United States
Europe
Turkey
Other
Total
$
$
30,196,213
6,536,835
1,673,779
1,728,877
40,135,704
75.2 % $
16.3 %
4.2 %
4.3 %
100.0 % $
26,789,515
5,667,215
1,946,081
1,376,976
35,779,787
74.9 % $
15.8 %
5.4 %
3.9 %
100.0 % $
22,759,765
5,462,266
1,666,696
941,094
30,829,821
73.8 %
17.7 %
5.4 %
3.1 %
100.0 %
The Company recorded licensing, milestone and contract revenue of $2,814,798, $2,725,000 and $3,924,721 for the year
ended December 31, 2009, 2008, and 2007, respectively. Substantially all licensing, milestone and contract revenue was derived in the
United States for 2009 and 2008. In 2007, approximately $1,200,000 of milestone revenue was derived in Europe.
Net long-lived assets, consisting of net property and equipment, are subject to geographic risks because they are generally difficult to
move and to effectively utilize in another geographic area in a reasonable time period and because they are relatively illiquid. Net
long-lived assets by principal geographic areas were as follows:
United States
Italy
16. Income Taxes
2009
Years Ended December 31,
2008
$ 34,056,615 $ 32,246,683 $ 19,369,716
—
$ 35,747,615 $ 32,246,683 $ 19,369,716
1,691,000
—
2007
Income tax expense was $1,824,692, $1,096,046 and $2,652,840 for the years ended December 31, 2009, 2008, and 2007,
respectively. Prepaid taxes of $870,412, $112,950, and $643,351 were included in the prepaid expenses at December 31, 2009, 2008
and 2007. The Company receives a tax deduction upon the exercise of nonqualified stock options and disqualifying dispositions by
employees for the difference between the exercise price and the market price of the underlying common stock on the date of exercise.
The benefit of the related tax deduction in the amounts of $258,146 and $643,351 were not recorded through the tax provision; rather,
were recorded as an increase to additional paid in capital in 2008 and 2007, respectively. During 2009, there was a tax shortfall which
reduced additional paid in capital of $82,544. The components of the provision for income taxes are as follows:
Current:
Federal
State
Deferred:
Federal
State
Tax expense
62
Years Ended December 31,
2008
2007
2009
$
(2,908 ) $
(18,237 )
(21,145 )
765,578 $ 1,792,556
163,768
(46,577 )
1,956,324
719,001
2,010,097
(164,260 )
1,845,837
849,573
(153,057 )
696,516
$ 1,824,692 $ 1,096,046 $ 2,652,840
693,732
(316,687 )
377,045
The Company’s effective tax rate varied from the U.S. federal statutory rate due to a state investment tax credit as a result of
the new facility project, and state and federal research and development credits, offset by an increase in rate due to certain
nondeductible transaction costs associated with the FAB acquisition. In 2008, the Company recorded additional provision of
approximately $121,000 related to the reduction of its deferred tax assets as a result of newly enacted changes to the Commonwealth
of Massachusetts to gradually reduce future corporate income tax rates. A reconciliation of the U.S. federal statutory tax rate to the
effective tax rate for the periods ending December 31 is as follows:
Computed expected tax expense
State tax expense (net of federal benefit)
State deferred tax assets rate change
Permanent items, including nondeductible expenses
State investment tax credit
Federal and state research and development credits
Other
Tax expense
Years ended December 31,
2008
2007
2009
34.0 %
6.2 %
(0.8 )%
8.8 %
(5.6 )%
(8.4 )%
(1.1 )%
33.1 %
34.0 %
4.6 %
2.6 %
0.6 %
(11.1 )%
(5.8 )%
(1.7 )%
23.2 %
34.0 %
4.2 %
—
(1.1 )%
(3.9 )%
(2.4 )%
(0.3 )%
30.5 %
The Company records a deferred tax asset or liability based on the difference between the financial statement and tax bases
of assets and liabilities, as measured by the enacted tax rates assumed to be in effect when these differences reverse. As of
December 31, 2009 and 2008, management determined that it is more likely than not that the deferred tax assets will be realized and,
therefore, a valuation allowance has not been recorded. The Company has investment tax credits which will expire in 2017. The
approximate income tax effect of each type of temporary difference and carryforward is as follows:
Deferred tax assets:
Deferred revenue
Stock-based compensation expense
Tax credit carryforwards
Intangibles related to FAB acquisition
Accrued expenses and other
Depreciation
Inventory reserve
Deferred tax asset
Deferred tax liabilities:
Intangibles related to FAB acquisition
Depreciation
Deferred tax liability
Years ended December 31,
2009
2008
$ 4,161,014
1,116,599
1,646,935
1,500,970
640,254
—
57,519
$ 9,123,291
$ 5,155,800
930,492
788,915
—
449,632
163,565
47,625
$ 7,536,029
Years ended December 31,
2009
2008
$ 10,806,034
1,932,133
$ 12,738,167
—
—
—
The Company adopted the provisions of Accounting Standards Codification 740, Income Taxes (ASC 740), (Formerly FIN
48), on January 1, 2007. As a result of the implementation of ASC 740, the Company recognized no adjustment in the liability for
unrecognized income tax benefits. The Company recognizes interest and penalties related to uncertain tax positions in income tax
expense, which was immaterial. Total amount of unrecognized tax benefits that would affect our effective tax rate if recognized is
$40,900, $40,900, and $203,954 as of December 31, 2009, 2008 and 2007, respectively. During the third quarter of 2008, the
Company concluded its audit by the Massachusetts Department of Revenue (“DOR”) for its 2004 and 2005 tax returns, which resulted
in a reduction to its ASC 740 tax reserves and a related income tax benefit of approximately $100,000. The Company is in the process
of completing an audit by the DOR for the years 2006 and 2007, and the Company does not expect a material change as a result of this
audit. Our U.S. federal income tax returns for the years 2006 to 2008 remain subject to examination, and our state income tax return
for 2008 remains subject to examination.
63
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Unrecognized tax benefits at January 1, 2007
Gross increases for tax provision of prior years
Gross increases for tax provision of current year
Settlement
Lapse of statue of limitations
Unrecognized tax benefits at December 31, 2007
Gross increases for tax provision of current year
Change in reserve related to Federal tax benefits
Settlements
Lapse of statue of limitations
Unrecognized tax benefits at December 31, 2008
Net Change
Unrecognized tax benefits at December 31, 2009
17. Long-term Debt
$
$
$
$
228,938
34,211
69,206
(128,401 )
—
203,954
6,249
8,443
(68,221 )
(109,525 )
40,900
—
40,900
On January 31, 2008, the Company entered into an unsecured Credit Agreement (the “Agreement”) with Bank of America,
under which the Company was provided with a revolving credit line through December 31, 2008 of up to a maximum principal
amount at any time outstanding of $16,000,000. The Company borrowed the maximum amount of $16,000,000 in 2008 to finance its
new facility construction and validation capital project. On December 31, 2008, the outstanding revolving credit loans were converted
into a term loan with quarterly principal payments of $400,000 and a final installment of $5,200,000 due on the maturity date of
December 31, 2015. Interest on revolving credit loans and term loans are payable at a rate based upon (at the Company’s election)
either Bank of America’s prime rate or LIBOR plus 125 basis points. The Agreement contains customary representations and
warranties of the Company, affirmative and negative covenants regarding the Company’s operations, financial covenants regarding
the maintenance by the Company of a specified quick ratio and consolidated fixed charge coverage ratio, and events of default. As of
December 31, 2009, the Company had an outstanding debt balance of $14,400,000, at a blended interest rate of 1.50%. The Company
recorded approximately $171,000 as deferred issuance costs, which is being amortized over the life of the long-term debt. For the year
ended December 31, 2009, the Company capitalized interest expense of $98,183 as part of construction in progress related to the
Company’s new facility build-out. Interest capitalization was recorded in accordance with ASC 835-20, Capitalization of Interest
Costs . The Company began expensing all interest costs incurred beginning after July 1, 2009. Long-term debt principal payments
over the next five years are $1,600,000 per year. The estimated fair value of our debt instrument was approximately $13,800,000 at
December 31, 2009 using market observable inputs and interest rate measurements.
In connection with the acquisition of FAB, the Company entered into a Consent and First Amendment to our original loan with Bank
of America. As part of this amendment, the interest rate for Eurodollar based loans was increased and is payable at a rate based upon
(at the Company’s election) either Bank of America’s prime rate or LIBOR plus 125 basis points. This increased from the original
loan amount of prime rate or LIBOR plus 75 basis points. In addition, the Company has pledged to the lender sixty-five percent (65%)
of the stock of FAB. We also incurred $74,000 of fees from Bank of America which were capitalized in accordance with ASC 470-50,
Debt – Modifications and Extinguishments , as the Consent and Amendment represents a debt modification. The fees will be
amortized over the remaining life of the loan.
18. Trademark Opposition
On December 12, 2007, Colbar Lifescience Ltd., a subsidiary of Johnson and Johnson, filed an opposition proceeding before
the U.S. Patent & Trademark Office’s Trademark Trial & Appeal Board (“Trademark Board”), objecting to one of the Company’s
applications to register the trademark ELEVESS, alleging that the mark is confusingly similar to Colbar’s previous mark
EVOLENCE. In October 2008, Colbar filed a petition with the Trademark Board requesting cancellation of the Company’s second
ELEVESS trademark that had been registered in September 2008. Throughout the discussions, the Company had maintained that
Colbar’s claim and petition are without merit, and has denied all substantive allegations in the notice of opposition. In November
2009, Colbar and Anika settled the matter and the parties signed was a stipulation filed with the court, whereby Anika abandoned the
US applications and registrations, and Colbar dismissed the opposition/cancellation proceedings. The Trademark Board has approved
the stipulation and dismissed the case.
64
19. Acquisition of Fidia Advanced Biopolymers, S.r.l.
On December 30, 2009, Anika entered into a Sale and Purchase Agreement (the “Purchase Agreement”) with Fidia
Farmaceutici S.p.A., a privately held Italian corporation pursuant to which the Company acquired 100% of the issued and outstanding
stock of Fidia Advanced Biopolymers S.r.l., a privately held Italian corporation (“FAB”) for a purchase price consisting of
$17.1 million in cash and 1,981,192 shares of the Company’s common stock (the “Acquisition”). FAB’s operating results and cash
flow changes were immaterial for the one day of post-acquisition activity. The completion of the Acquisition occurred simultaneously
with the signing of the Purchase Agreement. FAB has over 20 products currently on the market, all manufactured from hyaluronic
acid, the same basic material used by Anika. The acquisition complements Anika’s portolio of products, broadens its pipeline of
potential new products, and advances Anika’s vision to offer orthopedic doctors protective and regenerative products.
The 1,981,192 shares of the Company’s stock issued includes 800,000 shares to be held in escrow for a period of up to two
years in order to satisfy any future indemnification claims under the Purchase Agreement. The issued shares are also subject to a one
year holding period. The Purchase Agreement was based on an estimated closing balance sheet with a minimum working capital
amount to be delivered. The Parties are currently in discussions to finalize the working capital amount, but it is not expected to be
materially different than the estimated closing balance sheet.
The transaction will be accounted for under the acquisition method of accounting in accordance with Accounting Standards
Codification 805, Business Combinations (“ASC 805”), (formerly Financial Accounting Standards Board Statement No. 141(revised
2007), “Business Combinations”). Under ASC 805, all of the assets acquired and liabilities assumed in the transaction are recognized
at their acquisition-date fair values, while transaction costs and restructuring costs associated with the transaction are expensed as
incurred. The purchase generated $7.6 million of goodwill which is not expected to be deductible under Italian tax law.
Purchase Price
The $33.9 million purchase price for FAB is based on the acquisition-date fair value of the consideration transferred, which
included cash and the issuance of shares of Anika stock, which was calculated based on the closing price of the Company's common
stock of $8.49 per share on December 30, 2009. The acquisition-date fair value of the consideration consisted of the following:
Cash
Common stock
Total
Allocations of Assets and Liabilities
Fair Value of
Consideration
$
$
17,055,000
16,820,320
33,875,320
The Company allocated the purchase price for FAB, based on the acquired fair value of the net tangible assets and
intangible assets, goodwill and a deferred tax liability. The difference between the aggregate purchase price and the fair value of assets
acquired and liabilities assumed, after consideration of deferred taxes, was allocated to goodwill. The following table summarizes the
fair values of the assets acquired and liabilities assumed at the acquisition date:
Preliminary Purchase Price Allocation
Inventory
Other assets and liabilities, net
Property and equipment
Intangible assets
Goodwill
Deferred tax liability
Purchase price
65
December 31,
2009
1,400,000
(253,869 )
1,691,000
32,700,000
7,652,253
(9,305,064 )
33,875,320
$
The intangible assets identified in the purchase price allocation represent primarily developed technology, acquired in-
process research and development (“IPR&D”), patents and distributor relationship assets. Under the acquisition method of ASC 805,
$21.4 million of these assets are recorded at their fair value and amortized over their estimated lives. The remaining amount represents
IPR&D, which is accounted for as indefinite-lived intangible assets. The Company will periodically evaluate these IPR&D assets. If
a project is completed, the carrying value of the related intangible asset would be amortized over the remaining estimated life of the
asset beginning in the period in which the project is completed. If a project becomes impaired or is abandoned, the carrying value of
the related intangible asset would be written down to its fair value and an impairment charge would be taken in the period in which the
impairment occurs. These intangible assets will be tested for impairment on an annual basis, or earlier if impairment indicators are
present.
The IPR&D projects primarily revolve around obtaining U.S. approval for several of FAB’s orthopedic products to gain
access to this important market. Costs to complete the projects are estimated at $4 million to $7 million spread over the next four
years, and involve primarily clinical studies and regulatory costs, which are deemed to be of moderate difficulty. IPR&D value was
estimated using a multi-period excess earnings approach. The primary risks associated with the projects include generating sufficient
data to support efficacy, and thereby gaining regulatory approval. There can be no assurance that the Company will be successful in
completing development or obtaining regulatory approval; and if successful, that meaningful sales will occur.
Acquisition-related Expenses
In connection with the acquisition of FAB, the Company incurred $2.2 million in expenses, which are reflected as acquisition-
related expenses on the consolidated statements of operations in 2009. These costs include costs to investigate, document, close and
complete regulatory compliance requirements.
FAB Financial Information
The FAB balance sheet amounts that have been included in the consolidated balance sheet consist of the following:
ASSETS
Cash and cash equivalents
Accounts receivable
Inventories
Prepaid expenses and other
Property and equipment
Intangible assets
Goodwill
Total Assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts Payable
Accrued expenses
Other long-term liabilities
Deferred tax liability
Stockholders’ equity
Total Liabilities and Stockholders’ Equity
66
December 31,
2009
$
$
$
$
799,363
4,715,344
1,400,000
1,581,886
1,691,000
32,700,000
7,652,253
50,539,846
4,092,596
2,448,225
818,641
9,305,064
33,875,320
50,539,846
The FAB operating results for 2009 were immaterial as the acquisition occurred on December 30, 2009. The Pro Forma (unaudited)
combined Statement of Operations for the years ended December 31, 2009 and 2008 had FAB been included are as follows:
Total revenue
Net income (loss)
Diluted net income per share:
Net income
Diluted weighted average common shares outstanding
20. Related Party
December 31,
2009
Consolidated
(unaudited)
53,894,000 $
(910,000 )
2008
Consolidated
(unaudited)
50,196,000
(317,000 )
(0.07 ) $
13,532,640
(0.02 )
13,442,000
$
$
$
In connection with the acquisition of FAB by Anika on December 30, 2009, Fidia Farmaceutici S.p.A ("Fidia") acquired
ownership of 1,981,192 shares of the Company's common stock, or approximately 14.8% of the outstanding shares of the Company as
of December 30, 2009, thus becoming a "related party" under the Securities and Exchange Commission regulations. See Note 19 to
the consolidated financial statements for further description of the acquisition.
As part of the acquisition, the Company, primarily through FAB, entered into a series of operating agreements with Fidia as
follows:
Agreement Type
Description
Lease
Finished goods supply
Raw material supply
Services
Accounts Receivable
Management
Marketing and Promotion
Rent of space in Abano Terme, Italy
Manufacture and supply of goods
Hyaluronic acid powder
Finance, administrative, security
Collection of trade receivables outstanding as of
December 30, 2009.
Promote FAB products in Italy through
Fidia sales force
Term
in Years
Six
Three
Five
One to Six
Two
Three
Historically FAB has relied on Fidia, its former parent company, for a several functional activities. In connection with the
purchase of FAB, the Company has negotiated a lease for approximately 26,000 square feet of office, laboratory and warehouse space
in Abano Terme, Italy, and a finished goods supply agreement. In addition, accounting and purchasing will be performed by Fidia on
behalf of FAB during 2010 under a services agreement. Finally, Fidia has agreed to promote FAB's products in Italy through its
existing 140 person sales force. At December 31, 2009, FAB had a net payable to Fidia for past products and services of $2.9
million.
67
21. Quarterly Financial Data (Unaudited)
Year 2009
Product revenue
Total revenue
Cost of product revenue
Gross profit on product revenue
Net income
Per common share information
Basic net income per share
Basic common shares outstanding
Diluted net income per share
Diluted common shares outstanding
Year 2008
Product revenue
Total revenue
Cost of product revenue
Gross profit on product revenue
Net income
Per common share information
Basic net income per share
Basic common shares outstanding
Diluted net income per share
Diluted common shares outstanding
Quarter ended
December 31,
Quarter ended
September 30,
Quarter ended
June 30,
Quarter ended
March 31,
$
$
$
$
9,943,940 $
10,618,940
3,613,028
6,330,912
697,148 $
0.06 $
11,408,790
0.06 $
11,653,048
10,087,130 $
10,792,764
3,551,374
6,535,756
1,511,925 $
8,770,763 $
9,523,676
3,294,160
5,476,603
955,774 $
8,519,073
9,200,324
3,211,666
5,307,407
522,720
0.13 $
11,385,679
0.13 $
11,575,907
0.08 $
11,384,949
0.08 $
11,548,079
0.05
11,366,545
0.05
11,496,518
Quarter ended
December 31,
Quarter ended
September 30,
Quarter ended
June 30,
Quarter ended
March 31,
$
$
$
$
8,284,557 $
8,965,804
2,822,930
5,461,627
1,094,505 $
8,523,765 $
9,205,015
3,504,986
5,018,779
1,104,203 $
8,378,936 $
9,060,189
3,644,530
4,734,406
812,929 $
7,867,529
8,548,779
3,216,070
4,651,459
617,558
0.10 $
11,352,383
0.10 $
11,456,691
0.10 $
11,329,422
0.10 $
11,485,989
0.07 $
11,327,457
0.07 $
11,516,177
0.06
11,225,282
0.05
11,612,720
68
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a)
Evaluation of disclosure controls and procedures.
As required by Rule 13a-15 under the Securities Exchange Act of 1934 (“Exchange Act”), we carried out an evaluation
under the supervision and with the participation of our management, including our chief executive officer and chief financial officer,
of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this
report. Based upon that evaluation, the chief executive officer and principal financial officer have concluded that our disclosure
controls and procedures are effective to ensure that information required to be disclosed by us in reports we file or submit under the
Exchange Act is recorded, processed, summarized and reported, within the time periods specified in Securities and Exchange
Commission rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is
accumulated and communicated to the Company’s management, including our chief executive officer and chief financial officer, or
persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. On an on-going basis, we
review and document our disclosure controls and procedures, and our internal control over financial reporting, and may from time to
time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.
(b)
Changes in internal controls over financial reporting.
There were no changes in our internal control over financial reporting during the fourth quarter of fiscal year 2009 that have
materially affected, or that are reasonably likely to materially affect, our internal controls over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined
in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting can provide only reasonable assurance and may
not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2009. In
making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) in Internal Control—Integrated Framework.
Based on our assessment and those criteria, our management believes that the Company maintained effective internal control
over financial reporting as of December 31, 2009.
On December 30, 2009, the Company acquired Fidia Advanced Biopolymers S.r.l (“FAB”). As this acquisition occurred in
late 2009, we have excluded FAB from our assessment of internal control over financial reporting as of December 31, 2009. FAB is a
wholly-owned subsidiary of the Company whose total assets (excluding amounts resulting from the purchase price allocation)
represent 7% of the consolidated financial statement total assets as of December 31, 2009.
The effectiveness of our internal control over financial reporting as of December 31, 2009 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.
ITEM 9B. OTHER INFORMATION
None.
69
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement
pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than
120 days after the close of the Company’s fiscal year ended December 31, 2009.
ITEM 11. EXECUTIVE COMPENSATION
The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement
pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than
120 days after the close of the Company’s fiscal year ended December 31, 2009.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required under this item and Item 5 of this Annual Report on Form 10-K under the heading “Equity
Compensation Plan Information” is incorporated herein by reference to the Company’s definitive proxy statement pursuant to
Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the
close of the Company’s fiscal year ended December 31, 2009.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement
pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than
120 days after the close of the Company’s fiscal year ended December 31, 2009.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required under this item is incorporated herein by reference to the Company’s definitive proxy statement
pursuant to Regulation 14A, which proxy statement will be filed with the Securities and Exchange Commission not later than
120 days after the close of the Company’s fiscal year ended December 31, 2009.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a)
Documents filed as part of Form 10-K.
(1)
Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholder’s Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2)
Schedules
[42]
[43]
[44]
[45]
[46]
[47-65]
Schedules have been omitted as all required information has been disclosed in the financial statements and related footnotes.
(3)
Exhibits
The list of Exhibits filed as a part of this Annual Report on Form 10-K are set forth on the Exhibit Index (b) below.
70
(b) Exhibit No.
Description
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession:
2.1 Sale and Purchase Agreement, dated December 30, 2009, between Fidia Farmaceutici S.p.A., as Seller, and the
Company, as Buyer, incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form
8-K (File no. 001-14027), filed with the Securities and Exchange Commission on January 6, 2010.
(3) Articles of Incorporation and Bylaws:
3.1 Restated Articles of Organization of the Company, incorporated herein by reference to Exhibit 3.1 to the
Company’s Registration Statement on Form 10 (File no. 000-21326), filed with the Securities and Exchange
Commission on March 5, 1993.
3.2 Certificate of Vote of Directors Establishing a Series of Convertible Preferred Stock, incorporated herein by
reference to the Exhibits to the Company’s Registration Statement on Form 10 (File no. 000-21326), filed with
the Securities and Exchange Commission on March 5, 1993.
3.3 Amendment to the Restated Articles of Organization of the Company, incorporated herein by reference to
Exhibit 3.1 to the Company’s Quarterly Report on Form 10-QSB for the quarterly period ended November 30,
1996 (File no. 000-21326), filed with the Securities and Exchange Commission on January 14, 1997.
3.4 Amendment to the Restated Articles of Organization of the Company, incorporated herein by reference to
Exhibit 3.1 of the Company’s Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 1998
(File no. 001-14027), filed with the Securities and Exchange Commission on August 14, 1998.
3.5 Amendment to the Restated Articles of Organization of the Company, incorporated herein by reference to
Exhibit 3.3 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2002 (File
no. 001-14027), filed with the Securities and Exchange Commission on August 14, 2002.
3.6 Amended and Restated Certificate of Vote of Directors Establishing a Series of Preferred Stock of the Company
classifying and designating the Series B Junior Participating Cumulative Preferred Stock, incorporated herein by
reference to Exhibit 3.1 to the Company’s Registration Statement on Form 8-A12B (File no. 001-14027), filed
with the Securities and Exchange Commission on April 7, 2008.
3.7 Amendment to the Restated Articles of Organization of the Company, incorporated herein by reference to
Exhibit 3.7 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (File
no. 001-14027), filed with the Securities and Exchange Commission on March 9, 2009.
3.8 Amended and Restated Bylaws of the Company, incorporated herein by reference to Exhibit 3.6 to the
Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2002 (File no. 001-14027),
filed with the Securities and Exchange Commission on August 14, 2002.
(4) Instruments Defining the Rights of Security Holders
4.1 Shareholder Rights Agreement, dated as of April 7, 2008, between the Company and American Stock Transfer &
Trust Company, incorporated herein by reference to Exhibit 4.1 to the Company’s Registration Statement on
Form 8-A12B (File no. 001-14027), filed with the Securities and Exchange Commission on April 7, 2008.
(10) Material Contracts
10.1 Commercial Lease, dated March 10, 1995, between the Company and Cummings Properties Management, Inc.,
incorporated herein by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 (File no. 001-14027), filed with the Securities and Exchange Commission on
April 2, 2001.
10.2 Amendment to Lease #1, dated December 11, 1997, between the Company and Cummings Properties
Management, Inc., incorporated herein by reference to Exhibit 10.9 to the Company’s Annual Report on Form
10-K for the fiscal year ended December 31, 2000 (File no. 001-14027), filed with the Securities and Exchange
Commission on April 2, 2001.
71
10.3 Lease Extension, dated March 23, 1998, between the Company and Cummings Properties Management, Inc.,
incorporated herein by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2000 (File no. 001-14027), filed with the Securities and Exchange Commission on
April 2, 2001.
10.4 Amendment to Lease #2, dated September 27, 1999, between the Company and Cummings Properties
Management, Inc., incorporated herein by reference to Exhibit 10.11 to the Company’s Annual Report on Form
10-K for the fiscal year ended December 31, 2000 (File no. 001-14027), filed with the Securities and Exchange
Commission on April 2, 2001.
10.5 Commercial Lease, dated July 9, 1999, between the Company and Cummings Properties LLC, incorporated
herein by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2000 (File no. 001-14027), filed with the Securities and Exchange Commission on April 2, 2001.
10.6 Stipulation and Agreement of Compromise, Settlement and Release, dated May 25, 2001, in connection with In
Re Anika Therapeutics, Inc. Securities Litigation, incorporated herein by reference to Exhibit 10.2 to the
Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2001 (File no. 001-14027),
filed with the Securities and Exchange Commission on August 14, 2001.
10.7 Amendment to Lease #3, dated November 1, 2001, between the Company and Cummings Properties, LLC,
incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2001 (File no. 001-14027), filed with the Securities and Exchange
Commission on November 14, 2001.
10.8 Lease Extension, dated October 8, 2003, between the Company and Cummings Properties, LLC, incorporated
herein by reference to Exhibit 10.36 to the Company’s Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2003 (File no. 001-14027), filed with the Securities and Exchange Commission on
November 14, 2003.
**10.9 License Agreement, dated as of December 20, 2003, by and between the Company and Ortho Biotech Products,
L.P., incorporated herein by reference to Exhibit 10.38 to the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2003 (File no. 001-14027), filed with the Securities and Exchange Commission
on March 30, 2004.
**10.10 Supply Agreement, dated as of December 15, 2004, by and between the Company and Bausch & Lomb
Incorporated, incorporated herein by reference to Exhibit 10.43 to the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2004 (File no. 001-14027), filed with the Securities and Exchange
Commission on March 16, 2005.
†10.11 Form of Incentive Stock Option Agreement under the Company’s Amended and Restated 2003 Stock Option
and Incentive Plan, incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form
8-K (File no. 001-14027), filed with the Securities and Exchange Commission on October 5, 2004.
†10.12 Form of Non-Qualified Stock Option Agreement under the Company’s Amended and Restated 2003 Stock
Option and Incentive Plan, incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on
Form 8-K (File no. 001-14027), filed with the Securities and Exchange Commission on October 5, 2004.
†10.13 Form of Stock Appreciation Right Agreement for Employees under the Company’s Amended and Restated 2003
Stock Option and Incentive Plan, incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 2006 (File no. 001-14027), filed with the
Securities and Exchange Commission on May 9, 2006.
†10.14 Form of Stock Appreciation Right Agreement for Non-Employee Directors under the Company’s Amended and
Restated 2003 Stock Option and Incentive Plan, incorporated herein by reference to Exhibit 10.2 to the
Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2006 (File no. 001-
14027), filed with the Securities and Exchange Commission on May 9, 2006.
72
10.15 Lease, dated January 3, 2007, between the Company and Farley White Wiggins, LLC, incorporated herein by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File no. 001-14027), filed with the
Securities and Exchange Commission on January 10, 2007.
10.16 Credit Agreement, dated January 31, 2008, among the Company, Anika Securities, Inc., Bank of America, N.A.,
and the other lenders party thereto (the “Credit Agreement”), incorporated herein by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K (File no. 001-14027), filed with the Securities and Exchange
Commission on February 6, 2008.
†10.17 Anika Therapeutic, Inc. Senior Executive Incentive Compensation Plan, incorporated herein by reference to
Exhibit 10.2 to the Company’s Current Report on Form 8-K (File no. 001-14027), filed with the Securities and
Exchange Commission on February 6, 2008.
†10.18 Form of Performance Share Award Agreement under the Company’s Amended and Restated 2003 Stock Option
and Incentive Plan, incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form
8-K (File no. 001-14027), filed with the Securities and Exchange Commission on February 6, 2008.
†10.19 Employment Agreement, dated October 17, 2008, between the Company and Charles H. Sherwood, Ph.D.,
incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File no. 001-
14027), filed with the Securities and Exchange Commission on October 22, 2008.
†10.20 Employment Agreement, dated October 17, 2008, between the Company and Kevin Quinlan, incorporated
herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File no. 001-14027), filed
with the Securities and Exchange Commission on October 22, 2008.
†10.21 Form of Restricted Stock Agreement for Employees under the Company’s Amended and Restated 2003 Stock
Option and Incentive Plan, incorporated herein by reference to Exhibit 10.27 to the Company’s Annual Report
on Form 10-K for the fiscal year ended December 31, 2007 (File no. 001-14027), filed with the Securities and
Exchange Commission on March 12, 2008.
†10.22 Anika Therapeutics, Inc. Non-Employee Director Compensation Policy, incorporated herein by reference to
Exhibit 10.28 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 (File
no. 001-14027), filed with the Securities and Exchange Commission on March 12, 2008.
†10.23 Form of Restricted Deferred Stock Unit Award Agreement for Non-Employee Directors under the Company’s
Amended and Restated 2003 Stock Option and Incentive Plan, incorporated herein by reference to Exhibit 10.25
to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (File no. 001-
14027), filed with the Securities and Exchange Commission on March 9, 2009.
†10.24 Letter Agreement, dated April 27, 2009, by and between the Company and Frank J. Luppino, incorporated
herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File no. 001-14027), filed
with the Securities and Exchange Commission on May 29, 2009.
†10.25 Amended and Restated 2003 Stock Option and Incentive Plan, incorporated herein by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K (File no. 001-14027), filed with the Securities and Exchange
Commission on June 11, 2009.
†10.26 Employment Agreement, dated September 10, 2009, between the Company and Frank J. Luppino, incorporated
herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File no. 001-14027), filed
with the Securities and Exchange Commission on September 14, 2009.
†10.27 Employment Agreement, dated September 10, 2009, between the Company and William J. Mrachek,
incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File no. 001-
14027), filed with the Securities and Exchange Commission on September 14, 2009.
10.28 Registration Rights Agreement, dated December 30, 2009, between the Company and Fidia Farmaceutici S.p.A.,
incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File no. 001-
14027), filed with the Securities and Exchange Commission on January 6, 2010.
73
10.29 Lease Agreement, dated December 30, 2009, between Fidia Farmaceutici S.p.A. and Fidia Advanced
Biopolymers S.r.l., incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form
8-K (File no. 001-14027), filed with the Securities and Exchange Commission on January 6, 2010.
10.30 Tolling Agreement, dated December 30, 2009, between Fidia Farmaceutici S.p.A. and Fidia Advanced
Biopolymers S.r.l., incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form
8-K (File no. 001-14027), filed with the Securities and Exchange Commission on January 6, 2010.
10.31 Consent and First Amendment to the Credit Agreement, dated December 30, 2009, by and among the Company,
Anika Securities, Inc., Bank of America, N.A. and each lender signatory thereto, incorporated herein by
reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K (File no. 001-14027), filed with the
Securities and Exchange Commission on January 6, 2010.
*10.32 Pledge and Security Agreement, dated March 12, 2010, among the Company, Fidia Advanced Biopolymers S.r.l.
and Bank of America, N.A.
(11) Statement Regarding the Computation of Per Share Earnings
11.1 See Note 3 to the Financial Statements included herewith.
(21) Subsidiaries of the Registrant
*21.1 List of Subsidiaries of the Registrant.
(23) Consent of Experts
*23.1 Consent of PricewaterhouseCoopers LLP.
(31) Rule 13a-14(a) / 15d-14(a) Certifications
*31.1 Certification of Charles H. Sherwood, Ph.D. pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange
Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2 Certification of Kevin W. Quinlan pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of
1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(32) Section 1350 Certification
***32.1 Certification of Charles H. Sherwood, Ph.D. and Kevin W. Quinlan, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*
**
Filed herewith.
Certain portions of this document have been omitted pursuant to a confidential treatment request filed with the Commission.
The omitted portions have been filed separately with the Commission.
***
Furnished herewith.
†
Denotes compensatory plan or arrangement.
74
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has
duly caused this report to be signed on its behalf by the undersigned.
Date: March 16, 2010
ANIKA THERAPEUTICS, INC.
By:
/s/ CHARLES H. SHERWOOD, PH.D.
Charles H. Sherwood, Ph.D.
Chief Executive Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
Signature
/s/ CHARLES H. SHERWOOD, PH.D.
Charles H. Sherwood, Ph.D.
/s/ KEVIN W. QUINLAN
Kevin W. Quinlan
/s/ JOSEPH L. BOWER
Joseph L. Bower
/s/ EUGENE A. DAVIDSON, PH.D.
Eugene A. Davidson, Ph.D.
/s/ RAYMOND J. LAND
Raymond J. Land
/s/ JOHN C. MORAN
John C. Moran
/s/ STEVEN E. WHEELER
Steven E. Wheeler
Title
Date
Chief Executive Officer and Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Accounting Officer)
Director
Director
Director
Director
Director
75
March 16, 2010
March 16, 2010
March 16, 2010
March 16, 2010
March 16, 2010
March 16, 2010
March 16, 2010
Exhibit 10.32
Courtesy Translation
___________________________________________________
PLEDGE AGREEMENT ON A QUOTA OF
FIDIA ADVANCED BIOPOLYMERS S.r.l.
___________________________________________________
INDEX
INTERPRETATION
GUARANTEE
PERFECTION OF PLEDGE
VOTING RIGHTS; DIVIDENDS
ENFORCEMENT OF PLEDGE
REPRESENTATION AND WARRANTIES
COVENANTS
1.
2.
3.
4.
5.
6.
7.
8. MAINTENANCE OF THE PLEDGE
CANCELLATION OF PLEDGE
9.
10. VARIOUS
11. APPLICABLE LAW AND JURISDICTION
Courtesy Translation
1
5
5
6
7
7
8
9
10
10
10
THIS PLEDGE AGREEMENT is entered in Boston, Massachusetts (U.S.A.), on March 12, 2010, by ANIKA THERAPEUTICS,
INC. , a company duly incorporated under the laws of Massachusetts, whose registered office is at 32 Wiggins Avenue, Bedford,
Massachusetts 01730 Italian tax code number 97542640152, acting by its legal representative Dr. Charles Sherwood (the “ Pledgor ”),
in favor of BANK OF AMERICA, N.A ., bank association, incorporated under the laws of United States of America, with legal
office in North Tryon Street 100, Charlotte, North Carolina (U.S.A.) (“ Bank of America ”);
WHEREAS:
(A)
(B)
(C)
(D)
with the agreement called “Credit Agreement” (as amended or integrated time to time, the “ Financing Agreement” )
entered in Boston, on January 31, 2008 between the Pledgor, as the “ Borrower ”, ANIKA SECURITIES, INC., as the “
Guarantor ”, or fidejussor, and Bank of America, as the “ Administrative Agent ”, or common representative, and “ Lender ”,
which granted in favor of the Pledgor a financing for a maximum amount equal to US$ 16.000.000 (the “ Financing ”). The
main terms of the Financing are indicated in the Attachment 1 (Main terms of the Financing);
the Financing Agreement is amended and integrated with the agreement called “Consent and First Amendment ” and entered
in Boston, Massachussets, on December 31, 2009 between the same parties of the Financing Agreement;
at the day hereof the Pledgor holds a quota equal to Euro 1.848.915, representing the entire corporate capital of Fidia
Advanced Biopolymers S.r.l., with legal office in Abano Terme (PD), Via Ponte della Fabbrica 3/B, registered in the
Companies Register of Padova, fiscal code n. 01510440744] (the “ Company ”);
pursuant to article 6.13 (“Additional Guarantors”) of the Credit Agreement and as condition of Consent and First
Amendment, the Pledgor undertook to establish in favor of the Guaranteed Creditors (as defined below) a pledge on a quota
equal to 65% of the corporate capital of the Company.
THE PARTIES COVENANT AND AGREE AS FOLLOWS:
1.
INTERPRETATION
1.1
Definitions
In this Agreement:
“Administrative Rights” means the administrative rights related to the Quota pursuant to article 2352, paragraph 6, of the
civil code, included the right to intervene in Company’s meetings, the right to request the postponement of Company’s
meetings and the right to challenge the decision of Company’s meetings.
“Affiliate” means “Affiliate” as indicated in the Financing Agreement.
“Agent Bank” means:
(a)
bank of America; and
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(b)
any successor, universal or particular, any transferee or assignee of Bank of America, as Agent Bank;
“Agreement” means this agreement.
“Business Day” means “Business Day” indicated in Financing Agreement.
“Cash Management Agreement” means each “Cash Management Agreement” (as defined in the Credit Agreement)
entered by the Pledgor, on one side, and by Bank of America or one of its affiliated company, on the other side.
“Company” means Fidia Advanced Biopolymers S.r.l., with legal office in Via Ponte della Fabbrica 3/B, Albano Terme
(Padova), registered in the Companies Register of Padova, with fiscal code and Rea n. 01510440744.
“Counterparties Cash Management” means:
(a)
(b)
Bank of America or one of its Affiliate, as parties of a Cash Management Agreement; and
any successor, universal or particular, any transferee or assignee of Bank of America o one of its Affiliate in the
Cash Management Agreement.
“Credit Rights” means the credit rights of the Guaranteed Creditors with respect to the Guaranteed Obligations.
“Decisions” means:
(a)
(b)
before the occurance of an Event of Default, any decision of the Company’s quotaholders (adopted in the meeting,
by a written consultation, on the basis of the written consent or in any other way) related to any amendment of the
corporate by-laws, included, but not limited to, any deliberation having subject the increase or reduction of the
corporate capital, merger demerger, transformation or winding up; or
after the occurance of an Event of Default and until the Event of Default is terminated, any other decision of the
Company’s quotaholders (adopted in the meeting, by a written consultation, on the basis of the consent written or in
any other way).
“Dividends” means:
(a)
(b)
the dividends paid or to be paid with respect to the Quota;
any other distribution (in money or in kind) or any other amount paid or to be paid with respect to the Quota
(included each amount paid or to be paid afterward the distribution of the corporate reserves, however denominated,
or the liquidation of the Company);
(c)
each dividend, distribution or any other amount paid or to be paid with respect to Related Securities Rights.
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“Event of Default” means “Events of Default” as indicated in Financing Agreement.
“Financial Banks” means:
(a)
(b)
Bank of America; and
any successor, universal or particular, any transferee or assignee of Bank of America, as “Lender”, or lending,
pursuant to the Financing Agreement.
“Financial Documents” means “Loan Documents” as indicated in Financing Agreement.
“Financing” has the same meaning indicated in Whereas A.
“Financing Agreement” has the same meaning indicated in Whereas (A).
“Guaranteed Creditors” means the Agent Bank and the Financial Banks. Subsequently to the executions indicated in
article 3.3 (Hedge Agreements and Cash Management Agreements), the Hedging Counterparties and the Cash Management
Counterparties will be Guaranteed Creditors pursuant to this Agreement.
“Guaranteed Obligations” means:
(a)
(b)
(c)
all the pecuniary obligations of the Pledgor, actual or potential, toward to the Agent Bank and Financial Banks
indicated in the Financing Agreement (included the “ Notes ”, as defined in the Financing Agreement), included, in
particular, the obligations of reimburse of capital, the payment obligations with respect to the rates (included the
interest on delayed payment) accrued on the financing indicated in Financing Agreement and the obligations related
to payment of awards, commissions, indemnities, compensations, expenses, tax and other costs resulting from the
Financing Agreement (included the costs related to the renewal, the extension, the amendment and the refinancing
as well as the costs and the legal expenses supported by the Agent Bank and the Financial Banks with respect to
Financing Agreement);
subsequently to the executions indicated in article 3.3 (Hedge Agreement and Cash Management Agreement), all the
pecuniary obligations of the Pledgor, actual and potential, towards to the Hedging Counterparties pursuant to
the Hedging Agreements;
subsequently to the executions indicated in article 3.3 (Hedge Agreement and Cash Management Agreement), all the
pecuniary obligations of the Pledgor, actual and potential, towards to the Cash Management Counterparties pursuant
to the Cash Management Agreements.
It being understood that if one of such obligations is declared invalid or ineffective, or if the Pledge couldn’t or couldn’t
more guarantee, for any reasons, some of such obligations, the validity and the effectiveness of the Pledge will not be
prejudiced and will continue to guarantee the exact execution of all other obligations as here defined.
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“Hedging Agreement” means each hedge agreement (as defined in the Financing Agreement) entered by the Pledgor and
by Bank of America or one of its affiliated company.
“Hedging Counterparties” means:
(a)
(b)
Bank of America or one of its Affiliate, as parties of an Hedge Agreement; and
any successor, universal or particular, transferee or assignee of Bank of America or one of its Affiliate in Hedge
Agreement.
“Increase of the Quota” has the meaning indicated in point (b) of article 2 (Guarantee).
“Object of Pledge” means, jointly, the Quota and the Related Rights.
“Parties” mean the parties of this Agreement.
“Pledge” means the guarantee of article 2 (Guarantee).
“Pledgor” means Anika Therapeutics, INC., a company duly incorporated under the law of Massachusetts, with legal office
in Wiggins Avenue 32, Bedford, Massachusetts (U.S.A.), Italian fiscal n. code 97542640152].
“Related Securities Rights” means any quota of participation or any other security rights or rights attributed or attributable
to the Pledgor in exchange for or in relation to the Quota or part of the Quota (including, but not limited to, those obtained as
a consequence of merger or demerger or transformation of the Company).
“Quota” means a quota equal to the 65% of the Company’s corporate capital, the value of which is equal to Euro
1.201.794.8. It being understood that the Quota shall continue to represent the 65% of the Company’s corporate capital, such
value will be increased or reduced with respect to the amendment of Company’s corporate capital.
“Related Rights” means:
(a)
(b)
(c)
each Dividend;
each option right related to the Quota or to Related Securities Rights; and
each quota or any other security right or attributed or attributable rights to the Pledgor, in change of or in relation
with each Related Securities Right.
“Transfer” means “Assignment and Assumption” as indicated in the Financing Agreement.
“Voting Rights” means the rights to vote with respect to the Quota.
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1.2
Interpretations
The WHEREAS clauses to this Agreement constitute an integral and essential part of the same.
1.3
The Agent Bank
The Pledgor acknowledges that the Guaranteed Creditors assigned a task to the Agent Bank in order to the Agent Bank, on
behalf and on the name of Guaranteed Creditors, can:
(a)
(b)
exercise the rights, the powers and the faculties attributed to Guaranteed Creditors pursuant to this Agreement and,
however, with respect to the Pledge;
enter any amendment agreement of this Agreement, any further pledge agreement which must be entered pursuant to
the dispositions of this Agreement and possible amendments or integrations as well as any deed or document which
will be necessary to the cancellation of the Pledge, included an approval agreement for the cancellation of the
agreement; and
(c)
enforce the Pledge, it being understood that the Agent Bank will have the possibility to delegate one of the
Guaranteed Creditors.
2.
(a)
(b)
GUARANTEE
With this Agreement the Pledgor irrevocably establishes a pledge in favor of the Guaranteed Creditors to guarantee the exact
and punctual execution of the Guaranteed Obligations (the “ Pledge ”).
In case of any event, included, but not limited to, any capital increase which has as effect the increase the Company’s
corporate capital (the “ Increase of the Quota ”), the Pledgor undertakes to sign a deed of establishment or a deed of
acknowledgment which will have the similar contents of this Agreement or any other document, and the Pledgor undertakes
to do all it is necessary to establish or acknowledge the existence of the pledge rights on the Quota, as increased, in favor of
the Guaranteed Creditors.
3.
PERFECTION OF THE PLEDGE
3.1
Filing of Agreement and annotation of Pledge
(a)
(b)
Subsequently to the stipule of this Agreement, the Pledgor shall file a notarial certified copy in Companies Register of
Padova, pursuant to article 2470 of civil code.
Should the Company keep the quotaholder’s book, the Pledgor, within five Business Days starting from the confirmation of
the filing above, shall:
(i)
cause the Pledge to be noted in the quotaholder’s book; and
(ii)
deliver to the Agent Bank a certified copy of the quotaholder’s book pages reporting the Pledge annotation.
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(c)
The annotation in the quotaholder’s book of the Company, where applicable, will be effected using the formula indicated in
Attachment 2 (Text of the annotation in quotaholder’s book of the Company).
3.2
Company’s Letter
The Pledgor causes the Company to, within 3 (three) Business Day after the stipule of this Agreement, will send a letter
having the content indicated in Attachment 3 (Company’s Letter).
3.3
Hedging Agreement e Cash Management Agreements
(a)
Promptly, and, in any case within 5 (five) Business Day starting from the signing of any Hedging Agreement or Cash
Management Agreement, the Pledgor and the counterparty of such Hedge Agreement or Cash Management Agreement shall
enter in front of a Public Notary an amendment agreement which confirms the validity and the effectiveness of the Pledge
also with respect to the pecuniary obligations of the Pledgor, actual or potential, resulting from such Hedging Agreement or
Cash Management Agreement. In the amendment agreement of this paragraph, the previsions indicated in article 3.1 will be
applied (Filing of Pledge Agreement and Pledge annotation).
(b)
The dispositions of this Agreement will be applied for all the additional agreement entered pursuant to this article 3.3.
4.
VOTING RIGHTS; DIVIDENDS
4.1
Voting Rights and Administrative Rights
Without prejudice of article 4.2 (Voting Rights and Administrative Rights exercise of the Guaranteed Creditors), the Voting
Rights and the Administrative Rights shall remain to the Pledgor, it is being understood that such rights shall not be
exercised by the Pledgor in order to cause a Event of Default or in order to invalidate the Pledge or the execution of it.
4.2
Voting Rights and of the Administrative Rights Exercise by the Guaranteed Creditors
(a)
(b)
Should an Event of Default occur, the Guaranteed Creditors have the right to exercise the Voting Rights and the
Administrative Rights through the Agent Bank.
With respect to paragraph (a) above, the Agent Bank will send a notice to the Pledgor and to the Company giving them
information of the occurance of the Event of Default and of the intention to exercise the Voting Rights and the
Administrative Rights and, once received such notice the Pledgor will not exercise the Voting Rights and the Administrative
Rights; and
(i)
until the Event of Default is terminated, the Guaranteed Creditors will be the sole having the right to exercise the
Voting Rights and the Administrative Rights through the Agent Bank.
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4.3
Dividends
Without prejudice of article 4.4 (Dividends to Guaranteed Creditors), the Pledgor has the right to collect the Dividends.
4.4
Dividends to Guaranteed Credotors
(a)
(b)
5.
(a)
(b)
(c)
6.
(a)
If the Agent Bank sent the notice to the Pledgor giving it information related to the occurance of the Event of Default, the
Dividends will be paid to Agent Bank on behalf the Guaranteed Creditors.
The Agent Bank will assign the Dividends received pursuant to paragraph (a) with the scope to satisfy the Guaranteed
Obligations as indicated in the Financial Documents.
ENFORCEMENT OF PLEDGE
Upon occurance of an Event of Default and in any subsequent moment, the Guaranteed Creditors, through the Agent Bank,
without prejudice to any other right or action provided for the law, pursuant to the article 2798 of civil code, will have the
rights to sell the Object of Pledge or part of it, after expiration of a 5 day period starting from the receipt from Pledgor of the
intimation pursuant to article 2797, paragraph 1, of civil code.
The Pledgor and the Guaranteed Creditors agree that, pursuant to article 2797, last paragraph, of civil code, the Guaranteed
Creditors will have the possibility to sell the Object of Pledge entirely or part of it, also in more instalments, with or without
an auction through an authorized intermediary or a judicial officer or any other authorized person.
The Agent Bank will assign the proceeds resulting from the Pledge’s enforcement in order to satisfy the Guaranteed
Obligation, pursuant to indicated in Financial Documents.
REPRESENTATION AND WARRANTIES
Without any prejudice and in addition to the representations and warranties of the Financing Agreement and of the Financial
Documents, the Pledgor declares and guarantees that:
(i)
(ii)
(iii)
the Pledgor is the sole holder of the Quota, which is free from security guarantees and third party rights, with
exclusion of the Pledge;
the Quota represents altogether the 65% of Company’s corporate capital and it was effectively issued, signed and
free; the Company’s corporate capital equal to Euro 1.848.915 at this date is entirely filed;
the Quota is not subject to attachment, or other enforceability action from third party or other measures which could
limit the ability to dispose of the Quota or which could prejudice the execution of Pledge;
(iv)
there are not circumstances which could legitimate the withdraw from the Company.
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(b)
The representations of this article will be considered reiterated by the Pledgor to each date indicated in the article 5 (“
Representations and Warranties ”) of the Financing Agreement.
7.
COVENANTS
Until the date of Pledge’s release, the Pledgor undertakes:
(a)
to sign (and cause the Company to sign) and deliver to the Agent Bank the documents and the deeds and carry out any action
(and cause the Company to carry out any action) which the Agent Bank can request in order to:
(i)
(ii)
(iii)
establish and perfect a valid and effective pledge in favor of the Guaranteed Creditors;
keep the validity and the effectiveness of the Pledge and the rights and claims of the Guaranteed Creditors pursuant
to this Agreement;
allow to the Agent Bank and Guaranteed Creditors the exercise of the rights and the claims attributed pursuant to
this Agreement; and
(iv)
perfect the extention of the Pledge on the Related Rights;
to transfer or dispose of the Quota, entirely or in part;
except with prior approval of the Agent Bank, not to exercise the rights of article 2795, paragraph 3 and 4, of civil code;
not to create or allow the creation of guarantees or others third’s right on the Object of Pledge;
not to carry out claims which can prejudice, directly or indirectly, the validity, the effectiveness and the enforcement of the
Pledge or the rights of Guaranteed Creditors pursuant to this Agreement;
if entitled to exercise the Voting Rights, not to express its vote or consent on Decisions regarding matters which are not
communicated to the Agent Bank 3 day before the date in which such Decision has been taken, except written approval from
the Agent Bank;
to send to the Agent Bank a copy of the Company’s meeting minute or the documents from which result the quotaholders
consent related to each Decision within 10 Business Day starting from the date in which the Decision has been taken;
in case of increase of the Company’s corporate capital, to sign such increase of Company’s corporate capital in proportion to
the participation held in the Company; and
(b)
(c)
(d)
(e)
(f)
(g)
(h)
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(i)
8.
(a)
(b)
(c)
to cooperate with the Guaranteed Creditors in order to protect the rights of the Guaranteed Creditors on the Object of the
Pledge against any claim from third party.
MAINTENANCE OF THE PLEDGE
Pursuant to article 1232 of civil code, the Parties agree that the Pledge will remain valid and effective in case of objective
novation (change) of one or more of the Guaranteed Obligations.
Pursuant to 1275 of civil code, the Pledgor expressive and irrevocably gives its consent to keep the Pledge in case of
subjective novation (change of creditor) of one or more of the Guaranteed Obligations.
The Parties expressive recognize that, with reference to the Pledge, a transfer of whole or part of the Financing Agreement
(also included through Transfer) or Hedging Agreement or Cash Management Agreement and a transfer of whole or part of
one or more of the Credit Rights shall be qualified as a transfer of agreement or transfer of credit and, therefore, will not
cause a objective novation of the Guaranteed Obligation nor they will have a novation effect upon the Financing Agreement
or upon the Hedging Agreement or Cash Management Agreements or on the Pledge.
(d)
Without prejudice the provisions of paragraph (a), (b) e (c) above, in case of:
(i)
objective novation of one or more of the Guaranteed Obligations;
(ii)
subjective novation of one or more of the Guaranteed Obligations;
(iii)
transfer of whole or part of the Financing Agreement (included through Transfer), of the Hedging Agreements or of
Cash Management Agreement;
(iv)
transfer, entirely o in part, of one or more of the Credit Rights; or
(v)
amendment of some disposition of the Financing Agreement, Hedging Agreements and Cash Management
Agreements or Guaranteed Obligations,
the Pledgor, upon request of Agent Bank, in compliance with term and timing indicated from the Agent Bank, undertakes to
sign (and cause the Company to sign) any documents or deed and undertakes to carry out (and cause the Company to carry
out) any action necessary or deemed reasonable appropriate by the Agent Bank to keep the validity and the effectiveness of
the Pledge.
Pursuant to article 1407, paragraph 1 of civil code, the Pledgor gives its express and irrevocable consent to transfer from one
of the Guaranteed Creditors whole or part of the own position of pledge pursuant to this Agreement in favor of any successor,
transferee or assignee of such Guaranteed Creditor.
The Pledgor gives its consent so that any communication from the Agent Bank having as subject a Transfer will be deemed a
notice of transfer of this Agreement pursuant to paragraph (e) above and article 1407, paragraph 1, of civil code.
(e)
(f)
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(g)
9.
(a)
(b)
The Financial Banks accept that the receipt by the Agent Bank of the communication pursuant to paragraph (b)(iv) of article
11.06 (“ Successors and Assigns ”) of Financing Agreement shall be deemed as an appropriate notice of transfer pursuant to
paragraph (e) above and article 1407, paragraph 1, of civil code.
CANCELLATION OF PLEDGE
At the Date in which all the Guaranteed Obligations will be entirely fulfilled and the “Commitment” (as defined in Financing
Agreement) will terminate, the Pledge will be released from the Agent Bank, upon request by and with expenses to be borne
by the Pledgor.
The Pledgor expressive acknowledges that, before the request indicated in point (a) above, the Pledge will remain valid and
effective despite all the Obligations may have been entirely and unconditionally fulfilled.
10.
VARIOUS
Any amendment to this Agreement or waiver of a right resulting from this Agreement shall be effective only if it is agreed in
writing between the Parties.
The rights, the actions, and the remedies provided for this Agreement in favor of the Guaranteed Creditors are added and they
do not exclude further rights, claims, and remedies owned or legitimated pursuant to an agreement by the Guaranteed
Creditors (included, for instance, those of the Financial Documents) or pursuant to the law.
The Pledge established with this Agreement joins and does not prejudice in any way the further guarantees owned by the
Guaranteed Creditors for the Guaranteed Obligations.
The invalidity or the ineffectiveness of some of the dispositions of this Agreement will not prejudice the validity or the
effectiveness of the other disposition of this Agreement.
The Agent Bank and the Guaranteed Creditors will be not liable, except in case of fraud or gross negligence, for the damages
caused to the Company or to the Pledgor as a consequence of the exercise or missed exercise of the rights, claims or remedies
provided for this Agreement.
Taxies, duties and the expenses of this Agreement and the formalities and of the next cancellations will be borne from the
Pledgor. In light of above and in compliance with for article 11.04 (“ Expenses; Indemnity; Damage Waiver ”) of Financing
Agreement, the Pledgor undertakes to reimburse, simultaneously with the signing of this Agreement, fees and expenses of the
legal council to the Agent bank for which request is done before the signing of this Agreement.
(a)
(b)
(c)
(d)
(e)
(f)
(g)
11.
APPLICABLE LAW AND JURISDICTION
(a)
(b)
This Agreement shall be governed by the laws of the Republic of Italy.
It is being understood the exclusive competences provided for law, the Court of Milan shall have exclusive competence to
decide any dispute deriving from this Agreement.
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ATTACHEMENT 1
Main terms of the Financing
Financing
Amount:
US$ 16.000.000
Finance company:
Anika Therapeutics, INC.
Interest Rate:
the yearly interest rate on the financing is equal, optionally of financed company (i) to the
Eurodollar Rate (as defined in the Financing Agreement) related to each Interest Period (as
defined in the Financing Agreement) increased of the 0,75% or (ii) equal to the Base Rate (as
defined in the Financing Agreement)
Expiration:
December 31, 2015
Reimbursement Modalities:
In 28 quarterly instalments, each one shall be paid in corrispondence to each Principal Payment
Date (as defined in the Financing Agreement), to be calculated on the basis of a ten-year
amortization period and in order that the last instalment is equal to the amount of the financing
still to be paid at that date.
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ATTACHEMENT 2
Text of the annotation on the quotaholder’s book
It is acknowledged that, pursuant to the pledge’s deed on the quota entered on March 12, 2010 between Anika Therapeutics, INC., as
Pledgor, Bank of America, N.A., as Guaranteed Creditor, and the Company (copy of which is filed in the Company’s books), a quota
representing the 65% of corporate capital of the Company, equal to Euro 1.201.794,8, owned by Anika Therapeutics, INC., is object
of pledge in favor of:
Bank of America, N.A., national bank association incorporated under the law of United States of America, with legal office
in Norton Tryon Street 100, Charlotte, North Carolina (U.S.A.),
in order to guarantee the obligation of Anika Therapeutics, INC., resulting from a financing agreement for a maximum amount of
equal to US Dollars 16.000.000 entered on January 3, 2008 e in order to guarantee the other Guaranteed Obligations of the mentioned
pledge’s deed. The voting rights and the dividends are regulated by article 4 of the mentioned deed of pledge.
[Place and Date]
[Sign of a Director]
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ATTACHMENT 3
Company’s Letter
[On headed paper of the Company]
To: Bank of America, N.A.
Pledge Agreement on Quotas
Mr. [•],
[Place and Date]
With reference to the deed of pledge (the “Deed of Pledge”) entered in Boston, Massachussets on March 12, 2010 between Anika
Therapeutics, INC. (il “ Pledgor ”) and Bank of America, N.A., as Agent Bank and Financial Banks (i “ Guaranteed Creditors ”),
pursuant to which the Pledgor granted in favor the Guaranteed Creditors a pledge on a quota of the corporate capital of Fidia
Advanced Biopolymers S.r.l. (the “ Company ”), representing the 65% of corporate capital of the Company, equal to Euro
1.201.794,8. It is being understood that the quota granted as pledge will continue to represent in any time the 65% of Company’s
corporate capital, such value, will be increased or reduced pursuant to the amendment of the corporate capital of the Company.
With this letter we confirm the receipt of the copy of the deed of pledge and:
1.
2.
3.
4.
we take note of the pledge resulting from the deed of pledge and we take note of obligations hired by the Pledgor pursuant to
the deed of Pledge;
we take note of the dispositions of article 4.2 (Voting Rights and Administrative Vote exercise by the Guaranteed Creditors)
and article 4.4 (Dividends in favor of Guaranteed Creditors) of the Deed of Pledge and, therefore, after the receipt of a notice
from the Agent Bank having as subject the a Event of default (as defined in the Deed of Pledge) is occured (and until the
receipt of a notice from the Agent Bank having as subject the end of the Event of default), we will consider the Guaranteed
Creditor validly legitimated to (i) exercise the voting rights and the administrative rights related to the quotas of participation
given as pledge and e (ii) receive the relative dividends;
we take note that the pledge of the Deed of Pledge will can extent with respect to any increase of the Quota and with respect
to the Related Rights (as both defined in the Deed of Pledge) and will remain valid and effective in case of subjective
novation or objective novation of the Guaranteed Obligations (as defined in the Deed of Pledge);
we take note that the Agent Bank and the Guaranteed Creditors will not be liable, except in case of fraud or gross negligence,
for the damages caused to the Company in case of exercise or missed exercise of the rights, claims or remedies which the
Agent Bank and the Guaranteed Creditors are legitimated to use pursuant ti the Deed of Pledge.
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_________________________
Fidia Advanced Biopolymers S.r.l.
Represented by: [●]
As: [●]
To acknowledge and acceptance
_________________________
Bank of America, N.A.
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SIGNING PARTIES
ANIKA THERAPEUTICS, INC.
/s/ Charles H. Sherwood___________________
Name: Charles H. Sherwood
Title: President and Chief Executive Officer
BANK OF AMERICA, N.A., as Agent Bank and Financier Banks
/s/ Jean S. Manthorne_______________________
Name: Jean S. Manthorne
Title: Senior Vice President
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SUBSIDIARIES OF ANIKA THERAPEUTICS, INC.
Anika Securities Corp.
Bedford, Massachusetts
Fidia Advanced Biopolymers S.r.l.
Abano Terme, Italy
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EXHIBIT 21.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-63882, 333-
06275, 333-66831, 333-79047, 333-58264, 333-110326 and 333-160102) of Anika Therapeutics, Inc. of our report dated March 16,
2010 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this
Form 10-K.
EXHIBIT 23.1
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 16, 2010
76
I, Charles H. Sherwood, certify that:
CERTIFICATION
EXHIBIT 31.1
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K for the year ended December 31, 2009 of Anika Therapeutics, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: March 16, 2010
/s/ CHARLES H. SHERWOOD, PH.D.
Charles H. Sherwood, Ph.D.
Chief Executive Officer
Principal Executive Officer
77
I, Kevin W. Quinlan, certify that:
CERTIFICATION
EXHIBIT 31.2
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K for the year ended December 31, 2009 of Anika Therapeutics, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: March 16, 2010
/s/ KEVIN W. QUINLAN
Kevin W. Quinlan
Chief Financial Officer
Principal Financial Officer
78
Section 906 Certification
EXHIBIT 32.1
The undersigned officers of Anika Therapeutics, Inc. (the “Company”) hereby certify in their respective capacities that, to
their knowledge, the Company’s Annual Report on Form 10-K to which this certification is attached (the “Report”), as filed with the
Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable,
of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: March 16, 2010
/s/ CHARLES H. SHERWOOD, PH.D.
Charles H. Sherwood, Ph.D.
Chief Executive Officer
/s/ KEVIN W. QUINLAN
Kevin W. Quinlan
Chief Financial Officer
79