Anika Therapeutics, Inc.
2013 Letter to Shareholders
Dear Shareholders:
Anika reported record total revenue and its tenth consecutive profitable year in 2012. Consolidated total revenue was up
10% year-over-year. Net income rose to $0.82 from $0.62 per diluted share last year, and Anika generated $10.5 million in
cash from operations.
Our top-line performance continues to be fueled by growth in Orthobiologics, reflecting strong demand for our flagship
product Orthovisc®. Driven by our partner Depuy Mitek’s marketing activities, U.S. Orthovisc® revenue was up nearly 42%
for the year, and Orthovisc® closed 2012 as the leading product in the U.S. multi-injection segment and the number two U.S.
brand in viscosupplementation overall.
Anika’s operating income increased 41% this year to $19.7 million, from $14.0 million in 2011. Our increased profitability
was primarily catalyzed by strong sales growth, supported by improvements in our operating efficiency due mainly to our
June 2012 facilities consolidation in Bedford, Massachusetts. Consolidating our manufacturing ended the redundant costs
associated with operating dual facilities in Bedford and Woburn, Massachusetts. In addition, we have been able to improve
our manufacturing efficiency and productivity in Bedford as our production volume has ramped up. We expect to generate
additional leverage from our new capabilities in Bedford in 2013 as we begin manufacturing of Anika S.r.l.’s gel-based
products in that facility. The effect of this consolidation will be fully realized in 2013.
Completing the transfer of gel-based production from Italy to our Bedford facility in 2012 was an important planned
achievement for financial and supply chain control purposes. We look forward to reporting improved product gross margins
for these products in 2013 and future years.
Transferring our gel-based product manufacturing was also an important part of our plan to improve profitability at Anika
S.r.l. Following this transfer, during the fourth quarter of 2012, we made the decision to restructure Srl’s operations. This
restructuring included closing Srl’s unprofitable tissue engineered product line, as well as terminating the development of
the Hyalograft C autograft product. These restructuring activities were targeted to strengthen our Italian business and
refocus our R&D programs on higher return development projects. Chief among these is our regenerative product
HyalofastTM for the repair of chondral and osteochondral, or cartilage lesions. We also are working to expand sales of S.r.l.’s
Hyalobarrier®, a post-surgical anti-adhesion product for the use in abdominal and pelvic procedures, as well as
Hyalomatrix®, a biodegradable dermal substitute for the treatment of highly complex wounds, such as traumatic, chronic
wounds and severe burns.
We made progress during 2012 in advancing each of these products. For HyalofastTM, we achieved approval in South Korea
for its use in conjunction with bone marrow concentrate and commenced sales through our partner. For Hyalobarrier® we
worked with our Asia distributors on line-extension products to expand into new surgical procedures. For Hyalomatrix®, we
worked with Srl’s former distributor in South America to add to the number of marketing approvals for the product in that
region.
Addressing our product pipeline strategy, in the near term, our goal is to drive increased revenue from a number of line
extension products. Looking further ahead, our goal is to fully leverage the vast Srl technology base to develop new products
and significantly fuel revenue growth.
Our 2012 product pipeline activity focused primarily on MonoviscTM and CingalTM, in addition to our cartilage regeneration
technology. The business case for MonoviscTM remains positive and the medical need is apparent. Our partner Mitek is
ready and eager for a U.S. launch. The missing component is U.S. regulatory approval.
Late in 2012 we received a response from the FDA in which the agency upheld its non-approvable decision on our
MonoviscTM PMA application. We had discussions with the FDA in January 2013 to determine our next steps, which were
very encouraging. We have followed up on those discussions by submitting a new PMA amendment, which analyzed
existing data not previously presented. The FDA has commenced its review of that amendment. The agency is also willing
to sit down with us and discuss how we might go about collecting and submitting some additional data in support of the
PMA, should the amendment under review be judged insufficient for approval. There is still a great deal of uncertainty and
more work to be done on our MonoviscTM PMA, but the FDA is clearly leaving the door open for us.
We also made good progress in 2012 on CingalTM – a single-injection viscosupplementation treatment for osteoarthritis that
includes a therapeutic agent. CingalTM will be considered a medical device in Europe and therefore qualify for CE Marking,
a shorter approval pathway than what we expect in the United States. In order to receive a CE Mark we need to provide
clinical data, and by the end of the fourth quarter we had completed a significant portion of the preparations necessary to
start a CingalTM clinical trial in the first half of 2013.
We are optimistic about the prospects for CingalTM in the domestic market as well. We expect our European clinical trial to
provide the data we need to support FDA approval. During the fourth quarter, we were also successful in obtaining a U.S.
patent for CingalTM.
Regarding our longer-term pipeline, we previously submitted 510(k) applications for three Srl products. These were
submitted at a time of significant change and uncertainty within the FDA regarding the 510(k) approval process. We have
selected two of these products to push forward and have defined the pathway to complete the approvals. The remaining
work involves generating additional data for the 510(k) applications. We expect submissions with new data toward the end
of this year with approval in the beginning of 2014.
In summary, 2012 was a successful year for Anika, and we are well-positioned for further success in 2013. Demand for
Orthovisc® is growing, we have streamlined our operations and improved our manufacturing capabilities, and we are excited
about our product pipeline.
We expect to report solid growth in our top and bottom lines in 2013. Our product and profit margins will reflect the net
impact of the margin improvements we have previously discussed. We also expect a significant year-over-year increase in
R&D expenses as a result of our clinical development plans.
Anika is evolving from an HA biomaterials company into a products company focused on promising therapeutic solutions,
and a company dedicated to capturing more of the value we have created by enhancing our capabilities in
commercialization. We look forward to reporting our progress as the rest of 2013 unfolds. Thank you for your continued
trust and support.
Sincerely,
Charles H. Sherwood, Ph.D.
President and Chief Executive Officer
April 19, 2013
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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
For the fiscal year ended December 31, 2012
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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).
YesNo
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 check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The aggregate market value of voting and non-voting equity held by non-affiliates of the Registrant as of June 30, 2012, the last day of the Registrant’s most recently
completed second fiscal quarter, was $187,079,886 based on the close price per share of Common Stock of $13.59 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 8, 2013, there were issued and outstanding 13,919,215shares of Common Stock, par value $.01 per share.
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, 2012. Portions of
such proxy statement are incorporated by reference into Part III of this Annual Report on Form 10-K.
Documents Incorporated By Reference
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ANIKA THERAPEUTICS, INC.
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
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
Page
7
15
26
26
26
27
28
30
31
47
48
73
72
72
73
73
73
73
73
73
78
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
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FORM 10-K
ANIKA THERAPEUTICS, INC.
For Fiscal Year Ended December 31, 2012
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:
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 line extensions and new products;
Our ability to achieve and/or maintain compliance with laws and regulations;
The timing of and/or receipt of Food and Drug Administration (“FDA”), foreign or other regulatory approvals,
clearances, 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, license 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, research and development activities and collaboration
activities;
Our and Bausch & Lomb’s performance under the non-exclusive, three-year contract for the supply of AMVISC® and
AMVISC® Plus ophthalmic viscoelastic products, and our expectations regarding revenue from ophthalmic products;
Our ability to commercialize AnikaVisc and AnikaVisc Plus and our expectations regarding such commercialization
and the potential profits generated thereby;
Our expectations regarding our joint health products, including expectations regarding new products, expanded uses of
existing products, new distribution partnerships and revenue growth;
Our intention to increase our 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 development, clinical trials, regulatory
approvals and commercial launches;
Our expectations regarding HYVISC sales;
Our ability to identify a new distribution partner for HYDRELLE™ in the United States and the impact this may have
on future sales of this product;
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Our ability to license our aesthetics product to new distribution partners outside of the United States; our ability, and the
ability of our distribution partners, to market our aesthetic dermatology product; and our expectations regarding the
TM product and the timing thereof;
distribution and sales of our ELEVESS
Our expectations regarding aesthetics product line extensions;
Our expectations regarding product gross margin;
Our expectations regarding obtaining FDA marketing approval for MONOVISCTM in the U.S., including our
submission of a PMA amendment in connection with recent discussions with the FDA following their rejection of our
appeal of the non-approvable letter;
Our expectations regarding the commencement of a clinical trial for CINGALTM and our ability to obtain regulatory
approvals for CINGAL;
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 and usage of such cash;
Our expectation for capital expenditures spending and future amounts of interest income and expense;
Our ability to continue streamlining operations and improving our manufacturing capabilities;
Possible negotiations or re-negotiations with existing or new distribution or collaboration partners;
Our ability to remain in compliance 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 abilities to successfully complete the restructuring of Anika Therapeutics S.r.l. (“Anika S.r.l.”), and manage its
operation from one with losses, into a company generating profits;
Our ability to obtain U.S. approval for the orthopedic and other products of Anika S.r.l., including the timing and
potential success of such efforts, and to expand sales of these products in the U.S., including the impact such efforts may
have on our revenue;
Our ability to satisfactorily resolve the dispute with Fidia Farmaceutici S.p.A regarding the Merogel Injectable product;
and
Our ability to successfully defend the Company against lawsuits and claims, including the Genzyme lawsuit, and
the uncertain financial impact such lawsuits and claims and related defense costs may have on the Company.
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 or elsewhere in this report. 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 Discussion 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, new information, future events or other changes.
- 6 -
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.
Anika Therapeutics, Inc.’s wholly-owned subsidiary, Anika Therapeutics S.r.l., has over 20 products currently
commercialized, primarily in Europe. These products are also all made from hyaluronic acid, 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.
In December 2012 the Company announced the closure of its tissue engineering facility in Abano Terme, Italy due to the
inability to meet strict regulatory standards established by the European Medicines Agency (“EMA”) for Advanced Therapy
Medicinal Products (“ATMP”) (cell based) products that are effective January 1, 2013. The Company adopted a restructuring
plan which includes a reduction-in-force of 12 people and provides for severance payments, disposals of related supplies,
equipment, and other assets. The plan is expected to be substantially completed within the first six months of 2013. It is intended
to improve the efficiency and financial performance of the Company's Italian operations by reducing costs and focusing on
products and technology with strong commercial potential. In connection with the plan, the Company recorded a fourth quarter
2012 pre-tax charge of approximately $2.5 million, including $1.3 million for severance, various expenses, and write-offs of
supplies and equipment, and a $1.2 million non-cash charge in connection with the abandonment of the Hyalograft C Autograft
in-process R&D project. The cost reductions in employee wages and rent expense related to this closure are expected to result in
annualized savings of approximately $0.5 million.
Anika’s proprietary technologies for modifying the HA molecule allow product properties to be tailored specifically to
therapeutic use. Our patented technology chemically modifies the HA to allow for longer residence time in the body. We offer
therapeutic products from these aforementioned technologies in the following areas:
Orthobiologics
Dermal
Advanced wound care
Aesthetic dermatology
Surgical
Anti-adhesion
Ear, nose and throat care (“ENT”)
Ophthalmic
Veterinary
Anika
Anika S.r.l.
X
X
X
X
X
X
X
X
X
The following sections provide more specific information on our products and related activities:
Orthobiologics
Our orthobiologics products consist of joint health and orthopedic products. These products are used in a wide range of
treatments from providing relief from the pain of osteoarthritis, to regenerating damaged tissue such as cartilage. 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.
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Our joint health products include ORTHOVISC®, ORTHOVISC® mini, and MONOVISCTM. ORTHOVISC is available
in the U.S., Canada, Europe 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 most recent joint health products which
became available in certain international markets during the second quarter of 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. 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-acetyl glucosamine. 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 (“Mitek”), under the terms of a ten-year licensing, distribution, supply and marketing agreement which was
entered into in December 2003 (the “JNJ Agreement”). In November 2012, the JNJ Agreement was extended for an additional 5
years under the existing terms. Outside of the U.S., we have a number of distribution relationships servicing international markets
including Canada, Europe, 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. ”
In addition to the three viscosupplementation products discussed above, we also offer several additional products used
in connection with orthopedic regenerative medicine. These products are based on the HYAFF technology and are currently
available in Europe and some other countries. They include Hyalofast®, a biodegradable support for human bone marrow
mesenchymal stem cells which is used in connection with soft tissue regeneration; 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. We also offer
Hyaloglide®, an ACP gel used in tenolysis treatment, but with potential for use in flexor tendon adhesion prevention, and in the
shoulder for adhesive capsulitis with additional clinical data. These products are commercialized through a network of
distributors, primarily in Europe, the Middle East, and Korea.
The Company is seeking U.S. approval of a number of these products, as we believe we have the opportunity to expand
sales of these products in the U.S. In this regard, we previously submitted 510(k) applications at a time of significant change and
uncertainty within the FDA regarding the 510(k) approval process. We have now selected two of these products, Hyalofast and
Hyalonect, and have defined a pathway to complete the approval. The remaining work involves generating additional data for the
510(k) applications. We expect submissions with the new data towards the end of this year. There can be no assurance that
clearance will be obtained for any of these Anika S.r.l. products. See also Item 1A. “Risk Factors.”
Dermal
Our dermal products consist of advanced wound care products based on the HYAFF technology, and aesthetic dermal
fillers based on the BCDI technology. Our HYAFF technology offers over five products for the 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 scaffolds used in connection with skin substitutes. Leading products include Hyalomatrix and Hyalofill, for
treatment of complex wounds such as burns and ulcers, and Hyalograft 3D and Laserskin scaffolds, for use in connection with the
regeneration of skin. The dermal products are commercialized through a network of distributors, primarily in Europe, the Middle
East, and Korea. Several of the products are also approved for sale in the United States including Hyalomatrix and Hyalofill. In
2012, the Company entered into a distribution agreement for sales of advanced wound care products in nine South American
countries, including Argentina, Brazil, Mexico, Chile, and others.
Our aesthetic dermatology business is designed as 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., Korea and certain countries in South America. Internationally, this product is marketed under the ELEVESS name. In the
U.S., the trade name is HYDRELLE, although the product is not currently marketed in the U.S.
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Surgical
Our surgical business consists of products used to prevent surgical adhesions, and to treat ENT disorders. Hyalobarrier
is a clinically proven post-operative adhesion barrier for use in the abdomino-pelvic area. The product is currently
commercialized by Anika S.r.l. in Europe, the Middle East and certain Asian countries through a distribution network, but is not
approved in the U.S. INCERT, approved for sale in Europe, Turkey, and Malaysia, is a chemically modified, cross-linked HA
product, for the prevention of spinal post-surgical adhesions. 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 Proprietary Rights.”
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.
Anika S.r.l. offers several products used in connection with the treatment of ENT disorders. The lead products are
Merogel, a woven fleece nasal packing, and Merogel Injectable, a thick, viscous hydrogel composed of cross-linked hyaluronic
acid - a biocompatible agent that creates a moist wound-healing environment. Anika S.r.l. has partnered with Medtronic for
worldwide distribution of these products.
Ophthalmic
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
, Optivisc™ (formerly ShellGel™),
AnikaVisc™, and AnikaVisc™ Plus. 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.
TM
Anika previously manufactured the AMVISC product line for Bausch & Lomb (“B&L”) under the terms of an exclusive
supply agreement that expired on December 31, 2010 (the “2004 B&L Agreement”) for viscoelastic products used in ophthalmic
surgery. Effective January 1, 2011, we entered into a non-exclusive, two year contract with B&L intended to transition the
manufacture of AMVISC and AMVISC Plus to an alternative, low-cost supplier formerly affiliated with B&L, and continued to
supply B&L with these products during 2011. Effective January 1, 2012, the parties agreed to a new three year contract for Anika
to continue to supply these products to B&L as a second supplier with committed annual volumes for 2012, with further
reductions in 2013 and 2014.
B&L accounted for 11% of product revenue for the year ended 2012, and product revenue is expected to be significantly
lower in 2013 under the new contract. Operating margins under the 2004 B&L Agreement were low and will remain at a similar
level under the new contract. See also Item 1A. “Risk Factors.”
Veterinary
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 13 to our Consolidated Financial Statements, “Revenue by Product Group, by Significant Customer and by
Geographic Region; Geographic Information” for a discussion regarding our segments and geographic sales.
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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 or clearances at all relevant stages of product development, and process development and
scale-up manufacturing activities relative to our existing and new products. Our development focus includes products for tissue
protection, healing and repair. For the years ended December 31, 2012, 2011 and 2010, these expenses were $5.4 million,
$6.2 million, and $6.9 million, respectively. We anticipate that our research and development efforts, including clinical trials,
will increase significantly in the near future.
Two key products under development or regulatory review include MONOVISC for U.S. marketing approval and
CINGAL. 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 cross-linked
HA-technology. We received Conformité Européenne (“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
the final module of our MONOVISC PMA containing the clinical data in December 2009. We were informed that there were
deficiencies in our submissions through a deficiency/non-approvable letter. In December 2012, the FDA upheld its
non-approvable decision following our appeal. Subsequent to that decision, in January 2013, the Company submitted a new PMA
amendment which is under review by the FDA. The Company continues to discuss pathways for MONOVISC approval with the
FDA.
Our second single-injection osteoarthritis product under development is CINGAL, which is based on our hyaluronic
acid material with an added active therapeutic molecule designed to provide broad pain relief for a longer period of time. We have
completed the formulation and biocompatibility studies of the product. We expect to commence a clinical trial during the first
half of 2013 to obtain the needed clinical data for a CE Mark submission and approval.
The technologies obtained through our acquisition of Anika S.r.l. have enhanced our research and development
capabilities, and our pipeline of candidate products. Anika S.r.l. has research and development programs for new products
including Hyalofast, an innovative, biodegradable support for human bone marrow mesenchymal stem cells used in connection
with soft tissue regeneration; Hyalospine, an adhesion prevention gel for use after spinal surgery; Hyalobone, a bone tissue filler;
and Hemostatic Patch, a resorbable hemostatic pad for bleeding control and hemostasis promotion in various surgical procedures.
Our research and development efforts may 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
have expiration dates through 2028. 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 owns
patents covering composition of matter and certain manufacturing processes. Anika S.r.l.’s issued patents have expiration dates
through 2028. The Anika S.r.l. patent estate is extensive and partly intertwined with its former parent company, Fidia
Farmaceutici S.p.A, through a cross-licensing agreement which provides both companies with access to each other’s 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. ”
In 2012 we were granted 4 new patents in the U.S. and in Europe. They include a CINGAL patent for the U.S., a
Hyalospine patent in Europe, and 2 additional U.S. patents related to our aesthetic products.
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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.”
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 these products in accordance with the terms of the JNJ
Agreement.
On December 21, 2011, the Company entered into a license, supply and distribution agreement (the “Mitek
MONOVISC Agreement”) with DePuy Mitek, Inc. for an exclusive, multi-year license of the Company’s MONOVISC product,
a highly purified, high molecular weight form of hyaluronic acid for treating pain in patients suffering from osteoarthritis of the
knee. In connection with the execution of the Mitek MONOVISC Agreement, the Company received an initial payment of $2.5
million. The Company will also be entitled to receive additional payments from Mitek following the mutual decision to launch
the product, related to future regulatory, clinical, and sales milestones, as well as receive royalties based on the net sales of
MONOVISC generated by Mitek. The Mitek MONOVISC Agreement applies only to the United States.
The Mitek MONOVISC Agreement has an initial term of fifteen years, unless earlier terminated pursuant to any one of
several early termination rights of each party, and provides for Anika to be the exclusive supplier to Mitek of MONOVISC.
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”) and respective regulations govern 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”). Many Class I
devices are exempt from the FDA 510(k) review process. Class II devices are subject to general and special controls (for
example, performance standards, post-market 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.
AMVISC, AMVISC Plus, ShellGel/Optivisc, STAARVISC, and AnikaVisc are approved as Class III medical devices
in the U.S. for intraocular ophthalmic surgical procedures used 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.
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Our subsidiary, Anika S.r.l., has three advanced wound care products approved in the U.S. as Class II devices through
premarket notification (510(k)): Hyalomatrix, Hyalofill-R, and Hyalofill-F. All of Anika S.r.l.’s ENT products are 510(k) cleared
by Medtronic as Class II devices. The FDA’s 510(k) clearance process is under review and changes to the process may have an
impact on current or future product approvals. Three of our products were submitted for 510(k) clearance in 2010: Hyaloglide,
Hyalofast and Hyalonect. The FDA has requested additional data to complete the reviews. The Company is unable to predict the
timing of receipt of these clearances. There is no guarantee that the clearance process for these products will be successful or that
additional data will not be required to support clearance.
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 in, 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 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 or future approval of the product. 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.
Upon completion of required clinical trials, for Class III medical devices, results might be 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 to the FDA’s current Quality System Regulation, 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 might be presented to the FDA in a NDA or New
Animal Drug Application (“NADA”). In addition to the results of clinical investigations, the NDA or NADA 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 to the FDA’s current Good Manufacturing Practices (“cGMP”) 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.
Post-approval product or manufacturing changes where such change affects the 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 cGMP
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
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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 and Drug Adverse Events Reporting System regulations
obligates manufacturers to inform the FDA whenever information reasonably suggests that one of their medical products 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.
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 and Asia. In the European Union (“EU”), ORTHOVISC is
sold under the 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 a CE
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 a CE Design Examination Certificate which
entitled us to affix a CE mark to ShellGel/Optivisc as an ophthalmic viscoelastic surgical device. We also received EU CE Mark
for AnikaVisc Plus in October 2011. 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. In
addition, Anika received approval for several of its products in Latin America, Korea, Turkey, the Middle East, including the
UAE and Saudi Arabia, and other international markets.
Almost all of Anika S.r.l.’s products are CE marked for European sale. In addition, Anika S.r.l. has received approval
for several of its products in Egypt, Hong Kong, Iran, Israel, Korea, Malaysia, Singapore, Mexico, Cyprus, Saudi Arabia,
Taiwan, Turkey, and the United Arab Emirates. We may not be able to achieve and/or maintain the 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.
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.
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Competition in our industry is based primarily on product efficacy, safety, timing and the 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
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, 2012, we had 106 employees, 23 of whom are located outside the U.S. 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 foreign, 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.
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, as amended, 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 (“SEC”). 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 100
F 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.
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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, regulatory approvals,
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,
collection of non-U.S. accounts receivable, international expansion, revenue recognition, profits, growth of revenues,
composition of revenues, cost of revenues, operating expenses, including research and development expenses, sales, marketing
and support expenses, general and administrative expenses, restructuring charges, product gross profit, interest income, interest
expense, anticipated operating and capital expenditure requirements, cash inflows, contractual obligations, taxes, tax rates,
stock-based compensation, leasing and subleasing activities, acquisitions, liquidity, litigation matters, intellectual property
matters, distribution channels, suppliers, 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, including those elsewhere in this report,
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 have a material adverse effect on our business, financial
condition, and results of operations.
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 in, 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.
Two key products under development or regulatory review include MONOVISC for U.S. marketing approval and
CINGAL. 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 cross-linked
HA-technology. We received Conformité Européenne (“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
the final module of our MONOVISC PMA containing the clinical data in December 2009. We were informed that there were
deficiencies in our submissions through a deficiency/non-approvable letter. In December 2012, the FDA upheld its
non-approvable decision following our appeal. Subsequent to that decision, in January 2013, the Company submitted a new PMA
amendment which is under review by the FDA. The Company continues to discuss pathways for MONOVISC approval with the
FDA.
Our second single-injection osteoarthritis product under development is CINGAL, which is based on our hyaluronic
acid material with an added active therapeutic molecule designed to provide broad pain relief for a longer period of time. We have
completed the formulation and biocompatibility studies of the product. We expect to commence a clinical trial during the first
half of 2013 to obtain the needed clinical data for a CE Mark submission and approval.
In 2010 the Company filed 510(k) applications with the FDA to gain market clearance for several products as we
believed we had the opportunity to expand sales of the products in the U.S. The aforementioned 510(k) applications were
submitted at a time of significant change and uncertainty within the FDA regarding the 510(k) approval process. We have now
selected two of these products, Hyalofast and Hyalonect, and have defined a pathway to complete the approval. The remaining
work involves generating additional data for the 510(k) applications. We anticipate submissions with the new data towards the
end of this year. There can be no assurance that clearance will be obtained for any of these Anika S.r.l. products.
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In addition, 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 or clearance process, where required;
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; or
European and other regulations may not change for the marketing of cell-based products and thus impact our ability to
continue commercialization of these 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 or clearance:
The approval or clearance may include significant limitations on the indications and other claims sought for use for
which the products may be marketed;
The approval or clearance 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 cGMP regulations and, for medical devices, the FDA’s 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.
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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.
Uncertain economic conditions, including a credit crisis affecting the financial markets and global recession, could adversely
affect our business, results of operations and financial condition.
The worldwide financial markets have experienced turmoil, characterized by volatility in security prices, rating
downgrades of investments and reductions in available credit. These events materially and adversely impacted the availability of
financing to a wide variety of businesses, and the resulting uncertainty led to reductions in capital investments, overall spending
levels, future product plans, and sales projections across industries and markets.
The financial markets remain uncertain and renewed turmoil in the financial markets could have a material adverse
impact on our business, our ability to achieve planned results of operations and our financial condition by:
Reducing demand for our products;
Increasing risk of order cancellations or delays;
Increasing pressure on the prices for our products;
Creating greater difficulty in collecting accounts receivable; and
Increasing the risks to our liquidity, including the possibility that we might not have sufficient access to cash when
needed.
We are unable to predict the likelihood of renewed disruption in financial markets and adverse economic conditions in
the U.S. and other countries.
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. 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 any of our 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. We completed a
pivotal clinical trial on MONOVISC and submitted the data as part of our PMA filing in December 2009. We were informed that
there were deficiencies in our submissions through a deficiency/non-approvable letter. In December 2012, the FDA upheld its
non-approvable decision following our appeal. Subsequent to that decision, in January 2013, the Company submitted a new PMA
amendment which is under review by the FDA. The Company continues to discuss pathways to approval with the FDA. There
can be no assurance that we will be successful in obtaining FDA approval for 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, that 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.
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.
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 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
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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, we could be
subject to significant liabilities to such third party, and we 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.
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 certain finished products, 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 for some of our ophthalmic and
veterinary products involve products derived from animals. We procure our animal-derived raw materials from qualified
vendors, who 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.
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.
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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:
Develop the necessary manufacturing capabilities;
Obtain the assistance of additional marketing partners;
Attract, retain and integrate 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 of 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.
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.
We may face circumstances in the future that will result in impairment charges, including, but not limited to, goodwill
impairment charges.
If the fair value of any of our long-lived assets decreases as a result of an economic slowdown, a downturn in the
markets where we sell products and services or a downturn in our financial performance and/or future outlook, we may be
required to record an impairment charge on such assets, including goodwill.
We are required to test intangible assets with indefinite life periods for potential impairment annually and on an interim
basis if there are indicators of a potential impairment. We also are required to evaluate amortizable intangible assets and fixed
assets for impairment if there are indicators of a possible impairment. Impairment charges could have a negative impact on our
results of operations and financial position, as well as on the market price of our common stock.
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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, including our current dispute with Fidia regarding Merogel Injectable. 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.
We may not satisfactorily resolve the dispute with Fidia Farmaceutici S.p.A.
We have begun an arbitration process with Fidia Farmaceutici S.p.A. to resolve a dispute related to the withdrawal of
our Merogel Injectable product from the market in 2011 due to a labeling error on the product’s packaging. We cannot guarantee
that this dispute will be satisfactorily resolved without an adverse effect on our business or operating results. Please see Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Management Overview –
Surgical” for additional information regarding this dispute.
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 continued 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
J-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 $44.1 million at December 31, 2012. Our future capital
requirements and the adequacy of available funds will depend, however, on numerous factors, including:
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 approvals and clearances by the FDA and other agencies;
The cost and timing of our efforts to manage our manufacturing capabilities and related costs;
The cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights and the cost
of defending any other legal proceeding;
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 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.
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 with Bank of America (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 Anika S.r.l. acquisition. The Credit
Agreement was entered into in order 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. See Note 15 to our Consolidated
Financial Statements for additional information relative to this debt facility.
The Credit Agreement contains certain debt covenants, representations and warranties with which we must comply. 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 the 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.
- 22 -
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, federal and foreign 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 acquisition of Anika S.r.l., 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, 2012, 2011 and 2010, approximately, 19%, 25%, and 31%, respectively, of
our product sales were to international distributors. We continue to be subject to a variety of risks, which could cause fluctuations
in the results of our international and domestic operations. These risks include:
The impact of recessions and other economic conditions in economies, including Europe in particular, outside the
United States;
Sovereign risk associated with doing business with government financed healthcare hospitals and institutions in Italy;
Instability of foreign economic, political and labor conditions;
Unfavorable labor regulations applicable to our European operations, such as severance and the unenforceability of
non-competition agreements in the European Union;
The impact of strikes, work stoppages, work slowdowns, grievances, complaints, claims of unfair labor practices or
other collective bargaining disputes;
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;
- 23 -
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.
Approximately 8% of our business during fiscal year 2012 was conducted in functional currencies other than the U.S.
dollar, which is our reporting currency. 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 an event, the price of our common stock would likely decline, perhaps substantially.
No person is under any obligation to make a market in our common stock or to publish research reports on us, and any
person making a market in our 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.
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.
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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, 2012, five
customers accounted for approximately 82% of product revenue. We expect to continue to be dependent on a small number of
large customers for the majority of our revenues. Revenue generated under our new agreement with B&L is expected to be
significantly less than under the prior 2004 B&L Agreement. 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.
We may not fully realize the benefits of our acquisitions or strategic alliances.
We may not be able to realize the expected synergies and cost savings from the integration of acquired businesses or
assets with our existing operations and technologies. In addition, the integration and/or reorganization processes for our
acquisitions may be complex, costly, and time consuming and include unanticipated issues, expenses and liabilities. We may
have difficulty in developing, manufacturing and marketing the products of a newly acquired company in a manner that enhances
the performance of our combined businesses or product lines and allows us to realize value from expected synergies. Following
an acquisition, we may not achieve the revenue or net income levels that justify the acquisition. Acquisitions may also result in
one-time charges, such as write-offs or restructuring charges, impairment of goodwill or acquired IPR&D, which could adversely
affect our operating results. Additionally, we may fund acquisitions of new businesses, strategic alliances or joint ventures by
utilizing our cash, incurring debt, issuing shares of our common stock, or by other means.
We may not fully realize the benefits of our restructuring plan.
On December 28, 2012, the Company announced the closure of its tissue engineering facility in Abano Terme, Italy due
to the inability to meet strict regulatory standards established by the European Medicines Agency for ATMP (cell based) products
that are effective January 1, 2013. The restructuring plan adopted includes a reduction-in-force of 12 people, disposals of related
supplies, equipment, and other assets. We expect to substantially complete the restructuring plan within the first six months of
2013. The restructuring plan is intended to improve the efficiency and financial performance of the Company's Italian operations,
by reducing costs and focusing on products and technology with strong commercial potential. There is no guarantee that the
restructuring plan can be implemented successfully, in the expected timeframe, or produce the expected future savings.
Information security breaches or business system disruptions may adversely affect our business.
We rely on our information technology infrastructure and management information systems to effectively run our
business. We may be subject to information security breaches caused by illegal hacking, computer viruses, or acts of vandalism
or terrorism. Our security measures or those of our third-party service providers may not detect or prevent such breaches. Any
such compromise to our information security could result in an interruption in our operations, the unauthorized publication of our
confidential business or proprietary information, the unauthorized release of customer, vendor, or employee data, the violation of
privacy or other laws, and the exposure to litigation, any of which could harm our business and operating results.
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The effects of new regulations relating to conflict minerals may adversely affect our business.
On August 22, 2012, under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the SEC adopted
new requirements for companies that use certain minerals and metals, known as conflict minerals, in their products, whether or
not these products are manufactured by third parties. These requirements will require companies to review, disclose and report
whether or not such minerals originate from the Democratic Republic of Congo and adjoining countries. While we currently
believe our products do not include any conflict minerals, we will have to review whether such minerals are used in the
manufacture of our products. However, the implementation of these new requirements could adversely affect the sourcing,
availability and pricing of such minerals if they are found to be used in the manufacture of our products. In addition, we will incur
additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the
relevant minerals and metals used in our products. The first report is due on May 31, 2014 for the 2013 calendar year. Recently,
the U.S. Chamber of Commerce, the National Association of Manufacturers and the Business Roundtable filed a petition
challenging the adoption of the rules by the SEC and it is unclear if its implementation will be delayed.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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
build-out at the Bedford facility was completed in mid-2008.
We also lease, as part of the acquisition of Anika S.r.l., 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, 2012, we had aggregate facility lease expenses of approximately $2,500,000.
ITEM 3. LEGAL PROCEEDINGS
On July 7, 2010, Genzyme Corporation filed a complaint against the Company in the United States District Court for the
District of Massachusetts seeking unspecified damages and equitable relief. The Complaint alleges that the Company has
infringed U.S. Patent No. 5,143,724 by manufacturing MONOVISC in the United States for sale outside the United States and
will infringe U.S. Patent Nos. 5,143,724 and 5,399,351 if the Company begins manufacture and sale of MONOVISC in the
United States. On August 30, 2010, the Company filed an answer denying liability. On April 26, 2011, Genzyme filed a motion to
add its newly-issued U.S. Patent No. 7,931,030 to this litigation and also filed a separate new complaint in the District of
Massachusetts alleging that the Company’s manufacture and sales of MONOVISC in the United States will infringe that patent.
On May 23, 2011, the Court entered orders permitting Genzyme to file its supplement complaint adding its newly-issued U.S.
Patent No. 7,931,030 to this litigation and requiring Genzyme to withdraw its separately filed complaint. On July 14, 2011, the
Company filed an answer to the supplemental complaint, denying liability. On May 10, 2012, Genzyme dismissed its claim of
infringement of U.S. Patent No. 5,399,351 and is no longer asserting that patent against the Company. The Company believes
that neither MONOVISC, nor its manufacture, does or will infringe any valid and enforceable claim of the asserted patents.
Management has assessed and determined that contingent losses related to this matter are not probable. Therefore, pursuant to
ASC 450, Contingencies, an accrual has not been recorded for this loss contingency. Pursuant to the terms of the licensing and
supply agreement entered into with DePuy Mitek, Inc. in December 2011, DePuy Mitek agreed to assume certain obligations of
the Company related to this litigation. On August 3, 2012, a jury in the United States District Court for the District of
Massachusetts held U.S. Patent No. 7,931,030 invalid as obvious and not infringed in litigation between Genzyme and Seikagaku
Corporation, Zimmer Holdings Inc., Zimmer, Inc. and Zimmer U.S., Inc. concerning the Gel-One product. On September 19,
2012, Genzyme and the Company jointly requested that the Court stay Genzyme’s lawsuit against the Company pending the full
resolution of the Seikagaku/Zimmer lawsuit, including through any appeal of the judgment entered in that lawsuit. The District
Court granted the motion on September 28, 2012.
- 26 -
In 2011, Merogel Injectable was withdrawn from the market due to a labeling error on the product’s packaging,
discovered by the Company. We settled the matter related to this dispute with Medtronic in August, 2012. This labeling error
relates to conduct that initially occurred prior to our acquisition of Anika S.r.l. from Fidia Farmaceutici S.p.A. and we have made
claims against Fidia for indemnification for Anika’s losses related to this issue. Fidia has informed us that it does not believe that
it has liability for this matter, and has asserted a counterclaim against Anika for failing to consent to the release of the remaining
shares held in escrow upon the closing of the Anika S.r.l. acquisition. We have begun an arbitration process with Fidia in the
London Court of International Arbitration to resolve the matter. Management has assessed Fidia’s claims and determined that
contingent losses related to this matter are not probable. Therefore, pursuant to ASC 450, Contingencies, an accrual has not been
recorded for this loss contingency.
We are also involved in various other legal proceedings arising in the normal course of business. Although the
outcomes of these other legal proceedings are inherently difficult to predict, we do not expect the resolution of these other legal
proceedings to have a material adverse effect on our financial position, results of operations or cash flow.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
- 27 -
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, 2012
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year Ended December 31, 2011
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
$
High
Low
$
$
12.95
17.70
16.29
15.52
High
11.67
10.22
7.36
9.80
9.00
12.50
11.77
9.13
Low
6.61
6.44
5.36
5.24
At December 31, 2012, the closing price per share of our common stock was $9.94 as reported on the NASDAQ Global
Select Market and there were 191 holders of record as of that date. 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.
- 28 -
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, 2007 in the Company's Common Stock
and each of the indices.
Anika Therapeutics, Inc.
NASDAQ Composite
Index
NASDAQ Biotechnology
Index
Dec-07
$
100.00 $
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
20.89 $
52.44 $
45.84 $
67.35 $
68.32
$
$
100.00 $
59.46 $
85.55 $
100.02 $
98.22 $
113.85
100.00 $
87.37 $
101.03 $
116.19 $
129.91 $
171.36
- 29 -
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, 2012 and 2011 and the
Statement of Operations Data for each of the three years ended December 31, 2012, 2011 and 2010 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, 2010, 2009 and 2008, and the Statement of Operations Data for each of the two years in the
period ended December 31, 2009 and 2008 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)
2008
33,055
2,725
35,780
13,189
19,866
60%
31,533
3,629
0.32
11,461
2008
43,194
46,798
95,821
16,000
17,782
60,757
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
$
$
2012
$
68,010
3,348
71,358
28,989
39,021
57%
51,643
11,757
0.82 $
14,345
Years ended December 31,
2010
2009
2011
$
61,956
2,822
64,778
26,784
35,172
57%
50,811
8,467
0.62 $
13,748
$
52,736
2,821
55,557
23,827
28,909
55%
48,019
4,316
0.32 $
13,647
$
37,321
2,815
40,136
13,670
23,651
63%
34,549
3,688
0.32 $
11,562
Balance Sheet Data
(In thousands)
Years ended December 31,
2010
2009
2011
$
35,777
49,600
132,844
11,200
34,252
94,763
$
28,202
36,952
128,937
12,800
25,786
85,190
$
24,427
33,307
129,431
14,400
21,470
82,144
Cash and cash equivalents
Working capital
Total assets
Long term obligations
Retained earnings
Stockholders' equity
$
$
2012
44,067
62,932
142,069
9,600
46,010
108,925
- 30 -
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 are 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.
Together with our wholly-owned subsidiary, Anika S.r.l., the Company offers therapeutic products in the following areas:
Orthobiologics
Dermal
Advanced wound care
Aesthetic dermatology
Ophthalmic
Surgical
Anti-adhesion
Ear, nose and throat care (“ENT”)
Veterinary
Anika
X
Anika S.r.l.
X
X
X
X
X
X
X
X
Orthobiologics
Anika’s orthobiologics business contributed 74% to our product revenue for the year ended December 31, 2012. Our
orthobiologics products consist of joint health and orthopedic products. 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 most recent joint health products which became available in certain international markets during the
second quarter of 2008.
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 7% of product revenue for the year
ended December 31, 2012.
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 57% of our product revenue in 2008 to approximately 74% of our product revenue in 2012. We continue to seek new
distribution partnerships around the world and we expect total joint health product sales to increase in 2013 compared to 2012.
We currently offer several orthopedic products used in connection with regenerative medicine. The products currently
available in Europe include 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. We also offer Hyaloglide, an ACP gel used in tenolysis treatment, but with additional clinical data may demonstrate
- 31 -
potential for flexor tendon adhesion prevention, and in the shoulder for adhesive capsulitis. These products are commercialized
through a network of distributors, primarily in Europe, the Middle East, and Korea. Anika believes that the U.S. market offers
excellent expansion potential to increase revenue, and this will continue to be a major focus area for the Company.
Dermal
Our dermal products contributed 2% to our product revenue for the year ended December 31, 2012, and consist of
advanced wound care products based on the HYAFF technology, and aesthetic dermal fillers. Anika S.r.l. offers over seven
products for the 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 scaffolds used in connection with skin substitutes. Leading
products include Hyalomatrix and Hyalofill, for treatment of complex wounds such as burns and ulcers, and Hyalograft 3D and
Laserskin scaffolds, for use in connection with the regeneration of skin. Anika S.r.l.’s dermal products are commercialized
through a network of distributors, primarily in Europe, the Middle East, and Korea. Several of the products are also approved for
sale in the United States including Hyalomatrix and Hyalofill. In 2012, the Company entered into a distribution agreement for
sales of advanced wound care products in nine South American countries, including Argentina, Brazil, Mexico, Chile, and others.
Our aesthetic dermatology business is designed as 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., Korea and certain countries in South America. Internationally, this product is marketed under the ELEVESS name. In the
U.S., the trade name is HYDRELLE, although the product is not currently marketed in the U.S.
Ophthalmic
Our ophthalmic business includes HA viscoelastic products used in ophthalmic surgery. For the year ended
December 31, 2012, sales of ophthalmic products contributed 13% of our product revenue. Anika previously manufactured the
AMVISC product line for Bausch & Lomb under the terms of a supply agreement that expired on December 31, 2010 (the “2004
B&L Agreement”) for viscoelastic products used in ophthalmic surgery. Effective January 1, 2011, the parties entered into a
non-exclusive, two year contract intended to transition the manufacture of AMVISC and AMVISC Plus to an alternative,
low-cost supplier formerly affiliated with B&L, and we continued to supply B&L with these products during 2011. Effective
January 1, 2012, the parties agreed to a new three year contract for Anika to continue to supply these products to B&L as a second
supplier with committed annual volumes for 2012, with lower committed volumes in 2013 and 2014.
B&L accounted for 11% of product revenue for the year ended 2012, but is expected to be significantly lower in 2013
under the new contract. Operating margins under the 2004 B&L Agreement were low and will remain at a similar level under the
new contract. See Item 1A. “Risk Factors.”
Surgical
Our surgical group consists of products used to prevent surgical adhesions, and to treat ENT disorders. For the year
ended December 31, 2012, sales of surgical products contributed 7% of our product revenue. Hyalobarrier is a clinically proven
post-operative adhesion barrier for use in the abdomino–pelvic area. The product is currently commercialized in Europe, the
Middle East and certain Asian countries through a distribution network, but is not approved in the U.S. INCERT, approved for
sale in Europe, Turkey, and Malaysia, is a chemically modified, cross-linked HA product, for the prevention of spinal
post-surgical adhesions. 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 Proprietary Rights” for
additional information.
Anika S.r.l. also offers several products used in connection with the treatment of ENT disorders. The lead products are
Merogel, a woven fleece nasal packing, and Merogel Injectable, a thick, viscous hydrogel composed of cross-linked hyaluronic
acid, a biocompatible agent that creates a moist wound-healing environment. Anika S.r.l. is partnered with Medtronic for
worldwide distribution of these products.
In 2011, Merogel Injectable was withdrawn from the market due to a labeling error, by the third-party contract
manufacturer on the product’s packaging, discovered by the Company. We settled the matter related to this dispute with
Medtronic in August, 2012 and began shipping the product again in December 2012. As this labeling error relates to conduct that
initially occurred prior to our acquisition of Anika S.r.l. from Fidia Farmaceutici S.p.A, we have made claims against Fidia for
indemnification for Anika’s losses related to this issue. Fidia has informed us that it does not believe that it has liability for this
matter, and has made claims against us for refusing to release the Anika shares that were put into escrow in connection with the
S.r.l. acquisition. We have begun an arbitration process in the London Court of International Arbitration.
- 32 -
Veterinary
U.S. sales of HYVISC, our product for the treatment of equine osteoarthritis, contributed 4% to product revenue for the
year ended December 31, 2012. We continue to look at other veterinary applications and opportunities to expand geographic
territories.
Research and Development
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 or clearances at all relevant stages of product development, and process development and
scale-up manufacturing activities relative to our existing and new products. Our development focus includes products for tissue
protection, healing and repair. Our investment in R&D has been important over the years, and varies considerably depending on
the number and size of clinical trials and studies underway. We anticipate that we will continue to commit significant resources to
research and development, including clinical trials, in the future.
With the acquisition of Anika S.r.l., we have enhanced our research and development capabilities, our technology base,
and our pipeline of candidate products. Anika S.r.l. has 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, an innovative
product for cartilage tissue repair. Other key projects include obtaining FDA approval to market Anika S.r.l.’s suite of orthopedic
products in the U.S. These products consist of Hyalofast, Hyaloglide, and Hyalonect.
Two key products under development or regulatory review include MONOVISC for U.S. marketing approval and
CINGAL. 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 cross-linked
HA-technology. We received Conformité Européenne (“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
the final module of our MONOVISC PMA containing the clinical data in December 2009. We were informed that there were
deficiencies in our submissions through a deficiency/non-approvable letter. In December 2012, the FDA upheld its
non-approvable decision following our appeal. Subsequent to that decision, in January of 2013, the Company submitted a new
PMA amendment which is under review by the FDA. The Company continues to discuss pathways to approval with the FDA.
Our second single-injection osteoarthritis product under development is CINGAL, which is based on our hyaluronic
acid material with an added active therapeutic molecule to provide broad pain relief for a long period of time. During the past
year, we have integrated the research and development efforts of Anika and Anika S.r.l., and prioritized our new product
development activities and expect to make progress on a clinical trial in support of CINGAL during 2013.
Business Developments
We received FDA approval to manufacture our terminally sterilized product, ELEVESS, in our Bedford facility in
November 2010. In the first quarter of 2012, we received FDA approval to sell ORTHOVISC, HYVISC, and INCERT
manufactured in our Bedford plant, and received approval to manufacture our ophthalmic products in the Bedford facility in the
second quarter of 2012. Our Bedford facility is approved to manufacture all Anika CE marked products, as well as Anika S.r.l.
CE marked ACP gel products, and Merogel Injectable for distribution in the U.S.
Restructuring Plan
On December 28, 2012 the Company announced the closure of its tissue engineering facility in Abano Terme, Italy due
to the inability to meet strict regulatory standards, established by the EMA for Advanced Therapy Medicinal Products, which are
effective January 1, 2013. The restructuring plan primarily involves a workforce reduction, the disposal of related supplies and
equipment, and the termination of the Hyalograft C Autograft in-process R & D project. We recorded restructuring and related
impairment charges in the fourth quarter of 2012 of approximately $2.5 million. Of the total restructuring and related impairment
charges, approximately $1.6 million related to the noncash disposal of assets. The remaining $0.9 million relates to cash
payments anticipated to occur in 2013, primarily for employee termination costs. We expect to substantially complete the
restructuring plan within the first six months of 2013. These reductions are expected to result in annualized savings of
approximately $0.5 million.
- 33 -
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 consolidated
financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States
of America. The preparation of these consolidated 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, 2012.
Foreign Currency Translation
The functional currency of our foreign subsidiary is the Euro. Assets and liabilities of the foreign subsidiary are
translated using the exchange rate existing on each respective balance sheet date. Revenues and expenses are translated using the
monthly average exchange rates prevailing throughout the year. The translation adjustments resulting from this process are
included as a component of accumulated currency translation adjustment.
The Company recognized gains from foreign currency transactions of $200,452 during the year ended December 31,
2012, and losses from foreign currency transactions of $623,093, and $7,698 in 2011 and 2010, respectively.
Fair Value Measurements
Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. When determining the fair value measurements for assets and
liabilities required to be recorded at fair value, we consider the principal or most advantageous market in which we would
transact and consider assumptions that market participants would use when pricing the asset or liability, such as inherent risk,
transfer restrictions, and risk of nonperformance. The accounting standard establishes a fair value hierarchy that requires an entity
to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is
significant to the fair value measurement. Three levels of inputs that may be used to measure fair value are:
● Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets. Level 1instruments
include securities traded on active exchange markets, such as the New York Stock Exchange.
● Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or
similar instruments in markets that are not active and model-based valuation techniques for which all significant
assumptions are observable in the market.
● Level 3 – Valuation is generated from model-based techniques that use significant assumptions not observable in the
market. These unobservable assumptions reflect our own estimates of assumptions market participants would use in
pricing the asset or liability.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to
make required payments. In determining the adequacy of the allowance for doubtful accounts, management specifically analyzes
individual accounts receivable, historical bad debts, customer concentrations, customer credit-worthiness, current economic
conditions, accounts receivable aging trends and changes in our customer payment terms.
- 34 -
Inventories
Inventories are stated at the lower of cost or market, with cost being determined using the first-in, first-out method.
Work-in-process and finished goods inventories include materials, labor, and manufacturing overhead.
The Company’s policy is to write-down inventory when conditions exist that suggests inventory may be in excess of
anticipated demand or is obsolete based upon assumptions about future demand for the Company’s products and market
conditions. The Company regularly evaluates the ability to realize the value of inventory based on a combination of factors
including, but not limited to: historical usage rates, forecasted sales or usage, product end of life dates, and estimated current or
future market values. Purchasing requirements and alternative usage avenues are explored within these processes to mitigate
inventory exposure.
As part of the restructuring plan we adopted during the fourth quarter of 2012, we wrote down inventory related to our
tissue engineering operation and included an expense of approximately $0.1 million as a component of the overall restructuring
charge. See “Restructuring Charges.”
Revenue Recognition - General
We recognize revenue from product sales when all of the following criteria are met: persuasive evidence of an
arrangement exists; delivery has occurred or services have been rendered; the seller's price to the buyer is fixed or determinable;
and collection from the customer is reasonably assured.
Product Revenue
Revenues from product sales are recognized when title and risk of loss have passed to the customer, which is typically
upon shipment to the customer. 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 distributors’ sales and recognized in the same
period our distributors record their sale of products manufactured by us. On a quarterly basis we record royalty revenue based
upon sales projections provided to us by our distributor customers. If necessary we adjust our estimates based upon final sales
data received prior to issuing our annual audited financial statements.
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, and
payments based upon achievement of certain milestones. The Company adopted Accounting Standards Update ("ASU")
2009-13, Revenue Recognition, in January 2011, which amends Accounting Standards Codification ("ASC") Subtopic 605-25,
Multiple Element Arrangements (“ASC 605-25”) to require the establishment of a selling price hierarchy for determining the
allocable selling price of an item. Under ASC 605-25, as amended by ASU 2009-13, in order to account for an element as a
separate unit of accounting, the element must have objective and reliable evidence of selling price of the undelivered elements. In
general, non-refundable upfront fees and milestone payments that do not relate to other elements are recognized as revenue over
the term of the arrangement as the Company completes its performance obligations.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful
lives. Computer hardware and software are typically amortized over three to five years, and furniture and fixtures over five to
seven years. Leasehold improvements are amortized over the shorter of their useful lives or the remaining terms of the related
leases. Property and equipment under capital leases are amortized over the lesser of the lease terms or their estimated useful lives.
Maintenance and repairs are charged to expense when incurred; additions and improvements are capitalized. When an item is
sold or retired, the cost and related accumulated depreciation is relieved, and the resulting gain or loss, if any, is recognized in
income.
- 35 -
Goodwill and Acquired In-Process Research and Development
Goodwill is the amount by which the purchase price of acquired net assets in a business combination exceeded the fair
values of net identifiable assets on the date of acquisition. Acquired In-Process Research and Development (“IPR&D”)
represents the fair value assigned to research and development assets that we acquire that have not been completed at the date of
acquisition or are pending regulatory approval in certain jurisdictions. The value assigned to acquired IPR&D is determined by
estimating the costs to develop the acquired technology into commercially viable products, estimating the resulting revenue from
the projects, and discounting the net cash flows to present value.
Goodwill and IPR&D are evaluated for impairment annually or more frequently if events or changes in circumstances
indicate that the asset might be impaired. Factors we consider important, on an overall company basis, that could trigger an
impairment review include significant underperformance relative to historical or projected future operating results, significant
changes in our use of the acquired assets or the strategy for our overall business, significant negative industry or economic trends,
a significant decline in our stock price for a sustained period, or a reduction of our market capitalization relative to net book value.
To conduct impairment tests of goodwill, the fair value of the acquired reporting unit is compared to its carrying value.
If the reporting unit’s carrying value exceeds its fair value, we record an impairment loss to the extent that the carrying value of
goodwill exceeds its implied fair value. We estimate the fair value for reporting units using discounted cash flow valuation
models which require the use of significant estimates and assumptions including but not limited to: risk free rate of return on an
investment, weighted average cost of capital, future revenue, operating margin, working capital and capital expenditure needs.
Our annual assessment for impairment of goodwill as of November 30, 2012 indicated that the fair value of our reporting unit
exceeded the carrying value of the reporting unit. Anika S.r.l. is our only acquired reporting unit and currently holds 100% of the
goodwill associated with the 2009 acquisition of that company.
To conduct impairment tests of IPR&D, the fair value of the IPR&D projects is compared to the carrying value. If the
carrying value exceeds its fair value, we record an impairment loss to the extent that the carrying value of the IPR&D project
exceeds its fair value. We estimate the fair values for IPR&D projects using discounted cash flow valuation models which require
the use of significant estimates and assumptions including, but not limited to: estimating the timing of and expected costs to
complete the in-process projects, projecting regulatory approvals, estimating future cash flows from product sales resulting from
completed projects and in-process projects, and developing appropriate discount rates. Excluding our fourth quarter 2012
restructuring and related impairment charges, our annual assessment for impairment of IPR&D indicated that the fair value of our
IPR&D as of November 30, 2012 exceeded their respective carrying values.
Through December 31, 2012 there have not been any events or changes in circumstances that indicate that the carrying
value of goodwill or acquired intangible assets may not be recoverable. The fair value of the equity of the Anika S.r.l. reporting
unit over its carrying value at November 30, 2012 declined from the prior year. The Company continues to monitor and evaluate
the financial performance of the Anika S.r.l. business including the impact of general economic conditions, to assess the potential
for the fair value of the reporting unit to decline below its book value. There can be no assurance that, at the time future
impairment tests are completed, a material impairment charge will not be recorded.
As part of the restructuring plan we adopted during the fourth quarter of 2012, we terminated an IPR&D project related
to our tissue engineering operation and included an expense of approximately $1.2 million as a component of the overall
restructuring charge. See “Restructuring Charges.”
Long-Lived Assets
Long-lived assets primarily include property and equipment and intangible assets with finite lives (including purchased
software and trade names). Purchased software is amortized over 2 to 10 years and trade names are amortized over 10 years. We
review long-lived assets for impairment when 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 those assets are no longer appropriate. Each impairment test is
based on a comparison of the undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset is
written down to its estimated fair value based on a discounted cash flow analysis.
As part of the restructuring plan we adopted during the fourth quarter of 2012, we disposed of long-lived assets related
to our tissue engineering operation and included an impairment charge of approximately $0.3 million as a component of the
overall restructuring charge. See “Restructuring Charges. ”
- 36 -
Restructuring Charges
Restructuring charges are primarily comprised of severance costs, activity termination costs and costs of facility closure.
Restructuring charges are recorded upon approval of a formal management plan and are included in the operating results of the
period in which such plan is approved and the expense becomes estimable. To estimate restructuring charges, management
utilizes assumptions such as the number of employees that would be involuntarily terminated and the future costs to operate and
eventually terminate the subject activity. Estimated restructuring expenses are subject to the rules of fair value accounting and
may change as management executes the approved plan.
Of the $2.5 million in restructuring charges recognized during the fourth quarter of 2012, approximately $1.6 million
related to the abandonment and noncash impairment of assets. The balance of the restructuring charges related to employee
termination costs and other one-time costs directly related to the tissue engineering facility closure.
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.
Stock-Based Compensation
We measure the compensation cost of employee services received in exchange for an award of equity instruments based
on the grant-date fair value of the underlying award. That cost is recognized over the period during which an employee is required
to provide service in exchange for the award. See Note 10 of the accompanying Consolidated Financial Statements for a
description of the types of stock-based awards granted, the compensation expense related to such awards, and detail of
equity-based awards outstanding. See Note 14 of the accompanying Consolidated Financial Statements for details relative to the
tax benefit recognized in the consolidated statement of operations for stock-based compensation.
Income Taxes
Our income tax expense includes U.S. and international income taxes. Certain items of income and expense are not
reported in tax returns and financial statements in the same year. The tax effects of these differences are reported as deferred tax
assets and liabilities. Deferred tax assets are recognized for the estimated future tax effects of deductible temporary differences
and tax operating loss and credit carry-forwards. Changes in deferred tax assets and liabilities are recorded in the provision for
income taxes. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent
we believe that it is more likely than not that all or a portion of deferred tax assets will not be realized, we establish a valuation
allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we include an expense within
the tax provision in the consolidated statement of operations.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income (loss), which includes foreign currency
translation adjustments. For the purposes of comprehensive income disclosures, we do not record tax provisions or benefits for
the net changes in the foreign currency translation adjustment, as we intend to indefinitely reinvest undistributed earnings of our
foreign subsidiary. Accumulated other comprehensive income (loss) is reported as a component of stockholders' equity and, as of
December 31, 2012 and 2011, was comprised solely of cumulative translation adjustments.
Segment Information
Operating segments, as defined under U.S. GAAP, are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding
how to allocate resources and in assessing performance. The Company’s chief operating decision maker is its Chief Executive
Officer. Based on the criteria established by ASC 280, Segment Reporting, the Company has one reportable operating segment,
the results of which are disclosed in Note 13 of the accompanying Consolidated Financial Statements.
- 37 -
Results of Operations
Year ended December 31, 2012 compared to year ended December 31, 2011
Statement of Operations Detail
Product revenue
Licensing, milestone and contract revenue
Total revenue
Operating expenses:
Cost of product revenue
Research & development
Selling, general & administrative
Restructuring charges
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
2012
$68,010,169
3,348,336
71,358,505
Year Ended December 31,
Inc/(Dec)
2011
$ 6,053,783
526,087
6,579,870
$61,956,386
2,822,249
64,778,635
28,988,621
5,388,036
14,728,662
2,537,988
51,643,307
19,715,198
(187,777)
19,527,421
7,769,961
$11,757,460
$39,021,548
26,783,738
6,168,937
17,858,558
-
50,811,233
13,967,402
(182,388)
13,785,014
5,318,334
$ 8,466,680
$35,172,648
2,204,883
(780,901 )
(3,129,896 )
2,537,988
832,074
5,747,796
(5,389 )
5,742,407
2,451,627
$ 3,290,780
$ 3,848,900
57%
57%
Inc/(Dec)
9.8%
18.6%
10.2%
8.2%
-12.7%
-17.5%
-
1.6%
41.2%
3.0%
41.7%
46.1%
38.9%
10.9%
Total Revenue. Total revenue for the year ended December 31, 2012 increased by $6,579,870 to $71,358,505. The
increase in total revenue was primarily due to increased Joint Health product revenue in 2012 as compared to 2011.
Product revenue by product line. Product revenue for the year ended December 31, 2012 was $68,010,169, an increase
of $6,053,783, or 10%, compared to the prior year.
Orthobiologics
Dermal
Ophthalmic
Surgical
Veterinary
Year Ended December 31,
2012
2011
Inc/(Dec)
Inc/(Dec)
$ 49,954,112
1,384,403
8,784,011
5,022,456
2,865,187
$ 68,010,169
$ 39,858,139
3,681,166
10,963,822
4,976,261
2,476,998
$ 61,956,386
$ 10,095,973
(2,296,763 )
(2,179,811 )
46,195
388,189
$
6,053,783
25%
-62%
-20%
1%
16%
10%
Revenue from orthobiologics increased $10,095,973, or 25%, in 2012 compared to 2011. The improvement in
orthobiologics product revenue was due primarily to increases in domestic ORTHOVISC sales, offset by decreases in Anika
S.r.l.’s orthopedic revenue which was down in all geographic regions. Our U.S. joint health product revenue for 2012 increased
42% compared to 2011. This increase reflects DePuy Mitek’s continued market penetration to an estimated market share of 15%
in 2012 versus 14% share in 2011. International orthobiologics product revenue in 2012 decreased 21% compared to 2011. The
decrease in international revenue was driven primarily by the continued economic stagnation being experienced throughout
Europe. We continue to expect orthobiologics revenue will increase in 2013 compared to 2012, both domestically and
internationally, as economic conditions improve.
Dermal revenue decreased $2,296,763, or 62%, in 2012 compared to 2011. The decrease was primarily due to Anika
S.r.l.’s advanced wound care products revenue which totaled $976,388 in 2012, as compared to $3,311,618 in 2011, due to
continued economic challenges faced in the Italian market as well as the impact of changing to a distributor-based sales model in
2012 in Italy, combined with the poor performance of Anika S.r.l.’s distributor in the U.S. territory. Aesthetic dermatology
revenue was $408,015 for the year ended December 31, 2012, versus $369,548 for the prior year.
- 38 -
Revenue from ophthalmic products in 2012 decreased $2,179,811, or 20%, compared to revenue for these products in
2011. The decrease was primarily attributable to B&L’s plan to shift manufacturing to an alternative supplier. B&L accounted for
11% of product revenue for the year ended 2012, but is expected to be significantly lower in 2013 due to the lower minimum
purchase requirements under the new three year contract. Operating margins under the expired 2004 B&L Agreement were low,
and remain at a similar level under the new contract.
Sales of our surgical products increased $46,195, or 1%, as compared to 2011. This product group consists primarily of
Anika S.r.l.’s Hyalobarrier anti-adhesion and ENT products. Our anti-adhesion products include INCERT and Hyalobarrier. Our
leading ear, nose and throat care product is Merogel. Anika S.r.l. is partnered with Medtronic for worldwide distribution (except
for Italy) of its ENT products. We expect surgical product revenue to increase moderately in 2013 compared to 2012.
Veterinary revenue increased $388,189, or 16%, in 2012 as compared to 2011. Sales of HYVISC are made to a single
customer under an exclusive agreement which expires December 31, 2014. We expect HYVISC revenue to be relatively flat in
2013 compared to 2012.
Licensing, milestone and contract revenue. Licensing, milestone and contract revenue for the year ended December 31,
2012 was $3,348,336, compared to $2,822,249 for 2011. 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 initial term of the agreement, or $2,700,000 per year. The year 2013 will be the last year for the
recognition of these milestone payments. In November 2012, Mitek exercised its option and extended the JNJ Agreement for an
additional five years through December 2018.
In December 2011, the Company entered into a fifteen-year licensing and supply agreement with DePuy Mitek, Inc. to
market MONOVISC in the U.S. The Company received an initial payment of $2,500,000 in December 2011, which is also being
recognized ratably over the life of the underlying agreement of fifteen years. The Company is entitled to receive additional
payments from DePuy Mitek, following FDA approval and the mutual decision to launch the product, as well as payments related
to future regulatory, clinical and sales milestones.
Product gross profit and margin. Product gross profit for the year ended December 31, 2012 was $39,021,548, or
57.4% of product revenue, compared with $35,172,648, or 56.8% of product revenue, for the year ended December 31, 2011. The
increase in product gross profit was primarily due to improvements in Anika’s overall product sales mix, as compared to the prior
year, with increasing sales of our higher-margin orthobiologics products as a percent of our overall product sales being the
primary driver, as well as the realization of operational efficiencies from our new manufacturing facility after consolidation of
sites. The positive effect of the improved product sales mix was partially offset by the negative impact of a previously disclosed
temporary scale-up issue experienced as we consolidated all of our manufacturing activities into our Bedford facility from our
now-closed Woburn facility. Anika S.r.l. outsources manufacturing of its medical devices to its former parent company, Fidia
Farmaceutici, contributing to its current lower gross margins. The Company continues to make progress on its plan to transfer a
significant portion of Anika S.r.l.’s medical device product manufacturing to our Bedford facility and successfully began
manufacturing ACP gel products there during the fourth quarter of 2012. We expect this to have a favorable impact on gross
margins starting in the first half of 2013. Looking forward, we expect gross margin in the U.S. to remain under pressure from
government healthcare cost control initiatives.
Research and development. Research and development (“R&D”) expenses for the year ended December 31, 2012
decreased by $780,901, or 13%, as compared to the prior year, due to the timing of the start of certain clinical trials. R&D as a
percentage of revenue was 8% and 10% for the years ended 2012 and 2011, respectively. We expect research and development
expenses will increase significantly in 2013 and thereafter compared to 2012 with commencement of clinical studies for
CINGAL, as well as other line extension, new product, and early-stage development projects.
Selling, general and administrative. Selling, general and administrative expenses for the year ended December 31,
2012 decreased by $3,129,896, or 18%, as compared to 2011. This decrease was primarily due to valuation gains associated with
the re-measurement of euro-based assets into U.S. dollars as the Dollar weakened during 2012, as compared to 2011, combined
with the placing in service the remainder of the Bedford manufacturing facility, and lower legal and professional fees, offset by
exit costs associated with the closing of our Woburn facility. We expect general and administrative expenses for 2013 will
increase modestly reflective of the support required to grow our business both domestically and internationally.
- 39 -
Restructuring charges. On December 28, 2012 the Company announced the closure of its tissue engineering facility in
Abano Terme, Italy due to the inability to meet strict regulatory standards, established by the EMA, which are effective January
1, 2013. As a result of the plan, the Company recorded restructuring and associated impairment charges in the fourth quarter of
approximately $2.5 million. Of the total restructuring and associated impairment charges, approximately $1.6 million related to
the abandonment and noncash impairment of assets. The remaining $0.9 million relates to cash payments anticipated to occur in
2013, primarily for employee termination costs. We plan to substantially complete the Plan by the end of the first six months of
2013. These reductions are expected to result in annualized savings of approximately $0.5 million.
Interest income (expense), net. Net interest expense was $187,777 for the year ended December 31, 2012, as compared
to $182,388 in the same period ended 2011. The modest increase is the result of increased rates on our outstanding variable
interest rate debt.
Income taxes. Provisions for income taxes were $7,769,961 and $5,318,334 for the years ended December 31, 2012 and
2011, respectively. The increase in effective tax rate in 2012 of 1.2%, as compared to 2011, is primarily due to an increase in the
federal statutory tax rate and the accompanying foreign rate differential, partially offset by increased domestic production
deductions all resulting from increased domestic taxable income.
A reconciliation of the U.S. federal statutory tax rate to the effective tax rate for the periods ending December 31 is as
follows:
Statutory federal income tax rate
State tax expense, net of federal benefit
Permanent items, including nondeductible expenses
State investment tax credit
Federal, state and foreign research and development credits
Foreign rate differential
Domestic production deduction
Effective income tax rate
Year ended December 31,
2011
2012
34.0%
35.0%
5.7%
6.4%
0.9%
0.9%
(0.2)%
(0.2)%
(0.4)%
(1.2)%
0.9%
2.5%
(2.3)%
(3.6)%
38.6%
39.8%
As of December 31, 2012, the Company had net operating losses (“NOL”) for federal income tax purposes in Italy of
$9,144,154 with no expiration date. For Massachusetts state income tax purposes, the Company also had an investment tax credit
carry-forward of $298,769 expiring through 2021.
In connection with the preparation of the financial statements, the Company performed an analysis to ascertain if it was
more likely than not that it would be able to utilize, in future periods, the net deferred tax assets associated with its NOL
carry-forward and its investment tax credit carry-forward. We have concluded that the positive evidence outweighs the negative
evidence and, thus, that those deferred tax assets not otherwise subject to a valuation allowance are realizable on a “more likely
than not” basis. As such, we have not recorded a valuation allowance at December 31, 2012, and 2011, respectively.
The 2009 through 2012 tax years remain subject to examination by the Internal Revenue Service (“IRS”) and other
taxing authorities for U.S. federal and state purposes. The 2009 through 2012 tax years remain subject to examination by the
applicable governmental authorities in Italy.
Net income. For the year ended December 31, 2012, net income was $11,757,460, or $0.82 per diluted share, compared
to $8,466,680, or $0.62 per diluted share, for the same period last year. The primary drivers behind this increase in net income
were an increase in product sales with a more favorable product mix, lower clinical spending due to timing of clinical trial efforts,
and lower legal and professional fees. These items were partially offset by the fourth quarter 2012 restructuring charge and an
increase in our effective tax rate.
- 40 -
Year ended December 31, 2011 compared to year ended December 31, 2010
Statement of Operations Detail
Product revenue
Licensing, milestone and contract revenue
Total revenue
$
2011
61,956,386
2,822,249
64,778,635
$
Year Ended December 31,
2010
Inc/(Dec)
52,735,730
2,820,864
55,556,594
9,220,656
1,385
9,222,041
$
Operating expenses:
Cost of product revenue
Research & development
Selling, general & administrative
Total operating expenses
Income from operations
Interest income (expense), net
Income before income taxes
Provision for income taxes
Net income
Product gross margin
Product gross margin
26,783,738
6,168,937
17,858,558
50,811,233
13,967,402
(182,388)
13,785,014
5,318,334
8,466,680
35,172,648
$
23,826,604
6,874,633
17,317,671
48,018,908
7,537,686
(194,620)
7,343,066
3,027,071
4,315,995
28,909,126
$
57%
55%
$
2,957,134
(705,696 )
540,887
2,792,325
6,429,716
12,232
6,441,948
2,291,263
4,150,685
6,263,522
Inc/(Dec)
17%
0%
17%
12%
-10%
3%
6%
85%
-6%
88%
76%
96%
22%
Total Revenue. Total revenue for the year ended December 31, 2011 increased by $9,222,041 to $64,778,635. The
increase in total revenue was primarily due to increased Joint Health product revenue in 2011 as compared to 2010.
Product revenue by product line. Product revenue for the year ended December 31, 2011 was $61,956,386, an increase
of $9,220,656, or 17%, compared to the prior year. Excluding the contributions of Anika S.r.l., Anika’s product revenue grew
16% for the year compared to the prior year.
Orthobiologics
Dermal
Ophthalmic
Surgical
Veterinary
Year Ended December 31,
2011
$ 39,858,139
3,681,166
10,963,822
4,976,261
2,476,998
$ 61,956,386
2010
$ 30,741,305
3,564,616
11,971,787
3,883,444
2,574,578
$ 52,735,730
$
$
Inc/(Dec)
9,116,834
116,550
(1,007,965 )
1,092,817
(97,580 )
9,220,656
Inc/(Dec)
30%
3%
-8%
28%
-4%
17%
Revenue from orthobiologics increased $9,116,834, or 30%, in 2011 compared to 2010. The improvement in
orthobiologics product revenue was due to increases in domestic ORTHOVISC revenue, as well as increased sales of
MONOVISC in Europe, Turkey and Canada and Anika S.r.l.’s orthopedic revenue in Europe. Our U.S. joint health product
revenue for 2011 increased 30% compared to 2010. This increase reflects DePuy Mitek’s continued market penetration to an
estimated market share of 14% in 2011 versus 12% share in 2010. International orthobiologics product revenue in 2011 increased
26% compared to 2010. The increase in international revenue was driven by higher product shipments to new and existing
customers in Eastern Europe and the Middle East, partially offset by continued weakness in sales in Southern Europe. Anika
S.r.l.’s orthopedic product revenue for 2011 increased 40% compared to 2010.
Dermal revenue increased $116,550, or 3%, in 2011 compared to 2010. The increase was primarily due to Anika S.r.l.’s
advanced wound care products revenue which totaled $3,311,618 in 2011 as compared to $3,064,552 in 2010. Aesthetic
dermatology revenue was $369,548 for the year ended December 31, 2011, versus $500,064 for the prior year.
Revenue from ophthalmic products in 2011 decreased $1,007,965, or 8%, compared to revenue for these products in
2010. The decrease was primarily attributable to B&L’s plan to shift manufacturing to an alternative supplier. B&L accounted for
16% of product revenue for the year ended 2011.
- 41 -
Sales of our surgical products increased $1,092,817, or 28%, as compared to 2010. This product group consists
primarily of Anika S.r.l.’s anti-adhesion and ENT products acquired in December 2009. The increase was attributable to
increased sales of surgical and anti-adhesion products by Anika S.r.l., mostly in Europe and Korea, coupled with a modest
increase in the sale of INCERT. Our anti-adhesion products include INCERT and Hyalobarrier. Our leading ear, nose and throat
care product is Merogel. Anika S.r.l. is partnered with Medtronic for worldwide distribution (except for Italy) of its ENT
products.
Veterinary revenue decreased $97,580, or 4%, in 2011 as compared to 2010. Sales of HYVISC are made to a single
customer under an exclusive agreement which expires December 31, 2014.
Licensing, milestone and contract revenue. Licensing, milestone and contract revenue for the year ended December 31,
2011 was $2,822,249, compared to $2,820,864 for 2010. 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.
In December 2011, the Company entered into a fifteen-year licensing and supply agreement with DePuy Mitek, Inc., a
member of the Johnson & Johnson family of companies, to market MONOVISC in the U.S. The Company received an initial
payment of $2,500,000 in December 2011, which will be recognized ratably over the fifteen year term of the agreement as there
was no stand-alone value associated with this payment, thus up-front recognition is prohibited. The Company is entitled to
receive additional payments from DePuy Mitek, following FDA approval and the mutual decision to launch the product, as well
as payments related to future regulatory, clinical and sales milestones.
Product gross profit and margin. Product gross profit for the year ended December 31, 2011 was $35,172,648, or 57%
of product revenue, compared with $28,909,126, or 55% of product revenue, for the year ended December 31, 2010. The increase
in product gross profit was primarily due to improvements in Anika’s overall product sales mix, as compared to the prior year,
with increasing sales of our orthobiologics products as a percent of our overall product sales being the primary driver. The
positive effect of the improved product sales mix was partially offset by the negative effect of the 2011 inventory write-downs
and duplicate manufacturing expenditures during the transition from the Woburn facility to the Company’s Bedford facility.
Anika S.r.l. only manufactured the tissue engineered products and operated at a lower volume. In 2011, Anika S.r.l. outsourced
manufacturing of its medical devices to its former parent company, Fidia Farmaceutici, contributing to its lower gross margins.
The Company wrote down inventory by approximately $750,000 during 2011 related to equipment problems, in
addition to other production losses, experienced in our Woburn facility.
Research and development. Research and development (“R&D”) expenses for the year ended December 31, 2011
decreased by $705,696, or 10%, as compared to the prior year. R&D as a percentage of revenue was 10% and 12% for the years
ended 2011 and 2010, respectively. The decrease in research and development expenses was primarily due to higher costs
incurred in 2010 in connection with the Company’s U.S.-based clinical trials for MONOVISC. This decrease was partially offset
by the continued manufacturing validation activities at our Bedford facility, as well as other continuing new product development
projects in Italy and the U.S.
Selling, general and administrative. Selling, general and administrative expenses for the year ended December 31,
2011, increased by $540,887, or 3%, as compared to 2010. This increase was primarily due to valuation losses associated with the
re-measurement of euro-based assets into U.S. dollars as the Dollar strengthened in the second half of 2011, in addition to higher
legal fees, partially offset by operational streamlining at Anika S.r.l. as we in-sourced financial and administrative services from
an outside service provider.
Interest income, net. Net interest expense was $182,388 for the year ended December 31, 2011, as compared to
$194,620 in the same period ended 2010. The modest decrease is the direct result of our continuing debt service and the
decreasing principal balance in 2011 as compared to 2010.
Income taxes. Provisions for income taxes were $5,318,334 and $3,027,071 for the years ended December 31, 2011 and
2010, respectively. The decrease in effective tax rate in 2011 of 2.6%, as compared to 2010, is primarily due to decreased state tax
expense, increased domestic production deductions resulting from increasing domestic taxable income, and improving financial
results experienced by Anika S.r.l. which has permitted the Company to benefit more from the lower effective tax rate in Italy
- 42 -
A reconciliation of the U.S. federal statutory tax rate to the effective tax rate for the periods ending December 31 is as
follows:
Statutory federal income tax rate
State tax expense, net of federal benefit
Permanent items, including nondeductible expenses
State investment tax credit
Federal and state research and development credits
Foreign rate differential
Domestic production deduction
Tax expense
Year ended December 31,
2010
2011
34.0%
34.0%
7.8%
5.7%
2.2%
0.9%
(0.8)%
(0.2)%
(2.5)%
(0.4)%
2.6%
0.9%
(2.1)%
(2.3)%
41.2%
38.6%
During 2010, the Company concluded its audit by the IRS for its 2008 tax return, with no changes made by that
authority.
Net income. For the year ended December 31, 2011 net income was $8,466,680, or $0.62 per diluted share, compared to
$4,315,995, or $0.32 per diluted share, for the same period last year. The primary drivers behind this increase in net income were
an increase in product sales with a more favorable product mix, lower clinical spending, and a decrease in our effective tax rate.
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 our operations expand. Historically we have generated positive cash flow from operations,
which together with our available cash and investments and debt, have met our cash requirements. Cash and cash equivalents
totaled $44.1 million and $35.8 million, and working capital totaled approximately $62.9 million and $49.6 million, at December
31, 2012 and December 31, 2011, respectively. The Company believes it has adequate financial resources to support its business
over the next twelve months.
Cash provided by operating activities was $10,548,677, $10,173,134 and $7,853,461 for 2012, 2011, and 2010,
respectively. Cash provided by operating activities increased by $375,543 in 2012 from 2011. The increase was attributable to
increased profits in the current year combined with noncash restructuring charges and the effect of deferred income taxes. These
were partially offset by an increase in net working capital requirements, the most significant components of which were an
increase in trade receivables, due to the timing of fourth quarter sales, and an increase in inventories, due to the timing of raw
material purchases. In December 2011, the Company received a milestone payment from Depuy Mitek which favorably
impacted cash from operations.
Cash used in investing activities was $1,504,707, $1,400,348 and $2,679,677 in 2012, 2011 and 2010, respectively. The
increase in cash used in investing activities in 2012, as compared to the same period in the prior year, is a result of planned capital
maintenance projects associated with our Bedford facility during the current year.
Cash used in financing activities was $758,854, $1,165,340, and $1,337,320 for 2012, 2011, and 2010, respectively.
Cash used was primarily due to the required principal payments on long-term debt of $1.6 million in each period. Also reflected
in the cash provided by financing activities for all three years were proceeds received from the exercise of stock options,
including any associated tax benefits.
Concentration of Risk
A significant portion of the Company’s accounts receivable arising from product sales within Italy by Anika S.r.l. are
due from public hospitals and other government-funded healthcare agencies. As of December 31, 2012, the Company’s accounts
receivable from all Italian customers totaled approximately $1.2 million of which public hospital and agency receivables were
approximately $0.3 million.
The history with our Italian customers has been such that many of the public healthcare providers funded by the Italian
government have been slow to pay with several maintaining outstanding balances over one year past due. The Company
continuously evaluates these accounts receivables for potential risks associated with, among other things, governmental funding
and reimbursement practices. We have established an allowance against the gross value of these trade receivables based upon
- 43 -
specifically identifiable risks and other currently available information. For customers where payment is expected over periods of
time longer than one year, revenue and trade receivables have been discounted over the estimated period of time for collection.
Allowances for doubtful accounts have been increased for these customers, but have been immaterial to date. The Company will
continue to work closely with these customers, monitor the economic situation and take appropriate actions as necessary.
See Note 13, Revenue by Product Group, by Significant Customer and by Geographic Region; Geographic Information,
in the accompanying Consolidated Financial Statements for information regarding significant customers.
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
On May 12, 2011, the Financial Accounting Standards Board (“FASB”), together with the International Accounting
Standards Board, jointly issued Accounting Standards Update (“ASU”) 2011-04, Amendments to Achieve Common Fair Value
Measurement and Disclosure Requirements in U.S.GAAP and IFRS . The provisions of ASU 2011-04 give fair value the same
meaning between U.S. GAAP and International Financial Reporting Standards, and improve consistency of disclosures relating
to fair value. For public entities, the amendments are effective during interim and annual periods beginning after December 15,
2011. Early application by public entities was not permitted. The adoption of this new guidance did not have a material impact on
our consolidated financial position, results of operations, or cash flows.
In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive
Income . The amendments in this ASU require all non-owner changes in stockholders’ equity to be presented either in a single
continuous statement of comprehensive income or in two separate but consecutive statements. For public entities, the
amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The
adoption of this amendment did not have a material impact on our consolidated financial position, results of operations, or cash
flows.
In September 2011, the FASB issued ASU 2011-08, Intangibles – Goodwill and Other. This ASU's objective is to
simplify the process of performing impairment testing for Goodwill. With this update a company is allowed to first assess
qualitative factors to determine if it is more likely than not (greater than 50%) that the fair value of its Goodwill and intangible
assets is less than the carrying amount. This step is done prior to performing the two-step goodwill impairment testing, as
prescribed by Topic 350. This ASU is effective for annual and interim goodwill impairment tests performed for fiscal years
beginning after December 15, 2011. The adoption of this amendment did not have a material impact on our consolidated financial
position, results of operations or cash flows.
In July 2012, the FASB issued ASU 2012-02, Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived
Intangible Assets for Impairment. This amendment is an update of ASU 2011-08, specifically for consistency of approach in
assessing impairment for Indefinite-Lived assets. With this update a company is allowed to first assess qualitative factors to
determine if it is more likely than not (greater than 50%) that the fair value of its indefinite-lived assets is less than the carrying
amount. This ASU is effective for fiscal years beginning after September 15, 2012 with early adoption permitted. The adoption of
this amendment will not have a material impact on our consolidated financial position, results of operations or cash flows.
Contractual Obligations and Other Commercial Commitments
We have incurred significant capital investments related to the build-out of our new facility in Bedford, Massachusetts,
as well as the Anika S.r.l. 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;
- 44 -
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 approvals and 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; and
The successful reorganization of Anika S.r.l.
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.
- 45 -
The table below summarizes our non-cancelable operating leases and contractual obligations at December 31, 2012:
Operating Leases (1)
Purchase Commitments
Long Term Debt (2)
Total
Payments due by period
Total
$ 11,265,433 $
1,956,410
9,998,768
$ 23,220,611 $
2 - 3 years
Less than
1 year
2,945,320 $
1,519,613 $
-
1,956,410
8,237,105
1,761,663
5,237,686 $ 11,182,425 $
More than
4 - 5 years
1,943,000 $
-
-
1,943,000 $
5 years
4,857,500
-
-
4,857,500
(1)
Included in this line is a lease we entered into on January 4, 2007, pursuant to which we lease our Corporate Headquarters
facility, The Facility consists of approximately 134,000 square feet of general office, R&D and manufacturing space
located in Bedford, Massachusetts. The Lease has an initial term of ten and one- 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. Our administrative and R&D personnel began occupying the Bedford
facility in November of 2007. The build-out and validation for the Bedford manufacturing space was substantially
completed in 2011. Also included in the table above is the lease entered into in Italy related to Anika S.r.l. The lease for our
Italian facility commenced on December 30, 2009 for a period of six years.
(2) 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 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 Anika S.r.l., 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) Bank
of America’s prime rate or LIBOR plus 125 basis points. This represented an increase from the original facility which was
prime rate or LIBOR plus 75 basis points. In addition, the Company pledged to the lender sixty-five percent (65%) of the
stock of Anika S.r.l. 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, 2012, throughout the life of the obligation.
- 46 -
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 2012, 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 ASC 825, Financial
Instruments . 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 exchange rate risk. We have two
major 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 were immaterial in 2012. 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. Our investment portfolio of cash equivalents
and long-term debt are subject to interest rate fluctuations, changes in credit quality of the issuer, or otherwise. As of
December 31, 2012, the Company is subject to interest rate risk on $9.6 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 and, therefore, is affected by changes in market interest rates. Based on the outstanding debt amount as of December 31,
2012, we would have a decrease (increase) in future annual cash flow of approximately $88,000 for every 1% increase (decrease)
in the interest rate.
A significant portion of Anika S.r.l.’s revenue, and all operating expenses, are denominated in Euros which leaves the
Company vulnerable to foreign exchange risk.
- 47 -
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, 2012 and 2011
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2012,
2011 and 2010
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2012, 2011 and 2010
Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 2011 and 2010
Notes to Consolidated Financial Statements
49
50
51
52
53
54
- 48 -
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Anika Therapeutics, Inc.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and
comprehensive income, of stockholders' equity, and of cash flows present fairly, in all material respects, the financial position of
Anika Therapeutics, Inc. and its subsidiaries as of December 31, 2012 and December 31, 2011 and the results of their operations
and their cash flows for each of the three years in the period ended December 31, 2012 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, 2012, 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.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 13, 2013
- 49 -
Anika Therapeutics, Inc. and Subsidiaries
Consolidated Balance Sheets
Current assets:
Cash and cash equivalents
ASSETS
Accounts receivable, net of reserves of $337,459 and $334,473 at December 31, 2012
and 2011, respectively
Inventories
Current portion 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
Goodwill
Total Assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Deferred revenue
Current portion of long-term debt
Income taxes payable
Total current liabilities
Other long-term liabilities
Long-term deferred revenue
Deferred tax liability
Long-term debt
Commitments and contingencies (Note 9)
Stockholders’ equity:
December 31,
2012
2011
$
44,067,477
$
35,777,222
21,462,481
8,283,472
2,031,583
1,539,477
77,384,490
52,376,013
(17,263,032 )
35,112,981
171,053
20,334,636
9,065,891
$ 142,069,051
17,307,786
7,302,483
1,918,926
1,831,127
64,137,544
50,850,630
(14,380,752)
36,469,878
205,042
23,148,563
8,883,407
$ 132,844,434
$
$
2,341,838
5,837,044
2,875,067
1,600,000
1,798,669
14,452,618
1,541,124
2,152,778
6,997,397
8,000,000
4,299,680
5,321,594
2,866,667
1,600,000
450,482
14,538,423
1,548,652
5,019,440
7,375,141
9,600,000
Preferred stock, $.01 par value; 1,250,000 shares authorized, no shares issued and
outstanding at December 31, 2012 and 2011, respectively
Common stock, $.01 par value; 30,000,000 shares authorized, 13,866,060 and
13,630,607 shares issued and outstanding at December 31, 2012 and 2011, respectively
-
-
138,659
65,431,424
(2,654,630 )
46,009,681
108,925,134
$ 142,069,051
136,305
63,441,433
(3,067,181)
34,252,221
94,762,778
$ 132,844,434
Additional paid-in-capital
Accumulated currency translation adjustment
Retained earnings
Total stockholders’ equity
Total Liabilities and Stockholders’ Equity
The accompanying notes are an integral part of these consolidated financial statements.
- 50 -
Anika Therapeutics, Inc. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income
For the Years Ended December 31,
2011
2012
2010
Product revenue
Licensing, milestone and contract revenue
Total revenue
Operating expenses:
Cost of product revenue
Research & development
Selling, general & administrative
Restructuring charges
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
Net income
Other comprehensive income (loss)
Foreign currency translation adjustment
Comprehensive income
$
$
68,010,169
3,348,336
71,358,505
61,956,386 $
2,822,249
64,778,635
52,735,730
2,820,864
55,556,594
28,988,621
5,388,036
14,728,662
2,537,988
51,643,307
19,715,198
(187,777)
19,527,421
7,769,961
11,757,460
0.89
13,260,739
0.82
14,344,577
$
$
$
$
$
$
26,783,738
6,168,937
17,858,558
-
50,811,233
13,967,402
(182,388 )
13,785,014
5,318,334
8,466,680 $
23,826,604
6,874,633
17,317,671
-
48,018,908
7,537,686
(194,620)
7,343,066
3,027,071
4,315,995
0.65 $
13,064,051
0.34
12,624,495
0.62 $
13,747,813
0.32
13,646,533
$
11,757,460
$
8,466,680 $
4,315,995
412,551
$
12,170,011
$
(519,405 )
7,947,275 $
(2,547,776)
1,768,219
The accompanying notes are an integral part of these consolidated financial statements.
- 51 -
Anika Therapeutics, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Number of
Shares
Common Stock
$.01 Par Additional Paid
Value
in Capital
Retained
Earnings
Accumulated
Currency
Translation
Adjustment
Total
Stockholders'
Equity
13,418,772 $ 134,188 $ 60,539,768
$
21,469,546 $
- $
82,143,502
63,612
635
196,609
-
-
197,244
-
-
(21,188 )
-
-
(21,188 )
-
-
-
-
1,102,369
-
-
4,315,995
-
1,102,369
4,315,995
-
-
-
(2,547,776 )
(2,547,776 )
13,482,384 134,823
61,817,558
25,785,541
(2,547,776 )
85,190,146
148,223
1,482
158,988
-
-
160,470
-
-
274,190
-
-
274,190
-
-
-
-
1,190,697
-
-
8,466,680
-
-
1,190,697
8,466,680
-
-
-
-
(519,405 )
(519,405 )
13,630,607 136,305
63,441,433
34,252,221
(3,067,181 )
94,762,778
235,453
2,354
386,321
-
-
388,675
-
-
452,471
-
-
452,471
-
-
-
-
1,151,199
-
-
11,757,460
-
-
1,151,199
11,757,460
-
-
-
-
412,551
412,551
13,866,060 $ 138,659 $ 65,431,424
$
46,009,681 $
(2,654,630 ) $
108,925,134
The accompanying notes are an integral part of these consolidated financial statements.
- 52 -
Balance, December
31, 2009
Issuance of
common stock
for employee
equity awards
Tax benefit
related to stock
based
compensation
Stock based
compensation
expense
Net income
Other
comprehensive
income (loss)
Balance, December
31, 2010
Issuance of
common stock
for employee
equity awards
Tax benefit
related to stock
based
compensation
Stock based
compensation
expense
Net income
Other
comprehensive
income (loss)
Balance, December
31, 2011
Issuance of
common stock
for employee
equity awards
Tax benefit
related to stock
based
compensation
Stock based
compensation
expense
Net income
Other
comprehensive
income (loss)
Balance, December
31, 2012
Anika Therapeutics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the year ended December 31,
2010
2011
2012
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Stock-based compensation expense
Deferred income taxes
Provision for doubtful accounts
Provision for inventory
Tax benefit from exercise of stock options
Non-cash restructuring and impairment charges
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Long-term deposits and other
Accounts payable
Accrued expenses
Deferred revenue
Income taxes payable
Other long-term liabilities
$ 11,757,460 $ 8,466,680 $
4,525,247 4,002,391
1,151,199 1,190,697
(10,269) 1,989,708
331,528
135,353
1,310,953 1,427,862
(274,190 )
-
(452,471)
1,604,256
(4,271,129) (2,998,037 )
224,714
(2,370,318)
947,263
200,453
179,939
33,995
(2,879,330) (6,594,292 )
1,420,131 1,042,845
(213,888 )
(2,858,262)
450,482
1,268,442
(568 )
(17,033)
10,548,677 10,173,134
4,315,995
3,320,352
1,102,617
1,953,946
302,723
699,057
(65,434)
-
(3,716,478)
(1,220,359)
445,650
28,239
5,784,731
(2,188,082)
(2,751,468)
-
(158,028)
7,853,461
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of property and equipment, net
Reduction in purchase price of acquisition
Net cash used in investing activities
Cash flows from financing activities:
Principal payments on debt
Proceeds from exercise of stock options
Tax benefit from exercise of stock options
Net cash used in financing activities
(1,504,707) (1,400,348 )
-
-
(1,504,707) (1,400,348 )
(2,784,977)
105,300
(2,679,677)
(1,600,000) (1,600,000 )
160,470
388,675
452,471
274,190
(758,854) (1,165,340 )
(1,600,000)
197,246
65,434
(1,337,320)
Exchange rate impact on cash
5,139
(32,156 )
(61,522)
Increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosure of cash flow information:
Cash paid for income taxes
Cash paid for interest
8,290,255 7,575,290
3,774,942
35,777,222 28,201,932 24,426,990
$ 44,067,477 $ 35,777,222 $ 28,201,932
$ 6,496,000 $ 2,651,212 $
193,880 $
$
184,881 $
360,000
222,919
The accompanying notes are an integral part of these consolidated financial statements.
- 53 -
Anika Therapeutics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. 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.
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 and
foreign 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 Anika Therapeutics S.r.l. All
intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts have been
reclassified to conform to the current period presentation. There was no impact on operating income.
Foreign Currency Translation
The functional currency of our foreign subsidiary is the Euro. Assets and liabilities of the foreign subsidiary are
translated using the exchange rate existing on each respective balance sheet date. Revenues and expenses are translated using the
monthly average exchange rates prevailing throughout the year. The translation adjustments resulting from this process are
included as a component of accumulated currency translation adjustment.
The Company recognized gains from foreign currency transactions of $200,452 during the year ended December 31,
2012, and losses from foreign currency transactions of $623,093, and $7,698 in 2011 and 2010, respectively.
Fair Value Measurements
Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. When determining the fair value measurements for assets and
liabilities required to be recorded at fair value, we consider the principal or most advantageous market in which we would
transact and consider assumptions that market participants would use when pricing the asset or liability, such as inherent risk,
transfer restrictions, and risk of nonperformance. The accounting standard establishes a fair value hierarchy that requires an entity
to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
- 54 -
A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is
significant to the fair value measurement. Three levels of inputs that may be used to measure fair value are:
●
●
●
Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets. Level 1
instruments include securities traded on active exchange markets, such as the New York Stock Exchange.
Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for
identical or similar instruments in markets that are not active and model-based valuation techniques for which
all significant assumptions are observable in the market.
Level 3 – Valuation is generated from model-based techniques that use significant assumptions not observable
in the market. These unobservable assumptions reflect our own estimates of assumptions market participants
would use in pricing the asset or liability.
Our significant financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2012 and
2011 were as follows:
Cash equivalents - money market accounts
Cash equivalents - money market accounts
December 31, 2012
Level 1
$ 34,264,268 $
Level 2
Level 3
- $
Total
- $ 34,264,268
December 31, 2011
Level 1
$ 20,263,766 $
Level 2
Level 3
- $
Total
- $ 20,263,766
The carrying value of our debt instrument was $9,600,000 and $11,200,000 at December 31, 2012 and 2011,
respectively. The estimated fair value of our debt instrument approximated book value at both dates using market observable
inputs and interest rate measurements.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make
required payments. In determining the adequacy of the allowance for doubtful accounts, management specifically analyzes
individual accounts receivable, historical bad debts, customer concentrations, customer credit-worthiness, current economic
conditions, accounts receivable aging trends and changes in our customer payment terms. Our allowance for doubtful accounts on
trade accounts receivable was $337,459 and $334,473 at December 31, 2012 and 2011, respectively.
Balance, beginning of the year
Amounts provided
Amounts written off
Balance, end of the year
December 31,
2011
2012
$ 30,000
$ 334,473
306,520
138,339
(135,353)
(2,047 )
$ 337,459 $ 334,473
Uncollectible trade accounts receivable written-off were $135,353, $2,047, and $301,984 in 2012, 2011, and 2010,
respectively. Provisions for bad debt expense were $138,339, $306,520, and $302,723 in 2012, 2011, and 2010, respectively, and
are included in general and administrative expenses in the accompanying consolidated statements of operations.
Revenue Recognition - General
We recognize revenue from product sales when all of the following criteria are met: persuasive evidence of an
arrangement exists; delivery has occurred or services have been rendered; the seller's price to the buyer is fixed or determinable;
and collection from the customer is reasonably assured.
- 55 -
Product Revenue
Revenues from product sales are recognized when title and risk of loss have passed to the customer, which is typically
upon shipment to the customer. 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 distributors’ sales and recognized in the same
period our distributors record their sale of products manufactured by us. On a quarterly basis we record royalty revenue based
upon sales projections provided to us by our distributor customers. If necessary we adjust our estimates based upon final sales
data received prior to issuing our annual audited financial statements.
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, and
payments based upon achievement of certain milestones. The Company adopted Accounting Standards Update 2009-13,
Revenue Recognition, in January 2011, which amends Accounting Standards Codification Subtopic 605-25, Multiple Element
Arrangements (“ASC 605-25”) to require the establishment of a selling price hierarchy for determining the allocable selling price
of an item. Under ASC 605-25, as amended by ASU 2009-13, in order to account for an element as a separate unit of accounting,
the element must have objective and reliable evidence of selling price of the undelivered elements. In general, non-refundable
upfront fees and milestone payments that do not relate to other elements are recognized as revenue over the term of the
arrangement as the Company completes its performance obligations.
Cash, Cash Equivalents and Marketable Investments
We consider only those investments which are highly liquid, readily convertible to cash, and that mature within three
months from date of purchase to be cash equivalents. Marketable investments are those with original maturities in excess of three
months.
At December 31, 2012 and 2011, respectively, cash equivalents were comprised of money market funds secured by U.S.
Treasury obligations, which approximates fair market value. We had no marketable investments at December 31, 2012 and 2011,
respectively.
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 international
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.
As of December 31, 2012, DePuy Mitek, Inc., Medtronic Xomed, Soylu Medikal San ve Dis Tic Ltd., Rivex Pharma,
and Takeda/Nycomed/Biomeks, combined, represented 78% of the Company’s accounts receivable balance. As of December 31,
2011, DePuy Mitek, Inc., Bausch and Lomb, Medtronic Xomed, Azienda USL Roma, and A.T. Grade, combined, represented
58% of the Company’s accounts receivable balance.
Inventories
Inventories are stated at the lower of cost or market, with cost being determined using the first-in, first-out method.
Work-in-process and finished goods inventories include materials, labor, and manufacturing overhead.
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The Company’s policy is to write-down inventory when conditions exist that suggests inventory may be in excess of
anticipated demand or is obsolete based upon assumptions about future demand for the Company’s products and market
conditions. The Company regularly evaluates the ability to realize the value of inventory based on a combination of factors
including, but not limited to: historical usage rates, forecasted sales or usage, product end of life dates, and estimated current or
future market values. Purchasing requirements and alternative usage avenues are explored within these processes to mitigate
inventory exposure.
When recorded, inventory write-downs are intended to reduce the carrying value of inventory to its net realizable value.
Inventory of $8,283,472 and $7,302,483 as of December 31, 2012 and 2011 is stated net of inventory write-downs of $1,161,805
and $1,375,150, respectively. If actual demand for the Company’s products deteriorates, or market conditions are less favorable
than those projected, additional inventory write-downs may be required.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful
lives. Computer hardware and software are typically amortized over three to five years, and furniture and fixtures over three to
eight years. Leasehold improvements are amortized over the shorter of their useful lives or the remaining terms of the related
leases which range from six months to 25 years at December 31, 2012. Property and equipment under capital leases are amortized
over the lesser of the lease terms or their estimated useful lives. Maintenance and repairs are charged to expense when incurred;
additions and improvements are capitalized. When an item is sold or retired, the cost and related accumulated depreciation is
relieved, and the resulting gain or loss, if any, is recognized in income.
Goodwill and Acquired Intangible Assets
Goodwill is the amount by which the purchase price of acquired net assets in a business combination exceeded the fair
values of net identifiable assets on the date of acquisition. Acquired In-Process Research and Development (“IPR&D”)
represents the fair value assigned to research and development assets that we acquire that have not been completed at the date of
acquisition or are pending regulatory approval in certain jurisdictions. The value assigned to the acquired IPR&D is determined
by estimating the costs to develop the acquired technology into commercially viable products, estimating the resulting revenue
from the projects, and discounting the net cash flows to present value.
Goodwill and IPR&D are evaluated for impairment annually or more frequently if events or changes in circumstances
indicate that the asset might be impaired. Factors we consider important, on an overall company basis, that could trigger an
impairment review include significant underperformance relative to historical or projected future operating results, significant
changes in our use of the acquired assets or the strategy for our overall business, significant negative industry or economic trends,
a significant decline in our stock price for a sustained period, or a reduction of our market capitalization relative to net book value.
To conduct impairment tests of goodwill, the fair value of the acquired reporting unit is compared to its carrying value.
If the reporting unit’s carrying value exceeds its fair value, we record an impairment loss to the extent that the carrying value of
goodwill exceeds its implied fair value. We estimate the fair value for reporting units using discounted cash flow valuation
models which require the use of significant estimates and assumptions including but not limited to; risk free rate of return on an
investment, weighted average cost of capital, future revenue, operating margin, working capital and capital expenditure needs.
Our annual assessment for impairment of goodwill as of November 30, 2012 indicated that the fair value of our reporting units
exceeded the carrying value of the reporting units. Anika S.r.l. is our only acquired reporting unit and currently holds 100% of the
goodwill associated with the 2009 acquisition of that company.
To conduct impairment tests of IPR&D, the fair value of the IPR&D project is compared to its carrying value. If the
carrying value exceeds its fair value, we record an impairment loss to the extent that the carrying value of the IPR&D project
exceeds its fair value. We estimate the fair values for IPR&D projects using discounted cash flow valuation models which require
the use of significant estimates and assumptions including but not limited to: estimating the timing of and expected costs to
complete the in-process projects, projecting regulatory approvals, estimating future cash flows from product sales resulting from
completed projects and in-process projects, and developing appropriate discount rates. Excluding the restructuring and related
impairment charges we recognized during the fourth quarter of 2012, our annual assessment for impairment of IPR&D indicated
that the fair value of our IPR&D as of November 30, 2012 exceeded their respective carrying values. There can be no assurance
that, at the time future impairment tests are completed, a material impairment charge will not be recorded.
As part of the restructuring plan we adopted during the fourth quarter of 2012, we terminated an IPR&D project related
to our tissue engineering operation and included an impairment charge of approximately $1.2 million as a component of the
overall restructuring charge. See “Restructuring Charges,” below, and Note 16 for additional disclosure.
- 57 -
Long-Lived Assets
Long-lived assets primarily include property and equipment and intangible assets with finite lives (including purchased
software and trade names). Purchased software is amortized over 2 to 10 years and trade names are amortized over 10 years. We
review long-lived assets for impairment when 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 those assets are no longer appropriate. Each impairment test is
based on a comparison of the undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset is
written down to its estimated fair value based on a discounted cash flow analysis.
As part of the restructuring plan we adopted during the fourth quarter of 2012, we disposed of long-lived assets related
to our tissue engineering operation and included an impairment charge of approximately $0.3 million as a component of the
overall restructuring charge. See “Restructuring Charges,” below, and Note 16 for additional disclosure.
Restructuring Charges
Restructuring charges are primarily comprised of severance costs, activity termination costs and costs of facility closure.
Restructuring charges are recorded upon approval of a formal management plan and are included in the operating results of the
period in which such plan is approved and the expense becomes estimable. To estimate restructuring charges, management
utilizes assumptions such as the number of employees that would be involuntarily terminated and the future costs to operate and
eventually terminate the subject activity. Estimated restructuring expenses are subject to the rules of fair value accounting and
may change as management executes the approved plan.
Of the $2.5 million in restructuring charges recognized during the fourth quarter of 2012, approximately $1.6 million
related to the abandonment and noncash impairment of assets. The balance of the restructuring charges related to employee
termination costs and other one-time costs directly related to the facility closure.
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.
Stock-Based Compensation
We measure the compensation cost of employee services received in exchange for an award of equity instruments based
on the grant-date fair value of the underlying award. That cost is recognized over the period during which an employee is required
to provide service in exchange for the award. See Note 10 for a description of the types of stock-based awards granted, the
compensation expense related to such awards, and detail of equity-based awards outstanding. See Note 14 for detail of the tax
benefit recognized in the consolidated statement of operations related to stock-based compensation.
Income Taxes
Our income tax expense includes U.S. and international income taxes. Certain items of income and expense are not
reported in tax returns and financial statements in the same year. The tax effects of these timing differences are reported as
deferred tax assets and liabilities. Deferred tax assets are recognized for the estimated future tax effects of deductible temporary
differences, tax operating losses, and tax credit carry-forwards (including investment tax credits). Changes in deferred tax assets
and liabilities are recorded in the provision for income taxes. We assess the likelihood that our deferred tax assets will be
recovered from future taxable income and, to the extent we believe that it is more likely than not that all or a portion of deferred
tax assets will not be realized, we establish a valuation allowance to reduce the deferred tax assets to the appropriate valuation. To
the extent we establish a valuation allowance or increase or decrease this allowance in a given period, we include the related tax
expense or tax benefit within the tax provision in the consolidated statement of operations in that period.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income (loss), which includes foreign currency
translation adjustments. For the purposes of comprehensive income disclosures, we do not record tax provisions or benefits for
the net changes in the foreign currency translation adjustment, as we intend to reinvest permanently undistributed earnings of our
foreign subsidiary. Accumulated other comprehensive income (loss) is reported as a component of stockholders' equity and, as of
December 31, 2012 and 2011, respectively, was comprised solely of cumulative translation adjustments.
- 58 -
Segment Information
Operating segments, as defined under U.S. GAAP, are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding
how to allocate resources and in assessing performance. The Company’s chief operating decision maker is its Chief Executive
Officer. Based on the criteria established by ASC 280, Segment Reporting, the Company has one reportable operating segment
the results of which are disclosed in the accompanying consolidated financial statements.
Recent Accounting Pronouncements
On May 12, 2011, the FASB, together with the International Accounting Standards Board, jointly issued ASU 2011-04,
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. The
provisions of ASU 2011-04 give fair value the same meaning between U.S. GAAP and International Financial Reporting
Standards, and improve consistency of disclosures relating to fair value. For public entities, the amendments are effective during
interim and annual periods beginning after December 15, 2011. Early application by public entities was not permitted. The
adoption of this amendment did not have a material impact on our consolidated financial position, results of operations, or cash
flows.
In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive
Income. The amendments in this ASU require all non-owner changes in stockholders’ equity to be presented either in a single
continuous statement of comprehensive income or in two separate but consecutive statements. For public entities, the
amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The
adoption of this amendment did not have a material impact on our consolidated financial position, results of operations, or cash
flows.
In September 2011, the FASB issued ASU 2011-08, Intangibles – Goodwill and Other. This ASU's objective is to
simplify the process of performing impairment testing for Goodwill. With this update a company is allowed to first assess
qualitative factors to determine if it is more likely than not (greater than 50%) that the fair value of its Goodwill and intangible
assets is less than the carrying amount. This step is done prior to performing the two-step goodwill impairment testing, as
prescribed by Topic 350. This ASU is effective for annual and interim goodwill impairment tests performed for fiscal years
beginning after December 15, 2011. The adoption of this amendment did not have a material impact on our consolidated financial
position, results of operations or cash flows.
In July 2012, the FASB issued ASU 2012-02, Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived
Intangible Assets for Impairment. This amendment is an update of ASU 2011-08, specifically for consistency of approach in
assessing impairment for Indefinite-Lived assets. With this update a company is allowed to first assess qualitative factors to
determine if it is more likely than not (greater than 50%) that the fair value of its indefinite-lived assets is less than the carrying
amount. This ASU is effective for fiscal years beginning after September 15, 2012 with early adoption permitted. The adoption of
this amendment will not have a material impact on our consolidated financial position, results of operations or cash flows.
3. Earnings per Share (“EPS”)
Basic EPS is calculated by dividing net income by the weighted average number of shares outstanding during the
period. Unvested restricted shares, although legally issued and outstanding, are not considered outstanding for purposes of
calculating basic earnings per share. Diluted EPS is calculated by dividing net income by the weighted average number of shares
outstanding plus the dilutive effect, if any, of outstanding stock options, stock appreciation rights (“SAR’s”), restricted shares and
restricted stock units (collectively “RSA’s”) using the treasury stock method.
The following table provides share information used in the calculation of the Company's basic and diluted earnings per
share:
Shares used in the calculation of Basic earnings per share
Effect of dilutive securities:
Stock options, SAR's, RSA's, and shares held in escrow
Diluted shares used in the calculation of earnings per share
2012
13,260,739
Year ended December 31,
2011
2010
13,064,051 12,624,495
1,083,838
14,344,577
683,762 1,022,038
13,747,813 13,646,533
- 59 -
Stock options to purchase 131,273, 1,142,840 and 1,210,970 shares for 2012, 2011 and 2010, respectively, were
excluded from the computation of diluted EPS as their effect would have been anti-dilutive.
At December 31, 2012, 2011 and 2010, 54,124, 59,196 and 20,630 shares of issued and outstanding unvested restricted
stock, respectively, were excluded from the basic earnings per share calculation in accordance with ASC 260.
4. Inventories
Inventories consist of the following:
Raw materials
Work-in-process
Finished goods
Total
December 31,
2012
$ 6,109,807
777,056
1,396,609
$ 8,283,472
2011
$ 4,091,366
1,503,565
1,707,552
$ 7,302,483
5. Property and Equipment
Property and equipment is stated at cost and consists of the following:
Machinery and equipment
Furniture and fixtures
Leasehold improvements
Construction in progress
Subtotal
Less accumulated
depreciation
Total
December 31,
2012
$ 22,863,921
1,274,477
28,195,345
42,270
52,376,013
2011
$ 10,429,816
840,350
12,421,398
27,159,066
50,850,630
(17,263,032)
$ 35,112,981
(14,380,752 )
$ 36,469,878
Depreciation expense was $2,496,749, $1,816,188 and $1,308,713 for the years ended December 31, 2012, 2011 and
2010, respectively.
6. Acquired Intangible Assets, Net
In November 2007, in connection with the termination of the agreement with Galderma which originally granted to
Galderma the worldwide rights to commercialization, distribution, and marketing of ELEVESS products, the Company
reacquired the worldwide rights and control of the future development and marketing of ELEVESS. The intangible asset realized
during this process was the ELEVESS trade name.
On December 30, 2009, in connection with the acquisition of Anika S.r.l., the Company purchased various intangible
assets. The Company finalized the purchase price allocation relative to this acquisition during the fourth quarter of 2010.
Excluding our fourth quarter of 2012 restructuring and impairment charges, we completed our annual impairment
review as of November 30, 2012 and concluded that no impairment in the carrying value exists as of that date with respect to both
goodwill and IPR&D. Through December 31, 2012 there have not been any events or changes in circumstances that indicate that
the carrying value of goodwill or acquired intangible assets may not be recoverable. The fair value of the equity of the Anika S.r.l.
reporting unit over its carrying value at November 30, 2012 declined from the prior year. The Company continues to monitor and
evaluate the financial performance of the Anika S.r.l. business including the impact of general economic conditions, to assess the
potential for the fair value of the reporting unit to decline below its book value. See Note 16, “Restructuring”, for additional
disclosure.
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Developed
technology
In-process
research &
development
Distributor
relationships
Patents
Elevess trade
name
Total
Amortization expense was $2,028,498, $2,186,203, and $2,011,639 for the years ended December 31, 2012, 2011 and
2010, respectively. As of December 31, 2012, amortization expense on intangible assets for the next five years is expected to be
approximately $2.0 million annually.
Intangible assets, stated at cost, consist of the following:
Gross Value
Currency
Translation
Adjustment
Abandonments
and Other
Adjustments
Accumulated
Amortization
Net Book
Value
Net Book
Value
Useful
Life
December 31, 2012
December 31, 2011
$ 16,700,000 $
(1,369,787 ) $
- $
(2,960,171) $ 12,370,042 $ 13,228,351
15
6,698,000
(522,112 )
(1,195,314)
-
4,980,574
5,955,066 Indefinite
4,700,000
1,000,000
(424,639 )
(81,824 )
-
-
(2,541,908)
(169,010)
1,733,453
749,166
2,547,842
790,555
1,000,000
$ 30,098,000 $
-
(2,398,362 ) $
-
(1,195,314) $
(498,599)
626,749
501,401
(6,169,688) $ 20,334,636 $ 23,148,563
5
16
9
7. Accrued Expenses
Accrued expenses consist of the following:
Payroll and benefits
Professional fees
Clinical trial costs
SRL research grants
Restructuring costs
Other
Total
December 31,
2012
$ 2,477,833
642,853
102,414
110,350
933,732
1,569,862
$ 5,837,044
2011
$ 2,366,412
793,430
-
989,556
-
1,172,196
$ 5,321,594
8. Deferred Revenue
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 licenses 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.
In December 2011, the Company entered into a fifteen-year licensing and supply agreement (the “Mitek
MONOVISC Agreement”) with DePuy Mitek, Inc., a member of the Johnson & Johnson family of companies, to market
MONOVISC in the U.S. The Company received an initial payment of $2,500,000 in December 2011, which is recognized ratably
over the fifteen year term of the Mitek MONOVISC Agreement as there was no stand-alone value associated with this payment,
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thus up-front recognition is prohibited. The Company may receive additional payments from DePuy Mitek, following the mutual
decision to launch the product, related to future regulatory, clinical and sales milestones.
Current and long-term deferred revenue related to the JNJ Agreement, the Mitek MONOVISC Agreement and other
agreements was $5,027,845 and $7,886,107 at December 31, 2012 and 2011, respectively.
9. Commitments and Contingencies
Leasing Arrangements
The Company’s headquarters facility is located in Bedford, Massachusetts, where the Company leases approximately
134,000 square feet of administrative, manufacturing, and research and development (“R&D”) 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 one-half years. The Company has an
option under the lease to extend its terms for up to four additional 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 and R&D personnel moved into the Bedford facility in November of 2007. The build-out
of the Bedford facility, including the required validation process for the manufacturing space, was substantially completed during
2011. The Bedford facility was fully validated and approved by applicable regulatory authorities in 2012.
As part of the acquisition of Anika S.r.l., the Company now leases 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 $2,486,849, $3,479,632 and $2,888,277, for the
years ended December 31, 2012, 2011, and 2010, respectively.
The Company’s future lease commitments as of December 31, 2012 are as follows:
2013
2014
2015
2016
2017 and thereafter
$
1,519,613
1,484,015
1,461,305
971,500
5,829,000
$ 11,265,433
Warranty and Guarantor Arrangements
In certain of our 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 specific 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 to these risks. Based on the Company’s historical activity, in combination with its liability
insurance coverage, the Company believes the estimated fair value of these indemnification agreements is immaterial. The
Company has no accrued warranties at December 31, 2012 and 2011, respectively, and has no history of claims paid.
Legal Proceedings
On July 7, 2010, Genzyme Corporation filed a complaint against the Company in the United States District Court for the
District of Massachusetts seeking unspecified damages and equitable relief. The Complaint alleges that the Company has
infringed U.S. Patent No. 5,143,724 by manufacturing MONOVISC in the United States for sale outside the United States and
will infringe U.S. Patent Nos. 5,143,724 and 5,399,351 if the Company begins manufacture and sale of MONOVISC in the
United States. On August 30, 2010, the Company filed an answer denying liability. On April 26, 2011, Genzyme filed a motion to
add its newly-issued U.S. Patent No. 7,931,030 to this litigation and also filed a separate new complaint in the District of
- 62 -
Massachusetts alleging that the Company’s manufacture and sales of MONOVISC in the United States will infringe that patent.
On May 23, 2011, the Court entered orders permitting Genzyme to file its supplement complaint adding its newly-issued U.S.
Patent No. 7,931,030 to this litigation and requiring Genzyme to withdraw its separately filed complaint. On July 14, 2011, the
Company filed an answer to the supplemental complaint, denying liability. On May 10, 2012, Genzyme dismissed its claim of
infringement of U.S. Patent No. 5,399,351 and is no longer asserting that patent against the Company. The Company believes
that neither MONOVISC, nor its manufacture, does or will infringe any valid and enforceable claim of the asserted patents.
Management has assessed and determined that contingent losses related to this matter are not probable. Therefore, pursuant to
ASC 450, Contingencies, an accrual has not been recorded for this loss contingency. Pursuant to the terms of the licensing and
supply agreement entered into with DePuy Mitek, Inc. in December 2011, DePuy Mitek agreed to assume certain obligations of
the Company related to this litigation. On August 3, 2012, a jury in the United States District Court for the District of
Massachusetts held U.S. Patent No. 7,931,030 invalid as obvious and not infringed in litigation between Genzyme and Seikagaku
Corporation, Zimmer Holdings Inc., Zimmer, Inc. and Zimmer U.S., Inc. concerning the Gel-One product. On September 19,
2012, Genzyme and the Company jointly requested that the Court stay Genzyme’s lawsuit against the Company pending the full
resolution of the Seikagaku/Zimmer lawsuit, including through any appeal of the judgment entered in that lawsuit. The District
Court granted the motion on September 28, 2012.
In 2011, Merogel Injectable was withdrawn from the market due to a labeling error on the product’s packaging,
discovered by the Company. We settled the matter related to this dispute with Medtronic in August, 2012. This labeling error
relates to conduct that initially occurred prior to our acquisition of Anika S.r.l. from Fidia Farmaceutici S.p.A. and we have made
claims against Fidia for indemnification for Anika’s losses related to this issue. Fidia has informed us that it does not believe that
it has liability for this matter, and has asserted a counterclaim against Anika for failing to consent to the release of the remaining
shares held in escrow upon the closing of the Anika S.r.l. acquisition. We have begun an arbitration process with Fidia in the
London Court of International Arbitration to resolve the matter. Management has assessed Fidia’s claims and determined that
contingent losses related to this matter are not probable. Therefore, pursuant to ASC 450, Contingencies, an accrual has not been
recorded for this loss contingency.
We are also involved in various other legal proceedings arising in the normal course of business. Although the
outcomes of these other legal proceedings are inherently difficult to predict, we do not expect the resolution of these other legal
proceedings to have a material adverse effect on our financial position, results of operations or cash flow.
10. Equity Incentive Plan
The Anika Therapeutics, Inc. Stock Option and Incentive Plan, as amended, (the “2003 Plan”) provides for grants of
nonqualified and incentive stock options, common stock, restricted stock, restricted stock units, and stock appreciation rights
(“SAR’s”) to employees, directors, officers and consultants. The 2003 Plan was originally approved by the Board of Directors on
April 4, 2003, approved by the Company’s shareholders on June 4, 2003, and reserved 1,500,000 shares of common stock for
grant pursuant to its terms.
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.
At the 2011 Annual Meeting of Stockholders on June 7, 2011, the shareholders of the Company approved the Anika
Therapeutics, Inc. Second Amended and Restated Stock Option and Incentive Plan (the “2003 Plan”), which, among other things,
increased the number of shares reserved for issuance under the Company’s predecessor stock option and incentive plan by
800,000 to 3,150,000 shares.
The Company may satisfy the awards upon exercise, or upon fulfillment of the vesting requirements for other
equity-based awards, with either newly-issued shares or shares reacquired by the Company. 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 become exercisable ratably over one to four years.
The 2003 Plan succeeds the Anika Therapeutics, Inc. 1993 Stock Option Plan (“1993 Plan”) which expired according to
its terms in 2003. As of December 31, 2012, there were 1,938 shares still outstanding under the 1993 Plan included in the total
outstanding options of 1,793,685. There are 763,145 options available for future grant at December 31, 2012.
- 63 -
The Company estimates the fair value of stock options and SAR’s 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 SAR’s 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 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 SAR award during 2012, 2011, and 2010 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
2012
0.63% to 0.64%
57.60%
4
0.00%
December 31,
2011
1.1% to 1.51%
57.60%
4
0.00%
2010
1.11% to 1.88%
57.60%
4
0.00%
The Company recorded $1,151,199, $1,190,697 and $1,102,617 of share-based compensation expense for the years
ended December 31, 2012, 2011 and 2010, respectively, for stock options, SAR’s 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
each of its employees.
Combined stock options and SAR’s activity under our plans is summarized as follows for the years ended
December 31, 2012 and, 2011 respectively:
2012
2011
Options and SAR's outstanding at beginning of year
Granted
Cancelled
Expired
Exercised
Options and SAR's outstanding at end of year
Weighted
Average
Exercise
Price Per
Share
Weighted
Average
Exercise
Price Per
Number of
7.26
12.06
6.58
1.68
4.74
8.30
Shares
1,625,253 $
679,000 $
(74,187 ) $
(875 ) $
(121,188 ) $
2,108,003 $
Share
6.92
6.98
6.41
3.04
1.60
7.26
Number of
Shares
2,108,003 $
204,000 $
(212,749) $
(7,714) $
(297,855) $
1,793,685 $
Of the 1,793,685 options and SAR’s outstanding at December 31, 2012, approximately 1,763,000 are vested or are
expected to vest with a weighted-average exercise price of approximately $8.56 as well as an aggregate intrinsic value of
approximately $4 million related to these awards. The weighted average remaining contractual term of the vested and expected to
vest options and SAR’s was 4.63 years as of December 31, 2012.
As of December 31, 2012, total unrecognized compensation costs related to non-vested options and SAR’s was
approximately $1,826,000 and is expected to be recognized over a weighted average period of 2.4 years.
There were 247,934 incentive stock options (ISOs) exercisable at December 31, 2012 with a weighted-average exercise
price of $8.71 and a weighted-average remaining contractual term of 4.14 years for these awards.
There were 222,002 non-qualified stock options exercisable at December 31, 2012 with a weighted-average exercise
price of $8.94 and a weighted-average remaining contractual term of 3.13 years.
- 64 -
There were 570,460 SAR’s exercisable at December 31, 2012 with a weighted-average exercise price of $8.35 and a
weighted-average remaining contractual term of 5.43 years for these awards.
The aggregate intrinsic value of stock options and SAR’s fully vested at December 31, 2012 and 2011 was $2,115,267
and $2,390,591 respectively. The aggregate intrinsic value of stock options and SAR’s outstanding at December 31, 2012 and,
2011 was $4,074,471 and $6,107,869, respectively.
The total intrinsic value of options and SAR’s exercised was $2,214,516 and, $679,401 for the years ended
December 31, 2012 and 2011, respectively.
The total fair value of options and SAR’s vested during the years ended December 31, 2012 and 2011 was $997,194 and
$774,648, respectively.
The Company received $388,676 and, $160,470 for exercises of stock options during the years ended December 31,
2012 and 2011, respectively.
The restricted stock activity for the years ended December 31, 2012 and 2011 is as follows:
2012
Weighted
Average
2011
Weighted
Average
Nonvested at Beginning of year
Granted
Cancelled
Expired
Vested/Released
Nonvested at end of year
Shares
Shares
Fair Value
Number of Granted Date Number of Granted Date
Fair Value
5.48
6.98
3.05
-
6.13
5.71
59,196 $
31,312 $
(25) $
- $
(21,527) $
68,956 $
77,085 $
29,978 $
(850 ) $
- $
(47,017 ) $
59,196 $
5.71
9.10
3.05
-
5.08
6.87
The total fair value of restricted stock and restricted stock units vested during the year ended December 31, 2012 was
$203,485.
11. Shareholder Rights Plan
On April 4, 2008 the Board of Directors of the Company adopted a Shareholder Rights Plan (“2008 Plan”) that replaced
the Company’s former Shareholder Rights Plan. Under the 2008 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.
- 65 -
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.
12. Employee Benefit Plan
U.S. 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, 2012, 2011, and 2010, the Company made matching contributions of $326,007, $279,816 and $291,107
respectively.
13. Revenue by Product Group, by Significant Customer and by Geographic Region; Geographic Information
Product revenue by product group is as follows:
2012
Year Ended December 31,
2011
2010
Percentage
of Product
Revenue
Revenue
Percentage
of Product
Revenue
Revenue
Percentage
of Product
Revenue
73.5% $
2.0%
7.4%
12.9%
4.2%
100.0% $
39,858,139
3,681,166
4,976,261
10,963,822
2,476,998
61,956,386
64.3% $
5.9%
8.1%
17.7%
4.0%
100.0% $
30,741,305
3,564,616
3,883,444
11,971,787
2,574,578
52,735,730
58.3%
6.8%
7.3%
22.7%
4.9%
100.0%
Orthobiologics
Dermal
Surgical
Ophthalmic
Veterinary
Revenue
$
49,954,112
1,384,403
5,022,456
8,784,011
2,865,187
68,010,169
$
Product revenue by significant customers as a percent of product revenues is as follows:
Percent of Product Revenue
Year Ended December 31,
2011
47.1%
15.8%
4.0%
5.6%
1.3%
73.8%
2010
42.7%
21.2%
4.9%
10.2%
1.5%
80.5%
2012
61.2%
11.4%
4.2%
3.1%
2.0%
81.9%
DePuy Mitek
Bausch & Lomb Inc.
Boehringer
Medtronic
Rivex Pharma
- 66 -
Revenues by geographic location in total and as a percentage of total revenues are as follows:
2012
Year Ended December 31,
2011
2010
Percentage of
Total
Revenue
United States
Europe
Other
Total
Revenue
$
57,904,290
6,267,830
7,186,385
71,358,505
$
Percentage of
Total Revenue
Revenue
Percentage of
Total Revenue
Revenue
$
81.1%
8.8%
10.1%
100.0%
$
48,366,140
10,988,664
5,423,831
64,778,635
$
74.7%
16.9%
8.4%
100.0%
$
38,313,594
12,976,985
4,266,015
55,556,594
69.0%
23.3%
7.7%
100.0%
The Company recorded licensing, milestone and contract revenue of $3,348,336, $2,822,249 and $2,820,864 for the
years ended December 31, 2012, 2011, and 2010, respectively. Substantially all licensing, milestone and contract revenue was
derived in the United States for each year presented.
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 tangible long-lived assets by principal geographic areas were as follows:
United States
Italy
Total
14. Income Taxes
Income Tax Expense
Years Ended December 31,
2012
$ 33,792,325
1,320,656
$ 35,112,981
2011
$ 34,565,770
1,904,108
$ 36,469,878
The components of the Company’s income before income taxes and our provision for (benefit from) income taxes
consist of the following:
Income (loss) before income taxes
Domestic
Foreign
Provision for (benefit from) income taxes:
Current provision:
Federal
State
Foreign
Deferred provision:
Federal
State
Foreign
Total provision
Year ended December 31,
2011
2012
2010
26,170,313 $
(6,642,892)
19,527,421 $
15,962,992 $
(2,177,978 )
13,785,014 $
11,944,795
(4,601,729)
7,343,066
Year ended December 31,
2012
2011
2010
7,594,287 $
885,958
(188,650)
8,291,595
776,486
602,447
(1,900,567)
(521,634)
7,769,961 $
3,327,626 $
155,855
90,626
3,574,107
1,907,408
570,869
(734,050 )
1,744,227
5,318,334 $
1,063,841
(6,920)
-
1,056,921
2,828,029
479,529
(1,337,408)
1,970,150
3,027,071
$
$
$
$
- 67 -
Deferred Tax Assets and Liabilities
Significant components of the Company’s deferred tax assets and liabilities consist of the following:
Deferred tax assets:
Deferred revenue
Stock-based compensation expense
Tax credit carry forward
Net operating loss carryforward, foreign
Accrued expenses and other
Inventory reserve
Deferred tax asset
Deferred tax liabilities:
Intangibles related to Srl acquisition
Depreciation
Deferred tax liability
Tax Rate
December 31,
2012
2011
$
$
1,988,509
1,584,583
194,364
2,520,746
954,559
405,302
$
7,648,063
$
2,072,931
1,496,910
695,914
1,839,924
825,884
417,726
7,349,289
December 31,
2012
2011
$
$
(6,482,404 )
(6,131,473 )
(12,613,877 )
$
$
(7,594,729)
(5,210,775)
(12,805,504)
The reconciliation between the U.S. federal statutory rate and our effective rate is summarized as follows:
Statutory federal income tax rate
State tax expense, net of federal benefit
Permanent items, including nondeductible expenses
State investment tax credit
Federal, state and foreign research and development credits
Foreign rate differential
Domestic production deduction
Effective income tax rate
Year ended December 31,
2012
35.0%
6.4%
0.9%
(0.2)%
(1.2)%
2.5%
(3.6)%
39.8%
2011
34.0 %
5.7 %
0.9 %
(0.2 )%
(0.4 )%
0.9 %
(2.3 )%
38.6 %
2010
34.0%
7.8%
2.2%
(0.8)%
(2.5)%
2.6%
(2.1)%
41.2%
As of December 31, 2012, the Company had net operating losses (“NOL”) for federal income tax purposes in Italy of
$9,144,154 with no expiration date. For Massachusetts state income tax purposes, the Company also had an investment tax credit
carry-forward of $298,769 expiring through 2021.
In connection with the preparation of the financial statements, the Company performed an analysis to ascertain if it was
more likely than not that it would be able to utilize, in future periods, the net deferred tax assets associated with its NOL
carry-forward and its investment tax credit carry-forward. We have concluded that the positive evidence outweighs the negative
evidence and, thus, that those deferred tax assets not otherwise subject to a valuation allowance are realizable on a “more likely
than not” basis. As such, we have not recorded a valuation allowance at December 31, 2012, and 2011, respectively.
- 68 -
Accounting for Uncertainty in Income Taxes
A reconciliation of the beginning and ending amount of our unrecognized tax benefits is summarized as follows:
Unrecognized tax benefit, beginning of year
Tax positions related to current year
Tax positions related to prior years
Settlements
Statute expirations
Unrecognized tax benefit, end of year
Year ended December 31,
2011
2010
2012
$
$
56,170 $
-
38,329
-
(38,329)
56,170 $
37,428 $
38,329
(19,587 )
-
-
56,170 $
40,900
-
37,427
(3,089)
(37,810)
37,428
In the normal course of business, Anika and its subsidiaries may be periodically examined by various taxing authorities.
We file income tax returns in the U.S. federal jurisdiction, in certain U.S. states, and in Italy. The associated tax filings remain
subject to examination by applicable tax authorities for a certain length of time following the tax year to which those filings
relate. The 2009 through 2012 tax years remain subject to examination by the IRS and other taxing authorities for U.S. federal
and state tax purposes. The 2009 through 2012 tax years remain subject to examination by the appropriate governmental
authorities for Italy.
We do not anticipate experiencing any significant increases or decreases in our unrecognized tax benefits within the
twelve months following December 31, 2012.
We incurred expenses related to stock-based compensation in 2012, 2011 and 2010 of $1,151,199, $1,190,697, and
$1,102,617, respectively. Accounting for the tax effects of certain stock-based awards requires that we establish a deferred tax
asset as the compensation expense is recognized for financial reporting prior to recognizing the related tax deduction upon
exercise of the awards. The tax benefit recognized in the consolidated statement of operations related to stock-based
compensation totaled $285,068, $219,626, and $244,746 in 2012, 2011 and 2010, respectively.
Upon the settlement of the certain stock-based awards (i.e., exercise, vesting, forfeiture or cancellation), the actual tax
deduction is compared with the cumulative financial reporting compensation cost and any excess tax deduction related to these
awards is considered a windfall tax benefit, and is tracked in a "windfall tax benefit pool" to offset any future tax deduction
shortfalls and will be recorded as increases to additional paid-in capital in the period when the tax deduction reduces income taxes
payable. We follow the with-and-without approach for the direct effects of windfall/shortfall items and to determine the timing of
the recognition of any related benefits. We recorded a net windfall of approximately $452,000 and $274,000 in 2012 and 2011,
respectively and a net shortfall of approximately $21,000 in 2010.
15. Long-term Debt
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 outstanding of $16,000,000. The Company borrowed the maximum amount of $16,000,000 in 2008 to finance
its new facility construction and capital project validation. 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 the term loan was originally payable at a rate based upon, at the Company’s
election, either Bank of America’s prime rate or LIBOR plus 75 basis points. The Company recorded approximately $171,000 as
deferred issuance costs which continue to be amortized over the life of the debt facility.
In connection with the acquisition of Anika S.r.l., the Company entered into a Consent and First Amendment to the
original loan facility 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. In addition, the Company pledged to the lender sixty-five percent (65%) of the stock of Anika Therapeutics S.r.l. We also
incurred $74,000 of fees charged by Bank of America which were capitalized in accordance with ASC Subtopic 470-50, Debt –
Modifications and Extinguishments, as the Consent and First Amendment represents a debt modification. The fees are being
amortized over the remaining life of the debt facility.
- 69 -
The Agreement contains customary representations and warranties of the Company, affirmative and negative covenants
regarding the Company’s operations, financial covenants regarding maintenance by the Company of a specified quick ratio and
consolidated fixed charge coverage ratio, and events of default. We are in compliance with all covenants specified in the debt
agreement.
As of December 31, 2012 and 2011, the Company had a total outstanding debt balance of $9,600,000 and $11,200,000,
respectively, of which $1,600,000 was recorded as current at each date.
Long-term debt principal payments are $1,600,000 for each of the next two years with the remaining principal of
$6,400,000 due in the third and final year. The estimated fair value of our debt instrument approximated book value at December
31, 2012.
16. Restructuring
In December 2012 the Company announced the closure of its tissue engineering facility in Abano Terme, Italy due to the
inability to meet strict regulatory standards, effective January 1, 2013, established by the EMA for Advanced Therapy Medicinal
Products. The restructuring plan primarily involves a workforce reduction as well as associated asset abandonments. We
recorded restructuring and impairment charges in the fourth quarter of approximately $2.5 million. Of the total restructuring and
impairment charges related to our tissue engineering operation, approximately $1.2 million related to the noncash termination
and related impairment of an IPR&D project, $0.3 million related to the noncash disposal of property and equipment, and $0.1
million related to the disposal of inventory. The remaining $0.9 million relates to cash payments anticipated to occur in 2013,
primarily for employee termination costs. We expect to substantially complete the restructuring plan by the end of the first six
months of 2013.
17. Related Party
In connection with the acquisition of Anika S.r.l. 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 14.3% of the outstanding shares of
the Company as of December 31, 2012 and approximately 14.5% of the outstanding shares as of December 31, 2011,
respectively, thus becoming a "related party" under the Securities and Exchange Commission regulations.
As part of the acquisition, the Company, primarily through Anika S.r.l., entered into a series of operating agreements
with Fidia as follows:
Agreement Type
Description
Term in Years
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 (EXPIRED).
Promote Anika Srl products in Italy through
Fidia sales force (TERMINATED).
Six
Five
Three
One to Six
Two
Three
Historically Anika S.r.l. has relied on Fidia, its former parent company, for several functional activities. In connection
with the purchase of Anika S.r.l., 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. At December 31, 2012 and 2011, Anika
S.r.l. had a net payable to Fidia for past products purchased of approximately $0.7 million and $0.8 million, respectively.
- 70 -
18. Quarterly Financial Data (Unaudited)
Year 2012
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 2011
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
June 30,
Quarter
ended
March 31,
Quarter ended Quarter ended
December 31, September 30,
$
21,459,124 $
22,606,465
7,269,886
14,189,238
4,463,223 $
14,055,440 $ 18,882,277 $ 13,613,328
14,360,660
14,766,611
6,413,481
7,221,028
7,199,847
6,834,412
1,912,119
1,645,250 $
19,624,769
8,084,226
10,798,051
3,736,868 $
0.33 $
13,324,942
0.31 $
14,299,211
0.12 $
13,287,463
0.11 $
14,459,154
0.28 $
13,262,023
0.26 $
14,443,794
0.15
13,162,824
0.14
14,089,946
Quarter
ended
June 30,
Quarter
ended
March 31,
Quarter ended Quarter ended
December 31, September 30,
$
17,725,546 $
18,444,287
7,128,450
10,597,096
2,883,110 $
17,756,000 $ 15,414,681 $ 11,060,159
11,737,679
18,455,817
5,604,562
7,394,922
5,455,597
10,361,078
324,412
2,976,518 $
16,140,852
6,655,804
8,758,877
2,282,641 $
$
$
$
$
$
$
0.22 $
13,122,004
0.21 $
13,804,806
0.23 $
12,817,910
0.22 $
13,765,533
0.18 $
12,725,216
0.17 $
13,739,836
0.03
12,688,819
0.02
13,744,710
- 71 -
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 chief 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 2012 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 Exchange Act. 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, 2012. 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, 2012.
The effectiveness of our internal control over financial reporting as of December 31, 2012 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.
- 72 -
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, 2012.
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, 2012.
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, 2012.
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, 2012.
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, 2012.
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
[49]
[50]
[51]
[52]
[53]
[54-71]
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 is set forth in the Exhibit Index (b) below.
- 73 -
(b) Exhibit No.
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession:
Description
2.1
Sale and Purchase Agreement, dated December 30, 2009, by and 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
3.2
3.3
3.4
3.5
3.6
3.7
3.8
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.
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.
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.
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 June 30,
1998 (File no. 001-14027), filed with the Securities and Exchange Commission on August 14, 1998.
Amendment to the Restated Articles of Organization of the Company, incorporated herein by reference to
Exhibit 3.3 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.
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.
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.
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
10.2
10.3
10.4
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.
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.
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.
Amendment to Lease #2, dated September 27, 1999, between the Company and Cummings Properties LLC,
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.
- 74 -
10.5
10.6
10.7
10.8
**10.9
**10.10
†10.11
†10.12
†10.13
†10.14
10.15
10.16
†10.17
†10.18
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.
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.
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.
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.
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.
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.
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.
Form of Non-Qualified Stock Option Agreement for Non-Employee Directors under the Company’s
Amended and Restated 2003 Stock Option and Incentive Plan, incorporated herein by reference to Exhibit
10.4 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.
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.
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.
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.
Credit Agreement, dated as of 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.
Anika Therapeutics, 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.
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.
- 75 -
†10.19
†10.20
†10.21
†10.22
†10.23
†10.24
†10.25
†10.26
†10.27
10.28
10.29
10.30
10.31
10.32
†10.33
†10.34
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.
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.
Form of Restricted Stock Award 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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Consent and First Amendment to the Credit Agreement, dated as of 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.
Pledge Agreement on a Quota of Fidia Advanced Biopolymers S.r.l., dated March 12, 2010, dated March
12, 2010, by the Company in favor of Bank of America, N.A., incorporated herein by reference to Exhibit
10.1 to the Company’s Quarterly Report on Form 10-Q (File no. 001-14027), filed with the Securities and
Exchange Commission on May 10, 2010.
Amendment No. 1 to Employment Agreement by and between the Company and Charles H. Sherwood,
Ph.D., dated December 18, 2010, incorporated herein by reference to Exhibit 10.33 to the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (file no. 001-14027), filed with
the Securities and Exchange Commission on March 16, 2011.
Amendment No. 1 to Employment Agreement by and between the Company and Kevin W. Quinlan, dated
December 18, 2010, incorporated herein by reference to Exhibit 10.34 to the Company’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2010 (file no. 001-14027), filed with the Securities and
Exchange Commission on March 16, 2011.
- 76 -
†10.35
†10.36
†10.37
†10.38
**10.39
†10.40
Amendment No. 1 to Employment Agreement by and between the Company and Frank J. Luppino, dated
December 18, 2010, incorporated herein by reference to Exhibit 10.35 to the Company’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2010 (file no. 001-14027), filed with the Securities and
Exchange Commission on March 16, 2011.
Amendment No. 1 to Employment Agreement by and between the Company and William J. Mrachek, dated
December 18, 2010, incorporated herein by reference to Exhibit 10.36 to the Company’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2010 (file no. 001-14027), filed with the Securities and
Exchange Commission on March 16, 2011.
1993 Stock Option Plan, as amended, incorporated herein by reference to the Company's Proxy Statement
(File no. 001-14027), filed with the Securities and Exchange Commission on April 28, 2000.
Second Amended and Restated 2003 Stock option and incentive Plan, incorporated herein by reference to
Appendix A to the Company’s Proxy Statement (File no. 001-14027), filed with the Securities and
Exchange Commission on April 28, 2011.
License Agreement, dated as of December 21, 2011, by and between Anika Therapeutics, Inc. and DePuy
Mitek, Inc., 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 December 22, 2011.
Separation Agreement by and between the Company and Kevin W. Quinlan, dated February 1, 2013,
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 28, 2013.
(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
List of Subsidiaries of the Registrant.
*21.1
(23) Consent of Experts
*23.1
Consent of PricewaterhouseCoopers LLP, an independent registered public accounting firm
(31) Rule 13a-14(a) / 15d-14(a) Certifications
*31.1
*31.2
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.
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.
(101) xBRL
^101
**
**
The following materials from the Company’s Annual Report on Form 10-K for the period ended December
31, 2012, formatted in xBRL: (i) Consolidated Balance Sheets as of December 31, 2012 and December 31,
2011; (ii) Consolidated Statements of Operations for the Years Ended December 31, 2012, December 31,
2011, and December 31, 2010; (iii) Consolidated Statements of Stockholders’ Equity for the Years Ended
December 31, 2012, December 31, 2011, and December 31, 2010; (iv) Consolidated Statements of Cash
Flows for the Years Ended December 31, 2012, December 31, 2011, and December 31, 2010; and (v) Notes
to Consolidated Financial Statements.
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.
^Pursuant to Rule 406T of Regulation S-T, the xBRL related information in Exhibit 101 to this Annual Report on
Form 10-K is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section
18 of the Securities Exchange Act of 1934.
- 77 -
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, thereunto duly authorized.
Date: March 13, 2013
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 of 1934, 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.
Title
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ KEVIN W. QUINLAN
Kevin W. Quinlan
Chief Financial Officer
(Principal Accounting Officer)
Date
March 13, 2013
March 13, 2013
/s/ JOSEPH L. BOWER
Director
March 13, 2013
Joseph L. Bower
/s/ RAYMOND J. LAND
Director
March 13, 2013
Raymond J. Land
/s/ JOHN C. MORAN
Director
March 13, 2013
John C. Moran
/s/ JEFFERY S. THOMPSON
Director
March 13, 2013
Jeffery S. Thompson
/s/ STEVEN E. WHEELER
Director
March 13, 2013
Steven E. Wheeler
- 78 -
SUBSIDIARIES OF ANIKA THERAPEUTICS, INC.
Anika Securities Corp.
Bedford, Massachusetts
Anika Therapeutics S.r.l.
(Formerly: Fidia Advanced Biopolymers S.r.l.)
Abano Terme, Italy
EXHIBIT 21.1
- 79 -
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-06275,
333-66831, 333-79047, 333-58264, 333-110326, 333-160102 and 333-176103) of Anika Therapeutics, Inc. of our report dated
March 13, 2013 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 13, 2013
- 80 -
I, Charles H. Sherwood, certify that:
CERTIFICATION
EXHIBIT 31.1
1.
I have reviewed this annual report on Form 10-K for the year ended December 31, 2012 of Anika Therapeutics, Inc.;
2. 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;
3. 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;
4. The registrant’s other certifying officer 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. 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;
b. 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;
c. 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
d. 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. 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
b. 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 13, 2013
/s/ CHARLES H. SHERWOOD, PH.D.
Charles H. Sherwood, Ph.D.
Chief Executive Officer
Principal Executive Officer
- 81 -
EXHIBIT 31.2
I, Kevin W. Quinlan, certify that:
CERTIFICATION
1.
I have reviewed this annual report on Form 10-K for the year ended December 31, 2012 of Anika Therapeutics, Inc.;
2. 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;
3. 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;
4. The registrant’s other certifying officer 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. 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;
b. 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;
c. 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
d. 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. 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
b. 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 13, 2013
/s/ KEVIN W. QUINLAN
Kevin W. Quinlan
Chief Financial Officer
Principal Financial Officer
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EXHIBIT 32.1
Section 906 Certification
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 13, 2013
/s/ CHARLES H. SHERWOOD, PH.D.
Charles H. Sherwood, Ph.D.
Chief Executive Officer
/s/ KEVIN W. QUINLAN
Kevin W. Quinlan
Chief Financial Officer
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